You can learn either from your own mistakes or preferably, from the mistakes of the others
Today I was wondering what topic I should write on. While a bit procrastinating the work, now at 22:40 I’m in quite good physical and mental condition, and guess what? Before I choose the best topic, the topic choose me.
I saw the following message in one Facebook group that I’m participating:
“Hi there, the application which we are developing is almost ready !
We need a bit more time to fix minor issues and you will be able to test/use it soon.
In the link bellow you can subscribe so you will find out when we are starting. The user accounts will be limited to 500!”
Okay, here is something wrong I thought. I clicked on the link and the landing page was displayed:
As a gamer in my teenage years I must admit, I like the style. It reminds me of StarCraft or Star Wars games. As an entrepreneur, there are few things that I can’t understand. It seems that these are mistakes that (almost) everybody makes when they start their first venture. There are few business models that we can discuss like freemium or premium. In this article I will stop on the “paid” model.
Mistake #1 Working upfront
As an employee, would you work a month, or more before you know if you are going to have a salary ? Are you working upfront and then, in the near future, someday maybe, someone decides to give you a paycheck for your work? I hope not.
As employees we are starting working in a predefined office location, for a predefined salary and working hours. Whereas as a business owners, there is always a risk you can minimize and calculate the expected ROI (Return On Investment) for a given period.
My Facebook buddy Nikolay done the first common mistake – they worked upfront. I mean, they worked a lot. Six months with a team of three people. This is 18 months in total. Year and a half is gone. After all this time, he managed to register the domain needed and create the landing page and subscription.
Why is this bad?
What if nobody wants to pay for the product?
What if the service sucks ?
What if is not user-friendly ?
What if nobody want it ?
What if they want it, but…
What if the price is…
There are too many if’s….
No one knows at this point 6 months later, if this going to work or not. You just can’t predict, there is an enormous level of uncertainty here.
How to avoid this problem:
Once you have your idea in your head – create a landing page right away! Marketing is done from day zero! You need real data. Not for someone else, not for similar target group, or idea. A real feedback from your prospects.
Why is this a fix?
If you have done the right landing page it should answer questions and create pictures in the head of your target customer. The landing page should answer simple questions like – who are you, what are you doing and how, and most importantly, why (search for the Golden Circle in Youtube). Still not convinced? See point two.
Mistake #2 No metrics
Metrics are the key to success. They are your friend, your invisible allу that will teach you what is right and what is wrong. By using metrics you will learn how to build, measure and enhance processes in you company. But before being a successful business owner you should at least know if the current results and idea are leading you towards a company owner lifestyle or… misery, loans and tough life.
Pretend that you are having the service already with a landing page, do the pricing. Before making your page public, make sure you are not putting a “subscribe” button. This is not the metric you are searching for. Subscribers may just want to inform about the product, by hitting this button. Put the “Buy now” (order now, or similar) button and see what happens. How many visitors do you have? How many people have actually clicked on “Buy now” button? This will give you vital information where you are and how to proceed.
If you have your page already set up, you can easily calculate the CAC (Customer Acquisition Cost) and the LCV (Lifetime Customer Value). LCV as per Eric’s Ries definition in the Lean Startup Book is
“The profit you will make off each customer over the lifetime of doing business with you”.
As you can understand the LCV should be more than CAC. If your cost per acquisition is lower than you profit, than you are in the game.
Other important metric that I saw in a book that friend gave me as a birthday present (thank you Velizar and Mitko!) is to put a maximum loss threshold. Once achieved you just throw the white towel and realize that you lost this match with knock out.
If you are working for a project you can give yourself a timeline before this opportunity start bringing you real money. Even small profit (not revenue!) counts. You will still be able to maximize what works and do a bigger profit. On the other side, if you are having a business model, that generates revenue, but can’t build you profit – stop working immediately and get help! You can either sit on your own or look at the statistics or find someone better, who done this before, and ask if there is a chance for this model to start working. If the “doctor” replays you that your creature is dead, well be a grown person – face it, admit it, get over it and start again. This time better! Failure is inevitable part of the success. (FAIL = First Attemt(s) in Learning).
Why do I encourage you to give up? Many of the people will tell you – you know, it is hard, but you have to push yourself, maybe you need a bit more time, maybe….
Forget it. They are not working instead of you, neither they are going to succeed for you. They are just trying to be polite. If I could give myself advise as I registered my first company back in 2013th – this would be the best. I lost year and half (16 months) before realizing that I can’t just figure it out. There is no market-fit for my idea. I have spent around 5000$ in this time for this idea, a lot of sleepless nights and many unproductive meetings. Have I learned from it? Yes! Could I have learned in a shorter time and thus much cheaper? Absolutely!! If I had put my hypothesis on a landing page and have set success and failure metrics almost the same knowledge could be acquired for somewhere between 0 and 100$, and one to three weeks.
Key takeaway: “Fail fast, fail cheap”
Mistake #3 Not validating your ideas
Validation is the most important thing when it comes to startups. What is more important than validation is the correct validation. There is a great book called “The Mom test” which reviews a good aspect of validating. The landing page will pretty much give you a good idea where you are. But if you are making an offline product or service you put the next techniques in a good use.
Let’s say that you want to build an online marketplace for selling bio-food
directly from the manufacturer to the clients. My experience tells me that a marketplace is one of the trickiest models that you may want to build, because of it complexity. You have to be an expert in many areas. You have to know how to attract sellers and more importantly how to attract buyers.
So you are waking up with this great idea go to the Kitchen and say “Mom, you know, I want to tell you that I would like to sell bio cheese, nuts and vegetables in an online store. People are going to buy and I will just charge the buyer/seller a small percentage out of every purchase. What do you think?”
She might show you some interest and ask additional questions like “Hmm, how much would a pack of cheese cost? Do you think that people are going to buy?” …Or some other irrelevant questions. Why are irrelevant ? Because she is your mother (or other relative, or even friend) and no matter what you ask her/them they will most likely support you (read lie to you). Not because they are rude, but because they love you and want to give you support. This is not what you need an entrepreneur. You don’t need ego, you need information.
Here is how it would work:
You wake up in the morning and ask your mom/friend/girlfriend only if they are in your target group. If they are not, they opinion is irrelevant. So you go to your prospect and ask, “Do you eat vegatables?” (Hopefully Yes). “Where from do you buy them?” (here is some interesting info). “Why exactly from there?” – you can either ask or find out yourself in the previous answer. And most importantly “Would you use/buy ….. (your product or service) if it costs …..”. If they ask you why are you asking, you can always tell that “a friend of mine is thinking about some business around this” – just make sure that no one will give you the wrong answers because they love you.
I hope you got the idea. In the second conversation you have valuable information about how are your customers behaving, whether they are willing to use an alternative or what is the weakest point of their current habit.
Here are my top 3 ways for validating ideas:
- Ask if someone is willing to pay upfront after explaining – the amount is irrelevant. You can ask for a 1$ or two. The bottom line is – if they pay you upfront – they like what you do and your product. If they try to escape with “I’m broke or I don’t have any money now with me”
you will have to try with the following two
2. Okay I understand – you may replay. “Then, could you help me with….”. You ask for a specific help which in my opinion doesn’t need to take more than 20 minutes. This will show you determination that this person really like your idea or he doesn’t .
In case that you are speaking with a famous person, he or she can help you with her name
3. Ask the person,if he is relevant your customers and famous, recognizable name, to write a review about your product, or to advertise it in his network. This will help you a lot!
End of Part I
Guys, to be honest, this article took me hours. Please, be so kind sharing what your think in the comments bellow. I’m doing this for you! Any feedback is appreciated! Thank you!