Co-founder of $1.7 billion startup: The No. 1 thing entrepreneurs should do first to help their new business succeed

Shanaz Hemmati, a veteran of two multibillion-dollar startups, says any prospective entrepreneur needs to remember one key lesson before launching a new business.

No matter how confident you are in your business idea, seek out as many prospective customers or clients as you can and get their feedback before you commit to a business model, she says.

Hemmati and Ross Buhrdorf are the co-founders of ZenBusiness, which makes artificial intelligence software aimed at helping first-time entrepreneurs navigate the regulatory processes of starting a small business. They launched the business in 2017, and it was most recently valued at $1.7 billion in November 2021, according to the company.

The pair previously worked together as executives at vacation rental marketplace HomeAway, which Expedia acquired for $3.9 billion in 2015.

When they teamed up to start ZenBusiness, they spent roughly 10 months researching their industry and talking to dozens of entrepreneurs about their businesses' biggest pain points around legal compliance, says Hemmati, 62.

"When you have an idea, you already have identified a pain point you want to solve for," she says. The next step is figuring out how to solve it, she says, but you shouldn't jump to that stage too quickly, or without first conducting necessary research.

Hemmati says she and Buhrdorf knew they wanted to build an AI-powered software that helped small businesses manage and file legal documents. They had already witnessed the issue firsthand working at a startup and also found public data that showed it to be a widespread obstacle for entrepreneurs across the country, Hemmati adds.

They initially planned on marketing the service only to existing businesses, but talking to prospective clients made them realize that they should instead target first-time business owners who've never navigated a "pretty complex" legal process before, she says.

"We spoke with roughly 50 to 100 prospective customers to understand what they needed most — everything from formation help to ongoing compliance and growth services," she says. "We ran design sprints, tested different packages and pricing, even built websites and refunded early sign-ups just to see what caught people's attention and what they were willing to pay for."

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That strategy proved invaluable, giving Hemmati and Buhrdorf "incredible insight and the confidence to launch," she adds.

Working with those business owners from the start also meant those clients would be more likely to keep using ZenBusiness' software as their companies grew, Hemmati says. ZenBusiness has now worked with at least 850,000 small businesses, according to the company.

The takeaway for other prospective entrepreneurs, she says: Any business idea needs to be properly vetted, and the first step is always researching your market and talking to the customers and clients you want the business to reach.

"[Start] by having that communication and collaboration, constantly interviewing your potential customers and learning about what is the next product that they're interested in, and how you should even go about building it," Hemmati says.

Steve Blank, an author and serial entrepreneur who teaches a course on the subject at Stanford University, similarly says that a failure to properly research your potential customers before building a business model is a "fatal mistake" that will likely doom any new business before it even launches.

"The most important [question] is: 'Well, who are my customers?' And the second one is: 'What do they want?'" Blank told CNBC Make It in March. "It's not: 'Here's what I'm building. Can I sell it to someone?'"

As important as it is to seek out that feedback, though, it can only help entrepreneurs who are actually open to new perspectives and willing to adapt.

"If you can't pivot or pivot quickly, chances are you will fail," Blank wrote in a 2010 blog post.

Hemmati agrees: "There is a huge difference between those who have a mindset of exactly how they want to do [something], versus those who are truly open and think through [their options]," she says, adding that, ultimately, that mindset can be the difference between success and failure.

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