Even when it seems like you were putting in your best effort, it’s possible that you might not succeed the first time. Do not lose heart. During this phase, you will have learned a lot. Trying to learn about building a business is no different than trying to learn how to swim. You need to make the jump, learn from the mistakes, get better at it and keep repeating till you achieve success. And, most importantly, HAVE FUN.
Author: Andy P
How to build a business: Focus on the cap table
Cap table is the ownership structure of the company.
If you find that founders have become a minority stakeholder in the company before it has achieved some degree of success (typically before Series B round of funding), it is time to take a serious look at the future of the company. Make sure you have investors who have bought into your vision. If they have not, they might second guess each and every one of your decisions.
It’s extremely important to have a good handle on the cap table. Make sure the decision makers in the company continue to be invested in the company.
When you are building the company, sometimes most outrageous and crazy ideas tend to be the most successful ideas. However till you have achieved success, you will go through a lot of ups and downs. You need people who are in the trenches with you during these phases. Only then will you be able to work hard through them and achieve lasting success.
How to build a business: Team Building and Culture
As you start growing you will soon find that you need to grow your team beyond the founders. It is really critical to hire the right people at this stage of your company.
You want to hire smart people, especially those who can fill your blind spots. When you started your company, you were trying to achieve the lowest common denominator on everything, but you will soon find yourselves going after specialized tasks and you will want to hire specialists for those.
You want to hire A+ people. Because A+ people attract more A+ people. If you start hiring B level people, they will feel insecure and to protect their jobs they will hire C level people. And that would not be good for your business.
While you want to hire the best people, one thing you do not want to compromise on is culture. You want to hire people who are the right fit for the company, people who have good ethics and see this as a long term fit for themselves. You want to be the place where people want to work for the next 10 years. Once you have achieved that, people are not working on short terms focus and instead always thing about the long term success of the company.
There are no perfect people. You have to hire the people satisfying the qualifying criteria on talent and culture and then invest in their future and learning, and make sure they are motivated. This will build loyal employees and ensure long term success of your company.
How to build a business: Remove friction and fear
When you are building your product, there should be a big focus on removing frictions on every aspect of your product building and operations.
These friction points could be related to how your team is building their product, or it could be how you are operationally running your company. Some examples could be related to the steps needed to build and push the code for your apps. Or it would be related to the steps needed to deploy your code. Or this could be related to the steps needed by a salesperson to generate a new lead.
Each friction point kills the momentum of your team. This is especially impactful in a negative sense when your team is in highly productive zone. This is equivalent to a situation where while you are running a marathon, your shoe laces open up every 10 minutes. And you need to fill up a form and get an approval to run at every mile. This would kill the momentum of the runner and make them less likely to finish the race.
One another angle that is a huge problem for companies are when your team starts being so afraid of their own product code and processes, that they do not want to make changes. Once this happens, they are unable to make the right choices. They cannot develop the features which are needed because it would break too many things. Even if they end up trying to develop, they are not able to do justice to the feature because they are scared to touch parts of code and try to work around it.
As this goes on and on, this leads to complex bugs, which can only be fixed by changes in the scary parts of the code. However, because people do not want to touch that part of the code, they try to patch around that, which leads to even more bugs. This can bring down the morale of the team and your best people might start leaving. You could end up losing the very people who had the best chance of fixing this issue.
At the end of it all you are stuck with an unmaintainable code and unable to respond to the market need and the competitors. Companies must never be scared of their own code and whenever they find this happening, they should take the problem head on and delve into the code and do the right thing. This helps them maintain momentum and build the best product.
It’s understandable that the above steps can be difficult to do that especially when your are understaffed and barely able to meet your deadlines. For that very reason, it’s important to create a fine balance and find the right fit for yourselves. What matters in the end is whatever gets you faster to your goal. The choices people end up making largely depends on their individual situation.
