How Risk-Averse Entrepreneurs Succeed: Low-Cost Testing Using Reddit, PayPal, In-Person Pressure, and More

126 Comments

Entrepreneurs are risk-takers… or so the story goes.

In my experience, nothing could be further from the truth. Over the last 13 years in Silicon Valley, I’ve found that the homerun hitters are precisely the opposite: risk-averse. They mitigate downside whenever possible with low-cost and short-term testing. They’re often extremely ambitious and aggressive (e.g. Travis Kalanick of Uber or Elon Musk), but they aren’t remotely haphazard.

They’re methodical, and this is a learned trait.

The above video is a conversation between me, several first-time entrepreneurs, and Noah Kagan, CEO of AppSumo.com. In this video, Noah — who was an early employee at Facebook and Mint.com — covers his risk-minimizing methodologies:

In the first 20 minutes:
- His career path, including failures.
- How he has used low-cost testing in his own ventures.
- Why focusing on the small things (even trivial things) is a big thing.
- Common mistakes and coping mechanisms of first-time founders (e.g. seeking multiple co-founders).

In the second 40 minutes:
- Live critiques (in some cases, constructive tear-downs) of real companies and entrepreneurs.
- How entrepreneurs can make the jump from theory to revenue… in real-time.
- How you can immediately stop “playing business” without customer contact.

If you’re going to skip any part, skip the first 20 minutes. Though I enjoyed every minute, the last 40 minutes are especially must-see.

For more from Noah, be sure to check out his previous how-to posts on this blog, as well as his free upcoming course (9/26/13) on creativeLIVE: How to Overcome Fear and Get What You Want.

QUESTION OF THE DAY: What tools or services have you found most valuable for low-cost business validation? Any other tricks?

Posted on: August 8, 2013.

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126 comments on “How Risk-Averse Entrepreneurs Succeed: Low-Cost Testing Using Reddit, PayPal, In-Person Pressure, and More

  1. Hi Noah and Tim,

    Thanks for the amazing post. Watched video and read other post “How to make a million dollar business this weekend”.
    I had T-shirt design idea in my mind for a long time. After watching this video, I made a t-shirt design online in 5 minutes. Before sleeping, Uploaded the photo on my FB wall. Its been just 14 hours and I have 4 orders. Thanks a lot!
    I have no idea, how I am gonna find manufacturer and print those. Checking out that now. But got much needed push.
    Would like to seek more advise from you guys. Thanks.

    Like

  2. @Corey:

    A friend of mine created an iPhone app for a problem that exists and for which there are already (rather bad) apps in the App Store. So he set out to create a really nice looking and serious app. He spent about 3000 USD. End of the story: his app wasn’t approved!

    My point: While this story shouldn’t discourage anyone, it does tell me that the fact that there are already approved apps in the App Store, even if they are “bad”, doesn’t mean that an app will get approved.

    Best regards from Greece,
    David

    Like

    • Hey David

      That’s exactly the point where validation is key.

      What’s the ACTUAL problem your friends product was solving?

      NO customer wakes up wishing they had an app to do something. EVERY person wants a solution so focusing on that first and then to the medium is what will save you time and money…

      Like

      • I agree, Noah. And thanks for taking the time to answer.

        The issue here, in my friend’s case, was that there was already a market. Quick background:

        The app addresses a problem that women in Japan want to solve: when they are at a public washroom they don’t want to hear others when they are, well… doing their business… :) There are actual electronic devices being sold for that in Japan. So the app solution is a very logical one. And as I wrote: there were already some apps like this on the Appstore but rather low qualitiy ones. So he set out to make a really nice loooking one that takes the whole thing very serious. See here: http://www.ladysilence.com/

        As I said: he spent 2000 EUR on it for development. End of the story: Apple didn’t approve it, and everything seems ‘down the drain’.

