Here are the Top 10 Basic Principles that every aspiring entrepreneur should know.
Archive for the ‘Strategy’ Category
I gave a presentation at Blitzweekend about starting a company. It was a mixture of a few things including:
- how Standout Jobs started from within the Montreal tech community
- my personal history, and use of blogging & social media to build a reputation locally and beyond
- raising capital – the difficulties, tips, etc.
- my current struggles with balancing the 20,000 foot strategic view and day-to-day issues
The presentation is a bit longer than I intended it to be, but I’m pleased with the results. A bit more practice would have helped, and more point form notes instead of what I had written up to use. But I hope people enjoyed the presentation and got something out of it. Anyone?
Anyway, if you’re interested in learning more about Standout Jobs, where it came from and some of the lessons learned so far (and you want to see me “in action” – after all, who wouldn’t?!?!) please check out the presentation and let me know what you think.
I’ve been thinking about a number of new product ideas lately. In doing so, I’ve been trying to come up with a way more structured way of evaluating them. Here’s a first attempt at defining that. It’s not as clear as I’d like it to be. But perhaps you’ll find it useful.
Tractability is partially about technical difficulty and much about timing and competition—i.e., How advanced are the other solutions? Building a new blogging tool today is less-tractable, because the bar is higher. Building the very first web search engine was probably pretty easy. Conversely, building the very first airplane was difficult, even though there wasn’t any competition.
In general, if you’re tiny and have few resources, tractability is key, because it means you can build momentum quickly—and momentum is everything for a startup. However, tractability often goes hand and hand with being early in a market, which has its own drawbacks (e.g., obviousness, as we’ll discuss below).
If you’re big and/or have a lot of resources—or not very good at spotting new opportunities, but great at executing—a less-tractable idea may be for you. It may take longer to launch something worthwhile, but once you crack the nut, you have something clearly valuable.
Number two is more affected by the design of the product than the idea itself. You don’t actually want number three to be true. You want it to be a good business, but not an obviously good business, because than you get more competition. Web search was not an obviously good business before Google demonstrated it. This allowed them to leap-frog the competition that was in it for years, but not taking it very seriously. But, like Google, the business may not be clear until later.
The key question for evaluating an idea is number one: Is it obvious why people should use it? In most cases, obviousness in this regard is inversely proportional to tractability. The cost of Blogger and Twitter’s high tractability was the fact that they were defining a new type of behavior. The number one response to Twitter, still, is Why would anyone do that? Once people try it, they tend to like it. But communicating its benefits is difficult. We’re heartened by the fact that Why would anyone do that? was the default response by the mainstream to blogging for years, as well, and eventually tens of millions of people came around.
On the flip side, if you can build an ad network that makes people more money, a better search engine, or a productivity app that actually does tasks for people—all, less-tractable solutions—it will be highly obvious to people why to use your product.
Sometimes you can come up with ideas that are highly tractable and obvious. For example: Top Friends or HotOrNot. These products were not hard to launch and yet, were immediately appealing (to their target market). What was not obvious, in either case, is that they could also be great businesses. HotOrNot has proven this to be true. And I suspect Slide will, as well.
Facebook is incredibly deep because it leverages your connections, which touch practically every aspect of your life. Scrabulous, on the other hand—a Facebook app for playing Scrabble—is not very deep. How big is the Scrabble-playing part of your life, and how much can it deliver beyond that?
But most things are deeper than they seem at first glance. Practically any application, once people start using it, can be used as a lever to more activity and benefit delivery. Being smart about what you’re leveraging is key.
When Feedburner first launched, their only feature was the ability to take an RSS feed and spit out multiple versions, depending on the capabilities of the feed reader requesting it. It seemed useful, but hardly something to start a company around, especially because that particular problem would probably go away over time. Or so I thought. What I didn’t get and they did (because Dick and gang is smarter than me) is that they were setting themselves up at a great leverage point—between publishers and their readers—where they could offer an ever-deeper value stack. Soon it was feed stylesheets with one-button subscription, feed stats, feed flare, blog stats, email subscriptions, and, of course, advertising, where they made their money.
