Funnily enough shutting yourself into a dark room, taking months to build a product and then offering it for free to “see if they will come” might not be the best way to start your first business. Here are 5 lessons we learned in the early stages of our business.
A few years back I was approached by couple of friends of mine with a “great business” idea that they were really passionate about. They wanted to run it past me, I was flattered and thought I should hear them out.
At the time I had recently left what I had considered to be my best permanent job ever to start in the world of contracting — making that leap was a big decision for me and I have never looked back. It was an exciting time. I had recently entered the world of self-employment but I wanted to transition into the world of business owner and this looked like an opportunity to do it.
Mistake #1 — We just built it
We all got together and started discussing the concept, coming up with our various ideas for what the product should look like and what features we should develop.
At the time we were driven by our own experiences of the problem and felt between us that we had a good handle on what was missing in the market place — we had fallen in love with our solution. Not once did we think about how we might validate the idea with our potential customers nor did we think about revenue streams, channels to market, cost of development, unique value proposition or unfair advantages.
We were all skilled developers, we new what we wanted to build and we knew how to build it, why on earth would we do anything other than get cracking.
The problem though was that we were re-enforcing our own “innovators bias” and convincing each other we were doing the right thing.
Each of us were still employed/self-employed full-time so we were developing the product in our spare time. This meant that development took longer than expected and after a period of about 6 months or so two of the original team decided that it wasn’t for them and pulled out to pursue other ideas that they had.
The remaining two of us felt that there was still a potential market for the product so we carried on regardless.
Mistake #2 — Offering the product for free
About 1 year past and we finally got something ready for the world to see. We decided that we should offer it for free initially, since we didn’t really know what to charge for it and we hadn’t built a way to bill customers anyway. Plus we weren’t even sure whether people would be interested in it.
We launched and we started getting sign ups, getting the first registration email through was a great feeling. Then we got some more sign ups, then some more. This is awesome we thought, we’ve built something people want and they are coming to get it…job done!
By offering the product for free we were getting traction and customers from countries all over the world were starting to sign up.
Unfortunately, in reality all we had done was increased the burden on an already constrained team. We spent more time doing support tasks rather than carrying on with feature development so things started to slow down. The cost of hosting was also going up so having these customers on-board was really starting to become a big drain on our resources.
We decided that we needed to ditch our free customers and move to a paid model. We had worked out our pricing so that if we managed to keep 25% of our existing customer base the product would cover it’s costs.
After launching our paid plans we lost a lot of the customers on free accounts but we did manage to convert enough of our users on to paid plans that meant the application paid for itself and covered future hosting costs. It also managed to pay me back some of the money I had put in to cover the initial hosting costs so that was a bonus.
However, after changing to a paid model, as expected our customer acquisition rate fell. This meant we needed to start understanding what value our product was giving to our customers that were paying so that we could start finding more customers like them.
Mistake #3 — Being led by our first big customer
After moving to a paid model we attracted our first “big” customer. At the time a big customer for us was company with more than 100 employees. This was a big deal for us since most customers previously were between 5 and 40 employees.
We thought having a bigger customer on-board was great since it meant we could learn more about what other bigger customers might be looking for in our product. So we started talking with them about the kinds of features they needed and we ended being completely led by them for a significant period of time.
This turned out to be a big mistake, we focused all of our attention on building features that were specific to that customer and not related to our core product offering.
Mistake #4 — Your users are not your customers!
It sounds simple doesn’t it and I cannot believe we didn’t work this one out sooner but it was only after we came across the Lean Canvas by Ash Maurya that we took a bit of a step back and re-evaluated what we had been doing.
After filling in the Customer Segments section of the canvas it hit us like a ton of bricks, we had been building features for our users and not our customers.
All this time, we had been focusing on what it would take to make a great user experience for the end user rather than a great user (the employee) experience for our customer (the administrator).
Why is this important? Because our customer is the person that actually has the budget and is paying for the product. They are the decision makers and the ones that would sign off the budget. We had been spending time developing features that we thought would make the end users life easier but all the time we were introducing complexity and configuration head aches for the administrator of the system who would be the person that ultimately purchases the product.
Mistake #5 — Work on your business not in your business
When we first set out on this journey we thought that since we knew how to develop software for a company we knew how to run a company that sold software, how very, very wrong we were.
Probably the hardest part of our journey into entrepreneurship so far has been the mindset change from maker to manager. The realization that we had been working in our business rather than working on our business was a tough pill to swallow.
Since my partner and I were both “makers” our default behaviour was to do “maker” tasks such as building more and more features. We thought that if customers were not buying our software it must have been because we didn’t have the right features so we just built more.
It was only after we read the book E-Myth Revisited that we began to understand where we had been going wrong. We had been working on building a business to replace our day jobs but it turned out we would only be replacing it with just another day job, it just happened to be in our own company.
Switching our mindset to work on our business meant that we began defining the roles within our company, understanding what tasks were performed by those roles and then set to work replacing ourselves with other people in those roles to get the tasks done.
What can you learn from these mistakes?
If you are looking to start a new business I hope that you can learn from some of the mistakes we faced. To recap these are:
#1 — Don’t just build it
Try to follow Lean Startup principles and validate your ideas using experiments before building the actual product. If you are a “maker” this might be easier said than done but I urge you to take the time to better understand how to do this. We recently started a local meetup group in Bournemouth, UK called the Go Lean Workshop to share some of our learning with others.
#2 — Don’t offer your product for free first
Validate that customers will pay for your product early, this is one of your biggest risks. Customers that don’t pay will just be a drain on your resources and draw your attention from the things that really matter.
#3 — Don’t be led by your first customers
Don’t assume that what your initial customers ask for is what your future customers will need. Having customers is great and learning from those customers is essential but you must make sure you are not led by a single customer that has very specific requirements.
#4 — Don’t mistake your users for your customers
Fill in a Lean Canvas and try to understand who your customer really is — who will actually be buying the product and who will be using the product. Knowing this could significantly change what you build first.
#5 — Don’t work in your business, work on your business
Shifting your mindset from maker to manager is an essential transition that you will need to make in order to create a successful business. Start now, it will take longer and be harder than you think! The sooner you realize that your business is bigger than just you the better.
I hope you found this post useful. Please feel free to leave any comments or feedback.