One thing that has seen to be helpful to people is if they have “great taste.” If they accept a subpar situation and are fine with dealing with friction, fear and frustration on daily basis, they might end up in a tight spot. However, if they have great taste, they find constantly strive for a better operating situation, which helps them find time and energy to fix the above issues.
How to build a business: KISS (Keep It Simple and Sweet)
There are two types of people who go and build new business. One type among them are people who have never built a business. Another type of people are those who have worked for bigger companies and have seen business at scale. This chapter is for the latter group.
When you work in a bigger company, while you have a lot of resources you also have a lot scope and processes already in place. You need to beware of lot of legal nuances because you are protecting the current revenues against lawsuits. You are a bigger target.
As a part of a bigger company you also work towards a lot of corner cases. This might involve handling corner cases in the product, tracking obscure metrics, or complying to a number of ISO standards. At scale, 1% of the underserved product use-case might mean millions of dollars. With you extra resources you can afford to go after those use-cases. So you start covering for these corner cases and the product keeps getting complicated to build and maintain because of this.
However, when you are starting to build your company, you wouldn’t care about use-cases that cause you to lose 1% of users, because you are focussing on 99% of the use-case. What you really want to prioritize is moving fast and figuring out our core use-case, which you would try to scale as soon as possible.
In most cases it takes x amount of effort to handle 90% of the use-cases and 5 times that amount of time to handle 95% of the use-cases. It might be better to get out soon and get 90% of a million users vs 95% of a thousand users.
A simple example that comes to my mind is when we were building Droptalk as a part of my startup Photo Lab, we were using email as an authentication channel. To keep things simple we would lowercase the email before storing and authenticating. This worked 99.99% of the the time. However someone in my team read somewhere that some email servers support case sensitive email addresses. So a John@bar.com might not get emails send to firstname.lastname@example.org. This particular team member was pretty insistent on supporting this use-case.
Thankfully, I was able to convince him by explaining that such users are a very small part of the overall user base and unlikely to be any part of our initial users. Eventually he relented and we were able to avoid the added complexity of handling email addresses which are case sensitive.
Another aspect I would like to touch upon is thinking simple. Almost everything you are building could be much simpler. Steve Jobs famously said: “It takes a lot of hard work to make something simple, to truly understand the underlying challenges and come up with elegant solutions”.
When you are working on building systems, take a hard look at what you are doing. If it looks too complicated, most likely you are not thinking about it right. The best products are very simple, and elegant and once you look at them they seem delightfully obvious. Spend time trying to make your product simpler to use and understand.
The best example I can think of on this front is the iPhone. Mobile phones have been around for decades before iPhone came out. Before that, Nokia, Motorola and Blackberry were trying to add more features to their phones to try to turn them into smartphones using various quirks like dedicated keys, joysticks, etc… They had multiple ways to control the interface. However, once the iPhone came out, they had a simple and consistent UI to use the product and as a result aforementioned companies didn’t survive.
That’s why it’s important to keep your product simple and elegant. When you find yourselves trying to cover multiple corner cases, you most likely you are not thinking about your product right.
How to build a business: Do things that don’t scale
Once people have launched the product, many of them avoid getting their hands dirty. They launch the product, do a little bit of first day launch press and expect that the users will automatically find out about the product, that there would be a good product market fit and soon everyone will start using their product.
The truth is, this almost never happens. You launch your product and then you wait for users. You get a bit of uptick after the initial publicity but the growth tapers off soon afterwards. Then, you feel that you product is broken and either start working on pivoting it or adding a lot more features.
However in many cases, it’s possible that the core foundation of your product is right, but it wasn’t presented in a good manner. Or it is also possible that they core foundation is wrong, but you kept on adding features without realizing this shortcoming because you aren’t talking to your users.
It is important to go out and talk to your users. You will learn quite a bit about their needs, how they are using the product, what is working for you and what is not. No one expects you to get millions of users manually. Unfortunately, most products are stuck at a point where they do not have even hundred users. So go out and learn from your users.
