Validation Valley
“Venture down into the verdant Validation Valley, a fertile testing site for your firm. Imagine a product and test it out, asking early adopters and beta testers for feedback. Make changes to your product or service in response to customer comments.”
Read more on the myth of the billionaire
And let’s actually take down the myth of the billionaire right here and now. At the moment, Elon Musk is the richest man on Earth (according to top lists and public data). His net worth is ~200 Billion dollars. Elon Musk is, for all intents and purposes, a billionaire. But he is not a liquid billionaire.
That 200 Billion dollars net worth comes from his equity share in companies like Tesla, SpaceX and Twitter. The value of these companies are dictated by their share price. The share price is simply how willing other humans on this planet are to buy a share of that same company (roughly, there are a lot of other factors, but this is the main concept of capitalism). If tomorrow all of the humans on planet Earth collectively decide that Twitter is no longer a valuable company and we all stop using it, Elon Musk’s net worth will drop from 200 Billion to 150-160 Billion. ~40 Billion wiped out in a single day.
And, most importantly, Elon Musk doesn’t go into his money vault and plunges in like Scrooge McDuck.
There is nothing liquid in the equity he owns in his own companies. If he decides to sell off all his shares in Tesla tomorrow, not only will he sell them for very little (because you would have a lot of shares on the market, thus increasing supply while demand remains normal), but it would also kill the entire company (most probably). Can you imagine the biggest backer of electric cars, the person who kickstarted the industry so-to-speak, deciding that he no longer finds value in holding equity in the leading electric vehicle manufacturer in the world? What does that say about how everyone else should feel about Tesla and having an equity share if Elon Musk no longer has a share?
We are social creatures and the mob psychology is very real. If you see the captain abandoning ship, would you still want to be on that ship?
If we take that argument into account, we actually understand that Elon Musk is actually poorer than he looks. Because if he wants to turn his share of Tesla from equity to cash all at once, he will actually get a much lower, worse deal and probably kill the company. He is basically a slave to his own equity. Of course there are workarounds to this, you can just use your shares to get a loan from the bank worth millions of dollars and back that loan with your shares in that company. That way, you’re as liquid as you want, you don’t have to give up equity and even if your company goes bankrupt, the only one who actually loses money is the bank (A.K.A. all of us that have deposited cash in the bank).
Yes, billionaires are very rich. Yes, they can afford almost anything and they can have as much as they want to have. Are they truly free? Not all of them. Are those billions of dollars real? Not all of them. We haven’t even talked about fiscal optimization, offshore accounts, holding entities and other ways to “outsmart” the system. Here is a video to learn more about these methods:
What really is an idea? According to the internet, an idea is any conception existing in the mind as a result of mental understanding, awareness, or activity. Shortly put, you can have the amazing idea to have donuts for lunch. That is an actual idea. You can have the idea for a new pretzel shop in your neighbourhoold. That is also an actual idea.
For startups, you’re looking for an innovative idea. Now, the natural next question is: “What is innovation?”
There are a lot of definitions about innovation online. We prefer this one: “The act of introducing something new”. Check out the following presentation on innovation to learn more:
Now we know how an innovative idea looks like and a couple of methods to get to that innovative idea. Let’s get the context of your innovative idea right then.
You aren’t building in a void, so choose the scale at which you want your startup to operate. You can build an ultra-local, local, regional or global startup. The bigger the scale, the harder to generate the innovative idea.
Ideally, we would all build global startups, but the truth is some business only work in a region or locally. An accounting startup for example is harder to scale with every new country and reporting system they add. It’s not impossible, but it certainly slows down operations. Choose the scale at which you want to operate first, even if you’re launching in a smaller market initially. That will help you set the right mindset, objectives and ambitions for your future plans.
Sometimes, to know what we’re doing, we have to understand what we shouldn’t be doing. Y Combinator, the leading accelerator in the world, has a very interesting video on what they call “Tarpit Ideas”. Check it out right here:
Ok, last step for this stage then: Start generating ideas with the new information you have. Make a list, either in your notebook or in a google doc and write whatever comes to mind, whenever it does. We’ve done a startup idea a day challenge to push ourselves into generating new concepts ourselves and it worked wonders. Come back when you have 10+ ideas written down.
*3 weeks later* Hi, happy to have you back! Get your list of ideas and let’s look at how to select the best one. Let’s jump on to the next stage.
