Tag: Startups (page 1 of 2)

Lean Startup Experiment – Part 1

I am starting an experiment using the principles of The Lean Startup to see if there is a business possibility around a product idea that I had. I’m not going to go into detail on the product because I don’t want traffic from this blog to affect my data, but the product is a natural version of a common item associated with sleeping.

The product idea is just an idea at the moment – so far, I have invested zero money and very little time researching the physical development of the product (prototype creation, sourcing of raw materials, manufacturing, packaging, etc.). Before I make the investment in the physical development of the product, there are a number of hypotheses that I’d like to prove either right or wrong.

Hypothesis #1

My first hypothesis is that people will pay money for a naturally produced version of the item in question, as the existing market only includes synthetic products.

Hypothesis #1b

A follow-up to the first hypothesis is that the demand mentioned above will come mostly from the inherent health benefits of using the natural version over the synthetic version, with some additional motivation coming from the environmental benefits of the natural version.

Hypothesis #2

The little bit of research I have done on the development of the product has revealed that the natural version of the product would have to be replaced for a new one about once a month. My next hypothesis is that people will not only pay for the natural version of the product (as mentioned in Hypothesis #1) but they will pay for a new one every month in the form of a monthly subscription.

Hypothesis #3

My last hypothesis for this learning cycle is that people will pay $25 for the product and will pay that each month (see Hypothesis #2).

Experiment A to prove or disprove hypotheses 1-3

In the spirit of Lean Startup, my goal is to get through the Build-Measure-Learn cycle for the above hypotheses as quickly as possible. I have spent approximately 3 days putting together a website that should prove or disprove the hypotheses. I want to see if people will actually pay $25 for the natural version of the product and subscribe to receive a new one (and pay) each month, so I am making that possible (in a very basic way) on the website.

The goal:
I am going to use a free Google Adwords credit to send $100 worth of clicks to the site. I will move forward if I can get 2 people to actually pay for my product.

The risk:
It should be noted that I might be making a bad mistake by grouping hypotheses 1 and 3 together in one experiment rather than approaching them one after the other. Grouping them together could lead to bad data. For example, if nobody ends up paying, I wouldn’t know for sure whether it was because they had no interest in the product itself or no interest in subscribing to monthly deliveries of the product. This is a calculated risk that I’m going to take, though, with the reward being speed in getting through this learning cycle if it ends up working. If the bad situation in the example looks like its starting to pan out, I will make a few tweaks to the website to test single purchases rather than subscriptions.

Tools I used for the experiment

My focus in putting together the site was on tools that are free/cheap and quick to implement:

  • Domain name – $8
  • Hosting account – $5/month
  • Twitter Bootstrap theme from wrapbootstrap.com – $12 – Given my slow web design skills so far, this purchase made building the website a lot faster for me. I could have used WordPress and one of its free templates, but I wanted the practice of building a site from scratch.
  • Google Adwords $100 Free Credit – Free – These are pretty common. Mine came with my hosting account purchase.
  • Google Analytics – Free
  • Google Docs – Free – I set up a quick customized form for a registration page. I will experiment removing this to see if it had an affect on conversions.
  • Mailchimp – Free – Added an email newsletter sign-up on the site.
  • Paypal – Free before payment fees – I created a Buy Now button using my personal PayPal account and added the code to the site.

I will follow up with a post on the progress of the experiment.

 

 

Songs that are meaningful for entrepreneurs, part 2: Spoon’s “The Underdog”

I don’t know much at all about Spoon or what their inspiration was for writing ‘The Underdog’, but whenever the song plays in my iTunes library, I think of The Innovator’s Dilemma by Clayton Christensen. If books had a soundtrack, ‘The Underdog’ would definitely be on it.

The catchy song acts as a warning for a stodgy incumbant / market leader / favorite that they will eventually fall to an underdog. Similarly, The Innovator’s Dilemma points out that market leading companies begin to focus too much on the current needs of existing customers rather than on their future, unstated needs. This failure to innovate becomes the company’s downfall when disruptive technologies emerge from upstart competitors.

Here are some lyrics for the song, which could have easily come out of the book:

But you won’t hear from the messenger
Don’t wanna know ’bout something that you don’t understand
You got no fear of the underdog
That’s why you will not survive, right!

And the video:

[youtube http://www.youtube.com/watch?v=7v0KCoPMTdU]

The Overlooked Benefits of Selling Low-Priced Items

Upon entering the world of business, my initial research and general intuition had me convinced that selling higher-priced products was much more desirable than selling lower-priced products. I would find myself thinking about how dollar stores have to move so much volume of product to be able to afford rent, labor costs and other expenses. That type of business – with a low selling price and high volume – just didn’t appeal to me. I was more excited by the opposite model: selling higher-priced products, where only a few sales were needed to cover costs.

For example:

Item

Tier

Profit Margin

Price

Quantity Sold

Revenue

Shoes

Medium-End

60%

$100

600

$60,000

Car

Medium-End

60%

$30,000

2

$60,000

A quick note regarding the above table: when I refer to low-priced products, I do not mean cheap or low-quality when compared to similar products. I am referring only to the price of the item relative to other products in the universe of all products. This is why I am comparing a Medium-End-tier pair of shoes with a Medium-End-tier car.

My initial thinking was that – profit being equal – selling cars is much more desirable than the shoes.

My latest experiences in and around online business have really made me reconsider that initial thinking, primarily because of two opportunities that lower-priced products provide.