        That’s said even for me to see, because this friend came up with that idea within a mastermind group we had formed where everyone comes up with his own idea and follows through on that. Although intended for the Japanese market, even I in Europe would heavily consider using this app, it just makes sense, in terms of privacy and in terms of saving water (because people don’t have to actually flush anymore in order not to be ‘overheard’ — kind of a funny subject, I know, but it is a very real issue).

        Best regards from Greece,
        David

        Like

  3. Great stuff!! Read the 4HW several times and loved it! Noah’s recommendation and advice compliment Tim’s content well. Can’t wait to get started!

    Like

  4. I loved this CreativeLive. I was so lucky to catch it and I learned so much interesting and applicable stuff. Your interaction with Seth Godin was like two friends catching up after years of time apart. Remarkable.

    Also, Noah’s take on marketing is right down my ally. I’m trying new stuff on my blog, and giveaways are making an impact. Now I have an idea of what people like, and what they don’t.

    Low-cost business validations: Mock-up page for a store, PayPal, and reddit. (Even before reading your previous post).

    Like

  5. In the wooden brush example – I checked up and it sounds like he sold 2 brushes, but that’s it, and he wrote on twitter that the idea was not validated. What else does he need to do to succeed?

    Like

    • He needed to keep selling. I believe he did at least 10 sales on air and more afterwards.

      He just gave up. Plain and simple.

      One of the most counter-intuitive thing I’ve noticed with wantrepreneurs is what happens when they actually taste success. It’s scary and they pull back when they need to push forward.

      Like

      • “One of the most counter-intuitive thing I’ve noticed with wantrepreneurs is what happens when they actually taste success. It’s scary and they pull back when they need to push forward.”

        Strong insight, I keep this one also. Sounds like “the inner thermostat that bound the success we allow ourself” as Gay Hendricks puts.

        Like

  6. Thank you, Noah! I am truly concerned about it – what if I promote my idea and a someone with better resources cops the idea and is able to stand it up
    and sell it before I am? I think this concern also stems from a dearth of information on my part which I am actively working to rectify. I’m really starting at ground zero – I have no tech experience (which is part of why I think my idea is huge – it’s a whole new adaptive use of technology for “live-better”-minded people) so i’m picking up the basic language of tech/apps while figuring out how to create and launch the project. I’m already more knowledgable today then I was yesterday. I want to be confident that I’ve done everything I can to prevent idea theft before validating. Any concrete ideas on that? Can you patent an app or platform(intellectual property) before it is either? Thank you for addressing my concern!

    Like

    • Use your non-tech skills to your advantage.

      Ideas are free, execution is the hard part.

      You’ll never know everything. A common wantrepreneur problem. There’s no golden answer that’ll solve what you need.

      Worry less about the patent and more that people want what you’re trying to solve.

      Like

  7. Amazing post. I am a huge fan of 4 hour concept and Noah Keagan and APP Sumo.

    Some time ago i actually had an idea that might get your attention Tim.

    All explained here.

    http://www.goolets.com/for-tim-ferris-biggest-challenge-of-his-life-500-000-usd-worth-of-pr-for-free/

    How you can get for 500.000 USD PR for free while saving the World Economy on an ultra luxury vessel with your friends?

    Please let me know if this would be interesting for you.

    Like

  8. DO NOT USE PAYPAL!!!! My account was frozen recently, and then they froze my Brother’s account just for being a family member!!! This is not a joke. I have thoroughly researched this, and evidently PayPal is doing this to thousands of people and holding their funds for 180 days without offering any reasons why. They only tell you that they are investigating the account, and will get back to you when they have finished their investigation. Many of us feel that they are making interest off of our money. EBAY has fought in courts to state that they are not a “banking system,” and therefore do not have to abide by those laws. They are CROOKS! DO NOT USE PAYPAL! Sorry Tim, but I did believe in them once, but NEVER, EVER again.