Airbnb is an example of one of the recent and biggest success which started by doing things that didn’t scale. They started with building a shared Bed and Breakfast. When they launched initially they didn’t get any users. After some time they went door-to-door in New York trying to sign up people to host their homes on their service. During this phase they learned a lot of about their product.
When you create products that don’t scale, benefits are not limited to learnings about your product. You can benefit from quite a few more dimensions.
This can help bootstrap your product. When you start your company you have zero users. Bootstrapping a few initial users can really accelerate your growth. Now when you are launching things, you can get quicker feedback. This helps you know what works and what doesn’t. When other people join your product, it gives them confidence that other users are also using their product.
One other issue is that usually people are used to very shitty customer service. Most of the companies they are used to dealing with do not have personalized service and aren’t customer-centric.
When you are interacting with your customers directly, you are offering a direct connection with them. They are also getting an experience that they haven’t gotten before. This will make it easier for you to acquire more customers. You could also use this process to identify and groom champions for your product, who would then go ahead and help get more people signed up on the platform.
Airbnb was able to execute this really well, where they signed up some of their earliest users to start running meetups for them, which would answer questions from potential users and help set them up.
One of the best articles about this is written by Paul Graham, hosted at http://paulgraham.com/ds.html. Paul’s article talks about some of these factors in further detail.
How to build a business: Iterate fast
My core product building philosophy is as follows:
Functional -> Fast -> Pretty
I first heard about this from Mark Heynen, who was my co founder at Photo Lab.
Once I was able to digest this concept, it seemed completely natural to me. Basically, this means you should work on functional aspects of your products first. Functional aspects are the soul of your product. Ideally this is what should be sufficient to determine if your product is valuable to its users or customers. In most cases, a functionally ready product takes the least amount of time to build. However the biggest challenge is discovering what is the functional soul of your product.
I recommend launching your product as soon as it is functionally ready. We will go on this topic in more detail later in this section.
Once you are done with the functional aspects, you can start focussing on making things faster. There might be things which take your users 4 or 5 steps. Can you instead help the users do them in one or two steps? This leads to a better overall product experience. Usually this takes about 4-5 times as much effort as building a functional product. However, in most cases you know what you have to do to be successful at this step. So once you are there, it boils down to what is the option you choose to achieve the objective.
Once your product is Functional and Fast, you can start working on making your product pretty. This involves making the mobile app interface look better, building a pretty website, and packaging of your product. This steps tends to be very subjective. It might take as much as 5-10 times as much effort as building a functional product to get this step done. In many cases the value of this step is not obvious.
Ideally your users should be sold on your product at the functional stage. So, you should have a strong reason to invest a lot of effort at this stage, aside from vanity.
Let me start with some examples on how Functional -> Fast -> Pretty can be in play in software product development.
In the early days, when the Instagram team was working on building the product, they were trying to prioritize what to work on. As most people would agree, the most important value that Instagram provided was build a single player mode application which can allow people to create beautiful photos and share that with their friends.
The above line is the core functional aspect of the product. This is why people used the product, versus many other photo filter applications in the market.
Let’s talk about a few options on the Fast front that the app could have. Let’s look at contact picker. If you want to share a post with people, you can select people through a few ways:
A list of people where you have scroll. In this case you will need to scroll a lot before finding your friend, selecting them and then doing it again and again for other people.
A list of people with a scrubber on the side so that you could quickly go to names starting with that character
Type-ahead based selection.
Building the option 3 might take as much as 5x the time as the option 1. If people really love your product, they will undergo the extra steps to use it. However by investing on the Fast dimension, you might just delay you product launch a lot.
Often, Entrepreneurs have misguided reasons for adding “speed” to their products. People don’t always want or need less steps to achieve a goal. An example of this was with Instagram when they launched live filters. Using live filters you could see the scene with multiple filters in real time and snap a photo using the chosen filter. They felt that people didn’t want to take an extra step after capturing the image to apply the filter. It was a significant technological challenge for them to build it in a way that it can work on the slow devices in 2013.
