Validate Your Own Market
My recent post on patents discussed a fictitious "Founder's Manual For Pitching a VC" which would contain all of the cliche "lines" entrepreneurs give to answer some typical VC questions. However, just like canned pick-up-lines don't work in a bar, I don't think canned answers work for VCs.*
For example, let's take a look at the standard line used when asked about competition. The section would say something like: "When a VC asks about what happens if [INSERT LARGE ESTABLISHED PROSPECTIVE COMPETITOR HERE] decides to get into the market, tell the VC that their entry will validate the market."
I'm not sure what I felt back in November of 2000, when Amazon launched their used-book Marketplace just eleven months after we launched Half.com, but I doubt I was happily validated. I'm just fortunate that Half.com didn't join the legion of other companies whose business model were validated -- like Wordstar and Netscape were validated by Microsoft.
What amazes me is how often the "validate" spin is used. Apple seems to be validating a lot of businesses lately. As an investor in Odeo, I saw firsthand how Apple validated Odeo's podcasting strategy. Helio believes that "Apple's iPhone validates [their] strategy of creating a premium brand". And I'm sure we all agree with HandHeld Entertainment that "Apple's announcement...about its plans to begin shipping an iPod video player validates their vision" for their ZVUE portable video player.
A quick Google search shows that companies of all sizes use the "validate" line. Obopay was validated by Amazon's launch of SMS purchasing last month. Microsoft feels validated that Google and Salesforce are integrating CRM and office productivity applications. Novell was validated by Oracle's support for Linux. Even Tesla Motors is validated by General Motor's launch of the Chevy Volt.
If you ask me, as a prospective investor in your company, I'd much rather you validate your own market. So, what should an entrepreneur say when asked about a prospective large competitor? That's my next post...
*NOTE - As a happily married man, I'm not basing my conclusion on the effectiveness of pick up lines on personal experience. Rather, I'm basing it on the numerous 1 star reviews on Amazon. Feel free to enjoy a preview of the book on Google Books and let me know if I'm drawing an incorrect conclusion. My favorite pickup line is #26 - "If beauty was a mustard, you'd be Grey Poupon"