Here are some notes on what I’m looking for in my next business, based on some hard lessons learned. Enjoy!
- It is a better mousetrap. Revolutionary ideas are very risky. If you can enter a known market where there is already money and competition and simply make it more efficient, then you are adding tangible value.
- It uses simple/boring technology – Don’t fall in love with your product or your technology. Sexy tech sites like google/facebook are the exception, not the rule. There is a graveyard of cool tech startups out there. The odds of you building a business based on some cool wizbang technology are *much* smaller than the odds of you taking some known technology (open source or otherwise) and applying it to make an existing market more efficient. You will avoid the tendancy to become obsessed with feature creep and adding too many bells/whistles.
- It is priced to be sold online at volume with a *very* short sales cycle (10 minutes?) that involves one person making a decision. Products with short sales cycles give much more tactile market feedback than 6 month or 1 year enterprise sales. Ideally the product is priced less than $100 or at least less than $200 — products priced higher than this will not be as easily sold via online ad networks/ecomerce. Online advertising scales fluidly and quickly.
- It can be grown via online pay-per-click advertising (as opposed to growing an in-house $$$ales force). Online advertising doesn’t work as well for new products/markets as it does for known products/known markets because people don’t know what to search for if the product/market doesn’t exist.
- It targets a sufficiently focused niche. Instead of targeting authors, target children’s book authors, or even better, Dallas-based childrens book authors. If you can create something successful for them, then you can grow your product to add adjacent but similar markets (like Austin-based children’s book authors
. A tightly focused market sets you up for a small success which you can build upon. You cannot take over the world in a single bite. - The market can be proven on a shoestring budget. Its 2008, and starting a tech company costs a FRACTION of what it did in 1998. Companies nowdays should *only* be funded based on performance. With Jambo, we took on money in order to build our product, which is a terrible idea. Therefore, any product development that needs to happen should be kept to the minimum amount in order to establish a pilot. Once the pilot has proven to be successful, then, and only then, should you add some $$$/fuel. Even then, only add features and only develop what *multiple* customers are telling you they want. Never, ever think that you know more about your customer than they do.
- The business doesn’t have a “network-effect”. VC’s love network effects. Entrepreneurs should hate them. Network effects mean that you are a billionaire after *everyone* is using your product (your fax machine, your facebook, your credit card), but if everyone uses the guy’s tech next door, then you are screwed. VC’s bet on 20 different businesses in the hope that 1 of them will have a successful network effect. However there are 19 fucked entrepreneurs in that equation. Far less risky to have a product that one person can derive value from, even if no one else uses it (a cool chair, a piece of land, an ecommerce site)
- It has a crystal clear value proposition that my mom understands. I should be able to explain it to her in fewer than 10 words and she gets it immediately. No questions asked.
- It has a reliable, repeatable, scalable sales process. The sales process needs to be a boring/cookie-cutter/scriptable operation that is sold by a 10-word google ad click-through sale or else sold by a $10/hour scripted call-center person who makes 30 calls an hour. Consulting is the exact opposite – every sale is a high-touch, custom sale that can never be repeated. Creative sales guys are expensive. McDonalds hamburgers are a reliable, repeatable, scalable sales process.
- The business can be automated. Sales -> deployment/fulfillment -> support. The business can eventually operate itself with minimal input, so I can move on to the next one!
