Just Do the Experiment

July 22, 2010

My colleagues at DFJ Mercury tell me I need a better name for this blog than “Dan’s Blog” so am thinking about some memorable name.  Until then, I am using something that we say around the office: “Just do the Experiment.”

At DFJM, we see a lot of proposed, science-based startups where the founder or researcher is trying to build a entire business too early and gets pulled away from generating data.  There are some good reasons to keep thinking about the science during this early phase:

  • Money. It is often impossible to figure out market strategy without knowing something about possible performance parameters.  Where does it outperform the competition by so much that it can punch through the market noise created by all the other technologies?  Until this is known, it is really hard to figure out the business model and hard to get funded.  If funded, you risk burning through cash (or time to market) because your efforts are going toward a market that you would not have picked after doing the experiments.
  • Time and Opportunity Cost. Sometimes there is a clear experiment that could prove that the technology will not work, is not scalable, will not fit the market proposed.  It is human nature to avoid doing that experiment.  Just  do the experiment – that way we can get back to the drawing board and figure out what will work instead of going down a blind alley.
  • Good Data Sells. Finally, I think that a lot of scientific founders believe that we, the VCs, only value things like a written business plan, forming a company, hiring a CFO or sales VP.  The truth is that all of these are relatively low value early on. Much of the evaluation by VCs and strategic partners/investors is based on progress around the technology (performance, reliability, manufacturability, cost).  You might get a higher valuation if you have a great plan, great VP sales, etc., but you you will likely just beat your head against the wall if you don’t have the data even if you have all the other stuff.

I was on a call yesterday with a scientist who has a chemical process around conversion of an industrial byproduct into something useful.  He had just engaged with a strategic partner so I asked him whether he had tested that partners byproduct with his process.  I wanted to jump through the phone and give him a hug when he said that he had done it just the other day at his kitchen table.  You would be surprised at how many times scientist entrepreneurs get so busy with the “business building” that they put off this kind of experiment (even though that’s probably what they would rather be doing).

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