Written & Posted by Jim Streibich
We always ask ourselves: “Does this company have a high probability of success?” If so, we work hard to prove why it won’t!
One of our core beliefs is that that too many early-stage companies should never have been launched in the first place, and this might be for a variety of reasons. Maybe the unit economics don’t work and never will. Maybe the startup cost outweighs the market opportunity. Maybe the management team is inexperienced and has made critical mistakes.
I have personally made dozens of early-stage investments. And while I recognize the inherent risks in early-stage companies and statistics show a majority of them will fail, should that really be the case? Should it be such a gamble or guess on which will fail and which will succeed? Should it take millions in investment capital and product development before it is understood that there is no product market fit? Risk taking is a good thing, but risk needs to be calculated and not unnecessary.
If a company does not integrally understand its market and its customer, it is doomed. So often I am pitched on product ideas where the product generally appears to be a good idea on the surface, and the assumption is that the product will just sell itself. This is when validation comes into play. A stakeholder must thoroughly and simply validate product demand, the competitive landscape, the development and costs, the market, etc. Unfortunately, in their eagerness and optimism most early-stage companies just do a cursory effort on validation - just enough to appease investors and move straight into investing capital to bring the product to market. This is a tragic mistake and results in the high likelihood that the company will have to endure a costly “pivot” to a better product-market fit down the road. The problem then is that significant capital has been unnecessarily expended and more is required from frustrated investors. Additionally, the Founder/CEO’s life work is generally wrapped up in this company, and they are likely to obscure the reality of the true market and product potential to their investors (and potentially even themselves).
In my view, this is all avoidable. Validation is a core tenant of NXT Ascent. In fact, in our validation process, we try to find every rational reason why a concept won’t work. We question everything! There is no fear of “calling someone’s baby ugly” because we are reliant on truth and facts in making our decision whether to advance a concept from validation to the actual company creation phase. We won’t launch a company until we have a high degree of certainty of success. We have created a thorough and comprehensive validation process and proprietary checklist that we put ideas through prior to funding them. This is how we reduce risk and increase the probability of success in our companies.
THE NXT ASCENT CUSTOMER
Validation for NXT Ascent starts with understanding the end customer. Is there a large market that will buy the product, and at a price point for a suffcient profit margin?
We recognize that it is incredibly difficult to thoroughly know about all consumers. For this reason, we have honed our expertise to a particular customer pool (i.e., the NXT Ascent Family). Our deep knowledge of this consumer group allows us to build brilliant companies that make their lives better. Learn more about the NXT Ascent customer here.
Our approach means we have already defined perimeters a company must meet, and we have the benefit of a defined large market that we know inside and out and that we increasingly are establishing a connection to through all of our companies.
We target overlooked opportunities that meet the above macro requirements. Every validation check works within a different scoring system, but they must meet basic requirements we have in place:
· Large Revenue Opportunity - We can see the opportunity for the product concept to be able to quickly scale over $100 million.
· Unit Economics - We want smart profits every time a customer buys one of our products and we will not launch a product without a clear and quick road to profitability.
· Defensible Position – We must have a sustainable competitive advantage. This can take many shapes and forms. We won’t shy away from entering a competitive market, but we need to be superior at getting our product into the hands of our targeted customer.
The above is a snapshot of our macro requirements. There are many micro requirements too of what we look for…but we are going to hold the rest as the secret sauce in our vault!