Opportunity #1

Lower-priced items, which inherently require more volume to be moved, provide more touch points, or connections, with customers.  Zappos refers to these touch points as opportunities to wow customers. These touch points are opportunities to win a customer for life and to enlist an evangelist of your product.

Opportunity #2

In an online setting, a customer’s entire social graph is as close as one click or even zero clicks (if you automate things with your customer’s permission) away from the point of sale of your product. That touch point can be very meaningful if the customer decides to share information with their social graph about their experience with your business.

My hypothesis is that – assuming that you take advantage of Opportunities #1 and #2 above – marketing costs for the next increment of revenue ($60,000 in the example) will be more improved – relatively speaking – for the lower-priced item over the higher-priced item, due to the power of social media and viral loops.

The hypothesis, if true, isn’t incredibly groundbreaking or even very useful, because there is always a product priced lower or higher than yours.  The point is not to switch to selling a lower-priced product.

The take-away would be to make sure you are taking advantage of every touch-point or opportunity to wow your customers, and make it easy for them to tell their friends about their experience dealing with your company. For what it’s worth, if you’re ever envious of other businesses selling higher-priced items with lower volumes, just remember that – thanks to your higher volumes and more touch points – you can tap into a faster viral loop than the higher priced guys.

Songs that are meaningful for entrepreneurs, volume one: ‘I Am Mine’ by Pearl Jam

In the time I spent alongside many startup teams in two different entrepreneurship programs, the one common tool that all startup founders and employees used was music (well, maybe gmail too). Regardless of whether they had Macs or PCs, there was always a pair of headphones sticking out of laptops.

Lately, I have found myself finding a lot of meaning in certain songs particularly relating to entrepreneurship. And while its almost guaranteed that these artists were not thinking about entrepreneurship when writing the songs, it doesn’t matter. That’s the beauty of music. Everyone can interpret songs their own way.

This post will kick off a series on songs that I have found meaningful from an entrepreneurship perspective. I’ll avoid pop-y, inspirational songs like I Believe I Can Fly, and stick to songs into which you have to dig a little deeper.

pj

Entrepreneurship Song #1: I Am Mine, by Pearl Jam

In concert, Eddie Vedder often prefaces this song by describing what it means to him. He talks about how there’s something inside all humans that long to be free, safe and secure.

Similarly, to me the song is about being in control of your own destiny and not having to answer to anyone else. This is the attitude that drove me to quit my corporate job and start my own company. I didn’t want to spend my days working in a cubicle in a huge company to help hedge fund investors become rich (working for a startup is a much different story), and I didn’t want the anxiety of having my wellbeing depend on someone else’s opinion on whether or not I should continue being employed. In that particular case, I wasn’t in danger of losing my job, but it could have happened and for reasons that were completely out of my control.

Here’s a snippet of lyrics:

I know I was born and I know that I’ll die.
The in between is mine.
I am mine.

 

Forget the Stock Market. I’m Investing in My Own Startup.

On July 11, 2011, I began selling my stocks and investing my savings into my own startup.

Obviously, the downside financial risk of investing in my own startup was much greater than the downside financial risk of investing in the S&P 500; my shares in my startup could very well be worth zero at some point, while that will (most likely) not be the case for the S&P 500.

It turns out that the risk in investing my time and money in a startup of my own was actually much more mitigated than it appears at first glance. Here’s why:

Education

Over the past year, I have learned an incredible amount about business in general and specifically starting one. Don’t get me wrong, I am not on the MBA-hating bandwagon, and I do not regret receiving my MBA one bit. However, I learned a lot more in this past year starting my own company than I did in my two-year MBA program. And spent a lot less money.  I’ll go into the value of the MBA in a later post.

By investing in a startup of my own, I was investing in my continued education – kind of like a MGSD (Masters of Getting Stuff Done) degree.  So even if my shares in my startup are worth zero eventually (hopefully not), it’s easy to chalk it up as an investment in my continued education.

Control

When individual investors first start investing in stocks, they are taught that – as partial owners in the company – they can help steer the direction of the company through voting on their shares. Nuh-uh… at least not for the average U.S. individual investor. As much as you’re told otherwise, you really have no control over the direction of a public company in which you invest. And for the few votes you get, you receive thick stacks of legalese from groups trying to sway your vote one way or another.

As the co-founder of my startup, I am one of only two people in control of my startup’s destiny.

Healthy vs. Unhealthy Focus

As much as I tried to tell myself I was a buy-and-hold / set-it-and-forget-it investor in the stock market, I wasn’t. I knew it’s not worthwhile to watch the daily movements in the market, yet I would do it anyway. Watching the stock market is an unhealthy addiction. The pangs of anxiety from a down day in the stock market can’t be good for the blood pressure. Chip Conley’s guest post on Tim Ferris’s blog is excellent, and Conley’s anxiety equation is very applicable:

ANXIETY = UNCERTAINTY x POWERLESSNESS

Investing in the stock market is riddled with anxiety, because a) it is full of uncertainty (which is why most professional investors don’t beat the market), and b) you’re powerless when it comes to its random movements.

I no longer helplessly watch and stress over the fickle movements of the stock market, because I have a more important, worthwhile, and healthy thing taking my attention: my startup. As stressful as running a startup can be, it is a much healthier stress. When it comes to your startup, you’re not powerless and you can limit the uncertain things.

Forget the stock market. Invest your money and time in your own startup. You’ll come out ahead regardless of share price.