After all the trials and tribulations I have been through in creating tech startups, consulting to startups and managing web marketing and tech, I have concluded that there may be a thousand ways to determine if a startup will be successful, but only one way that can reduce all the ambiguity and risk.
And that’s the Sell Test.
Will people pay for the service?
More importantly, can you get the startup off the ground with virtually minimal expense? Can you get pre-sales or sell whatever it is today, right now to someone (a real person)? It could be online memberships, physical products, consulting services or dating events like our speed dating company Pre-Dating we founded back in 2001.
The reason I point this out to virtually every startup I talk with today, is at the startup concept stage, there is a direct relationship between long-term success and revenue coming in the door almost immediately.
And there is geography to consider as well. How can Geo-spatial factors be important? Well, where you live can determine your success. If you are in Silicon Valley, NYC, Tel Aviv and maybe 1 or 2 other cities where capital can be raised for concepts that have potential to make money, then the Sell Test is not as important.
When you are located in South Florida, which is not one of the anointed cities where capital flows freely into ventures that have a 5 year run rate and life support from VC’s, then you have to be realistic. Trust me, if you in South Florida or a remote mid-west city, you have a low chance of success in raising capital, less getting traction or how about paying the bills. What I am saying is I see a very low success rate among tech ventures that have no revenue on day 1.
So what am I really saying here?
It took about 10 years of beating around the bush, starting a couple tech startups, some successful and most not successful (plus I was a consultant to about 6 startups), to realize that those with revenue in week 1 were about 80% likely to succeed and those without revenue, well, let’s just say they are no longer around. I would give the rest a 1% chance of success where all the tech was built out and then they looked for revenue!
But if you are a software developer how are you going to do this?
It sounds almost contrary to how software developers want to work. They enjoy the building of the tech. I enjoy a lot of things, writing for example, but I have no illusion that writing will make me a living (at least not now).
If you want to be in a successful tech startup, start by not enjoying the tech and having everything revolve around the tech. Look at tech in a supporting role and not the star of the show!
If you are a web developer or programmer with a full-time job at a big company. Let’s just say everything you have been taught in corporate America, at your cushy programming job or CIO, CTO, Tech Director position means nothing. Tech is no longer an advantage or a unique skill set. In fact, the value of tech is in free-fall in what I call the race to the bottom, as coding can now be done by anybody with a Code School degree in 12 weeks. It can be meted out by guys in Indonesia, India and remote Illinois online. Marketing and selling is everything more than ever.
So, how do you remedy this if you are a programmer, ex-CTO and you do want to have a tech startup and be successful.
First retrain your brain to think that revenue flowing means everything and tech means nothing! All the urges, when you have the greatest idea ever, to get up in the middle of the night and build the tech and they will come, has to be removed from your brain, unless you want to move to Silicon Valley, NYC or Tel Aviv.
So, let’s get back to the Startup Sell Test and think of a few examples and how Tech is in support of the revenue generating idea and not the idea itself.
Let be even more frank, follow the money!
I will give you a good example, where we were rapidly successful. The founder of Pre-Dating started an event in 2001 and we built the tech to support the next event and the tech organically grew to support the business. That is at least one secret to success. Tech can be great as a supportive piece of the business but often not the driver. Remember if you are in Silicon Valley or NYC then this may not apply. I don’t live there!
So, how do you as a Tech Exec or Web Developer develop a startup that sells a product/service on day 1?
You go out and sell.
And I will give you a good example of my fantasy startup business (which does not exist or it does but I know nothing about it) I use as an illustration of this process. You need to find a place where there is revenue potential and great customer pain.
My fantasy business is called “Medical Bill Reducers”. This is not a real business, nor do I know if it is legal, and I am not doing it, so good luck if you want to try. You physically stand outside a hospital where people are being wheeled out in wheelchairs. You find out where people are being discharged or being sent home, where you hand people cards saying “I will reduce your medical bills”. You give out enough cards where you starting getting calls from people who are interested in your service.
The moment you get a call and write down their information and get your first contract to reduce a bill is when you start using tech. And Microsoft Excel is the product you use, because no serious tech sophistication is required at this point. Then you start to get to work calling hospitals and doctors’ offices successfully reducing the bill costs.
Let’s say you actually got paid for reducing a $50k medical out of pocket bill to $25k and get paid 5% of the difference. Let say you made $1,250. So, let’s talk about tech and where it makes sense for this business. Well, you get a low cost CRM system like Vtiger in place to track sales. You use Paypal. You could even use Basecamp. You still don’t need custom tech. But then you realize you need a database of ailments, hospitals, pricing and tracking in place to speed up the process and get a strategic advantage, and it could possibly be integrated into your front-end website, with a nice design. Now you have some tech to build! Now you are in business, with revenue first and made the Sell Test!
Thank you for indulging me by reading this!
A couple updates if you read my blog.
As far as startup pitch events, we are going to be running a startup pitch event on September 27th in Boca Raton, Florida at Cendyn Spaces at 6pm. For more info, go to our website here to learn more about the event.
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Good luck in your endeavors.