SHOW, DON'T TELL. Iridium was a 1990s era phone company that developed a satellite-based, worldwide phone service. Think of all the technical problems to overcome. The name of the company was drawn from the periodic table element, Iridium, with 77 electrons circling it, representing the original plan for 77 satellites needed to circle the globe for worldwide coverage (the actual number of satellites was later increased).
The tough technical problems were daunting, but solved. The huge and expensive undertaking of building and getting the satellites into orbit was knocked off. Expenses ran into the billions of dollars. Smart money was brought in, including Bill Gates and Craig McCaw, the cellular phone pioneer. The service was turned on. And no one bought. No one.
The issue? A very fundamental one some basic market validation would have solved. It turns out, even though the service was built in the time of portable cellular phones, the phones themselves were the size of World War II-era walkie-talkies. The use charges were astronomical, more than four times what cellular charges were running. And for the grand finale, the final nail in the coffin was the simple fact that the phones could not send or receive calls indoors. Yes, in the 1990s the "minor" consumer inconvenience of having to walk into a clear sky to send and receive calls was overlooked.
REAL VALIDATION. As this Iridium debacle should make clear, markets make winners! Imagine the very simple market validation that could have been done. Ask 100 consumers the questions listed above. The investment would have been one afternoon in a typical mall, one clipboard, a pen, and 100 sheets of paper. A simple set of Yes/No questions like: Do you want a headset as big as a brick? Would you pay four times the cellular rate to get global coverage? Do you mind stepping outside to send and receive calls?
Because any self-respecting entrepreneur would have wanted more than 100 data points before telling Bill Gates and Craig McCaw they were pulling the plug on their investment, picture this quick and easy follow up prototype study. Take 10 cellular phone users and offer to pay their cell phone bills for 30 days. In exchange, they have to tape a brick to their cell phone, see their bills (that you're paying) that are marked up by a factor of four, and step outside to send and receive calls. If you were lucky enough to get any takers, they would have been driven nuts in a matter of hours, and the answer would have been clear.
Think of the power of market validation. One afternoon in a busy shopping mall with clipboards and pencils could have saved those billions of dollars. Ten prototypes run for 30 days would have reinforced the results.
So, the next time you raise money or compete in MOOT CORP, where are 90% of your efforts going?
Rob Adams founded Tejas Venture Partners, an early stage venture capital firm in Austin, Texas, in 2004, and currently serves as General Partner. Prior to launching Tejas, Adams founded AV Labs, an early stage venture fund allied with Austin Ventures, in 1999, starting it after being a partner with TL Ventures. His focus is on software and new company formation. Prior to entering the venture business, he was a technology executive for 18 years. He started his career with Lotus Development Corp., joining the company in 1984 shortly after its public offering. Adams was instrumental in the development and launch of the Lotus' 1-2-3 spreadsheet on Macintosh and Lotus Notes. In 1992, he went on to be founder and CEO of Business Matters, a venture-backed developer of financial modeling products. He was also an executive with Pervasive Software, a company he helped take public in 1997. Throughout his venture and operating career he has been a founding investor in more than 30 companies, including Waveset, Newgistics, and Troux.
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