How Not to Start a Business
You have a great idea for a product. You have been in the industry for years and you are sure you know what people want.
Everyone you asked has said they love your idea would definitely use it. You either go build the product yourself, get a programmer friend to help you, or go raise money. And you have to hurry before somebody else steals your idea.
You spend a lot of time and possibly money building the product. You are in stealth mode. Maybe you go raise money or maybe you hunker down eating ramen noodles and ignoring your family while you create your masterpiece. Trust me I have been there. I spent 18 months, 100,000 lines of code and $75,000 building my first product in 2001, almost losing my best friend in the process.
When the first version of the product is done, you have a launch party and wait for the sales to come in. You tell a few people. You think this thing is going viral. Wait. Nothing happens. Maybe you get a little bit of publicity. Maybe a few people try it and don’t stick. Maybe you get a little depressed at all this work and no sales.
You think the reason people aren’t using it is because it doesn’t have feature X, Y, or Z. All you have to do is work hard. You proceed to spend more time putting in those features. Rinse, lather, repeat.
You continue until the business dies a slow death. Maybe one or more of the partners leaves. Maybe you run out of money. Maybe as a programmer you realize you aren’t making half as much money as you could working for someone else. Either way the business is gone. You shut it down. This can take years.
A few years later you are older and wiser and so you start again. You have this great idea for a product.
The Right Question
Believe it or not, many businesses go this way I am a ashamed to say it is how more than one of my businesses has gone. The problem is that you assume you know what customers want. If what you build isn’t what they want, and 49 times out of 50 it isn’t, then you have wasted a lot of time, money and effort into building a product that nobody wants or will pay you for.
If you go through this process of building something nobody wants enough times something interesting happens. After the mental breakdowns and the serious questioning of your self worth, you eventually stop thinking you know what customers want. You think, screw it. I am stupid. I know nothing. Let me go figure out what it is that people want instead of assuming, and that my friends is the right question.
What To Do Before Starting a Business
I wish before I had started a business someone had sat me down and forced me to read books on advertising. Especially books from the old guys who created advertising and came up in mail order in the early 1900s. Reading these books would have quickly extinguished the fallacy that I had all the answers and could build a perfect product that the market, which of course existed, would flock to.
These are the books that I would read and the order in which I would read them.
- My Life in Advertising / Scientific Advertising by Claude Hopkins.
- The Robert Collier Letter Book by Robert Collier.
- How to Write a Good Advertisement by Victor Schwab.
- Tested Advertising Methods by John Caples.
- Advertising Secrets of the Written Word by Joseph Sugarman.
Reading Hopkins and Collier, you see many interesting patterns arise.
These great ad men would start with smaller accounts that had a marketable product. They would then immerse themselves in that product and other competing products. The would research all the features and benefits, all the tangential information. They would use then use that knowledge to advertise their product in a way that would strike a cord with common people. They would test their copy by running ads on a small scale, say for one town (it was a little different back then). If that proved profitable they would roll out their ad campaign nationally and sometimes internationally (in the early 1900s). This was how they grew brands we still know of today like Goodyear, Schlitz Beer, and Quaker Oats.
And that process is the same process I would take with any new business today.
How I Would Start a New Business Today
I would start by researching products not by creating my own product (yet). I would research to see what the general trend was in society and see which products were currently selling. I would narrow it down to a few different types of products I might be interested in.
I would then take each of those product ideas and research it deeply. Find all the features and benefits of all the products that are competing in that area. I would go read message boards and forums where people are talking about those types of products. I would try to understand all of the information that is loosely connected to those products. In essence I would become an expert on those product areas.
The features and benefits and other information should let me know the emotional reasons why people are buying. It should let me know where the opportunities are to position a product, where the holes are in the current products on the market. And it should allow me to start coming up with some assumptions and creating some test ads for those assumptions.
Since I didn’t have my own product yet I would test in a couple different ways:
- Create a website that advertises your product in a coming soon fashion. Have a mailing list they can sign up for to be notified when the product is done.
- Start off by selling somebody else’s product.
Running test ads on a small scale to track signups to a mailing list or sales of an affiliate product should enable your to tell if your ad assumptions are correct. You should be able to verify the market and the emotional reasons why people are buying. If you find you aren’t getting any response, that is great, move on to another product or market. You haven’t spent years building a product that nobody wants. If you do get response, tweak your ads until you are getting a response that will be profitable.
Here is an example of a profitable response. Say I have a Google ad that brings in 100 people a day at $0.25 a click costing a total of $25.00. Out of that I get 3 people to buy my product for $20.00 each for a total of $60.00 revenue. Minus the ad cost would be $35.00 net revenue. Take off whatever it costs to produce the product and you have profit. If there is a bigger market and you can ramp up by spending more money, then you have a profitable business system. For something like a mailing list you have to assume some percentage of people who signed up for the list would buy the final product.
One you have a profitable system, you can decide whether or not to create your own product. If you do then you know what people are buying, their emotional reasons, where the holes are, where you can improve. You have tested and verified the market exists. You aren’t spending time on hope as a business strategy.