When are low-code prototypes useful? Evaluating startup market and implementation risks
Ask for advice on how to make a startup, and most people recommend starting with a low-code prototype.
There are categories of businesses where low-code prototypes can help you de-risk a new idea:
- Blogging software (like Ghost did)
- Marketplaces (like we did with Moonlight)
- Delivery (like Savioke did)
But, there are other categories where a prototype won't provide a meaningful signal:
- AI / deep tech (like DALL·E)
- Search engines (like Google)
- Space travel (like Blue Origin)
To decide which ideas benefit from low-code prototyping, you can apply the frameworks of execution risk and market risk.
Execution risk: Can you develop the technology to make this work?
For example, making a website in 2022 has low execution risk because many people possess the skills, and there are tools such as Squarespace or Webflow that simplify the process. Building a self-driving truck has high execution risk because nobody has achieved level 5 autonomy with any self-driving car.
Market risk: Do people want this, and is there a big enough market?
For example, there is a low market risk for an apartment finder in Manhattan because people are already actively seeking that product and are willing to pay for it. Conversely, building a new social network has high market risk - because its success means competing with Tiktok and Instagram for a person's finite attention.
Comparing market risk with execution risk, we can categorize businesses as Applications, Moonshots, Copycats, or Hard Tech.
Execution risk: Can you develop the technology to make this work?
For example, making a website in 2022 has low execution risk because many people possess the skills, and there are tools such as Squarespace or Webflow that simplify the process. Building a self-driving truck has high execution risk because nobody has achieved level 5 autonomy with any self-driving car.
Market risk: Do people want this, and is there a big enough market?
For example, there is a low market risk for an apartment finder in Manhattan because people are already actively seeking that product and are willing to pay for it. Conversely, building a new social network has high market risk - because its success means competing with Tiktok and Instagram for a person's finite attention.
Comparing market risk with execution risk, we can categorize businesses as Applications, Moonshots, Copycats, or Hard Tech.
Applications leverage known technologies to solve a problem in a new way. Many well-known consumer tech startups, such as marketplaces and ecommerce, fall into this category. Airbnb is a great example - the software for booking hotels existed, but nobody thought to apply that software to booking peer-to-peer. The success of Airbnb was limited by whether people wanted to sleep in somebody else's apartment, not whether they could build it.
Moonshots invent new technologies to solve new problems. Bitcoin was a great example - Satoshi sought to develop a digital currency that nobody controlled. To do it, Satoshi had to invent blockchain technology. Bitcoin had both technology and market risks - not only had nobody created a decentralized currency before, but Satoshi did not know whether anybody would adopt Bitcoin.
Copycats use existing technologies to address a known problem. These can still be lucrative businesses - most often when an existing business adds a new feature that its customers already want. For example, the success of Slack removed market risk from workplace chat products. So, when Microsoft built Microsoft Teams as a chat product and offered it to their existing customers, Microsoft Teams became more successful than Slack.
Hard tech companies invent new technologies to solve complicated unsolved problems. For instance, Boom is building an airplane that flies twice as fast. Airlines already buy aircrafts and know customers would pay more money to arrive in half the time. Boom's success isn't limited by whether airlines want a faster airplane - it's determined by whether they can build a cost-effective aircraft that meets existing safety and reliability standards.
So, when are low-code prototypes useful?
Low-code prototypes work best for Applications - where there is low execution risk and high market risk. When your business doesn't require the invention of a brand-new technology to succeed, then execution risk is low. But, when you don't know whether people want it, the business carries significant market risk. Building a prototype and showing it to users can help you de-risk whether people want it.
Moonshots invent new technologies to solve new problems. Bitcoin was a great example - Satoshi sought to develop a digital currency that nobody controlled. To do it, Satoshi had to invent blockchain technology. Bitcoin had both technology and market risks - not only had nobody created a decentralized currency before, but Satoshi did not know whether anybody would adopt Bitcoin.
Copycats use existing technologies to address a known problem. These can still be lucrative businesses - most often when an existing business adds a new feature that its customers already want. For example, the success of Slack removed market risk from workplace chat products. So, when Microsoft built Microsoft Teams as a chat product and offered it to their existing customers, Microsoft Teams became more successful than Slack.
Hard tech companies invent new technologies to solve complicated unsolved problems. For instance, Boom is building an airplane that flies twice as fast. Airlines already buy aircrafts and know customers would pay more money to arrive in half the time. Boom's success isn't limited by whether airlines want a faster airplane - it's determined by whether they can build a cost-effective aircraft that meets existing safety and reliability standards.
So, when are low-code prototypes useful?
Low-code prototypes work best for Applications - where there is low execution risk and high market risk. When your business doesn't require the invention of a brand-new technology to succeed, then execution risk is low. But, when you don't know whether people want it, the business carries significant market risk. Building a prototype and showing it to users can help you de-risk whether people want it.