However, they found that very few people were using this feature. The reason for that is that people usually want to capture a scene in the moment and once they have captured the scene, they want to apply whatever filter they want to. While capturing the image, they do not want to lose the moment while trying to get the filter right. They removed this feature from their product soon afterwards. This is an example where it just didn’t use up their valuable development cycles, it ended up being worse for the users.
Moving onto the “attractiveness” of your product, any work you do in your app on animation or beautification counts towards that. You should build the fastest possible product, as long as it looks consistent, and not waste time building unnecessary animations or pixel perfection. It takes too much time to get it right.
When you historically look at the most popular products – be it Google, Facebook, Twitter, Pinterest, LinkedIn and many others – they were all pretty ugly when they were launched. However, they were very functional and clear on what value proposition they provided to their users. Overtime, as they got more valuable resources, they worked on beautifying their product. If they had focused on building pretty websites early on, they might have taken too long to launch, been too slow to improve and might not have succeeded.
In fact, statistically, it’s possible that more attractive a product is, the less likely it will be to succeed.
Another example of proving this philosophy is looking at the evolution of cars over the past century. Cars where a revolutionary product in a time when everyone else was used to by horse and carriage. The first cars that came about were very functional. They didn’t look great, everything was manual, steering was hard and in the earlier models you had to go to the front of the car and twist a lever to start it. Yet, it was a great and functional product which fulfilled user needs. Over time, operating the car became easier, manufacturers added comforts to the car and the design started to look better.
Long story short, do not waste a lot of time trying to perfect your product. Prove its value to your audience as soon as you can. Focus on this and you will be closer to success.
Importance of Metrics
When people are working on iterating fast on their product, it’s good to a strong idea of the core goal you’re striving for. This will help you focus on improving that with your iterations and rolling back soon if it becomes worse.
I am a big fan of having one key metric. I have read about this term quite a lot and am not sure who initially came up with it. If you reach out to me, I would love to give credit to you.
Many products might have multiple metrics of interest e.g. daily visits, installs, posts etc… However, in some cases, following multiple metrics might be misleading. For example, your installs might be going up, but you might be losing older customers. So it is important to have one key metric that you really follow well for positive trends and monitor other metrics for negative trends.
For instance, one key metric for Instagram could be number of users who like at least one image per week. Liking an image sends a strong feedback signal to the image poster. If someone liked a photo it means that they are not just opening the app, they are going through images and also liking images. This trend needs to be on an upward trajectory and every change should try to drive this number up. If this number goes down, the creators should stop everything and investigate what is going on.
How to build a business: Launch ASAP
Once you have identified and proven your core advantage, the next step is to launch as soon as possible. There are many reasons for this:
Time is your most important currency
Before you launch your product, you are still paying bills for yourself and your team. The expenses never stop. Depending on the amount of money you have for this stage of business, there is limited amount of time you have till you prove success for the next stage. If you wait too long, you might miss graduating to the next step.
To some extent, the impact of revenues on your company is like impact on savings is on retirement. The sooner you start making money, the faster your business will grow.
Get out of
Occasionally, even though you’re able to prove your idea (before developing the product), you’ll only be able to find insurmountable challenges closer to launch or soon after launch. The sooner are you able to launch, the sooner would you can discover those issues.
Typically whenever you are thinking about an idea, at least 5 other people are thinking about the same thing. The longer you wait to launch, the more likely your competition will gain headway. If they are closer to the goal, they might be able to raise more money, or have more revenues – which would lead to lessening your chances of success.
How to launch as soon as you can
You can leverage various strategies to launch your product quickly and effectively. Here are a few:
Identifying the Minimal Viable Product (MVP)
This is an absolutely critical step.. When you start working on your product, every idea can seem like a good idea. It would seem like there are a lot of things you “absolutely can’t leave out” or else the product will be “handicapped” or “incomplete.” However, every extra thing you try to add to your product complicates it, adds to the development roadmap and delays your launch.
