You know, this will probably be downvoted, but isn't this exactly what the investors & programs like YC are there to prevent? If someone has an "idea" without any market knowledge, why fund them?
The first thing I do when helping out other entrepreneurs is to make sure they really know their market.
If someone has an "idea" without any market knowledge, why fund them?
I suppose its speculation that they'll be able to remedy their lack of market knowledge, in much the way that you're speculating they'll remedy their lack of a salable product, paying customers, and profits.
It doesn't seem like a bad bet in this case -- just a wee bit mistimed. (They have to remedy their lack of market knowledge prior to failure.)
I sort of expected that YC et al would select based on market knowledge more than "the demo". The technology is the easy bit. Finding a problem worth solving that hasn't been done is the hard bit, and that's down to market knowledge.
I remember a helping a young company who were amped about their idea recently. Luckily they hadn't started building yet, but we sat down together and I convinced them to cold call some of their target market with me to prove their customer hypothesis, which they knew was right of course :)
It quickly turned out the product they were willing to spend 6 months of their lives on wasn't wanted at all by the market; they wouldn't use it even if it were free! They were over the moon about saving 6 months, and are now exploring other ideas :)
"Finding a problem worth solving that hasn't been done is the hard bit, and that's down to market knowledge."
YC has actually made it pretty clear that they don't believe this is true. Especially in their new thing where they present an idea and ask for a team to apply to work on it.
YC's funding strategy to date has been "fund good teams with a reasonable idea" more so than "fund great ideas with reasonable teams".
Even successful companies don't get the market or the idea right the first time. In our case we got through three product tests before we decided to shut down. When you've lost the confidence of your investors, pursuing different ideas becomes much harder, especially when you lose faith in the market yourself.
If "Finding a problem worth solving that hasn't been done" is easy, it wouldn't take three tries for a great team, and failure wouldn't be possible for any companies with great teams.
The experience of countless startups with great teams but failed businesses disagrees with that philosophy in my opinion.
Even in your own example, the team wasn't the problem it was the idea & the lack of market knowledge. You made a product before you knew the market. If you had of done more market research before building, would you have tried the same idea?
I think you misunderstand my argument. I definitely agree with you about the importance of understanding your market. I'm just saying that YC does not choose teams this way. This probably has a lot to do with the fact that its hard to figure out if someone has validated knowledge about anything in a 5 minute interview, especially when you're trying to discuss a market that you likely do not understand personally.
YC's perspective seems to be that "launch early and often" combined with smart analytical teams will lead to successful companies. This seems reasonable enough, but does not always work.
I'm learning that launch early isn't enough. I'd even go so far as to say I think launch early is the wrong approach. You should try to ruthlessly prove that your product/customer hypothesis is wrong before even touching code. I have been amazed lately at how much time & pain you can save by "talking early" instead of "launching early".
As a technologist who has wasted years of time and hundreds of thousands of my own $ on launching early (multiple times) rather than talking early I am speaking from experience here as well :)
Really good stuff. If the rest of the posts in this series are going to be this forthcoming with details and solid analysis, they're all going to be must-reads.
Everything in this was so transparent and useful I had to download it in case they took it offline.
Only pain: the embedded scribd document. To download that separately through scribd I had to signup, skip two pages of subscription stuff only to be redirected to scribd home, go back to the original site (now registered and signed in on scribd), try and download again, skip some ad, skip another subscriber page, and finally get to download it :-)
Scribd used to be cool at the start. Now they are like some landing page for adverts. YouTube has a better mental image at the moment than scribd. Scribd comes across ultra spammy.
To quote the bible: "What does it benefit a man if he gains the whole world, but loses his own soul?"
Where's the best place to learn about online advertising?
More specifically, say I wanted to do an analysis similar to that done by First Round Capital. What should I read if I want to learn, e.g., what is a reasonable eCPM (effective cost per thousand impressions; I had to google it), or what CTRs to expect, etc. etc.?
The single best way to learn about online advertising is to run a Google AdWords campaign for a few months. You will learn more than you ever wanted to know.
One way to do this is to find someone with an info product (software, etc) you wouldn't have moral qualms selling, signing up as their affiliate, writing yourself a landing page, and then driving traffic to it in AdWords. You're not doing it to make money: you're just playing a more educational, more expensive version of WoW. (I advertised my very, very niche product for less than $3 a day for over a year, while teaching myself how online advertising worked.)
Note that you'd quickly find out that "reasonable eCPMs" and CTRs are very, very dependent on what the market and context is. I know some advertisers who are freaking overjoyed that I pay them $1 CPMs. (They sell me "remnant inventory", i.e., it is traffic that we expect to have such low performance if it were meat it would be the parts of the cow we grind up to feed other cows with.) That is under a tenth of what you'd expect for the best traffic (US-based, first pageview) on a fairly successful tech gadget blog.
So to summarize, don't start full-fledged building of a product until you've done some customer development first. And make sure you've read Steve Blank.
The interesting thing is that applying the "Make something that you would use" model helps to dissolve some of those market unknowns. Your market is yourself. In this case I don't think snaptalent's product was something that the founders themsevles wanted to use. I would go as far to say that a great startup idea is is validated by founder(s) own problems.
Note: I said startup _idea_ and not a great _startup_.
Writing about the failure of a business is immensely valuable for other founders; probably more valuable than the success stories. I applaud you for putting this out in the open, that really takes a lot of nerve.
I'd love to read an entire book on how and why certain ideas didn't work out as planned. Maybe a collection of these stories could be published in something like Founders at Work?
The first thing I do when helping out other entrepreneurs is to make sure they really know their market.