    Like

  9. I wish you guys would have talked about driving enough traffic TO YOUR IDEA to test it. Did I miss it or did you guys kinda mention the importance of testing but beyond using redditt what were your ideas for exposing the idea to enough people to test?

    Like

  10. Very insightful talk guys. Thanks for sharing this. On the note of risk aversion are you familiar with Tony Williams’ book “The Science of Hitting”? It’s an enjoyable read about one of Baseball’s best hitters in itself, but equally well provides a vehicle for honing one’s decision process. Four Hour Chef style I guess :).

    Basically Williams broke his strike zone into 77 different sections, each the size of a Baseball, and would only strike those balls that would statistically allow him to get close to a .400 batting average. The difference between letting all the high-risk opportunities go and swinging hard at the great opportunities bought him his tickets to the Hall of Fame. So I guess the lesson is you have to be aware of you’re strike zone (area of competence, market need using Muse Math or as Noah put it: a specific problem someone has identified on a forum somewhere) and if you’re odds are good you can be confident enough to go for the homerun.

    Anyways, really appreciate the great content you share in your books and blog Tim! Currently finishing a PhD in Aero Enginnering and am also a national athlete in the Long Jump, so the 80/20 hacks have been really useful to keeping me sane :). Btw you also introduced me to Coach Ross, whose DL program was a big factor in boosting my PB to 7.80m in 2011. 25cm off London 2012 but hey we’ve just started incorporating some RKC workouts for pre-season training so maybe that’ll swing me to 2016 :).

    Liebe Grüße und Besten Dank,

    Rainer

    Like

  11. Great stuff Tim and thanks for taking the time Noah, even though this video is over an our, as always Tim you cut to the chase and gave me the knowledge of hours worth of reading!.

    Should be the first viewing for anyone thinking getting their idea off the ground. Quite amusing discussion around moving on to the next idea before properly launching the last idea, something I’m sure all entrepreneurs need to control.

    Can you imagine the first chap sitting and talking about his idea to those two! Full credit and rightly pointed by Tim what a terrifying ordeal that would be. Tooth brushes who would have thought, launching that product (almost any product I guess) is full of hard work, long hours, set backs and heart break, he will minimize this with the advice provided. On a wider scale Tim this will be true for all of us.

    Good luck everyone :-)

    PS: Very funny watching Noah scalping toothbrushes to Tim… very funny $50 bucks just like that !

    Like

  12. Awesome talk ! Lots of usefull advices I take and will use them now on my road to wantrepreneur redemption. Thanks Tim, Noah and the two guests for sharing.

    Tim and Noah mention tools to enforce self-discipline (self “kick ass”, you sure need a tool to do that ;) ) arround time 12mn30s. Can someone help me identifying what they are referring to ?

    Like

  13. Great discussion on minimizing risk and working backwards from solving a problem to generate automated income. I have been getting more involved in generating income online I am hoping to gain feedback on a website I am working on. (positive and negative feedback would be helpful)

    I am working on a simple travel site that will quote the entire cost of a trip from start to finish and allow customers to book their trip. If anyone has advise for additional methods of validations I am open to suggestions.

    Thanks for sharing this helpful discussion!

    Like

  14. Not exactly sure how I ended up here… I mean, love reading yer stuff Tim but I started out looking at an email detailing AppSumo’s recent beef jerky biz startup and clicked, clicked, clicked.

    The AppSumo story is AWESOME! Thanks for interviewing them. Agreed, second 40 minutes or so are packed with gems.

    I think I will try that 24 hour challenge myself. NOT shabby.

    Keep Stepping,

    Kurt

    Like

  15. Yo Mr. Ferris I’m reading 4 hour work week and I just finished reading the section about low information diet. I am a high school student and everything about it embodies useless information. I already know what I’m going to do and it doesn’t involve a goddamn diploma. I’ve been contemplating about dropping out because I don’t learn anything practical and instead using that time to pursue my own passion. Give me some advice

    Like