So, the most important action step is to identify your core value proposition and only build what you need to achieve that
Don’t spread yourself too thin
Many times people spread themselves too thin by trying multiple platforms or channels. A product builder might build their product for too many platforms – e.g. iOS, Android, Web and others. Others might focus on multiple product acquisition channels like advertising, affiliates, cold calling, etc…
When you’re in the early stages of the product, you are nowhere closer to saturating any of your platforms or channels. If you already have an iOS app, there is potential addressable market of 100s of millions of users available to you. When you have less than one thousand users, adding Android will not make your numbers reach millions of users. It will at best double your numbers.
There are very few cases where you’ll have to build multiple platforms. The most common example are social networking apps, e.g. an instant messaging app. People have a mix of iOS and Android devices, so the only way to get them on board is to have it available on multiple platforms at once.
This is rare. Although you may feel you have to build for multiple platforms, you don’t. So, take a hard look at this before you decide to spread yourself too thin.
Another situation is adding too many features. People believe adding new features only adds a little bit of development work. This could not be further from the truth. For every additional feature, a lot more work is created:
- The product person will need to develop the spec in a way that it integrates seamlessly within the product without hurting the core engagement funnels.
- Engineering will need to spend time building it, likely in a way that it doesn’t contain performance issues and unrelated bugs
- Testers will have to test more features
- Business and Marketing will need to be trained on this feature and find a way to fit this into their story.
Keep your product streamlined so you can launch it as soon as possible. I cannot stress this point enough.
How to build a business: Identify your levers and patterns
When you start working on your product, it’s extremely helpful to identify the high-level “levers” of your product. You can do this by researching patterns of previous successes in your industry and learning from those.
Identifying the levers
Let’s talk about a few popular levers that people use as a part of their products.
Single Player vs Network
This is one of the most important levers of your product. Basically, you’re trying to understand whether your product can be valuable to a person on their own or if they need to invite and collaborate with others. This impacts your product on multiple aspects.
If a product can be used in single player mode, that’s very useful when you first launch your product. You do not have any users and you also do not have any brand recognition. If your early adopters can derive value from your product on their own and do not need their friends and family to use it as well, they can start and continue using the product. Some example of these products are to-do apps, single player games and maps applications.
Other apps don’t have much value if other people aren’t using them. When you get the app, you will need to find a way to onboard your friends before you can all derive the full value of the product. Examples of this are apps like Facebook, WhatsApp, Instagram, Twitter.
As you can imagine, the biggest challenge with network relying apps is “empty room problem”. When the first few users start using your product, they have no one else to connect with. Because of this, they end up leaving the product because they couldn’t get the full value out of it.
This might make people question why would someone want to build a network based app. The biggest reason is “defensibility” and “moat.” If your app is a single player app, as soon as people start seeing you get moderate success they would start copying you. This will lead to more competition and decrease the likelihood of you generating revenue. On the other hand, if your app needs network to work, once you are successful it’s difficult to drive users to your copycats because of network effect. Unless they offer something much more compelling to your users, it’s likely that your users will stick with you.
The network world also has some unique nuances. You can build a private network or you can build a public network. Examples of this are Facebook and WhatsApp. A private network is a network with friends or family. A public network is network where you don’t necessarily know the people you interact with.. Examples of public social networks are Twitter, Instagram and Pinterest.
Private social networks are much more difficult to build compared to public social networks. The main reason is public social networks allow you to interact with existing strangers on the system and generate value before getting your friends, family, and colleagues involved. As you start liking the product, you can invite your friends and family. However, private social networks require you to connect with people you know on day one. Due to this you rarely see private social networks succeeding.
