Lessons Learned In Entrepreneurship
I have gone through the entrepreneurial route twice now, and both times I was able to build a product and sell it in the end. My first attempt I was fairly successful in driving traffic and sales but second attempt however was more of a challenge. In that second venture, I invested quite a bit of myself into it and I just couldn’t break through. At some point I realized that I was a technologist principally and just not sophisticated enough as a marketer or entrepreneur to break through.
I decided to take a break after that and not try building another business until I was clear on what I did wrong and what I would do differently next time. For many months afterward, I really did believe I had done a great job and I did nothing wrong. It is true that I worked extremely hard and invested significantly into the project, and I still believe I built a truly World-class product. So why did it not gain the momentum I had expected? This began a few years of obsessive study of entrepreneurship which is why I decided to start this blog actually. In any case, I’ve had enough time to reflect now and I think I realize a few things I was wrong, at a more fundamental strategy level. For the sake of my own documentation and hopefully for the benefit of other entrepreneurs out there, I want to share my list:
1. Respect Timing – I was naive and didn’t realize the vertical space I chose was already in the early stages of consolidation and commoditization when I entered it. Thus, brands were already entrenched and beginning to spend heavily to reinforce their brand. It was going to be nearly impossible for me to get any traction without having a substantial amount of capital to spend on marketing. This was not the right entry point for an individual entrepreneur working from a personal budget. This was perhaps more important than any of my other mistakes and I’ve spent a lot of time pondering the issue of timing.
2. Avoid Network Effects – What further complicated adoption of my product was something Robert Metcalfe would call a network effect, whereby the value of the site was only as valuable as the nodes (or people in this case) of participating. As the number of people multiplies, the value becomes exponentially more valuable. In otherwords, think of a night club. The one with a line out the door will automatically attract others whereas the empty one will stay empty. It is a dilemma that plagues most in the web 2.0 and social spaces and a real multiplier effect upon the issue of timing. You’d need either serious money for promotion or a massively disruptive innovation to break through these challenges.
3. Be Demand Focused – Another naivety on my part was thinking like an artist. I truly fell in love with my creation and it became my work of art. As such, I was building what I want to see after a while, not what people really wanted. Had I come from a more demand-driven perspective, perhaps I would have seen more clearly that the market was already in a mature phase and another entrant to the marketplace was not warranted. Instead, I was focused on building a better mousetrap and just out-performing the competition. At some level, I still believe I built a good enough product to have competed with the million-dollar companies around me, but my marketing was completely non-existent and I really under-estimated how important that was. Typical artisan mistake.
4. Lead With Marketing – I really should have focused my budget and effort on marketing, not the product. I was firmly convinced that if I built something great, they rest would become easy. I should have been spending more time smoke testing before building the product and later, testing user interest and ROI etc, instead of spending all my time and money on product development. That was a major strategic mistake. Had I done this correctly, I would have much more quickly realized the market conditions were not favorable.
5. Smaller Pilot Market – Back to the network effects, I think I could have stood a better chance breaking through a single geographic market instead of trying to break into the national market. I should have proven the market and built up the network effects in one market at a time, and I think had I done that, my conversion rates would have started to spike upward and I would have achieved buzz and that feedback look would have started working in my favor. That too would have helped me to gain some traction.
5. Avoid High Sunk Cost – As an independent entrepreneur with limited personal funds, I should have been much more realistic about what business models match the funds I was working with. Granted, I put up a sizable mount of money at a personal level to make that project fly, but it is trivial compared to the massive companies I was competing with. But equally important, that’s a lot of risk to take on up-front before the cash starts to flow in. For this reason, I believe services-based businesses are a much better match for independent entrepreneurs, not product-based businesses. Services require a lot less up-front risk and provide cashflow from day-one.
6. A Great Hook Is Helpful – Just like a song, it can be wonderfully produced with amazing aural textures and harmonies, but at the end of the day, if it does have an addictive, melodic, easy-to-remember hook, its not going to take off. This ties back into my need for more marketing focus, but is something else I should have considered. I was trying to build a solid end-to-end product. Instead, I would have been better off focusing my efforts around one powerful and disruptive hook, and then building around that. I approached it backwards.
7. Keep it simple – This last one is more tactical but I must say it was a huge mistake for me to use a complex java MVC/ORM framework. This probably slowed development to half or less of what I could have accomplished with a simple hacked together solution in PHP. Moreover, because of the thoroughly-composed Java architectures, it actually made “pivoting” more costly and more challenging; ugly PHP code would have trivialized this because that structure wouldn’t have gotten in the way. It really highlighted for me however, that there is a right time and place for every tool in the toolbox, and for an early stage startup, keeping it simple and lightweight is often the best option.
In retrospect there are a few things I did well too of course. I feel that I built a great brand and a quality product,and really built a few truly great features that would benefit the users and create a compelling community. But they were all product focused and supply driven. I needed to pay much more attention to market demand and should have let the demand lead product design, development, and promotion. I would implore any young entrepreneur (particularly the engineering types) to become a student of Lean methodology, as it is a powerful study in this idea of demand-driven development.