Two of my all time favorite books are Clayton Christensen’s The Innovator’s Dilemma and The Innovator’s Solution. Both are must-reads for anyone working in a high growth technology field. The central premise that underlies the series is that it’s very difficult for big companies to invest in innovation. The “dilemma” is, succinctly:

Given a choice between investing in a new market (innovation) and investing in a large existing market (taking share from known competitors), big companies are incentivized to choose the large existing market because there is a clearer line of sight to meaningful revenue. The higher a company’s annual revenue, the more incremental revenue that’s required to show an attractive growth rate to investors (the law of large numbers). Therefore the larger the company, the harder it is to invest in innovation.

In light of this lesson, this past week I was thinking about the inverse of the innovator’s dilemma (what I call “the entrepreneur’s dilemma”) – which is focusing too much on innovation (product development) and not enough on market size.

Particularly in technology, there is a tendency for entrepreneurs to focus relentlessly on building the perfect product – one with all of the right features and the best usability. It’s true that sometimes tech entrepreneurs reap outsized rewards by inventing a product that unlocks a new market. However, it’s important to remember that creating a new market is HARD.

My advice for folks who want to create a new market: don’t build the perfect product. Build a really crappy product – one that barely works and is hard to use. If your users still want to use it, you know you’re onto something. If your users are willing to endure pain (poor usability, poor design), then there is a pretty good chance they will pay you money to use your product once you’ve had a chance to improve it.

When you demo your product to users, if they say something like, “that’s interesting, I think I would use it if you added X, Y, Z features,” it’s time to think twice about whether or not you’re really onto a new market. Unfortunately, users lie all the time and they lie most to entrepreneurs. The only way you really have a shot at creating a truly new market is if users need your product bad enough that they will use a very crappy version of it.

Ironically enough – for tech entrepreneurs – building a better product isn’t always the right answer. Sometimes a crappy product can tell you more about your market than a good one can.

The Entrepreneur’s Dilemma