Public social networks have been able to use a combination of Single Player mode with network effect to get users started and then build their moat. For example, you could use Instagram to just modify your images and store it for yourself. With Pinterest you could collect recipes for yourself. Once there is a critical mass of users and content, network effect comes into the play, which builds a moat and prevents copycats.
With private social networks, the only thing that has worked for them is when they were able to create a situation where people joined in groups. This is accomplished either by a strong value proposition or by scarcity. For example, in the case of Facebook, they were able to create artificial scarcity by starting with Harvard and then opening colleges one by one. Due to this, students created massive petitions to open it up for their colleges and as soon as Facebook was launched there, people would join it in bulk. Once you have your college buddies in your network you can start deriving value from Facebook and you can slowly invite your other friends and family.
WhatsApp and other messaging have been able to do it by bringing huge cost savings. Typically couples were the starting point of many of these applications. They would already be spending huge amount of money on other communication channels like Calling and Texting. WhatsApp brought the cost down to close to zero. So people joined WhatsApp as a pair and this brought a big part of their conversation to this platform. And they slowly brought their friends and family to the product.
So as we can see, private social networks have been successful in very limited circumstances. And once they are successful, it is extremely busy to disrupt them. The only times private networks have been disrupted is when they stopped responding to market needs. For example, there was a time when Yahoo Messenger was hugely successful. However they never made the switch to mobile and eventually WhatsApp took over.
Recently, marketplaces have been pretty popular and a lot of companies have been built around that. A marketplace is where a service provider and a service consumer come together. Examples of this are Amazon, Airbnb, Uber, Doordash, Homejoy and many others.
Building a marketplace brings significant challenges. Essentially, you’re dealing with a dual network problem, where one side of the network doesn’t want to use you because there aren’t enough entities on the other side of the network. If you do not have enough rooms to rent on Airbnb, people might not want to register on your site because you might not fulfill their needs.
This is a huge obstacle. However, once you have built a marketplace, you’ve created a big moat and then it is difficult for competitors to disrupt you. So it’s important to identify what you are getting into when you start your company.
There are two types of marketplaces: Global and Local. Airbnb is an example of global marketplace, where people from all over the world use it to travel all over the world. It’s less likely for people to use Airbnb in the city where they live. On the other hand, local marketplaces are primarily used by people in the city that they live in. Examples are Uber, Doordash, etc…
Local marketplaces are easily to build because can start building it city by city. However, one big challenge with local marketplaces is that deep-pocketed competitors can disrupt your product, starting with your most profitable markets.
People approach building marketplaces many different ways. With local marketplaces, they often use the same “script.” They start in a dense urban area that’s likely to be early adopter of the product and also has disposable income. They start by offering incentives and a referral program for both sides of the network. Service providers are incentivized to provide service and service consumers are given steep discounts. As they start building a bigger and bigger network and have brand recognition, they start reducing the incentives. They hope to be profitable eventually. Unfortunately, that doesn’t always happen. For example, Homejoy shut down last year.
Important factors in marketplaces are CAC (Customer Acquisition Cost), LTV (lifetime value), and stickiness with providers. CAC is used to acquire your customers. You will need to predict the growth for the next few quarters and have enough funding to be able to do that. LTV is important. Even if you have to lose money for some time, especially when you spend a decent chunk of money trying to acquire the customer, the plan is always to have a higher lifetime value so that you are able to eventually achieve profitability.
If your CAC is always going to be more than the LTV, the business is going to always be operating at a loss and it’s a good idea to avoid that business. We saw this in the previous example where the Entrepreneur tried to service cars at home and at the office, but the CAC was too much higher than the LTV to be viable. An important component of the LTV is stickiness with provider. As an example, if you are a marketplace which sends cleaners to my place, once both parties like the arrangement, they can decide to start working outside the marketplace, leading to lowered LTV. This is most likely the biggest reason for the shutdown of Homejoy. On the other hand with something like Uber, people want a driver instantly. So instead of waiting for their preferred driver, they might prefer to take whoever is available nearby immediately.
