Fail Fast or Win Big: The Start-Up Plan for Starting Now (2015)

CHAPTER FIVE

Rapid Prototyping, Right Now

To move fast, you need a rapid prototype of your product or service. Let’s review the advantages, tools, and resources available for the rapid prototyping of your product or service, as well as the testing with real customers to get that crucial initial feedback.

There is simply no better way to judge the viability of a product or service than to actually test it. And, with the tools and resources that are available today, there is no excuse for not rapidly testing that product or service. Indeed, entrepreneurs have all benefited tremendously from early customer feedback, whether it’s good or bad. Quite a few entrepreneurs hold out and delay introducing that first version until they feel it’s perfect. Guess what? It will never be perfect.

There will always be another feature you want to add or revise, or some other enhancement you feel is important. Think: minimum viable product. This means the acceptable, early version of the product or service that will meet the customer’s needs. You can always improve the product later and add all those features “you think” the customer cannot live without.

“If you are not embarrassed by the first version
of your product, you’ve launched too late.”

—Reid Hoffman, LinkedIn co-founder

You can’t always launch your company at the right time—in that perfect opening in a marketplace window. But if you delay, the window could close or, worse, a competitor may jump through the open window with a minimal product and gain the first-mover advantage. That competitor begins to get traction, receives customer feedback, and then introduces a second, improved version of the product while you are still diddling with yours. Now, that competitor is getting something even more crucial: market share and a leadership position in the product or service category.

I remember the first version of LinkedIn when I saw it in 2007. I thought, What’s the big deal? It’s okay, not outstanding design but pretty functional. But LinkedIn got the early traction and just kept making improvements on the fly, and that’s why they are the market leader today. Who is even second?

RAPID PROTOTYPING TO FAILURE

You need to get over your fear of failure. I know, we have all been primed since childhood to succeed at whatever we do. But, honestly, the times we have learned the most have been when we failed. You couldn’t keep your crayon colors inside the lines? Some of us got better at it or else we became artists. You lost an important basketball game in high school? You learned that life’s not always about winning, it is about competing and the fun that can be.

I teach a creativity and innovation entrepreneurship course at San Diego State University, and one of my biggest challenges is getting my students to open up, to think creatively, and to take risks. They have all been taught how to get good grades and to please adults and peers. They are hesitant, though, to open up and share their ideas, mostly in fear of being ridiculed or laughed at. But the course is designed to reward individuals and teams who provide a “quantity” of ideas, not the best idea. That’s when they open up and throw out all kinds of suggestions, and they begin to collaborate with no fear of being shamed. Guess what? The solutions they come up with are amazing.

FEAR OF FAILURE, SO WHAT?

Why do I bring up fear here in a chapter on rapid prototyping? Because most people fear failure and therefore they move too slowly when they should be creating a rapid prototype of their product or service. If you are going to be an entrepreneur, you can’t fear failure.

“Life is like riding a bicycle. To keep
your balance you must keep moving.”

—Albert Einstein, letter to his son Eduard, February 5, 1930

You can respect fear and try to keep it in bounds; the important point is to understand the cost of entering late into the marketplace. I mentor more than 20 entrepreneurs, to one degree or another. In my classes and on-campus programs, I reach more than 2,000 students each year who could be entrepreneurs someday. I also meet quite a few potential entrepreneurs in the community. Here is what I say to all of them:

• You have only one life. Live it.

• Quit living the life you think you’re supposed to have; live the life you want to have. Whatever you want in life, your work ethic will help you achieve it.

• Experts get rewarded and are invited to more opportunities.

• Fears of risk and failure are mostly in your mind, and who controls that?

• You were not born to do a particular thing; do what you want to do.

• Embrace and learn from failure; along the edge of failure lies potential greatness.

As Thom McElroy, co-founder of Volcom (see Chapter Nine), would say with respect to your career, “Design your luck.”

