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With Shawn Xu

How to Ideate and Validate Your Way to Victory

Too often, startup success stories take idea development for granted. We hear about the cinematic lightbulb moment, the typical trials and tribulations of building a company, and the eventual breakthrough, but the best ideas go through a rigorous process of ideation and validation before investors commit a dime.

To get a sense of what an elite approach to ideation and validation looks like, Enduring Planet sat down with Shawn Xu. Shawn is a Partner at On Deck, an accelerator and professional development organization with a strong foothold in the climate space.

Inflection points are đź’°

When a climate entrepreneur is searching for inspiration, it can be tempting to start by focusing on problems. This is logical: if there’s a problem plaguing the planet, it’s a natural candidate for an entrepreneurial solution. However, immediately gravitating towards a problem is not always the most efficient path to a venture-backable business.

Alternatively, founders can benefit from first identifying inflection points — essentially, momentous global changes in how people act, things are made, society operates, etc. — and then building ideas around the problems that those inflection points create.

An obvious, and no doubt familiar, inflection point is climate change. It is the foremost change event of our time and with it has come a bevy of problems and, in turn, opportunities. To zero in on the most compelling climate-centric opportunities, founders will be wise to break the climate change inflection point into sub categories:

  • Technological inflection points: Whether it's the design of a more accurate way to track carbon offsets or the development of more powerful carbon dioxide removal technology, market stakeholders will be faced with new challenges to develop, purchase, use, and dispose of new technology. Around all of these steps, new opportunities arise.
  • Regulatory inflection points: If changes to a country’s laws spark the development of, say, a first-of-its-kind carbon market, there will no doubt be opportunities for new ventures to crop up around it. New rules create the playing field for new ideas.
  • Consumer behavior inflection points: As customers think more sustainably, they expect the companies that they buy from to do the same. This not only presents opportunities for sustainable products, but also for businesses to innovate around their supply chains, their financing, etc.

Case study: â™» carbon negative textiles

If identifying an opportunity-rich inflection point is the first step towards a great idea, generating an A+ insight around a problem that that inflection point creates is the second.

Consider the case of a carbon negative textiles startup that pitched Shawn. It is common knowledge that the fashion world is upping its sustainability efforts in response to changes in consumer behavior, a clear inflection point and industry-wide challenge. During their presentation, the startup’s founders attached an insight to this behavior shift, providing a list of all of the major fashion brands that have publicly committed to work with carbon neutral or carbon negative textile producers. Furthermore, they put a dollar value against those commitments, monetarily contextualizing the massive opportunity in front of them.

This approach gets investors’ attention. By pairing an inflection point with an intriguing insight, climate entrepreneurs reveal to potential funders that not only has a major shift occurred, but that there is a chance to capitalize on it in the here and now.

Customer discovery: the pre-check reality check

Inflection point? Identified. Insight? In hand. So, what’s next? A big check? Not so fast. Before a founder steps on the fundraising gas pedal, they’ll need to validate their idea via a rigorous customer discovery process.

Ideally, a climate entrepreneur will find the customers that are desperate for their product, the potential buyers whose unsolicited enthusiasm is so apparent during initial conversations that they seem poised to fork over a million bucks on the spot. To find these evangelists, a tactical process should be followed:

  • Talk to a large, diverse community of potential customers.
  • Record those conversations so that, when you do come face-to-face with a passionate advocate for your idea, you have glowing, compliment-filled clips to play back at future meetings with other potential customers and investors.
  • As you encounter more and more enthusiastic customers, get granular. What types of buyers do these individuals represent? Are they the end user? If not, who is? Who are the decision makers? What are the incentives driving customers’ interest in your sustainable solution? By drilling down and understanding the entire ecosystem that will interact with a product, founders can develop customer archetypes and find their niche.

Is it big enough?

Once a climate entrepreneur has identified their ardent customer base, it’s time they ask themselves a difficult question: are there enough of these people to warrant venture funding? If you backcast from a future where your product exists and you’ve captured reasonable market share against competitors, do you have a $1B+ business?

If the market you sketch out around your customer archetypes is massive and you’re getting that early validation (waitlists, prospective customer testimonials, etc), you may have a VC-scale startup on your hands.

If not, it doesn’t mean you should stop. You have 2 paths:

  1. Pivot and find a different idea that has a substantial enough market opportunity for VC or
  2. Keep going, and fund your business with other means (SBIR or other grants, early project finance, debt, etc). There are countless profitable climate-focused businesses out there that make loads of $$ that are NOT VC backed.

Shawn Xu is a Partner at On Deck and helps manage their venture fund (particularly focused on investing internationally). Previously, he was an Investor at Floodgate, a Managing Partner at First Round's Dorm Room Fund, and was listed in the Forbes 30 Under 30 for Venture Capital. Before he was an investor, Shawn was an operator leading international expansion at Square. He earned his MBA/MA International Affairs from Wharton and the Lauder Institute, and completed his undergraduate studies at UC San Diego. Shawn is a Silicon Valley native and is currently based in San Francisco.

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