While we’re talking about Feedburner, its worth mentioning that their product was also very obvious for their core user-base. There were clear benefits and very little drawbacks. They also had no competition, even though there were tons of companies in the RSS/feed space, because most of the others were battling it out on the reader side.
Other times, you stumble into deepness. When they put up HotOrNot on a whim, Jim and James didn’t know they’d be able to leverage it into a highly profitable dating site. Okay, so HotOrNot’s still not the “deepest” of sites, but it’s deeper than you think.
Feedburner is not particularly wide. Their market was those who published RSS feeds (and cared about them). This was in the hundreds of thousands, not a hundred million. Turns out, it didn’t need to be used by a hundred million to be worth a hundred million, so going for wideness is not entirely necessary. But it’s something to look at.
Like deepness, wideness can take you by surprise. The web is getting so damn big, what seem like niche ideas can be very decent businesses. When Ted Rheingold launched Dogster, as a joke, he didn’t know there were enough people out there who would be interested in making their dogs web pages to actually build a business. When we launched Blogger, I thought maybe a few thousand people would use it.
Sometimes, you can find a spot that is both deep and wide. This is where multi-billion-dollar businesses are built: Google, Windows, Ebay. It’s easy to think these kinds of opportunities aren’t laying around anymore—at least not for the little guy. But most people would have said the same before Facebook entered the picture.
Interesting to note: Google web search is not the least bit viral. Nor is Firefox. Nor it Kayak.
It’s possible to get the word out without being “viral.” One way is organic search traffic. Another is pay-per-click ads (if you can monetize). Another is plain old-fashioned word-of-mouth/blog/press. (Twitter has probably grown more through press and blogs references than any inherent viralness.) There’s also distribution deals and partnerships.
Either way, it’s something to think about up front, as different ideas lend themselves to different discoverability strategies. And some things are more difficult than others to spread. Dating sites, for instance, have not historically been viral, because people weren’t going to invite their friends to—or even talk much about—their personal ads. The sites made up for this by buying lots of ads, which worked because they monetized signups via subscription.
Whether or not something is monetizable is not always clear up-front. It wasn’t clear how Google was going to make money early on. Ebay thought it would sell auction software.
In most cases, if you position yourself close to the spending of money, you can extract some. Or if you offer something that clearly saves or makes people money.
Blogger, I believe, makes money for Google, but it’s not the most monetizable of products. Twitter, I believe, will be more-so, but that’s yet to be seen.
Great products almost always come from someone scratching their own itch. Create something you want to exist in the world. Be a user of your own product. Hire people who are users of your product. Make it better based on your own desires.
In theory, you can get around this with lots of user research. (It’s pretty clear neither Slide nor Rockyou‘s founders are creating widgets based on their own needs and desires.) But you’re more likely to get it wrong that way. When I’ve gone sideways, it’s when I wasn’t listening to my gut on this issue. Specifically, Blogger and Twitter were personally compelling, while Odeo wasn’t.
However, “personally compelling” doesn’t have to mean only that you want it as a user yourself. Curing cancer or helping the world be more green may be highly personally compelling for other reasons, which I think is just as good. My favorite products are those I really want as a user, but that I also think have some “greater good.”
Charting it Out
|Google (web search)||Very Low||Very High||Very High||Very High||Low||Very High|
|High1||High||Very High||High||Very High||High2|
|HotOrNot||Very High||Very High||Med||Med||Med||High4|
|Scrabulous||High||Very High||Low||Low||Very High||Low|
|Ebay||Med||High||Very High||Very High||High|
About the Author (Tony Wright)
Having done this twice (started a company that eventually turned into a full-time startup), I settled in to reply. Before long, it was clear that my response was long enough to justify a blog post.I’ve done two part-time-to-full-time startups (one resulted in a startup the sold, the second is RescueTime– currently a YC-funded company– cross your fingers).
