5 Critical Must Answer Questions For Start-ups

After interacting with 5 different start-ups in the past month or so at all different levels, from an idea and no pitch to well funded and right at the MPV stage (not most valuable player, but Minimum Viable Product), I have honed it down to 5 critical questions for start-ups that they MUST get right or at least have an answer that makes sense.  And, let me say that I have often been a passive person when it comes to pushing start-ups this way or that or anybody for any reason because I am also under the belief that I don’t know most things (like the mind of a 12 year old person’s market).  I would say, admitting you don’t really know the answer is the first step towards finding an answer to these questions.  My proclivity for passivity is starting to wane, because quite frankly if you can’t answer these 5 questions correctly, then either you need to go back and start all over again (even if you are in year 2).  So I am no know-it-all, I am just going to question your status quo on what you think will be a successful service, app or product implementation but asking directly the most important questions. You decide if you’re answer is acceptable.  I also, speaking with an old friend who is involved with a ton of start-ups as well said to him, “Remember to be tougher on the next start-up guy/gal, because we often let clients fail because we don’t have the inner strength to say, NO YOU ARE WRONG”, at the right time and place (which is usually right at the beginning).  Now we all want to get paid as consultants, developers, lawyers, doctors, etc, but come on just to get the business keeping our mouths shut helps nobody in the end.  In fact the start-up will just fail badly, and quite often we knew why in the back of our heads, we just kept our mouth shut and got the pay check.

So here are the questions to ask the next start-up you come across, as well as the retorts you need to have in certain cases, so they don’t end up on a highway with no exits where the highway just ends:

1.  What is your business model or how do you make money?

2.  Describe your customer (personally who they are, what they are like, where they hang out and something tangible about them)?

3.  How are you planning on getting to market or getting critical mass?

4.  Who are you competing with?

5.  Who is in charge, is there already a problem personality on the management team and who is going to run it and who is standing behind the desk answering the phone all day.

Notice I left out one really important question, what is your product or service?  Believe or not, I am now putting that below these 5 questions.  It is important, but not as important as these questions.   I am starting to think a product can evolve, pivot, and become something else if it has to.  And a great team with the right resources in place can probably overcome any product/service question.  A dumb product obviously is a problem, but once again I am not going to be able to tell you what is dumb, successful or not.  I was out pitched a few months ago for our start-up social app by a group of kids with a game which blows the head off characters (huh!).  They got funded and we didn’t.  So maybe blowing heads off your mobile app characters is a great product.  It sounds stupid, but I don’t know.  I am not 12.

I am going to follow this blog article up with my thoughts on each of these questions, and how/why I think you could answer them right or wrong.  There are definitely wrong answers, like Facebook and we are better and bigger (get the picture). My answer to that was Wrong, we need to collaborate not compete (especially with ginormace, my son’s new word he invented, entities), that you can not imaginably compete with directly.  Collaborate not compete that is a mantra I picked up from CEO Space, and it rings true, especially with Facebook, since you can build an app within Facebook to get started and they are happy about it…

 

 

 

Tech Mind vs. Business Mind

I heard a great quote from a client running events over the past 25 years which went like this:

“You tech guys come up with cool ideas and try to find a way to make it work for the market.  [Putting his hands in the air and staring up at the ceiling] I start with who’s got the money and how can I take it from them!

When I first heard this from this person, I laughed because it is so true.  And since I have heard this quote I have repeated this quote to clients, friends at Caffeine Spaces and at Gold Coast Capital Ventures and everywhere I network at least once a week for the past 6 months!

Finally, after six months, I am finally sitting down and writing about this quote in my blog, because it has so many implications for programmers and kid entrepreneurs I meet with who want to start a small tech internet company and want to succeed but just can’t seem to get a tech start-up right.  And though it is not a hard and fast rule used in making decisions on what business to go in, determining the market potential is still the make or break point of deciding what business to go into.  Most of us techies just have a cool idea, but have no clue of the potential value of the concept or project and really don’t know who is willing to pay for it or what they are willing to pay for it.  Among the successful, there are those who figure this out right away and there are those are just get lucky being in the right place at the right time.  The right timers are the ones to watch out for, since they think they know something and the second time around is not always the same.

