Fast no beats long maybe

Hey everyone,

I ran a live Q&A on business incubation recently, and we talked a lot about testing ideas: how to kill them fast, how to test them, when to dive in.

Below are some of my favorite bits.

But first, a quick business building update. One of the teams I'm mentoring just had a real-world example of idea-killing play out. A little insight into what’s going on in Girdleyworld:

Okay, let’s dive into the Q&A.

Yes. As close to market price as fast as you can.

Surveys, interest lists, beta signups… there’s value in building an email list, but for actual idea validation, they’re just noise. 

Because the most important question is: does anyone want to buy this? And you can only find the answer by selling.

Here’s the thing: customers will lie about their intentions, but they won’t lie with their wallets. In economics, this is called “revealed preference”: what people actually do tells you way more than what they say they'll do.

(Of course, you still need to calibrate properly. I wrote an article recently about Ford’s disastrous launch of their electric pickup truck. They got over 200,000 deposits, but asked for such a small down payment ($100 on a $70K truck) that it wasn’t a real signal.)

I had this exact conversation with a team a few weeks ago. They asked: if we do two weeks of outreach and nobody says yes, what do we do?

The common framing is that failure is the bad outcome. 

It's not. Failure is information. 

The faster you can find out why something won't work, the faster you can make better decisions. Pick a different idea, change the approach, talk to different customers. 

This is what I call the lemonade principle: you're not trying to avoid mistakes, you're trying to make them as quickly and cheaply as possible so you can learn from them.

A fast no frees you up. A long maybe just bleeds you.

And if you're not finding signal after a real push, there are two questions worth asking: 

Figure out which one is true, then either change the approach or move on.

Kill your darlings. It takes courage. Do it anyway.

High. That's fine.

This is a hits-driven business. Venture capital works the same way: 3 or 4 companies in a typical portfolio account for almost all the returns. Everything else is noise.

The coffee business I started: got my money back plus a little. Scalepath: sold it, learned I don't love running online communities. A handful of associates that flamed out in six weeks. That's all part of it.

The incubation model only works if you're making asymmetric bets. Small amounts in, with a possibility for meaningful upside. Then when one hits, it more than covers the rest. 

If you expect everything to work, you're playing the wrong game.

For me, about 3. Your number might be different.

Too few and you're either leaving opportunities on the table or losing engagement. 

Too many and you can't do right by each of them. In early incubation I'm talking to these teams almost every day, and that takes real time and real focus. If you start phoning it in, the incubation doesn’t have a chance. 

So given everything else I’m running, I like to shoot for 3 incubations per year. If you have more free time and fewer obligations, you could probably do more. 

Run the experiment yourself and see where you start dropping balls.

Later than you think.

I see people rush to set up LLCs, open bank accounts, register trademarks, all kinds of busywork.

Don’t bother with any of this stuff until you’ve answered: 

Until you have those answers, you're playing house. Don't waste energy on the legal scaffolding. Keep everything under one entity until the business is real enough to justify its own.

Once you have customers, you see the growth path, you know how to get from here to there… then you spin it out. But not before.

I'm not excited about physical.

Try to get a permit to build something in the United States right now. It's a nightmare. 

Then try to hire people who know how to do the work. Also a nightmare. 

I'm working on a project where construction quotes came at 3x what underwrites. The whole thing probably doesn’t go.

There are exceptions. If you've got something people really want, physical works. 

But for starting something new with limited capital, look for businesses without real estate requirements, big capex, or a bunch of equipment. You can make a lot of money that way. 

For me, the brain damage of physical isn't worth it right now.

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Thanks for reading today.

If you’re interested in more stuff about my business building methods, I’ve got a couple of free resources on my site - check out the ebook “Getting to No”. 

Michael

P.S. A reminder: if you’re interested in IT management with proactive security built in, reply and I’ll put you in touch with the team at BasePoint - or book a time with them here.