At the end of the day, I think Paul Graham is right when he says:
“The number one thing not to do is other things. If you find yourself saying a sentence that ends with “but we’re going to keep working on the startup,” you are in big trouble. Bob’s going to grad school, but we’re going to keep working on the startup. We’re moving back to Minnesota, but we’re going to keep working on the startup. We’re taking on some consulting projects, but we’re going to keep working on the startup. You may as well just translate these to “we’re giving up on the startup, but we’re not willing to admit that to ourselves,” because that’s what it means most of the time. A startup is so hard that working on it can’t be preceded by “but.””
In the beginning, however, it’s not always practical to dive in full-time. And sometimes, when your idea is off-the-wall and also easy to build a prototype for, it’s smart to whip something out just to see if what you’re building is as cool as you think it might be before you take the plunge.
So if you’re too poor or too unsure to do the right thing for your business and dive in full-time, here are a few things that seemed to work for us when we did it part-time:
1. You need a co-founder and some cheerleaders… If you can’t find 2-3 friends who are really excited to be beta testers for what you’re building, ponder changing your direction. The arguments for a co-founder are many and varied. For a part-time effort, they are essential to keep you on-track and working. At some point, you’ll hit a motivation wall… If you have a partner who is depending on you, you find a way past that. If you don’t, you’ll often lose interest and find something else to entertain you.
2. Pick a day or two per week where you ALWAYS work, ideally in the same room as your co-founder(s). ALWAYS, no exceptions. We did 1 weekday evening and 1 weekend day. That doesn’t mean we weren’t working other days, but having a fixed schedule helps you through the phases of the project that might not be so fun.
3. Have a boat-burning target. What will it take for everyone to dive in full-time? 5,000 active users? 10,000 uniques a week? Funding? That should be a shared understanding. You don’t want to have one founder ready to go full-time when another has reservations.
4. Pick an idea that is tractable. Every business is a theory. If your theory is, “we can build a better web-based chat client”, that’s something you could test quickly. If you’re theory is “we can build a car that runs on lemonade”, that’s just not going to work as a part-time effort.
5. Understand that your v1 ia probably going to suck. Read David of Weebly’s post on persistence. It’s a long road. My first startup was a ridiculous fluke (2 months and then sold). 99% of the overnight successes you read about were slogging in the muck for 5 years before the night in question. Be prepared for a long journey and be surprised if your startup is an immediate hit.
6. If you’re going to screw off at work (everyone does), spend it getting smarter about the stuff you don’t know. If you’re a coder, read a few design/usability blogs. Read up on what motivates angel investors. Research competitors and write down what they do well. Get brilliant at SEO (it’s not hard). Write a LOT more (blogging helps). Think about virality and research the heck out of it. This is all more valuable (and hopefully just as fun) as looking at LOLcats on Reddit.
At the end of the day, you want to prove whatever you need to prove as quickly as possible, so you can dive in full-time. Near as I can tell, there are plenty of startups that have started as “hobbies”, but you need to take it out of that phase as soon as you can.
There are a lot of Web 2.0 companies out there. If you don’t believe me, check out Web 2.0’s archive. For every Digg or Twitter there are dozens of sites that provide great services that flame out. Unfortunately, the fault does not lie in fickle consumers or bad luck — it falls directly on your shoulders.
Luckily, most of the worst startup mistakes are things that you can change. What better time than the beginning of the week to take a look at some of them?.
Obviously, The Product Will Sell Itself
This is the problem faced by entrepreneurs who start off as pure developers. The idea seems pretty well founded. If you have a great product, people will flock to it. This could not be any more wrong. If Web 2.0 has taught us anything, it is that there are a ton of extremely talented developers out there and many of them have made amazing products. Yet, somehow, there is only one YouTube and Facebook.
