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

127 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.

Watch The Tim Ferriss Experiment, the new #1-rated TV show with "the world's best human guinea pig" (Newsweek), Tim Ferriss. It's Mythbusters meets Jackass. Shot and edited by the Emmy-award winning team behind Anthony Bourdain's No Reservations and Parts Unknown. Here's the trailer.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Comment Rules: Remember what Fonzie was like? Cool. That’s how we’re gonna be — cool. Critical is fine, but if you’re rude, we’ll delete your stuff. Please do not put your URL in the comment text and please use your PERSONAL name or initials and not your business name, as the latter comes off like spam. Have fun and thanks for adding to the conversation! (Thanks to Brian Oberkirch for the inspiration)

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

  1. This reminds me, having a beer with you is on my bucket list too, and when I get out to your part of the country I’m gonna make it happen!

    Like

  2. This article is right on time for me as I venture into the realm of “constant contact”. In the past I paid for advertising in newspapers but now I am up-ing my social media presence and writing to get my message out. I am very limited in funds lately and want to maximize my reach to my target audience. I am a big fan of the 4HWW and am aiming to make that my business model for a flexible and fulfilling career and lifestyle. Thanks for this info.

    Like

  3. What’s the lowest amount some of these companies are seeking from a VC or Angel?
    If you ask for too little will they not take you serious and is that the same in each market ie. Silicon Valley vs. NYC

    Like

  4. YES! I’ve been waiting for a post like this! You’ve inspired me to test everything.

    Tim I’d do about anything to study under you personally. If you see this comment, try me. Give me any challenge and I’ll do it if it means securing your mentorship.

    Like

  5. Noah is a great guy and has an excellent head on his shoulders. One of the best parts of the interview is the part about the toothbrush. In about 5 minutes Noah completely changes the toothbrush developer’s (you just need to watch it…) marketing plan into something much more effective.

    Excellent value–thanks for sharing Tim!

    Like

      • Just wanted to say, Tim, that on top of this entire CreativeLIVE session having value, and this section with Noah Kagan specifically;

        The part 21min in, where you diffuse the tension, and really enable the conversation has stuck with me since then, that same language serving well in dozens of similar situations.

        Sometimes it’s the little aha moments; Thank you.

        Like

    • Sometimes you need somebody with an outsider perspective to show you the obvious. This was really a great job! I think you changed his complete business model within couple of minutes!

      Like

  6. You two are LIFESAVERS! Got my problem/solution, but was stuck on narrowing my market for a while. Thanks to you guys, I’m ready to scour reddit, find my niche market, and cater my idea to meet current needs & wants!

    Thanks, Tim & Noah!! Feeling amped!

    Like

  7. Tim this was SUPER helpful. I took away a lot of great things from this. I would love it if you did this type of thing more often. It was very enlightening and had a lot of very specific helpful details. Thanks!

    Like

  8. I loved the CreativeLIVE 3 day workshop. I’m glad I got the videos by purchasing 4HC. Who knew you could make a boring egg omelette taste so good just by adding a few extra ingredients.

    Like

  9. Wow this is incredible Tim, thank you. I didn’t realise I was a risk averse entrepreneur but after watching this I can see the similarities.

    My #1 tip for validating a business for no cost is simply ask a potential customer (who is also a stranger – asking family & friends doesn’t count for anything) IN PERSON if they would buy the product. I usually pitch them as if the product is ready to purchase right now. If they seem keen, then pursue the idea further, if not drop it.

    Just my 2c, I’m in the home cleaning industry for what it’s worth.

    Like

    • John

      Going to have to completely disagree with you, obviously in the most friendly of ways.

      1- Who wants to go walk around asking strangers if they’d buy things?

      2- Yes, your friends and family are biased. If you can’t get THEM to support you then why would others?

      Insert but “oh they like me so of course they’ll do it.”

      Then charge them more.

      The point is to start businesses that are easier for yourself, not ones where you have to go outside of your available network to start.

      3- Asking someone to buy is like assuming a girl giving you her # that means she’ll answer your call. ACTUALLY getting someones money is the truest sign of validating a business idea.

      Like

  10. I love the process of validate my designs. If i roll up my sleeve at the bar and the girl beside me asks where i got my USB bracelet, I know to make more of them. A couple years ago I strapped a bottle of wine to my bicycle and walked it around Montreal for an hour. I was stopped by several people to ask where to get such a wine holder. At the liquor store, all of the cashiers came to the window to look at it. I’d never had such validation for a prototype before. A couple days later it exploded on the internet and has now become my four hour work week. Thanks for your help!

    Like

  11. I have made interesting experience with internet marketing, i.e. promoting a certain product that I believe in as an affiliate.

    The good thing is that if there’s a certain buzz about the product you’re promoting and if the owner of the product takes care of marketing, one can make a decent income by setting up an info site around this product.

    Invaluable for me in this connection was also the personal connection to the owner of the product, i.e. one of the CEOs. This gave me a somewhat elevated position amongst the other affiliates.

    Setting up an info site for a certain product or service is quite a low cost approach to entrepreneurship. Not much risk involved, to be honest. That’s why I think my little ‘story’ fits to the post and your question: I am also risk averse, no doubt about that. I like ‘controlled risk’ much better, i.e. weighing the options and in this case setting up a couple of info websites around an existing product gave me the chance to earn an extra income next to my 9-5 job (with the intention to make it a business that can support a ‘4HWW’ lifestyle), while at the same time keeping the risk low.

    Best regards from Greece,
    David

    Like

  12. One of my favorite vids from you Tim, quite a few things in there moved me to action, particularly the form and sending it to friends, and also not worrying about scale and acquiring more immediate customers manually.

    Like