The long lost formula for start-up success. No, really

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This is a guest post by Nigel Eccles, co-founder and CEO of Hubdub Ltd, the company behind Hubdub, the news prediction game, and Fanduel, the daily draft fantasy sports game. Over his last three start-ups he admits he has made every mistake outlined below. Throughout the summer TechCrunch Europe is running guest posts written by people on the tech scene in Europe. If you’d like to contribute get in touch.

You know the story. A group of friends come up with an amazing product idea, lock themselves away, code like demons, eat pizza, drink coffee and several months later come out with a prototype. The prototype is good enough to convince some investors, they raise money, build the full product, launch it, users love it, product gets traction, acquirers circle and then founders exit to a large pay-off. They then give media interviews which gets summarised into something that sounds like the above story.

What is wrong with this picture? Well, for a start it is not an accurate summary of any of the start-ups I’ve either been part of or observed over the past 10 years. The main problem is that it puts success down to the quality of the original idea and completely glosses over the most important factor: achieving a product that customers want enough to pay for. And even though most entrepreneurs know from bitter experience that the above story happens only very rarely (if at all), it retains a grip on how we think about growing our businesses.

Six months ago we decided to launch a premium prediction game. Our market analysis showed that the biggest opportunity was US fantasy sports. The only problem was our fantasy sports knowledge was limited and we were 3,000 miles from our target customers. So, instead of trusting ourselves to build something we thought users wanted, we looked for a way to build something we could be sure they wanted.

In doing so we discovered Customer Development, a product development methodology formulated by veteran entrepreneur Steve Blank.

Based on the premise that start-ups tend to fail through lack of customers rather than lack of technology or product features, customer development is a systematic way of identifying who the customer is, what it is they need and whether that need is sufficient to build a business on. One of my co-founders describes it as ‘an algorithm for building products users want and are willing to pay for’.

The first phase of the process is customer discovery, which is identifying who the people are with the problem. This is harder than it sounds as they must not only have the problem, they must realize they have a problem and be willing to invest time and money in a solution to that problem. These are your early adopters. They are willing to overlook shortcomings in your product and believe that you will make it better with time.

In the consumer space we used surveys and customer interviews to see if our target users identify with our hypotheses. If your initial interviewees don’t identify with the problem then you either have identified an issue people don’t care about enough or you are speaking to the wrong group of people. You need to continue to iterate problem hypotheses and customer groups to get to a problem that a particular set of potential customers identify strongly with. In our interviews we found that fantasy sports players were passionate about fantasy sports but many felt the season long commitment was too demanding and also early season injuries could end the game far too early.

In testing hypotheses we found the best method was to drive interviewees to an online questionnaire using Facebook and Google ads. The pay-off for the user was to help us make a product they would love and be entered into a prize draw. We then telephone interviewed a sample of the respondents. In building your survey it is key to making sure each question proves or disproves a hypothesis about the problem or the potential customer. Be very careful of leading questions (like one I received from a fellow entrepreneur which asked “If all my friends were on [niche social network] would I want to be on it as well?”). Finally, friends don’t count as respondents. By some quirk in the human psyche we would rather see our friends waste their time and money, rather than to tell them the truth!

Lastly, you need to identify with the interviewees what is the minimum feature set that they would require to use the product. To identify this, show a very basic mock-up to the interviewees and go through each feature to find out which ones they feel the product must have. For example, with Fanduel, we thought player images would be important but most potential users didn’t care. Live scoring however was vital.

At the end of the customer discovery process you should have a set of externally verified hypotheses, a target customer group and the minimum feature set. This is a checkpoint and you only pass on to the next stage if you have a defined customer group that said they would use the product with the defined feature set and it is within your capability to develop that feature set. Note that customer interviews and surveys don’t prove there is demand (interviewees are generally over-optimistic particularly on their willingness to pay) but they can disprove it, saving you from building something that no one wants.

The second phase is customer validation. Here you push out the first version of the product and attempt to gain paying customers. It is fine to offer free trials or discounts but it is vital in this stage you get to payment otherwise the customer has never had to decide whether product is valuable to them. For apps that are supported by advertising, your customer is the person who hands over the cash. That is the advertiser, so the criteria still holds.