What is the difference between a well developed product and a great product? Implementation, of course. Truly great entrepreneurs are able to separate themselves from their products and realize the one real truth of business, “no one cares.” After you have your product put together it is time to get it through your head that your only job now is to cut through the public’s inertia and make them see how important your service is to their lives. Market, market, market. Get yourself out there and scream your unique value proposition from the rooftops.
If you can’t give someone a general idea of why your product is great in one sentence or less, then it isn’t.
People Care About Features!
People could care less about your tag clouds and OpenID support. In general, people really only concern themselves with one portion of a product. Most people use YouTube to watch funny videos. Most people use Flickr to show off their great photos. Each of these products has a metric ton of additional features that power users really get behind but the public at large is completely unaware of.
Make sure that your most important features are impossible to miss. Let your users see up front why this product is a handy addition to their lives. Once they are hooked they will look around and see all the other great stuff you have put in. You must understand the difference between product adoption and user retention. Features retain users, they very rarely get them.
What Do You Mean We Don’t Need A Private Jet?
No, I am not going to let the CFOs off the hook. Too many young startups, newly flush with venture funding, forget that business finance is a lot like personal finance, “a penny saved is a penny earned.” Remember when you were bootstrapping and you bought all those Dell PCs wholesale for $300 a pop? Why does it seem prudent, now that you have a little capital to burn that you should need $2,000 Mac Book Pros for every employee, even the ones who need computers for little more than Excel and email?
Unless you are turning a profit, most of your money should go towards development and marketing. I am not saying that you should work out of a closet, but wait until you have revenue before you spring for that 5th Avenue suite. Also remember, there are free or cheap solutions for almost all corporate infrastructure problems. You can pick up computers, furniture, and telecommunications services at cut rates if you know how to look. The only thing that you should feel free to splurge on are servers and maybe enough amenities to keep your employees content.
No One Told Us People Would Actually Use This Thing
Speaking of servers. The next most important thing to remember is that you should have a plan in place to double your infrastructure at very short notice. It is entirely possible that your user base could go from 5,000 people to 50,000 people in a month. If you haven’t prepared for this, it won’t be long before your user base, annoyed at network failures and slow downs jumps ship and moves on to greener pastures.
This is one of those times a little forward planning can really be a life saver. Have a plan written up to tell you what type of infrastructure you would need to handle each new flood of users. Make certain that your vendors know that your equipment needs are in flux and be certain that you are ready to scale up well before the server room bursts into flames.
Early Adopters Aren’t Real People
I know I didn’t use a clever turn of phrase for this one, but I think it’s too important for that. What you need to understand, right now if you have not already, is that early adopters are not real people. The geeks, techies, friends and family that initially use your product are not representative of the public at large. Their opinions on your product are not representative of what the mainstream will think.
If your web service is designed to scale, be certain that your marketing machine is not only targeting the digerati. Start getting the word out through newspapers, magazines and publications in your broader field of interest. If you are making an online video recommendation service, don’t only pray to the altar of TechCrunch but also get the word out amongst movie lovers. Make certain that the same people who use Netflix can easily get their head around your product. Understand that, in general, normal people are looking for something that makes their lives easier. They don’t understand Web 2.0 and social media collaboration. In this case, sell the steak not the sizzle.
Huh, What’s Gmail?
This should have been point number one. Products can be destroyed before they even begin if you don’t do the research. Take a look around the net and make certain that you don’t have another huge player operating in the space that you want to move into. If it turns out that there is, make sure that you can clearly define how your product is different than their offering.
Also, research how services similar to yours have succeeded or failed. Some of the best advice you can get will come from the horror stories of you competition. An ounce of preparation is worth a gallon of regret.
Web 2.0 Roundup
There are a thousand mistakes big and small that can sink your startup, and the ones that I described are only a tiny subset of them. However, I daresay that these are the most important. Remember, that a web business is still a business and knowledge is your best weapon.
Because people can justify paying for a service if it helps them conduct their business and make money.
