On Fake Startup Validation.
Creating a startup is hard, much harder than starting a company.
The critical difference between a startup and a company is that a startup is designed for growth.
Paul Gramah puts it well:
Let’s start with a distinction that should be obvious but is often overlooked: not every newly founded company is a startup. Millions of companies are started every year in the US. Only a tiny fraction are startups. Most are service businesses — restaurants, barbershops, plumbers, and so on. These are not startups, except in a few unusual cases. A barbershop isn’t designed to grow fast. Whereas a search engine, for example, is.
Why is it so hard? Well, you have to understand a problem well, solve it better than anyone else, and find customers simultaneously.
You’ll always be short of resources: time, money, attention, staff.
I have noticed startup founders tend to try to find validation where they can. This makes natural sense; humans are hardwired to try and find validation.
The problem is when you focus on the wrong type of validation (i.e. feedback). This means you feel successful, and there is a lot of activity, but you’re just spinning your wheel like a lovely little hamster.
Fake validation is closely related to vanity metrics — and in fact, fake validation is often measured using vanity metrics!
Fake validation is misleading because it looks attractive but is empty. It often comes in the form of seemingly significant actions like letters of intent or MOUs, which promise much but deliver little. Partnerships that are more about show than substance also fall into this category.
Attending events, speaking, and winning awards can seem like signs of success. However, they don’t always lead to real business growth. They might increase visibility, but if they don’t align with business goals, they’re not genuinely beneficial.
Social media and press coverage are similar traps. A large online following or media attention can boost a brand. But real success comes from turning that attention into customer engagement and sales.
In the digital world, focusing on numbers like followers and likes is easy. These give a quick sense of achievement but are often superficial. The challenge is to focus on what truly moves your business forward, not just what looks good.
Tangible, sustainable growth and key performance indicator improvements characterise real business validation. Unlike the superficial allure of fake validation, real validation is grounded in metrics that directly impact the health and success of a business.
Key examples include:
- Growth in Monthly Recurring Revenue (MRR): Increasing MRR is a strong indicator of a healthy business, especially for subscription-based models. It reflects a growing customer base and stable income.
- New Paying Customers: Gaining new customers who are willing to pay for your product or service is a clear sign of market demand and the value of your offering.
- Profit: Generating profit is the ultimate indicator of business success. It shows that the revenue exceeds the costs, and the business is financially viable.
These indicators are critical because they reflect genuine progress and sustainability. Unlike vanity metrics, they are directly linked to the financial and operational health of a business, indicating a successful business model and effective strategies.
However, it is easy not to focus on these types of metrics and go for the fake validation, especially in the early days when these numbers are so small.
Onboarding one new customer at $50/month may seem a ridiculous use of a CEO’s time,but if you only have ten customers, then you are growing the business 10% in one day — which is almost impossible when you reach scale. So when you’re a small, you should not look at the objective growth in the numbers, but look at the % growth instead, this gives you a far better idea if you’re spending your time wisely and if things are working.
This is because even small % increases, week on week, can lead to surprising outcomes. A company with $100 a week in revenue growing at 5% per week, will be making millions of dollars in revenue just a few years later.
