Product risk and market risk
How much you need to talk to customers before you start building is a function of how much "market risk" you have. If your only risk is "product risk", you can skip this
I have a friend who has been building a company for the last two years or so. A few years back, he had taught himself to code, and when he got this idea two years ago, he locked himself in a basement WeWork and started building his product. So far he has done nothing to market it. “Once I’ve finished building, I’ll start that”, he said.
A few months ago, when I was about to start building Babbage, I had asked a mutual friend about this friend’s model - should I get market validation or just get down and build? “This method of building (without feedback) is a very gaming way of approaching entrepreneurship”, the mutual friend said, “otherwise it is definitely not recommended”.
As I’d mentioned a few posts ago, I’m re-reading this book called “The Mom Test”, about how to have conversations with customers. Like it always happens when you re-read something, you notice things that you had not really noticed the first time round.
Like I’m reading this part where the author talks about “product risk” and “market risk”. Product risk is the risk that you will not be able to build the product that you want to build, for whatever reason (could be technical, could be cost, could be implementation). Market risk is the risk that you will build something, but nobody will buy.
Every new business has both product risk and market risk, but the proportions vary. Some “moonshot” businesses are almost purely product risk. A lot of businesses have very little product risk but very high market risk.
And at 47%, where I am right now in my re-read, is this paragraph that I had actually highlighted the first time I read the book (but then forgot):
Video games are pure product risk. What sort of question could you ask to validate your game idea? “Do you like having fun? Would you like to have even more fun?” Practically 100% of the risk is in the product and almost none is in the customer.
This fully explains why my former gaming-entrepreneur friend is building something in a completely unrelated domain in isolation, without any market feedback. He comes from a world where the main risk is product risk, and there is very little market risk.
The book goes on to say:
What all this does mean is that if you’ve got heavy product risk (as opposed to pure market risk), then you’re not going to be able to prove as much of your business through conversations alone.
So, halfway through the book, there seems to be this implicit implication that everything that has been said thus far in the book is largely for businesses with a significant market risk, and little product risk? That makes me mildly annoyed with the book right now (especially since our business has both kinds of risk).
I’m thinking - if this book is for a particular kind of business, one where most of the risk is market risk and only a small part is product risk, why does the author hold back until half way through the book in order to mention this? Actually I find this bizarre, and am now inclined to discount everything I’ve read in the book so far!
Then again, given that we’re on the cusp or faising funds, I’m not sure I should be writing this - the entire Indian startup community, including venture capitalists, seem to be massive fans of the book, and maybe I should be dissing it just before I go to meet them.
And thinking about this even more, I don’t regret even one minute of the time I’ve spent thus far talking to customers. And the process given in the book in terms of how to talk to customers makes a lot of sense as well. My anger annoyance is with the structure of the book, and people highly recommending it despite that!