Why “Luck” is a Terrible Marketing Plan for Your Startup

I’ve heard for years about the importance of finding a market before building a software product.

“That’s ridiculous!” I would think, “How can you find a market for something before you build it?”

Years later I’ve realized that the single most important factor to a product’s success is not the founders, not the marketing effort, and certainly not the software itself.

Nope. It’s whether there’s a group of people willing to pay for it.

I’ve developed a saying. It’s short and witty and it even kind of rhymes:

Market comes first, marketing second, aesthetic third, and functionality a distant fourth

Actually, it’s long, dull and kind of boring…but it’s true. Oh, so very true.

Market Comes First

The product with a sizable market and low competition wins even with bad marketing, a bad aesthetic, and poor functionality. Think QuickBooks, Palm, IE5.5 or any niche product you’ve ever seen that looked like it was written by a six year old but sells hundreds of thousands of copies.

You can sell garbage to a hungry market and make money. Of course, someone will eventually come and eat your lunch if you don’t improve your product (the three examples I listed are in a world of hurt these days). But that’s an entirely different blog post.

Luck is the Exception

Something occurred to me the other day as I was mulling through this statement – it doesn’t take luck into account. Startups like Hot or Not, Plenty of Fish, Facebook apps where people throw sheep, and Twitter apps where people throws @shp.

Startups where no one really understands why they became so popular; they just caught on. Like a pet rock or a hula hoop.

In these cases, the market doesn’t matter because luck trumps everything. With luck on your side you don’t need money, good marketing or a solid product. You just need to be lucky.

You either luck out that your idea goes viral (which happens to maybe 1 out of 10,000 startups?) or that your idea is so brilliantly conceived and executed that people clamor to find their wallets because you’ve solved their problem so well.

Either way it’s a complete crap shoot – you don’t know your application is going to be wildly successful until it happens rather unexpectedly. The guy down the street with the same skill invests the same amount of time as you have and he has 1 million users after 3 months; you have 12, one of which is your sister.

Why would someone roll this million-sided die when there are approaches with a much higher success rate that provide nearly all of the same benefits?

Because high-growth startups are where the cool kids hang out. We dream of being the next startup poster boy or girl that gets mentioned on TechCrunch.

You won’t wind up on the cover of Fast Company for writing a waste management application. But you can build a very lucrative income if people in the waste management industry need your app.

The Startup Lottery

I need to stop here and say this: with a “hot idea” startup the odds are overwhelmingly against ever getting funding, much less having a liquidity event that puts money in your pocket. Your reward for success needs to be enormous (enough to never have to work again) because your odds of success are probably 1 in 10,000 if not worse.

If you accept that and realize that the 80 hour weeks for a year (or three) at sub-market wages are worth the gamble, then go for it. There is a ton of excitement and fun along the way, and a genuine passion and pride in building a startup like this…but it’s a bad decision like buying a lottery ticket. The odds are very much against you, worse than any bet you can place at the race track.

But there are still those who go for the VC-funded “hot idea” startup. Aside from the cool factor why might we pursue it?

I know a handful of people – including myself – who have reached for the startup life. Each of us did it for one, maybe two startups (you can only do so many before you burn out). Not surprisingly, none of us “made it.”

Based on conversations with these friends the reasons given for pursuing this path are the same ones I gave back when I started pursuing this road with a couple Yale MBAs. They fall into two categories:

  1. The “lottery” factor of hitting it big and cashing out
  2. Benefits you get from owning your own business (passion for what you’re building, being in control, excitement, etc…)

The first reason implies that you’re going to do something with the money you make. My guess is you would either plan to stop working and retire to Tahiti, or continue working only on projects you enjoy.

But why not do one of those right now without working like a dog for three years with the odds completely stacked against you? Why not take a route that instead of having a 1 in 10,000 change of success has maybe a 1 in 100 chance of success and can bring you to the same ends; provide you with a life where you could take off when you wanted or work on projects you enjoyed?

There are many ways to get there that don’t involve VC funding: Micropreneurship is the route I’ve chosen, Joel Spolsky’s done well with a traditional software company and 37signals has done well with a non-traditional software company.

Even someone you may not have heard of like Stephane Grenier makes a good living with a real software product that fills a market’s need. He’s probably not going to sell out for 10 million dollars, but he’s doing all right and has all the benefits you’d expect from owning his own business: passion, flexibility, freedom, etc…

The common thread to the examples I’ve named above involve one thing: finding a group of people willing to pay for your software.

