A founder I was meeting for the first time was telling me about her startup. She spent the first 15-ish minutes of our meeting describing her project. Then, once she’d told me everything she wanted to explain, she asked a question that, to her, seemed simple. She asked: “Why is nobody buying my product?”
It wasn’t the first time I’d been asked that same question by a founder. In fact, I get asked that question almost weekly. But something was particularly jarring about the way this founder asked. She did it in the same way she might ask me to name my favorite color. In other words, she asked me to identify the fundamental problem with her startup like it was the most basic question in the world.
Of course, it’s anything but a basic question. Sure, it seems simple, but it’s actually an absurd question because every startup is different. Maybe the product is priced too high. Maybe the marketing strategy isn’t good. Or maybe the marketing strategy isn’t being properly executed. Maybe the quality of the product is bad. Maybe the product needs to be a different color.
An infinite number of potential reasons can prevent a product from selling. If the founder can’t figure out the reason on her own, how the heck is someone outside of the company going to be able to diagnose the issue in a 30 minute meeting?
At least… that’s what I used to think. These days, I think something different. I believe the answer to the question: “Why is nobody buying my product?” is the same for 90% of all entrepreneurs and their new companies. I discovered the answer by accident thanks to my four-year-old daughter and her obsession with riding a miniature train.
The museum and the train
Ten minutes from my house there’s a local children’s museum called the North Carolina Museum of Life and Science. It’s not exactly Disney World, but it’s a great place to bring young children on weekends so they can run around and explore lots of child-friendly exhibits (i.e. things that are very hard to break). My family goes to the museum so often that we have an annual membership, meaning we never pay an entry fee. Instead, we check in at the museum’s front desk and then walk in.
When you check in at the front desk, the attendant always asks if you want to ride the train. The train is… well… the kind of train you’d expect to see at a small, local children’s museum. It’s more like a carnival ride than an Amtrak. The seats are cramped and hard, the speed is somewhere between sloth and turtle, and the route takes you on a 5 minute loop through the woods where the ubiquitous North Carolina pine trees make it impossible to see just about anything else. And because the route is so short, each train ride makes the same loop twice. Yay!
It’s a monotonous and mostly miserable experience for parents, which, of course, means my four-year-old daughter loves it. Before the museum attendant at the front desk can even finish asking if we want train tickets, my daughter is already begging for them: “Pleeeeeeease, Daddy. Pleeeeeeeease! Can we pleeeeeeeeeeeease ride the train?”
Of course I can’t say no. And the museum knows that, which is why the train tickets aren’t included in the annual membership. Instead, we have to buy them separately. They’re not expensive at $4 per person. But, considering how much I loathe riding that damn train, the $4 per ticket feels more like $400.
The ride that changed everything
On my last trip to the museum (pre-COVID days, if you can remember what those were like), my daughter did her little train-dance before we’d even parked the car, and I resigned myself to my fate.
Best to get it over with as quickly as possible, I told myself as I purchased tickets at the front desk, so we walked straight to the train station as soon as we’d finished checking in. We were a bit early for our ride — the train runs every half hour — so my daughter and I wound up being first in line. “Daddy,” she said, “can we sit in the front? Pleeeeeeeeease?”
“Sure,” I shrugged. “Why not?” A few minutes later, the boarding gate opened, and since we were first, we raced toward the front of the train and took the seat directly behind the conductor.
As I crammed myself onto the child-sized bench, I found myself staring at the back of the locomotive. It contained a nameplate from the builder of the ride: Chance Manufacturing Co. Wichita, Kansas. For some reason, seeing the nameplate of the manufacturer surprised me. Obviously I realize miniature railways like the one at my local museum don’t magically appear on the surface of the earth. Someone, somewhere has to build them. However, until that moment, I’d never considered the business behind miniature railways.
Of course, miniature railway businesses have to exist. If they didn’t, the miniature railway at my local museum wouldn’t exist. After all, nobody builds trains for kids and installs them at museums and amusement parks around the world just because it’s a fun thing to do. They do it because it makes money. It’s a business.
