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No market validation, no money

If a tree falls in an empty forest, does it make a sound?  That is the sort of conundrum startups face if they have an idea that no one wants or needs.

Franceska Banger NZVIF

I recently attended US angel investor and entrepreneurship academic Rob Adams’ Auckland workshop on market validation. NZVIF is sponsor of Rob’s workshops and, although I have heard great things about Rob’s work, I hadn’t witnessed it for myself.

In some ways I wish I hadn’t attended – there were some shocking and revealing insights on what we need to do differently in New Zealand, to make sure our technology startups have the best chance of success in the big wide world.

Rob said that for every New Zealand IT startup/entrepreneur that thinks it has a novel idea/technology/innovation, there are at least seven others working on the same idea in the US alone, and the US competitors are much more aggressive about getting their ideas to market than we are.

What was truly shocking to find out is that very few local IT startups do anywhere near the level of market validation required to find out the market for their product, or something like it.  New Zealand scored an embarrassing two out of 10 for engaging in this process.

Rob’s view was that entrepreneurs, for a $75,000 initial investment on a proper market validation process, could save themselves a lot of grief, time and money.  Investors need to get wise on this too.

As the dust settled on Rob’s presentation, you could see the ex-post rationalisations seep in – the reasons why Kiwi companies and entrepreneurs don’t need to be or can’t be as rigorous in market validation as our US buddies.

But I think the investors got the message – no market validation, no money.

So to those entrepreneurs who are reading this, if you missed Rob’s workshop and want to find out more, I suggest you read his book (A good hard kick in the ass: basic training for entrepreneurs and If you build it will they come?).  You can view video clips of his presentations on NZVIF’s YouTube channel, or talk to others who were there.

To investors, I have a feeling this will be a game changer for how you think about the next round of capital that goes into a startup.

Franceska Banga is chief executive of the New Zealand Venture Investment Fund.