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Sell it before you build it

How to find out if people will pay before you spend on building · 14 min

In July 1999, a few weeks after opening, an online grocer agreed to build warehouses estimated at a billion dollars. Eight years later, a programmer with an unfinished product made a three-minute video instead. How much to build before anyone pays, why a price is a filter, and a test you can run before Friday.

Takeaways

  • In July nineteen ninety-nine, a few weeks after opening, the online grocer Webvan agreed to build up to twenty-six more warehouses, at an estimated cost of about one billion dollars; by early two thousand and one its Oakland warehouse averaged about two thousand one hundred and sixty orders a day against a break-even of about three thousand and a capacity of eight thousand, and it shut down in July. In two thousand and seven and two thousand and eight, Dropbox showed short videos before its product was ready; one took its waiting list from five thousand to seventy-five thousand people in one day.
  • A sign-up shows who is curious; a price shows who is serious. In a door-to-door field experiment with more than a thousand households in Lusaka, Zambia, those who agreed to a higher price for a water-cleaning liquid were more likely to actually use it, while the amount they finally paid made no consistent difference. One city, one product: a filter, not a law.
  • Something to try: before Friday, a test that needs no building: a plain description that says it is not ready yet, a picture or short video, and a way to commit that costs something, such as a small deposit you will refund in full if you do not deliver.

Chapters

  1. A billion dollars, one month in0:17
  2. Build it properly1:55
  3. A price is a filter3:33
  4. A video and a warehouse6:19
  5. Same picture, different test8:36
  6. Build yours10:09
  7. The answer12:05

References

  1. Webvan Group, Inc. (U.S. Securities and Exchange Commission, EDGAR) — Webvan Group Inc - Form S-1(1999)
  2. CNN Money — Webvan's IPO checks out(1999)
  3. Knowledge at Wharton — Webvan Finds that Shopping for Food Online Hasn't Clicked with Consumers(2001)
  4. CNN Money (CNNfn) — Webvan shuts down(2001)
  5. Las Vegas Sun (with Associated Press wire copy) — Nevadans lose jobs at 'Net's Webvan(2001)
  6. Associated Press (via HeraldNet) — Webvan shuts down, leaving 2,000 out of work(2001)
  7. Houston, D. (Hacker News) — My YC app: Dropbox - Throw away your USB drive(2007)
  8. Houston, D. (SlideShare) — Dropbox Startup Lessons Learned(2010)
  9. Ries, E. (TechCrunch) — How DropBox Started As A Minimal Viable Product(2011)
  10. Ries, E. (Startup Lessons Learned) — Minimum Viable Product: a guide(2009)
  11. Ries, E. (Stanford eCorner) — Building the Minimum Viable Product (transcript)(2009)
  12. Publishers Weekly — The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses(2011)
  13. Ries, E. — The Lean Startup | The Movement That Is Transforming How New Products Are Built And Launched
  14. Ashraf, N., Berry, J. & Shapiro, J. M. (American Economic Review) — Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia(2010)
  15. Ashraf, N., Berry, J. & Shapiro, J. M. (AEA RCT Registry) — Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia
  16. J-PAL (Abdul Latif Jameel Poverty Action Lab) — Can Higher Prices Stimulate Product Use? Evidence from a Randomized Experiment in Zambia
  17. Ashraf, N., Berry, J. & Shapiro, J. M. (NBER) — Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia(2007)