I like to tell students and entrepreneurs that I am not special. I am just a hard-working person who put in a lot of effort to get what I wanted. I was not born to be an entrepreneur. But I became one at the early age of 37. I met three people who excited and scared me. We took the risk and together we ended up building what became a $1 billion company. You know what happened? I looked back and I felt so foolish, realizing I had spent years working for others because I thought that’s what I was supposed to do.

I don’t regret anything I did. But becoming an entrepreneur made me realize that a person really can do what he or she wants to do. You just need a solid skill set, a good idea, some vision, some passion, and a team. So, get over your fear and embrace the idea of rapid prototyping to learn whether you have something worthwhile. If you fail, so what? Learn from the experience and move on to the next solid idea. If you win big, though, remember to pay it forward someday.

GET YOUR RAPID PROTOTYPE GOING

As mentioned in the previous chapter, there are lean resources available to help you build your rapid prototype. The key is to consider exactly what you need to build or acquire to have your prototype product, and then evaluate the people in your network who might help you build it or acquire it. Here are some suggestions; it’s not meant to be all-inclusive but, rather, a solid thought-starter list to get you moving:

People

When it comes to leveraging people, the first question I ask would-be entrepreneurs and students is, “How strong is your network?” Being able to leverage your network will help you directly or indirectly by connecting you to people who can help you. Need to find that great programmer or software architect? How about that nutrition expert? What about the designer you need to design your product? Your network, and the extensions of that network, could be the means for getting an idea moving toward prototype.

An example of this network potential is a local entrepreneur named Samantha, who had a solid idea for a mobile application but no money or programmers. I told her we had two graduate-level mobile applications classes at the university, and introduced her to the professor. After the meeting, the professor liked Samantha’s idea so much that he had two students build the initial prototypes, for both Android and iPhone. What was the cost? Zero. Granted, that won’t always be the case; but you need to leverage all the people resources you can so as to produce your prototype rapidly.

Internet Tools

There are a variety of either free or low-cost solutions available in what I call the Internet tools; I described these in Chapter Three. For example, want to gauge potential customer interest in a new type of product or service? Utilize a website-building tool, search-engine optimize it to bring it to the attention of potential customers, and measure their reactions to your product or service, either in traffic or actual purchases.

For example, Jon was a student with solid online marketing skills who would track trends and throw up a website (using WordPress) almost every other weekend, just to see what would happen. He once did this with a clothing product and received almost $3,000 in orders. Did I mention he did not even have the product? I’m not advocating his approach, of course. Jon scrambled quickly, found a local manufacturer, and had the product made, then shipped all the orders in less than a month. But his experience shows how volatile and productive the Internet can be; the tools are out there for your creative use. The point is to test something, move quickly, and learn if you are on to something that will sell in the marketplace.

Online Platforms

With online platforms like Amazon.com or Etsy, you can quickly create a product prototype, or even acquire a few products, and test them with real customers in these online marketplaces. For instance, another local entrepreneur, Suzan, started selling her hair-care products using Craigslist as a way to test-market them.

Have you built a mobile application? Get it uploaded in both the Android and iPhone marketplaces, spread the news on Facebook, and see what happens. Have an online tutoring service you want to give a trial run? Create a private tutorial video and post it on YouTube or Vineo, and gauge the reactions. Key here is not to think of all the reasons why you can’t get something prototyped; think of the ways you can get it done.

New Technologies

It seems that every day we hear about a new technology hardware or software, or even a service that enables something to be done better, faster, and at a lower cost. For instance, today’s mobile applications seem to be threatening so many of our more established technical “ecosystems” (i.e., GPS in applications/smartphones versus older Garmin devices). So, you have to pay attention to what’s changing in a marketplace to fully understand the potential.

The reason you have to pay attention is that new technologies entering a marketplace create ripples that you might not initially see. Those ripples grow and spread into new products and services. For example, how many entrenched point-of-sale system-based companies cringed when Square launched its payment hardware (wireless 1-inch square device) and software application? This one company is changing an industry, allowing people to create virtual “cash registers” with their smartphones and tablets, all wirelessly. To grasp the significance of this development and see other opportunities that may appear, you would have to study how people and business owners are using Square and anticipate what they might need next.

