One Huge Mistake that New Startups Make
I recently spoke with a client who is planning to launch a startup in the personal coaching space. I’m not able to go into details because of confidentiality issues, but I can tell you that the technology involved in setting up the platform to enable client/coach communications in a secure fashion along with some other features will cost him between $20k $30k. Considering that the company is self funded and bootstrapped, that’s a pretty hefty sum. But like most entrepreneurs, this one wants his product to be the best that it can be so that people will want to use it and, more importantly, pay for it.
Intrigued by the startup idea, I asked the client whether he and his cofounders had any paying clients lined up to justify investing such a relatively large sum of money. The answer was no, but that they are positive, based on their knowledge of the market and experience in the industry, that their product will take off in a big way. So they want to do it right from the get go.
I then suggested that they read The Lean Startup by Eric Ries and that they first create a Minimal Viable Product (MVP) with which to test their business idea. Their MVP would consist of a website that would explain their product, collect contact info and allow visitors to sign up and pay for their service. The actual coaching sessions and all the logistics surrounding it like scheduling, follow up and anything else that might arise would all be done manually using free tools such as Google Docs and Sheets and Skype. The users would still be getting the service they paid for and the startup founders would only to pay a fraction of the cost they originally estimated.
I told my client that once they get enough paying users to prove their business model, they can then invest in building out their custom system. Best of all, they’ll be making money as they do it. On the flip side, if the demand they thought existed turns out to be insufficient, they can either modify their model, pivot in a different direction or just close up shop without having lost a lot of money.
What I described, in a nutshell, is the lean startup method. Instead of following the classic “if you build it, they will come” method of spending tons of resources on creating a product that people may or may not want, the lean startup method advises created an MVP to test the business model. The feedback that is then gained from real customers can be used to refine and modify the product, resulting eventually in a finished product with proven demand. A portion of the money that you didn’t pour into premature product development can be used to market your MVP and get users, to validate your business model. Many bootstrapped businesses that fall into the trap of spending heavily on product development end up with no money to market their masterpiece. That equals big trouble.
It’s important to remember that customers are looking for solutions to their problems. They care about the end result, not what you had to do to arrive at that result. If a client pays for a ditch, they couldn’t care less if you dig it by hand or with a brand new Caterpillar excavator. As long as they get their ditch on schedule and according to specs, they’re happy. If you can solve your customers’ problems without spending a lot on technology, then it makes sense to do that until you know you have a healthy demand for your product or service. Then you can invest in technology to scale your business with much more confidence and much less risk.
Have you used the lean startup method for your business?