Once you have got a statistically significant user base (which will vary by product) the next step is to survey them to see what they think. Sean Ellis and KISS Metrics put together a fantastic survey for start-ups which is free to use. The crucial question in the survey is “How would you feel if you could no longer use [product]?” Sean has benchmarked the results of that survey and found that if less than 40% of respondents say “Very disappointed” then your product doesn’t yet have sufficient traction to scale. Until you hit 40% you need to focus on the product proposition, targeting and quality.

Once you have achieved sufficient traction with your customers then you need to focus on optimizing your customer acquisition funnels and build out your business plan. Only once you have completed that should you consider spending serious money on marketing and customer acquisition.

The above process may sound quite linear but in fact it is highly iterative. Your vision, target customers, perceived benefits and product are all likely to change a number of times as you go through it. One of the biggest challenges of the process is trying to sell a vision to investors, customers and employees at the same time as constantly challenging and adjusting it in response to customer feedback.

Customer Development certainly lacks the drama of the overnight pizza to Porsche success story, and doing it properly takes time. However, in return you maximise your chance of finding customers who will give you their money before you run out of yours.

Further reading

Steve Blank has written up Customer Development in a book called The Four Steps to the Epiphany. I would recommend it to all entrepreneurs. It is exceptionally insightful however it is a tough read (even the author described it as ‘turgid’) and it tends to focus more on enterprise software. Jon Bischke has put together a comprehensive list of customer development resources. Also, Sean Ellis writes an excellent blog on customer development which is well worth reading.

  • http://napsterization.org/stories Mary Hodder

    Otherwise known as the basic usability work that should go into any product development cycle and has been taught for years at schools like the iSchool at UC Berkeley and other information programs around the world.

    I’ve spent months doing needs assessment, user assessments, personas and scenarios, paper prototyping, qualitative and quantitative assessments and various other user testing and heuristics work leading up to production coding and product iterations for the products I’ve worked on over the past decade. It’s what you do if you want a successful product.

    It’s great that you are highlighting the need for real product development, but making it seem like one guy came up with this is ridiculous. Thousands of people have contributed to the product development, needs assessment and usability processes that exist today. I use multiple different processes and systems published by at least 10 authors and creators.

    mary

    • Abdelhamid Morsy

      Mary, can you please direct me to these authors/creators as I need help in this area?

    • http://blog.mo.md Mohammad Al-Ubaydli

      Steve Blank’s work is not about usability, which as you say is an important part of product development, it is about customer development.

      Usability is making sure that build your product so it is easy to use by your customers.

      Blank’s work is about finding out who your customers are, and ideally selling them the product before you have even built it. Usability comes much later when you build it for these customers. In fact Blank’s thesis is that many start-ups waste time and money on things like usability BEFORE they have proven that their customers would buy a product.

      Also, Blank may not be the first person to have come up with this idea but he is the first to have documented it so well. His book and blog are excellent resources in spelling out how to implement the idea.

      • http://napsterization.org/stories Mary Hodder

        The typical perception of people who don’t understand usability is that you slap it on at the end. Or try to do some usability work after the product is out in the marketplace.

        Usiability is Need assessment: months before you code, you interview people about their needs. Not wants. How they manage a problem set. Watch them as they try to work. To determine what is the actual need and problem a product might solve.

        To do this of course, you have to figure out who might have the problem, and of course, the usibility piece for user assessment is all done before you even figure out how to solve a problem.

        This is usability work that startups and new product developers often don’t do.

        It’s all very well documented and one example a book covering this can be found here:
        http://www.ulrich-eppinger.net/

        where the first edition is from 1995. I first used their books in 1999.

        Take a look at: The Design of Everyday Things by Donald Norman (1990)

        Usability work isn’t just testing at the end. Usability work involves Needs Assessment, User Assessment, persona development, scenario development, paper prototyping and feature testing. Wireframing and testing.

        All that is done before any code is written.

        All that is the usability work done in the product development cycle. And people have been doing it for well over the decade.

        Steve Blank may be one version but there are many others. He’s not the only one. To portray his new terms for these processes as somehow indicative of a whole new process is not correct. He’s one among many.