A Miniscule Market Inside Of A Tiny Market

Getting together for lunch with one of the founders of JDate about 6 weeks ago, we found some common ground discussing the issue of being in a start-up with a small market, and how this just limits what you are doing and that can kill the potential for investors.  It is important to choose your market wisely, and often techies don’t understand the market.  They just want to start coding.  For instance, the dating industry is generally speaking not the greatest sized market over all.  I am referring to market size by measuring how much revenue a year markets can produce.  I believe the dating industry is like a $2 billion dollar market a year globally (and though I use the word billion… it is not a good word when it comes to markets, because you never get 100% or even 10%, we are often lucky to get 2% market share).  E-commerce sales is $4 trillion a year globally and that market is terrific!  And if you were to create a Jewish dating site within the dating business, that will pretty much leave you with a $30 million dollar potential market size and basically 95% of that is already going to JDate, so what is your Total Addressable Market (the possible chances of a market)?  It’s really crap for creating THE next Jewish dating site since you will not unseat the leader  It could be a $5 million market, of which maybe you can capture 5%.  That is looking like $250k a year in revenue as your max potential and with an employee and a 40% margin… Get a real job.  It will pay more! Really not a place you want to go!

So, Why Do People Jump Into Crappy Markets?

This is where the tech mind overcomes the business mind!  I know, I have done it several times.  Techies and rational people get caught up in not the revenue size but the finesse of the project, how cool would it be to do x, y or z and either we have no marketing skills at all or we ignore the exit signs on the highway.  I guess we like to hear ourselves talk in the mirror about a cool technology or like to tell people what cool problem we will solve.  And yes tons of cool problems can be solved with tons of cool technical solutions, but the facts are the facts, market size is market size.  I had an MBA finance professor at Farleigh Dickinson in Madison, NJ who looked around the room and asked us what industry we worked in.  I was in Telco, and he said “maybe”.  Some people were school teachers, he shook his head no.  Stock broker, he shook his head no.  As soon as somebody said they worked in the pharmaceutical business he simply said, “I don’t care if you are going to be the bottom secretary, stay in that industry and you will retire rich…”  Point is, choose your market wisely.  Yachts and golfing are terrific markets for instance!

A Product In Search Of A Market

This is where tech guys and gals like me start.  We start with a cool thing and try to apply it to markets.  Stop right there!  Now, sometimes a cool invention or technology accidentally finds a market, but 90% of the time it does not.  Me thinks I can take a piece of web code in this market and shove it into that market.  I implore you to start over when it comes to your product, not just switch the website around or change the coding framework.  I have done this as well.  You have to start with the money each time you have a new product and figure out the market size, what they are willing to pay for it, what it is worth to the customer if at all, what the asset value you are creating is worth or what intangibles you are creating.  You see there is also the consideration of what your asset you will be creating and what that will be worth to a buyer, but we are not talking about customers now, we are talking about competitors and buyers of software companies!  Creating a tool that needs to be acquired by a Google or another company is another form of measuring the market before creating the technology.  In fact asset selling, not revenue is the number one way techies make it big.

The Socratic Within ME

Now I am going to reverse directions a bit and give you the upside of being a techie and start with technology and how you can figure out a path to the market.  Like a recent blog article I did on “Why I Don’t Really Know Anything” in the article How To Respond To New Ideas proves that there could be something within the techie cool thing you have been building that can be re-purposed for something real and marketable.  But you have to start from scratch in terms of the final product.  You simply have to match a problem you are solving with different markets, and switch the problem to a different market until you keep increasing the size of the market.  Now you may have to stay in a niche.  I recently met the founder of Veggidate (yes for vegetarians) and its small but that is a good niche to hide in.  So, let’s start again with the dating site.  So you still have not given up on the Jewish dating market.  You are determined, you are a programmer and you don’t listen well. Well, let’s either introduce your product in a new and growing market (mobile) or a new avenue (events) or a new methodology (education) and re-enter the market.  Because if you were able to conquer one of these three areas of markets that JDate site does not have ownership of, you would be able to get maybe a smidgen of a market, but more importantly, your company would be on the target list of successful businesses they are looking to buy along with a bunch of other people obsessed with serving a small market just because you like to…  But leave your expectation for financial success at the door.

 

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