I've begun taking detailed notes for the entrepruneral presentations, articles and books I find most valuable. For now, these notes live here as a collection of Gists.
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November 16, 2016 06:43
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Entrepreneurial Notes
In his talk, Jason identifies qualities of an ideal self funded business.
First, identify potential customers and gauge their interest. Don't start building until you've vetted your idea. John used LinkedIn to find 40 Wordpress consultants when launching WPEngine.
- $10K/month in recurring revenue
- A thousand clients is totally unrealistic. Aim for 150 Fans
- That means an average of $66 a month
- Don't plan on charging $20 a month and making it up in volume. Find a way to charge an average of $66 a month.
- You might have a shitty product, shitty marketing & shitty website. But consider yourself a boutique. People shop at boutiques.
- Have three+ price points: eg. $49, $149, $249
- The highest price point should be the "Business Plan"
- Use price point tricks ($79 <- cross this out, replace with $49)
- Don't offer free trials. Offer long term money back guarantee (90 days).
- Don't offer free trials so that you always collect a credit card up front.
- Don't pick up pennies (1% of transactions a la Kickstarter)
- You must use the annual prepay "trick". This will solve your cashflow issues.
- Two months free for customers who pay annually.
- At WPEngine, 1/4 of signups are annual prepay.
- Offer a coupon (three months free instead of two). Share this coupon with bloggers.
- By solving your cashflow problem you'll have the money today to invest in your business. Spend the prepay money on marketing, design, features, etc.
- B2B, no other option.
Temporary pains don't produce recurring revenue. The pain is short lived, so your sales opportunity is short as well. Even if you do make a sale, that customer doesn't need you again and again. Examples include events planning, recovery tools, etc.
- They usually don't work.
- It's hard to get going (big investment to get the first 1,000 or so users)
- Chicken & egg. Plus this is really two businesses. Too much work and risk.
- If you're successful, it's very defensible. But very hard and costly to achieve.
This way it's obvious to users why they need to pay for the service on a monthly schedule. Your business costs money to run (storing data, running servers, employing service reps, etc) and someone needs to pay the bill.
Financial markets tend to fall in this group. Invoicing, HR, admin, taxes, etc. Support is also naturally recurring, but risky because it is time dependent. A easy hack for generating recurring revenue via support is to charge a monthly fee to jump ahead of the queue of support tickets.
- Avoid markets where user need your service in the middle of the night. Hosting is a bad example. Invoicing is a good non-realtime service.
- Anything related to decision support is a good fit here.
- For example: analytics, finance, project management
- Avoid things that an outage would cause users to cancel.
- Avoid feature wars with competitors.
- Examples: WinZip, Basecamp, Hosting, Time tracking, etc.
- Examples: Balsamiq (was an addon to Basecamp), WooThemes, Heroku Addons
- You get a lot of built-ins with this approach. Often, an established audience, marketing method and community.
- Small markets don't leave enough room to pivot
- As a startup you won't get it perfect the first time, so big markets afford mistakes.
- You can still work within a niche, but do so inside a bigger market.
- In a bigger market you don't need the be the best. Consider the number of invoicing tools.
- Social media is a not repeatable method to finding customers.
- Choose an acquisition method that is repeatable and has a clear cost & result. E.g. $3 in -> 1 new customer out.
- Social media is ever changing, it's time consuming and difficult to find a voice and audience.
- How much should you pay for a click? Average monthly revenue per customer / 25.
Are you crazy??! If I'm successful, I'd never quit!
Successful companies continue growing. Which means you'll need to:
- hire employees
- deal with complicated business stuff
- expectations will rise
- you'll be a manager (blech)
- support needs will grow
If you succeed, your business won't remain the small micro business you planned.
- Let the company grow, become a manager. Maybe hire someone better qualified for that job.
- Sell the company (to partners or outsiders, maybe a customer?)
- Raise prices (but this might negatively change expectations)
- Raise money and go BIG (but then you should have done this from the beginning)
Josh describes the steps required to identify and validate a potentially successful business idea. Then he breaks down the fundementals of every business and what forms the value a business delivers can take.
The goal of market research is to idenify potential markets and he solutions a business can provide. During this phase you should be identifying:
- Problems you could potentially provide a solution for
- The market who would be interested in your solution.
The goal of market evaluation is to reaarch the pros and cons of a specific business idea. Evaluation does not involve any building, it's strictly research based. In this phase you are attempting to determine if an idea has potential. Consider:
- Upfront investment
- Product value
- Market size
- Cost of customer acquistion.
Go out in the real world and ask a potential customer if they are interested in the idea. Ask, would you pay for this? Can I have your money now?
Market research, evaluation and validation is a two-way process. You're trying to determine two things:
- Is this business idea a good fit for the customer?
- Is this business idea a good fit for you, the owner, longterm?