The same thing is happening with mobile applications, e-commerce website platforms, and other innovations that enable sales via the smartphone. The smartphone is the platform for more and more commerce, as well as the more established social media uses. So, ask yourself: What opportunities does this create? And as soon as you have a view of those opportunities, build your product or service prototype.

Manufacturing

I discussed manufacturing resources in the previous chapter. The key here is to know what resources are available locally to help you build your prototype. But expand your region to a 150-mile radius so you’ll have greater options. For example, Leeann was an entrepreneur here in San Diego who came up with a design for a woman’s foldable shoe. Finding no resources locally to build her prototype, and not really wanting to go offshore for the prototype, Leeann visited the Los Angeles fashion district. By walking around and meeting designers, vendors, and small business owners, she located a supplier who helped her both design the prototype and produce it.

Look into “rent by the hour” manufacturing and engineering facilities. They provide the equipment and some resources, and charge you by the hour to help you build your prototype. Some enterprising entrepreneurs rent or use idle commercial kitchens to test and prepare the food products they are prototyping. Marcus, an entrepreneur who is selling those popular new stand-up paddleboards, approached a local surfboard manufacturer in San Diego; instead of seeing Marcus as a competitor, the surfboard founders crafted an agreement whereby they will make the paddleboards for him, as well as their own surfboards. This will save Marcus quite a bit of money and time, as he had been outsourcing the manufacture of his paddleboards to an offshore operation. So, think alternatively; sometimes, your competitor in theory is not your competitor in practice, they might become your supplier.

Another way to perhaps get your prototype manufactured is to leverage your local university. In addition to the incubators, look at the resources that exist there and understand that students often need to create products in order to complete their degree requirements. This work touches on departments of engineering, computer science, nutrition, film, and graphic design, among other fields. Build a relationship with a professor, and perhaps your product can become someone’s senior project.

Lastly, as I mentioned in Chapter Three, 3D printing is revolutionizing the way we produce products. It surely is revolutionizing the way entrepreneurs produce prototypes. If you have not investigated 3D printing yet, do so. It may well be the most cost-effective way for you to rapidly produce your prototype.

MARKETPLACES, LOCAL AND ELSEWHERE

True rapid prototyping is also testing your product or service in the marketplace that contains your niche customer segment. I have seen the right product proposed to the wrong people, and consequently the product fails in early tests. So make sure you are testing your product in the right place, at the right time, and with the right potential customers.

Remember, initially your customer is not everyone in your large customer segment; your customer is in the niche target segment that houses early adopters or influencers. If your product is successful with them, they will carry you to the rest of your customer segment.

I was working with Claudia, a young entrepreneur who was designing out-of-home digital display advertising based on GPS, and she was convinced her customer was marketing agencies who would offer her product solution to their customers. She spent the better part of a year trying to build relationships in that industry, meeting with agency personnel, but she got nowhere. She did have a very good working prototype. Based on advice from another entrepreneur, she started approaching small local business owners who were located near large outdoor displays, or who could hang digital displays in their business windows. Her sales took off. So, know who your initial target customer is, and that will drive the marketplace where you need to be.

GETTING IT OUT QUICKLY, SOME EXAMPLES

Rapid prototyping is not just about the prototype and the testing, of course. It’s emblematic of a state of mind: get something to market quickly. And, then, based on customer feedback, you can improve your product. It could be a mobile application, an article of clothing, a new food item, an e-commerce website—it really does not matter. What does matter is that you get into the marketplace rapidly. Don’t wait. Fail fast or win big.

Here are some examples of rapid prototyping involving real entrepreneurs and real products. Learn from their experiences. And, don’t assume these companies are or were all successful. The purpose here is to show how they rapidly prototyped their solutions in order to rapidly test them in their marketplaces.