Back to Basics

Fast Company would have you believe that the “million users in 3 month” scenario is the best way to build a startup (because it makes a good story and sells magazines).

But the way the vast majority (dare I say 99.5%?) of all businesses in this world that succeed in the long-term – be they large or small, high-growth startup or lifestyle business – is to find a market that is willing to pay them money for something.

That something can be dry cleaning services, invoicing software, hosted salesforce automation, or a blueprint for how to launch a software product on your own…what matters is finding a group of people who need your something more than they need the money you’re charging for it.

How do you find those people? I’ll be talking about that in a future post.

But once you find them, provide your product with no hassles at a price where you make a healthy profit and you’re set.

Do that, and your marketing plan won’t need luck.

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#1 Anton on 09.22.09 at 1:38 pm

Your perception of startups being lottery tickets … well, it is at least skewed.

For example, you are leaving technology factor out of consideration. With better (or new) technology one can outperform and outgrow competition, create new markets or re-segment existing ones. (That’s the reason why technical founders are getting more credit from VCs nowadays.)

At the same time, by following better business practices one can be lean, flexible, efficient, nimble or fast-growing – whatever is required to succeed.

Great technology, better business practices, talent, determination, and even technology enthusiasm, being put together, can greatly raise one’s chances to succeed (this is a universal rule for almost any venture, though).

Doing technology startups is probably hard and it is probably easier to fail than to succeed. But it is possible to increase the chances – which doesn’t make them look like buying a lottery ticket.

At the same time, sticking to a one-person venture sounds like an artificial limitation for a software business. Engineers and entrepreneurs are different species. Engineers can become entrepreneurs (or play a role), but a single person can’t excel in both areas simultaneously. Specialization is what drives the progress.

BTW, what do you think about Balsamiq?

#2 Rob on 09.22.09 at 1:46 pm

Indeed. I won’t argue against increasing your chance of succeeding. But even with everything in your favor your odds are still on the order of thousands to 1. So while not as bad as the “millions to 1” of actually winning the lottery they are pretty bad.

I don’t think staying a one-person company is the only way to go, it happens to be the route I’ve chosen. In the post I also mention others who have not remained solo: Joel Spolsky, 37 Signals and Stephane Grenier (I think he’s more than one person, though not sure).

Balsamiq is awesome. I used the app in early 2008 and thought it was great, having no idea Peldi was doing everything on his own. He’s a great example of what a single-founder (Micropreneur) can accomplish.

#3 Doug on 09.22.09 at 4:38 pm

Hot or Not and Plenty of Fish have a market. Maybe they did not define that market at the start, but there is a big market for people looking at/for the opposite sex.

Do you follow Steve Blank http://steveblank.com/
His book is worth finding.

#4 Anon on 09.22.09 at 7:06 pm

Rob, thanks for putting into words what I’ve been thinking for a while. I like the lottery ticket analogy as a reminder that only *one* of all of the major startups won in their category – the online media just tells us about them AGAIN and AGAIN and AGAIN. There’s no technical challenge that they’ve overcome – anyone can write a Digg or a Twitter or a PlentyOfFish – they just happened to be lucky.

The other big reminder is that being #1 does not necessarily mean you’re profitable, and if you are, it’s a tiny business compared with any ‘traditional’ business where you’re #1. Facebook is a great example here – undisputed leader in social networking, but losing money and quite tiny in the financial scheme of things.

#5 Stephane Grenier on 09.23.09 at 1:02 pm

Firstly, just to let everyone know, my company LandlordMax is more than one person, but not too much more. I prefer to have a small, but extremely qualified, team than a bunch of people. Firstly everyone is happier, and that includes the customers! And secondly I find you get a lot more bang for the buck. And did I say it’s a lot more fun 😉

I agree with Rob here, going for the big win, although sexier, is much much more difficult and fraught with peril. And like you said Rob, although not as exciting, going after the less sexy niches can be very nice. Sure you won’t get covered by techcrunch, wired, etc., but you also won’t need to put in crazy hours forever.

I founded LandlordMax with the intent of growing it significantly. I knew it would never be a billion dollar company, but that’s ok. There’s just not that many landlords. However, it’s not an all or nothing. The goal of the company is to build cashflow, not to sell out. Selling out is by far the hardest exit strategy you can have. I’d rather have consistent growth (http://www.followsteph.com/2009/06/01/landlordmax-revenues-update/). Sure it’s not hundreds of millions in less than a year, but I’m very happy. And it’s not a win all or lose all enterprise.

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