Marketplaces are really interesting. It is always a good idea to know the factors in play and understanding your competitive advantage.
Once huge challenge is when people are building a product where they are required to built it for multiple platforms. An example would be an app being built for both iOS and Android. As you do more platforms, you need to linearly spend more effort for each platform. You will need to design for different interaction patterns of each platforms, so I highly recommend avoiding that at all costs.
Identifying the patterns and precedents
It might be really useful to be able to identify patterns and precedents related to the problem domain that you are working on. This might help you avoid obvious mistakes. You can also learn from experiences of other successful companies and try to replicate it in other geographies and verticals.
One of the starkest examples is e-commerce companies. E-Commerce companies allow you order goods online using internet connected devices. Today, Amazon sells almost everything you might want. However they didn’t start by selling everything. They started just with books. In fact, every single successful e-commerce company in the world has started by selling books. There are some key reasons for this. Books are non-perishable, have low return rate, low storage costs and customers have a strong intent where they know that they are looking for. They can be packaged compactly and shipped for cheap. People have various needs for books and it is difficult for them to find every book that they need in a local book store. Because of these reasons books have been the perfect vertical to start ecommerce companies for a long time.
Another interesting space is online classifieds and review sites like Yelp. Almost every company in this space has started with restaurants. There are many reasons for this. You can start with a specific location. Users vaguely know what they want, but they are not completely sure. Most of the time, they want to know a place nearby and don’t want to bother calling anyone. These factors come together to make restaurants one of the best ways to approach this space.
How to build a business: Identify your core value proposition and prove it
When Entrepreneurs begin developing a business, they face many uncertainties. They don’t know what’s ahead of them and any number of things could go wrong.
However, no matter your business, your goal is to create a competitive advantage. Your “special sauce” that sets you apart from other players in the market and kind of gives you a disproportionate advantage.
Identifying core advantage
Your core advantage could be a brilliant marketing strategy, a new product or a variant of existing product. It’s vital to identify what your core advantage is.
Once you’ve figured it out, the next step is proving it exists. This would require building something with a little bit of added scope beyond the core advantage so that you can try it out. However, you have to be careful at this stage to not increase the scope to the point that it becomes a full blown product. It takes too much time to develop that. Every extra minute you spend building a product before proving your idea is a huge waste of time if your idea ends up not working.
For example, one of my friends realized that while there are many people who want to find activities like group dancing, hiking, music lessons – there isn’t a good place where they can find them together. Some were available on on a county website, while others were available on sites like Groupon and Yelp. So he decided to build a one stop shop where people could find all the activities and deals in their area.
He planned to spend 3 months building the product. I recommended that he first prove where he can get some people to like the product enough that they excitedly recommend it to their friends. So, he decided to build a database for just one city manually and implement it as a static website. Then, I recommended he go to parks and showcase his product to people. It only took him 2 weeks to do this exercise. Through the process, he learned a lot about his product and his market, so he was able to tweak his product to a successful outcome. If he had not chosen this strategy he might have waited 3 months before he got authentic user feedback.
Another example is a company I was an advisor to. They wanted to offer basic maintenance of your car at your home or office. The CEO was able to identify the core value proposition. He did a few market trials where he was able to coordinate the task. The users were delighted with the product.
Once he worked through the trials, however, he realized that his Customer Acquisition Cost was really high. He was spending hundreds of dollars to acquire customers for this product and his revenue per customer was less than 20 dollars. Even though his customers loved the product, he couldn’t find a way to build a sustainable business.
Because of this he decided to stop this product around 4 weeks into starting building it, saving him time and money and freeing him up to move on to the next product.
This is why it’s extremely important to prove an idea before it becomes a product and a company. You may have to manually sell it through craigslist, go door to door, or even meet people in parks. The effort will be worth it as you will learn a lot and the next stage of your development will be a lot easier.