Eco-Friendly Designer Sunglasses

Jenny was extremely interested in social causes, and she relished the opportunity to associate real products with a great cause. That’s not too dissimilar a stance from Tom’s Shoes, which could serve as a business model. But Jenny wanted to have a more “personal” impact. So she did a fair amount of research to identify some serious needs in the world that could benefit from additional resources. (Remember, Jenny had no product yet, not even an idea for one.) Her focus was on who the company could benefit.

As part of the research, Jenny found out that more than 1 billion people in the world experience some form of blindness, either from lack of access to prescription eyeglasses or from untreated cataracts. The solution was simple: offer used prescription eyeglasses or provide $15 cataract surgery. Jenny determined that this goal would be the company’s mission.

Now, she needed to identify a product that would generate the revenue to fund this cause. Jenny examined several potential products but nothing seemed to resonate. One day, while walking through an airport, she “saw” the product. Well, not actually the product but something very close: sunglasses. Jenny investigated producing sunglasses with sustainable materials, a matter also of great concern to her. She also felt that a socially responsible company would strike a chord with a large market.

After some more research, Jenny determined the sunglasses would have to be manufactured offshore. Not knowing who to contact, she used several supplier portals to reach out to about five manufacturers, and she provided product specifications and asked for bids. Not one of the manufacturers would meet all the product specifications, but one manufacturer came close. They sent some samples that looked, well, they looked cheap. But Jenny had never dealt with any type of a manufacturer before. So, instead of looking for help from other entrepreneurs who had experience with offshore manufacturers, she ordered 300 pairs (which was the minimum order), paying for them with $1,500 borrowed from a family member.

The glasses arrived and they actually looked good. Jenny had someone make a display rack and she convinced one local store to carry and sell them for $49.95 each. They started selling almost immediately. The glasses were made from sustainable material, a fact that was clearly displayed on the rack, as well as where the proceeds of the sale would go. This trial run convinced Jenny that there was a marketplace for this type of socially conscious product and a way to support her cause.

Web-Based Software Tools Solution

I met Andrew when he was a graduate student at San Diego State University. He was a very talented student, with two engineering degrees, and was just about to graduate from the MBA program. Big problem, though. He had absolutely no idea of what to do after graduation. He could easily get a job, but that was not what he wanted. Infatuated with the idea of creating a start-up company, and absolutely fascinated by the Internet, he set out to learn everything possible about online marketing.

In an effort to eke out a living, he worked as an online marketing consultant for small business owners. But the freelance consulting world does not always provide a consistent paycheck, and after one year Andrew was struggling. In desperation, he redesigned the consultancy website, grew frustrated with the website platform tool functionality, and taught himself two programming languages so as to craft a better set of solutions for the website. Then, Andrew search-engine optimized the new website.

Within 24 hours, Andrew received about five emails from online developers, who inquired where they could buy the two “widgets” they saw on the website that had simplified some programming tasks. He reached out to me, asking, “What should I do?”

I said, “Can you figure a way to package and sell that programming code?” He said he could figure it out. That night, Andrew redesigned his website yet again, now as a software tools company. He set up a PayPal account, figured out a way to secure and deliver the programming code, and without anyone else to help, started taking payments and shipping “programming tools” via email to other developers.

The feedback was positive and word leaked out into the wider developer community. Soon, Andrew was receiving 50 emails or orders a day and he had to redesign the website yet again to handle the increased demand in a more sophisticated environment. This convinced Andrew that he was on to something and he set about building a software tools company aimed at serving web developers.

Solar-Powered Products

Adam has never worked for anyone. He came out of school about five years ago as a graduate student and, even while in school, he leveraged trends and sold commodity products in online marketplaces. His business model was built on providing products that were in demand, could be produced at a slightly better quality than available to the online mass market, and could be offered at a reduction of at least 30 percent in cost. All this while offering a gross margin of at least 60 percent. Most of the products came from offshore manufacturers and were fulfilled by the online e-commerce companies. It was a very virtual business model. There were no real employees, just a series of college interns.

