The first thing to remember is that there are a lot of people that have invented (and patented) better mouse traps that are flipping burgers at MacDonald… A successful startup need a balance between marketing and development. I have seen startups where sales and marketing generated orders that could not be fulfilled by development because they promised stuff that was not deliverable. I have also seen startups with excellent product that could not get enough sales to maintain the company.
Recently I attended an evening called “Speed Geek” – a cross between Speed Dating and Dragons’ Den. Two of the sets of pitchers were folks that I know from various local groups – I got indirect feedback later that for both sets, I provided the best feedback of anyone taking part.
So, I thought a post describing what I consider to be due diligence before ‘investing time or money’ in a startup.
Best of Breed Analysis:
- Have you Googled and identify all existing competitors?
- Have you created a spread sheet for each competitors citing their feature sets (and short falls)?
- Have you obtain information on their pricing or business model?
- Have you obtain a list of existing customers?
- Have you investigated the characteristics of their staff (LinkedIn.com is ideal for this!)
- Have you obtain information about their sales/revenue?
All of the above “boring business stuff” is essential. If you have trouble doing this yourself, you may be able to find a seasoned new-product manager to do it for you for an equity stake (I would suggest 5% – after all, the odds are that the results will be a “no-go” so it must be worthwhile enough risk for the person to put their time into!).
So what does the above give you?
- Taking a UNION of all of the features should give you a rough specification of what should be in your product – you want to be able to compete on features!
- This specification can now be used to estimate time for development and man-hours required.
- Identify some candidate customers to approach (steal!) by offering the product for free as a beta to get essential feedback on what it would take to steal them to you!
- Viable pricing range – you may feel it’s worth $1000/seat but your competitors are licensing it at $200/site…
- Is this a saturated or underserved market? Do you make it by stealing customers or by making new customers (from people that are not using any existing products).
- Reverse engineer some competitor products --- often a sale depends on the ability to migrate their data (think MS Money –> Quicken, Microsoft Word –> OpenOffice)
Open Source Analysis
You need to review all open source projects in this area. The reasons are as follows:
- If any of them are technology-compatible with your skill sets, you may wish to get involved in the open source activity and shift to a Services Model. Your business model is customizing and extending the open-source product.
- They can often serve to jump-start development (many of the features may already be implemented) if the licensing is suitable for borrowing.
- The folks active on open-source equivalent are possible “remote developer candidates” if you go proprietary and need to grow staff.
Putting up strong fences
By this I mean, how do you keep your company alive once you get enough of a market that someone else wants it!
- Remember, the above analysis – you want their analysis to be unfavorable once you are established!
- Classic Fences:
- Intellectual Property (Patents)
- Better pricing
- Better features
- Lower learning curves
- High cost of moving data to a new system (the “LockIn”)
- You can be friendly for exporting slices of data while making a migration difficult.
- Better customer service/satisfaction
One of the thing that dominated the Speed Geek was folk that had no business expertise or knowledge in the area they were pitching. Think of “back-seat driver” or the family health advisor (“Drink plenty of chicken soup”). Without an understanding of how the people who may be buying or using the system, you will likely design an awkward product and run out of funds before you can do a revision.
If you are a software nerd, enlist your significant other or friends to provide business expertise – often good products come out of user frustrations…
A good startup team consists of a marketing type, a new-product manager, a domain expert and development. Your odds of success increases with the amount of experience in each. In some cases one person can do all of the roles…. but that is rare and often the bandwidth to do it decreases over time if you are successful. If you do not have the money to hire, then consider equity stakes instead – don’t be cheap here or you will end up with 3rd string folks only. Don’t just fill positions with warm bodies – go for folks with the best track record/expertise and acquire one at a time. The current team should unanimously approve each new member. Often a veto will happen because someone sees issue of “philosophy conflict” or “personality conflict”. Respect the veto – you cannot afford wasting energy dealing with these issues.