There are many neat/good/cool ideas out there that aren't worth pursuing because they aren't a good fit in both directions.
Uncertainty
You can't be sure an idea will be successful until you go out in the market and test it. Until then, you're making an educated guess.
Change
The marketplace we're considering entering is constantly changing. It's even changing while we're busy considering entering it! Needs, tastes & expectations never reamain constant.
Given the uncertaintiy and change, we need some priciples we can use that we can rely on during the evaluation process.
Markets that don't exist, don't care how smart you are.
Your idea might be novel, but if no one is interested and willing to pay it's worthless.
To understand how something works, understand how it can fail. Here are three common complaints from failed businesses:
- I can't find people who are interested in my product.
- People are interested, but they aren't paying.
- I have customers, but I'm not making enough money.
Market validation can help you avoid ever facing the above problems.
What is business? Every business, large or small is comprosed of five steps, more or less in the following order:
- Value creation
- Marketing (results in a prospect)
- Sales (money exchanges hands, money flows in)
- Value Delivery (deliver the product). Be sure to anticipate what effort is required to deliver the value.
- Finance. Review $ in and $ out. Is there a profit? Is there enough profit to make time & effort worthwhile?
If you can explain how your idea will accomplish each of the above steps, you have a business plan.
Focus of two angles:
- Making the customer more awesome
- Makeing the customer's life less awful
The larger the hassle the bigger the business opprotunity. Go out into the world and look for hassles. See if you can reduce:
- friction
- time
- effort
- stress
Does this idea have the characteristcs of success? Evaluate your idea against these ten characteristics. How does your idea stack up?
- Urgency. More urgent, the better.
- Size. How large is the market for the business? Larger the better.
- Pricing potential. How much could you charge?
- Cost of customer acquisition.
- Cost of value delivery.
- Uniqueness of offer. The more unique, the more valuable.
- Speed to maket. How quickly can you offer the product? Faster the better.
- Upfront investment. Lower the better.
- Upsell potential. What else can you offer prospective customers?
- Evergreen potential. Will this product ever be finished? Or will you need to constantly put effort into the product?
No matter the product or service, every business will offer their value in one or more of the following "shapes":
- Product (toy, app)
- Service (haircut)
- Shared resource Build it once, let many people use it. (museum, saas)
- Subscription some value now, comittment to future value (newspaper)
- Resale Buy at wholesale, sell at retail price. (retail store)
- Lease Buy something and let customers use it for a fee. (hotel room)
- Agency When you don't own the inventory. (marketplace models, AirBnB, Ebay)
- Audience aggregation Selling access to a unique audience. (advertising)
- Insurance Transferring risk from buyer to seller.
- Options Give them the option to do something. (support retainers)
- Loan
- Capital (invesment in return for equity)
Package your offerings in one or more of the these twelve forms.
The value you deliver will be in the form of the following nine economic values:
- Efficiency
- Speed
- Reliability
- Ease of use
- Flexibility
- Status
- Asthetics
- Emotion
- Cost. Must be less than value received.
- Prototype. These can be expensive.
- Sell sheet. Simple, mostly copy. Present the idea and include a price.
- Talk with your best potential customers. Show them the prototype or sell sheet.
- Ask them, will you buy this?
- Then ask for their money. It's a totally different answer when you ask for money. If they aren't game, find out why?
- At a minimum, collect email addresses
How to Build Great Products - Slava Akhmechet
When developing a product, you'll be forced to prioritize development efforts. Your first step should be to analyze the proposed features and bucket them into one of three categories:
- A gamechanger. People will want to buy your product because of this feature.
- A showstopper. People won’t buy your product if you’re missing this feature, but adding it won’t generate demand.
- A distraction. This feature will make no measurable impact on adoption.
Disciplined product development should:
- eliminate the distracting features
- cover all the required showshopper features
- make space for gamechanging features
According Slava: emperical evidence show that successful products have:
- 2-3 gamechangers
- dozens of features that neutralize show stoppers
- very few features that are distractions
If you're attempting to develop more than three gamechanging features, you're trying to do too much and likely won't finish on time. But you must put enough creative energy into every gamechanging feature. If you don't, a gamechanger will likely become a distraction.
Sometimes a single feature alone isn't a gamechanger. But a number of smaller features together can result in a gamechanger. Aggregate gamechangers are more risky and often a sign of a mature market. Avoid them if you can.
When you're working an a new industry determining what is a gamechange, distraction or showstopper is not easy. So inject yourself into the industry. Talk to other engineers, potential customers, competitors, etc. Talk with anyone who's part of that industry.
While out talking with others about your product, be mindful of their perspective and their role in your products success. Pay the most attention to your potential customers (not just users, the two might not be the same). They're the ones who will decide whether or not to pay for your product.
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