In the United States, solar products initially were available for either large commercial or residential installations. But about two years ago, Adam noticed that some portable consumer solar products were entering the online marketplace. They were simple, not yet highquality solar smartphone chargers and the like. Not knowing exactly which product made sense to package as his own to sell online, Adam headed to the largest technology trade show in Asia. At this trade show, Adam was overwhelmed by all the new technology products, but he sought out the best solar products he could investigate that were intended for the consumer marketplace.

At one booth, Adam noticed an eight-panel solar array, a multiplug black box, and a nice 16-inch metal attaché case. While talking to the manufacturer, Adam, via his smartphone, looked for a mobile solar product like this one online and found only one other, offered at a major consumer brand website—and it was at a significantly higher price. Adam asked the manufacturer about product costs, minimum orders, and availability.

Within 60 days, Adam was selling this mobile solar charging kit on two online e-commerce marketplaces. He was receiving one order per day at $299 each from each marketplace. That’s $4,200 per week in orders. After just two months online, with reviews and search-engine optimization, the number of orders Adam was receiving had doubled.

Healthy Natural Food

Every now and then, accident meets opportunity and a product is born. The key is knowing it when you see it. Sally saw it, but as a young child. Only later did she act on it. As a young child, Sally’s father loved the idea of eating natural foods, including fruits and vegetables. One day, quite by accident, her father discovered a simple way to dehydrate a certain fruit. Armed with his experience, he constructed a natural dehydrator and began to dehydrate this fruit for his family, including his children.

Fast-forward 15 years, and one of his children is now a worldclass triathlete. Training and competing all over the world, Sally always carried with her some dehydrated food to consume while competing. Other athletes noticed what she was eating, and asked if she could bring them some, too. She started bringing a larger supply of the dehydrated food to the competitions. Shortly before “retiring” from competition, Sally looked into how she could produce this dehydrated food on a larger scale, thinking she might be able to turn this simple product into a business.

Sally visited several plantations back in her home country to understand the product harvest, dehydration process, and packaging and distribution. Using a lean resources mentality and a rapid prototype philosophy, Sally harnessed a small amount of friends and family money and created some sample packages. She then began to sell them at athletic competitions. The feedback was positive, but Sally sensed that this might not be the true market. She was selling her product and getting good feedback, but not really making any money.

The triathlete market has strong and reputable influencers, but is small in number, and this product needed high-volume sales to become a sustainable business. It also needed to be sold to health-conscious consumers with a fair degree of disposable income. So, Sally found a freelance designer to redesign the packaging to be consumer friendly and appealing to a wider group. She started visiting local independent health food and organic food stores, pitching her product to store managers. Sales were slow initially, but she gained more independent stores and also began selling the product online. Based on word of mouth and attractive packaging, Sally landed placement in a regional health food chain. Now, her dehydrated fruit is in over 1,000 stores.

ENTREPRENEUR INSIGHT

In an MBA class several years ago, a team of students decided they would create a business plan around a passion they all shared. They all loved the ocean; a couple of them were divers. They also loved music. They discussed how they would like to listen to music while they were in the water. One of the students had an engineering undergraduate degree. The business plan itself got a B-. Not deterred, almost on a lark, the group set out to build a waterproof casing that would house an MP3 player and be able to withstand the pressure typical of their dives.

The guys took it on a dive trip—and it worked. Then, a potential investor looked at the prototype and commented that it was ugly (essentially a black box). The team conducted more research and decided to broaden their market to include anyone who was getting wet. They went to an offshore manufacturer and had a beautiful waterproof smartphone case designed, then showed this prototype to retail store managers. With no sales history, the retail store managers were hesitant to order the product. So, the team built a website and started selling their case online; they also sent some cases to celebrity surfers, swimmers, and runners for comment. Their sales took off.

KEY TAKEAWAY

You don’t really know if you have a company until you have created a product or service prototype and have sold it in the marketplace. That is, you can’t improve a product unless you get customer feedback. And you need to move faster than potential competitors. So, create a prototype sooner rather than later.