      • http://napsterization.org/stories Mary Hodder

        The typical perception of people who don’t understand usability is that you slap it on at the end. Or try to do some usability work after the product is out in the marketplace.

        Usability is Need assessment: months before you code, you interview people about their needs. Not wants. How they manage a problem set. Watch them as they try to work. To determine what is the actual need and problem a product might solve.

        To do this of course, you have to figure out who might have the problem, and of course, the usibility piece for user assessment is all done before you even figure out how to solve a problem.

        This is usability work that startups and new product developers often don’t do.

        It’s all very well documented and one example a book covering this can be found here:
        http://www.ulrich-eppinger.net/

        where the first edition is from 1995. I first used their books in 1999.

        Take a look at: The Design of Everyday Things by Donald Norman (1990)

        Usability work isn’t just testing at the end. Usability work involves Needs Assessment, User Assessment, persona development, scenario development, paper prototyping and feature testing. Wireframing and testing.

        All that is done before any code is written.

        All that is the usability work done in the product development cycle. And people have been doing it for well over the decade.

        Steve Blank may be one version but there are many others. He’s not the only one. To portray his new terms for these processes as somehow indicative of a whole new process is not correct. He’s one among many.

      • http://napsterization.org/stories Mary Hodder

        The typical perception of people who don’t understand usability is that you slap it on at the end. Or try to do some usability work after the product is out in the marketplace.

        Usability is Need assessment: months before you code, you interview people about their needs. Not wants. How they manage a problem set. Watch them as they try to work. To determine what is the actual need and problem a product might solve.

        To do this of course, you have to figure out who might have the problem, and of course, the usibility piece for user assessment is all done before you even figure out how to solve a problem.

        This is usability work that startups and new product developers often don’t do.

        It’s all very well documented and one example a book covering this can be found here:
        http://www.ulrich-eppinger.net/

        where the first edition is from 1995. I first used their books in 1999.

        Take a look at: The Design of Everyday Things by Donald Norman (1990)

        Usability work isn’t just testing at the end. Usability work involves Needs Assessment, User Assessment, persona development, scenario development, paper prototyping and feature testing. Wireframing and testing.

        All that is done before any code is written.

        All that is the usability work done in the product development cycle. And people have been doing it for well over the decade.

        Steve Blank may be one version but there are many others. He’s not the only one. To portray his new verbage and system for these processes as somehow indicative of a whole new process is not correct. He’s one among many. And his system is

      • http://napsterization.org/stories Mary Hodder

        The typical perception of people who don’t understand usability is that you slap it on at the end. Or try to do some usability work after the product is out in the marketplace.

        Usability is Need assessment: months before you code, you interview people about their needs. Not wants. How they manage a problem set. Watch them as they try to work. To determine what is the actual need and problem a product might solve.

        To do this of course, you have to figure out who might have the problem, and of course, the usibility piece for user assessment is all done before you even figure out how to solve a problem.

        This is usability work that startups and new product developers often don’t do.

        It’s all very well documented and one example a book covering this can be found here:

        http://www.ulrich-eppinger.net/

        where the first edition is from 1995. I first used their books in 1999.

        Take a look at: The Design of Everyday Things by Donald Norman (1990)

        Usability work isn’t just testing at the end. Usability work involves Needs Assessment, User Assessment, persona development, scenario development, paper prototyping and feature testing. Wireframing and testing.

        All that is done before any code is written. And the product makers should not assume during any of these steps that they actually know how to solve the problem. Let the information lead you.

        All that is the usability work done in the product development cycle. And people have been doing it for well over the decade.

        Steve Blank may be one version but there are many others. He’s not the only one. To portray his new verbage and system for these processes as somehow indicative of a whole new process is not correct. He’s one among many. And his system is one among

      • http://napsterization.org/stories Mary Hodder

        The typical perception of people who don’t understand usability is that you slap it on at the end. Or try to do some usability work after the product is out in the marketplace.

        Usability is Need assessment: months before you code, you interview people about their needs. Not wants. How they manage a problem set. Watch them as they try to work. To determine what is the actual need and problem a product might solve.

        To do this of course, you have to figure out who might have the problem, and of course, the usibility piece for user assessment is all done before you even figure out how to solve a problem.

