We’ve all heard the statistic that 9 out of 10 startups fail. This happens for a variety of reasons, but one of the biggest and least discussed is that many entrepreneurs make serious mistakes on their first day of running a business. It’s just building backwards. In my opinion, building backwards creates a direct path to becoming part of the failure statistics. Building backwards is not only counterproductive, it is also very difficult to recover without significant time and money. Unfortunately, many startups still fall into this trap, even though it is easily avoidable.
What does “reverse build” mean?
Backward building occurs when a startup jumps straight into product development without verifying whether there is actual demand. Instead of first testing the waters to see if anyone is willing to pay for the product they want to build, entrepreneurs get a business idea and immediately start building it, believing it meets a market need.
Bypassing the critical first step of validating the problem and understanding your customer base is essentially building backwards. It’s like building a house before making sure the land is stable. This approach misses a critical aspect of business development: building something that meets real demand, not imagined demand. I briefly covered this concept in “6 Essential Lessons for Startup Success,” but this is a broad enough issue that it deserves its own exploration.
Risks of building without market validation
Essentially, successful businesses earn more than they spend. Preferably, the business makes enough profit to pay a livable wage to the people who own and run it. To achieve this, companies must give people something they want that they are willing to pay for. This is one of the reasons I am cautious about the freemium model that many startups are trying to adopt these days. How do you know that people are waiting to pay for what you build if there is no underlying demand or if you don’t know that there are customers ready to pay for your product once it hits the market? The answer is, you don’t know. This is why even the most well-crafted products created by talented teams are little more than expensive experiments that never leave the laboratory.
If you haven’t identified demand for your product, you risk pouring resources – time, money, and effort – into a product that people will never buy. For most startups, by the time they realize there is no demand, it is often too late to make the switch. They watch their cash reserves deplete and their once-promising startups begin a slow downhill slide that closes for good.
Backward building wastes resources and loses investor interest.
These mistakes ultimately have significant knock-on effects. Building backwards ultimately wastes resources and reduces your chances of attracting third-party investment. “Waste of resources” most likely means that if you are building a building, you are spending time, money, and development effort creating something that you are not sure anyone will be able to buy once it is completed. I’ve personally seen someone spend over $80,000 on software development but have no paying clients or customers on the other end. This person eventually closed down his business and quietly went offline.
Building backwards is also a red flag for investors who want to know whether their dollars will contribute measurable growth. They want to know that if they give you $1 today, they will get at least $10 back in the future due to the growth and impact the company will achieve, thanks in part to their investment. One of the best things a startup can do to send a positive signal is to show that it is growing and expanding. To put it simply, you’re constantly attracting more customers and improving your business operations. But how can you do this if your company has no customers or has never even spoken to potential customers?
In today’s world, it would be difficult to convince investors to write a check without active customer demand, known as ‘traction’. Investing in startups is already a high-risk endeavor, so investors do their best to mitigate the risks. This is why we perform a lot of due diligence before finalizing a deal. One way to mitigate risk is to invest in businesses that have paying customers and clients. Or at least investing in a business that has laid the foundation for understanding what your prospects want and how to onboard those prospects. This gives investors confidence that the team has created something worth paying for. But if a company grows backwards, it won’t have the traction or internal market research needed to send a positive signal.
Building a Startup the Right Way: Testing Your Ideas with Real Customer Insights
So what is the right way to build it? Once you have an idea and a rough business model, the next step is to view it not as a business solution, but as a hypothesis, a concept for a solution that needs to be tested before it comes to fruition. Rather than jumping straight into development, pitch your idea to potential customers. Conduct customer discovery interviews and ask open-ended questions to find out if the problem you are solving is actually your customer’s problem. To be honest, this customer discovery step isn’t as exciting as building it right away, but it’s one that will ultimately save you time and money.
Through these conversations, you begin to recognize patterns in customer needs. Talking to multiple customers provides statistically significant insight into their common pain points, which can help you see where the demand is for products or services that solve their problems. Only then should you refine your solution to what your customers are actually willing to pay. Now, it’s not about guessing when you start building, it’s about creating something that has proven to be valuable to your audience, and more importantly, something that is in demand.
Building startups for sustainable growth
A customer-first approach requires more patience, but offers the best opportunity for sustainable growth. “Moving forward,” or rather “not moving backwards,” ensures that your product not only solves a problem, but also solves the problems people are experiencing. This approach minimizes wasted resources and maximizes your chances of creating something people will want to pay for.
By validating your idea first, you can effectively provide your startup with a solid foundation. As you progress through development, you will become clear about who you serve and why they need your product, and when you finally launch, you will have a market ready to buy your solution.
Verification of customer requirements is the driving force behind startup success
Ultimately, if you build it the right way – chronologically ahead – you’ll create a business that’s rooted in real, proven customer needs, not assumptions. This process may feel slow, but the results are worth it. That is, a product that has a real market, a customer base ready to buy, and the potential for increased investor interest. As you move forward, your startup will become more resilient, more attractive to investors, and much more likely to succeed in the long term.
So before you jump into development, remember that the best businesses are built by solving real problems for real people. Take the time to validate your ideas, understand your customers, and tailor your solutions accordingly. This will put your startup on a path to sustainable growth and give you the best opportunity to be part of the rare 10% of startups that succeed.
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