If you help people make money you can also charge a higher cost for your web app. Its not reasonable to spend $49 a month sharing your videos, you wont find many people willing to shell out that kind of money on a recreational activity. But it is reasonable to spend $49 a month running your business. If you build a web app that makes people money they will pay more, a lot more, to use it.
Also if you’re helping people make money, there’s another side benefit. When you’re in charge of running a business you usually want the best equipment. For example, if you can afford it you would upgrade your typical office chair to an Aeron. Its somewhat similar when it comes to web apps. Entrepreneurs won’t settle for a standard plan when they can upgrade to a premium plan. Choosing a premium plan over lesser plans intrinsically shows you and your employees that you’re serious about business.
Its like choosing Windows professional edition over Windows Home edition. A lot of business’s could get away with using Home edition but they’ll purchase professional edition anyway. Business owners don’t want their employees seeing HOME edition when they boot up, they want their employees to see their running professional. There’s also an element of human nature, rather than doing more work its easier to show your dedication by purchasing better equipment.
Expect the same with your paid plans. If your application helps people conduct business your users will be more receptive to upgrade their plans to a higher cost premium plan. If you have an app that people are using recreationally it will be much harder for you to convert them to higher paying plans.
So if you want to build a web application that makes you money, then build a web application to help make others money.
Post Author: David Rusenko is a founder at Weebly, a company that makes a web creation tool.
I, [David Rusenko], first started working on Weebly in February 2006. I worked for about a year on it with Dan and, later, Chris’ help, and we launched a (very) early version of Weebly in mid-November 2006. We were TechCrunch’ed a few days later, and accepted into Y Combinator the same day. (On the morning of our YC interview, we woke up to discover we were on TechCrunch).
Weebly has been growing ever since then, gone through two complete visual redesigns, added numerous features, and doesn’t even resemble the product we launched with at all.
Here’s two of our graphs from May 8th 2007 — five months after we moved out to San Francisco and had been working on the product full-time:
The first is a graph of our new signups per day, and the second is a graph of our total user count per day. I’ve annotated the top graph with what events caused the major spikes.
There’s actually two very interesting things to note about the top graph: First, we had already closed our angel round at this point — looking back, our investors placed a huge amount of confidence in us.
Second, the new users per day looks like it might actually be declining a little bit.
At this point, I’d been working on Weebly for about a year and a half, and we’d been launched for over six months. Judging by the graphs, you might think things weren’t looking spectacular. This is the type of situation when people give up.
I’ve seen it quite a bit among startups — they spend more time developing the product than they do running it after they launch it. Several have followed the same pattern: build, build, build, launch, quit.
But you’ve got to keep with it to gain momentum. It doesn’t usually just build overnight, it takes time. Keep building your product, and eventually you gain momentum and a critical mass of people who know about you and tell others about you.
Now, here are the graphs from a couple weeks ago:
These graphs look a hell of a lot better. There’s 2 things I’d like to point out:
– First, the “build it and they will come” mentality is a fallacy. You need to build something great and have distribution in order to succeed. And distribution is hard to get.
There are many ways to get distribution. One of those is through press. If you have a great product, the more people that find out about you, the more people will know about you. And they’ll tell their friends, who’ll tell their friends, etc.
Another subtle press benefit: you’re getting links from a bunch of very highly-regarded sites, and this helps out your rankings in search engines quite a bit, which builds more traffic.
There are plenty of other good ways to get traffic too, such as engineering for viral growth, but press can have huge benefits for the right product.
– Second, in order to get people to use your product, you have to stay alive. This sounds obvious, but a ton of people spend 6 months building a product, launch it, and give up within 3 weeks.
Plain and simple, it’s going to take time for people to start using your product — there are exceptions, but it’s generally not the norm. So you need to expect that, and be willing to give it time. If you give up within a month or two, your product definitely won’t be successful.
Once you launch, people start to know about you. If you launch early, you can start earlier on the process of acquiring users. Don’t launch with a crappy product — launch as soon as what you have is better than what is out there. But don’t wait for a perfect product — launch as early as you can, get user feedback, and keep improving the product.