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The more I learn about startups the more I realize that one’s chance of succeeding is a continuum rather than some kind of binary state.
In other words, when you read a blog post that talks about “X Ways to Succeed with Your Startup” what they really mean is “X Ways to Potentially Increase Your Chance of Success With Your Startup. But the second title is too clumsy so we bloggers abbreviate.
With that in mind, I’ve had this list sitting around for a long time, debating the best way to present it. The problem with this kind of list is that some people read it and see they are doing some of the things I’ve listed and they panic. This panic results in a need to rationalize their behavior and convince themselves they are not travelling a path to certain doom. Who wants to admit that?
But that’s not the point this list. As you read it keep two things in mind:
- Doing any one of the items on this list is not a recipe for failure. But from my experience observing and working with over 1,000 entrepreneurs, each one will have a negative impact on your chance of taking your company to profitability.
- This applies to bootstrapped companies. Funded companies can break these rules since the money they have sitting in the bank provides them with a bit of a reality distortion field.
#1: Choosing a Market with Funded Competition
I’ve seen first-hand how funded competition can crush a bootstrapping company.
AdWords go from $.50 to $5 per click overnight. Your funded competitor hires a PR firm and appears in Inc., Fast Company and Wired in the same month. And your search engine rankings drop as competitors hire high-end SEO firms.
It’s not that you can’t beat funded competition. But taking them on head to head is like wrestling 2 weight classes above your own. Instead of attacking them head on, I recommend avoiding the head to head conflict by choosing a niche that the funded competitor can’t afford to enter. Which leads us to our next one…
#2: Not Targeting a Niche (Going Horizontal)
This is perhaps the most common mistake I saw two years ago. I’m pleased to see this changing recently; I’m not sure if people are listening to myself, Jason Cohen, and others who have espoused the benefits of going niche or if it’s just the obvious approach these days.
Niches are easier to penetrate, cheaper to advertise to, have less competition, higher profit margins, and word of mouth is a vibrant force. All of this combines to make vertical niches the best option, by far, for someone bootstrapping a company.
#3: Doing Everything Yourself
Launching an application, even a 1.0, requires hundreds of hours. Everything from graphic design to coding, marketing to setting up a payment processor. If you are convinced you have to do every single step yourself you are decreasing the chance that you will make it to your launch day.
I’ve actually dubbed this need to keep everything under your control one of the most common startup roadblocks, and I talk about it in more depth (including how to avoid it) here.
#4: Basing Your Business on One-time Sales
This is one of the more recent lessons I’ve learned: one-time sales suck. On the first day of every month you start with zero dollars in revenue, and you have to hustle like crazy to hit your number. Starting from zero revenue every 30 days is no way to grow a business.
The more I’ve watched successful businesses grow, the more I realize they always have a built in recurring revenue stream. Netflix went from one-off movies to subscriptions back in the late 90s. Many desktop software vendors are moving to subscription billing. And I hear more and more people espousing the benefits of recurring payments, including Dharmesh Shah at his recent talk at Business of Software 2011.
If you’re building a product with a one-time fee I encourage you to look for a way to turn it into a recurring revenue model.
#5: Choosing an Idea with a Two-Sided Market
Having one group of people to market to is hard enough. But having to find and reign in two groups of customers is just brutal. Examples of this include Elance, eBay, Monster.com, and any sort of ad-supported website (since you have to sell to advertisers and visitors)
It can be done. It’s just doubles (or triples) the amount of marketing needed to get off the ground.
#6: Going Freemium
This topic was covered by Ruben in this guest post. Suffice to say, free plans rarely work for bootstrapped companies.
#7: Ignoring the Numbers
You can’t make money charging $1 per month. Wait…you can, if you have millions of customers. The problem is, getting to millions of customers requires more money and time than you have right now.
Trying to make money selling an app for $1/month is crazy unless your market is gigantic and you have the expertise or the funds to reach them (and even then, support will kill you).
Let’s look at some numbers:
- If your goal is a meager $2k per month you need 2k customers.
- To begin, that’s a lot of non-technical customers to support for that little money. You’ll still be working a full-time job at that point so it’ll be nights and weekends. Not cool.
- To get 2k customers with a 1% conversion rate you’ll need 200k unique visitors (total, not monthly). If you crank really hard on promotion and word of mouth I can imagine you’ll ramp up to 1k-2k uniques per month. Even at 4k per month you’ll be waiting a long time to hit that 200k mark.
These days I advise people to go up-market and try for $30/month and $50/month price points. What can you build that will provide that much value to customers?
#8: Starting Your Marketing Once Your Product is Complete
If validating your idea, creating an instant beta list, having your best launch day ever and building links over time isn’t enough, how about building confidence in yourself that your idea is completely kick ass during the 6 months you’re sitting in your basement coding it up?
Rumor has it that DropBox had 200,000 emails by the time they launched, based on driving a ton of traffic to a landing page with a single video that discussed how the service was going to work once it was built. These days when people ask me if they have to build a product to pitch investors, I tell them they can…or they can gather 200,000 emails. Call me if you do this and I’ll write you a check.
For more on the specifics of how to approach this, check out Why You Should Start Marketing the Day You Start Coding.
#9: Expecting it to Be Easy
You’ll often hear that the number one cause of death among startups is running out of money. For bootstrappers this is not the case. When you’re launching from your spare bedroom, out of money is where you start. From day 1 your goal is to go from out of money to covering hosting.
So for you, stalwart bootstrapper, the number one cause of death is not running out of money, but running out of motivation. If you start with the expectation that you’ll be able to take your company from nothing to $100,000 in revenue in a few months working part-time, you’re going to be more likely to throw in the towel when it doesn’t happen.
And the day you decide to throw in the towel is the day your startup dies.
No, it’s not easy to start a company. But knowing you, it’s why you decided to start a company in the first place.