5 Tips For Your Startup
Starting a web company is thrilling - the industry has a lot of momentum, opportunities are real and tangible, and there's still money out there for entrepreneurs who can combine a novel idea with great execution. It can also be scary and intimidating - putting it all on the line for a web application that may or may not be adopted is a gamble. Below are five insights I have gathered this year from hanging out with web entrepreneurs.
Customer acquisition trumps revenue
Focus initially on customer acquisition, not revenue. You've got to gain traction and win over users before you start charging for a service or product. Reverb Nation does a great job utilizing Facebook to drive adoption. Their Facebook app funnels tons of users to their application, resulting in a large user base to whom they can now offer paid features.
Similarly, try to design your product so that users can 'play' without paying. Lulu.com has a great approach for do it yourself authors. An author can go through Lulu's entire book publishing process for free. A charge is only incurred when a book is ordered. Allowing users to experience your product without the barrier of a financial transaction drives stickiness and adoption.
Have revenue to show before asking for funding
Try to start your business as inexpensively as possible. You don't need much cash, provided you have a technical partner building your app. A monthly fee for virtual server space could be the extent of it. However, as your business scales, you'll need more cash for hardware, contractors/employees, legal fees, insurance, or more server space.
Before you hit the money trail, have some revenue to show for yourself. Argyle Social, a social analytics app, did a good job at this. They built the first iteration of their product themselves, then won an NCIDEA grant that enabled them to hire a couple folks to build out a beta. They then successfully won enough clients to convince investors and close on a very healthy first funding round. Most of us don't have a couple hundred grand to get going, so if you need an investor, try to follow Argyle Social's example.
Keep listening to customers
Sometimes what an investor wants does not align with what users want. Investors want a return on their money, which can mean focusing on areas that are 'hot' to increase their chance of a payout. However, users may not want a mobile app, instead they may want you to negotiate better pricing with your shipping vendor. Shipping is not as fun as a mobile app, but (in the case of this example) will have more traction with your users. Keep your product backlog focused on real user needs, while mantaining an eye on where the industry is heading.
Be a lean startup
The basic idea of a lean startup is to deploy staged releases of your product early and often, rather than spending a year building a product before deploying. Run a lean startup with the following approach:
1. Release your alpha product as quickly as you can with minimal investment. Your goal should be to make a product that doesn't suck. It doesn't have to 'wow' anybody, it just has to work (most of the time).
2. Let your users bang on it and gather feedback. Set up Google Analytics for free and analyze the data. Use your learnings to build out a beta with the goal of making a product that people will actually use and perhaps even pay for.
3. With a few customers under your belt and cash in your pocket, secure your first round of funding and take your product out of beta with a product that users will love.
The first iteration of Twitter was launched in two weeks and they've been iterating since. Iterate, iterate, iterate; release early and often. For the most part, the days of a large upfront investment are over - lean startups are a response to the new reality and are ultimately more effective and efficient.
Set up an advisory board
Surround yourself with people who have done this before and know what they are talking about. This can come in a variety of forms. In Durham, NC, we have 4 local incubators, with industry veterans who spend their days helping entrepreneurs. You could find a faculty member from your alma mater or an entrepreneur support group. As your company grows you will be faced with ever more complex choices; having experienced voices helping you make the right decisions is invaluable. Approach a handful of individuals and put a board together - offer them a small equity stake and empower them to have a real say in your business.
The best lessons are learned through action - there will always be another book to read, another conference to attended, or another idea to choose - in the end you just need to start.
Viget spends a chunk of time working with startups. It's fun, we deliver value, and it keeps us on our toes. We are always up for a conversation; keep us in mind when you get that first round, and good luck.