The manufacturer’s nameplate on the train made me aware of the fact that the train company was a business. Once I was consciously thinking about that business, I began wondering how much the museum had spent to install the train. So I pulled out my phone, Googled the name of the company, and learned that, according to Wikipedia, the manufacturer of miniature railways like the one I was riding on charges $200,000 for the locomotive and $60,000 for each passenger car. I glanced behind me and saw the museum’s train had three cars, meaning the train itself cost nearly $400,000.
In addition to the train itself, the tracks surely cost at least another $100k, meaning the museum had spent at least a half a million dollars to install its miniature railway. For a small, local, non-profit museum — the type of organization that’s notoriously stressed for cash — finding half a million dollars isn’t easy. At that point I realized there had to be a reason for installing such an expensive train, and that reason surely related to the amount of revenue it could generate.
During the next 10 minutes of monotonous circling through the woods, I began calculating the train’s annual revenue in my head. Here’s what I figured out:
The train at the North Carolina Museum of Life and Science seats approximately 50 people and costs $4 per rider. Every time I’ve seen it running, it’s mostly full, so let’s say it averages 40 riders per trip. That means each trip generates $160 in revenue.
The train runs 10 times per day. That means, at $160 per trip, it generates roughly $1,600 per day.
North Carolina has a temperate climate, so, accounting for inclement weather, let’s say the train runs at least 200 days per year. I’m guessing it’s more, but 200 is a nice round number, so let’s stick with that. At 200 days per year generating $1,600 per day, the train produces $320,000 in revenue.
Let’s subtract $70,000 for maintenance and the cost of one train operator/conductor, and it brings our total profit generated by the train to $250,000 per year.
I couldn’t believe it. That little, dinky, annoying train at my local children’s museum generates at least a quarter of a million dollars every year. How amazing is that? I don’t know about you, but it makes me want to build a miniature railway in my backyard!
What the train teaches us about selling products
While I circled through the forest at a snail’s pace, cramped on that tiny, rock-hard bench, the entrepreneur in me began to imagine building miniature railways around the world and becoming a miniature railway baron. However, as I thought about the idea, I quickly realized why my dreams of becoming a miniature railway millionaire would never come true.
Just because a miniature railway is able to help my local museum generate $250,000+ in revenue each year, the train (i.e. the “product”) isn’t really the thing that’s making money. And we know this because if you or I or anyone were to buy some old farmland in the middle of nowhere and setup the same kind of train, it wouldn’t make any money. Instead, the train is a tool the museum is using to monetize on an audience it already has.
Do you see the difference? Yes, the train is nominally the product, but the reason the train at my local museum produces so much money is because the museum itself already has an audience it can sell train tickets to. Every day, the museum has thousands of visitors, and some portion of those visitors are willing to buy train tickets. However, without those visitors, nobody would buy the tickets and the train wouldn’t make any money. That’s why I can’t just purchase miniature trains from the same manufacturer as my local museum, place them all around the world wherever I can find the land, and then start generating profits. Products don’t make money. Products are what allow companies to capture the potential market demand they’ve already built.
If you’re running a new startup with a product that’s not selling, the same thing is probably happening to you. Chances are you’re trying to sell a product, but you haven’t thought about who your audience is or how to access that audience. In other words, you made the biggest mistake that most new entrepreneurs make: you built a product before you established an audience for the product.
In a sense, it’s like you saw a miniature railway at a local museum, figured out how much money it was generating, and decided to construct your own miniature railway on some old farmland in the middle of nowhere. Of course you can’t make money doing that! You don’t have anyone to sell tickets to!
This is a mistake I see inexperienced entrepreneurs make over and over and over again. They see other people’s products become popular and they wrongly believe that the product was the valuable thing that made the company its money. But your product isn’t your business. The product is the thing you use to give your audience a reason to give you their money. As a result, the product doesn’t matter as much as having an audience. Once you have an audience, you can figure out all sorts of great products to sell them.
For an example of why having an audience is more important than having a product, we can return, again, to my local museum. In addition to the train that’s become a bain of my existence, it also has a gift shop you can’t avoid passing as you’re leaving. And guess what my daughter says every time we pass that gift shop on our way out: “Daddy… can I get something from in there? Pleeeeeeeeeease!!!!!!”