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 Many of us of a certain age can remember the game "20 Questions" - used largely by our parents to pass the time on long car rides. One person thought of an object, and the others could ask up to 20 "yes or no" questions to guess what it was. (You'll recall, the first question - not counted in the 20 - was "animal, vegetable or mineral?")
In figuring out what companies to invest in, venture capitalists are caught in their own game of 20 questions - usually built around the fundamental issue of, "If you build it, will they come?" It turns out a key to playing this game successfully is not the number of questions you ask but how many potential customers you ask, and then the nature of the questions themselves. For some reason, perhaps known to marketing gurus and/or statisticians, 20 is a magic number. Once you've called and spoken with about 20 potential customers, especially if that list includes at least half not given to you by the prospective portfolio company, you've reached the point of diminishing returns. Whatever you are going to learn from that process, you now know.
I'm always amazed when we make these calls both how open people will be on the phone with a complete stranger, and how often after all 20 we know more about the startup's prospective customer than they do. (Hint, make sure this does not happen to you. Make those 20 calls yourself BEFORE you go out to raise venture capital).
But making the calls is not enough. The way you ask the questions determines the value of the answers - and therefore your conclusions. Too often, we see people asking questions with the goal of getting a specific positive answer, rather than really getting inside their customer's head. They remind me of a local TV sports reporter who asks questions such as these of our NBA players after a win: "You seemed to come out aggressive tonight. Was that your plan?" Just once, I'd like to see the player answer, "Yes, you moron, that's ALWAYS the plan. We never PLAN to come out passive, for heaven's sake!"
Yet, I've seen technology executives make a similar error. "Is this a product you think you might buy?" The answer is almost always, "Sure." But if you ask something like, "How would this product fit in your priorities for budget next year?" you might just learn whether it's a nice to have or have to have. And that can be the difference between a successful product launch and an unsuccessful one.
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