Originally Published: January 1, 2013
Early stage startups are too product-focused
Within five years, 80% of startup businesses will fail. Of the survivors, another 80% will close their doors during the following five years. That’s a 96% ten-year failure rate.
Despite the actuarial reality, digital entrepreneurs are coming out of the woodwork. They are driven by two things: The ease of coding something up in a weekend, and the tales of hundred-million-dollar exits.
“If we build it, people will come.” If only it were that easy.
Designers and developers don’t appreciate marketing. I know I sure didn’t when we started GoSoapBox. Over a few months, we built an outstanding audience response system that allows teachers to constructively leverage the devices students already bring to class. And then we had to get people to use it.
If we could do it all over, I would take a different approach. Building something is not even half the battle. I would start by seeking partnerships.
Angel investors and venture capitalists are handy partners because they have a direct interest in seeing their investments mature. In addition to financial support, investors tend to be well connected and can give you direct access to the people and places you need to be to succeed.
A great example of an investment partner is the television show Shark Tank, where small business owners pitch their products to sharks (veteran business folks) with deep pockets and unlimited connections. The entrepreneurs give up 5% of their company and 2% of their gross sales just to pitch, and if they strike a deal with a shark they are typically giving up an additional 20-50%. That’s how valuable the partnership is with one of these individuals.
Funding isn’t for everyone, and not all investors will be able to guarantee success like those in Shark Tank. But for many entrepreneurs, investment partners are a step in the right direction.
Your first customers are enthusiastic about your product. (If they’re not enthusiastic, you might want to re-think who you’re selling to.) Rather than build something blindly, you can form a symbiotic relationship with your first customers by asking them to be development partners. Development partners get access to your daily builds, and while acknowledging the bugs and limitations, provide steady feedback. They get something that solves a problem, and you get information that would otherwise cost tens of thousands of dollars in usability research fees.
Sales can be time-consuming. With Conferences I/O, the award-winning audience response system for events and conferences, we typically do one-on-one demonstrations with prospective customers. Each demonstration takes about one hour; that’s hard to scale without having a dedicated sales staff.
Distribution partners can put your product in the hands of customers without requiring you to do anything. In exchange, the partner receives a cut of the sale. For example, with Conferences I/O, we offer event planners a percentage of our revenue when they sell our product to their clients. Everyone wins: The event planner’s client gets a great product, the event planner receives a bonus, and we gain a customer without having to lift a finger.
One great distribution partner can guarantee a company’s success.
In the same vein as distribution partners, a marketing partner will help connect you to potential customers. Typically this relationship will include referral fees, and you will still be responsible for the bulk of the sales process.
Creating Barriers to Entry
As I mentioned at the outset, designers and developers are attracted to digital entrepreneurship because it is easy to hack something up in a weekend. But that very advantage is also a danger. What’s to stop someone from copying your idea and stealing customers?
Partners can support your company’s position by creating barriers to entry for competitors. If you’re building software for tech-savvy lawyers to use and you get the biggest legal blog to sign on as a marketing partner, it’s going to be an uphill battle for a competitor to upstage you.
I love building beautiful digital products that solve meaningful problems. I’m product-focused. When I come up with an idea, I want to run out and build it.
But we forget that successful companies don’t operate in silos. They have relationships with investors, advisors, marketing partners, and distribution partners.
Product is provocative, but partnerships are powerful.