        This is usability work that startups and new product developers often don’t do.

        It’s all very well documented and one example a book covering this can be found here:

        http://www.ulrich-eppinger.net/

        where the first edition is from 1995. I first used their books in 1999.

        Take a look at: The Design of Everyday Things by Donald Norman (1990)

        Usability work isn’t just testing at the end. Usability work involves Needs Assessment, User Assessment, persona development, scenario development, paper prototyping and feature testing. Wireframing and testing.

        All that is done before any code is written. And the product makers should not assume during any of these steps that they actually know how to solve the problem. Let the information lead you.

        All that is the usability work done in the product development cycle. And people have been doing it for well over the decade.

        Steve Blank may be one version but there are many others. He’s not the only one. To portray his new verbage and system for these processes as somehow indicative of a whole new process is not correct. He’s one among many. And his system is one among many.

      • http://napsterization.org/stories Mary Hodder

        hi, pls delete all but the last comment. your system kept giving me an error when trying to post. so it appeared that the posts weren’t going through. sorry about that.

    • Oren S.

      Mary, I think what Nigel means is that this process should start much earlier, in the very first stages of product development, and that it should be much more profound, meaning that the developing team should be willing to make SUBSTANTIAL changes to their product.
      As a usability/UI expert, i know developers usualy “call us in” for advice too late in the development process, when most of the features and charectaristics of the product have already been decided and sometimes even developed (much harder to convince people to change now).
      Perhaps the problem is that we call it “User Centered Design” and not User Centered Development”.
      But even so, it always amazes me how many start-ups out there are not even aware of basic UCD and usability practices. It’s no surprise then that an experienced entrepreneur would think that any of this is new practice.
      The basic approach of many entrepreneurs (as well as investors) is that “it’s all about the idea”, while with the customers, it’s all about the user experience. Hence the need to clarify this to developers.

      • http://napsterization.org/stories Mary Hodder

        Agreed. When I started Dabble, my first startup, we did usability work around needs assessment and user assessment, paper protyping and testing for three months before any code was written.

        Slapping on the usability at the end never works.

    • http://www.flairjax.com json

      yeah, its called VOC, voice of the customer. Check out PDMA. Welcome aboard.

    • http://www.freewayauction.com Wade Champeno

      Thats interesting. This article is good.

      You should see this site http://www.freewayauction.com. Free Classifieds. Auctions with No Listing Fees, No Reserve Fees, and No Photo Fees. If Pricing stays the same threw out the entire distance http://www.freewayauction.com will kick ebays but.

  • http://www.midasoracle.org/2009/08/30/customer-development/ Nigel Eccles is discovering marketing. | Midas Oracle .ORG

    […] Nigel Eccles is discovering marketing. Written by Chris F. Masse on August 30, 2009 — Leave a Comment “Customer Development certainly lacks the drama of the overnight pizza to Porsche success stor… […]

  • wtf

    How do you balance this survey with secrecy?
    You have an original idea, but you can’t really disclose it… What do you do?

    • http://blog.twingly.com Martin Kallstrom

      @wtf, it says the survey is for when you have a significant user base.

    • http://colnect.com Collector

      In most cases, if your idea cannot be disclosed it’s just not that good…

      • http://twitter.com/chinmi chinmi

        Care to explain your reasoning on that?

        You mean that such people are afraid to disclose because they know that their idea is a bad one themselves?

      • Dan

        No. The good ideas are the ones that are not easy to do, that require a certain technical flair combined with a knack for finding customers.

        So – if you need to keep your idea secret because you’re afraid somebody else will copy it, it’s because your idea is too easy.

        Let somebody else do it, and find an idea that nobody else CAN copy, and then tell them about it so you can get their opinion.

      • http://twitter.com/chinmi chinmi

        gotcha!

        I’ll try ;)

    • http://napsterization.org/stories Mary Hodder

      Doing needs assessment and user centered design and usability work doesn’t require telling anyone your ideas. In fact, that would be a mistake to share it because it would lead the user you might survey away from them expressing, untainted, what needs they have. All the usability work leading up to actual coding is meant to have you ask questions, ask for demonstrations of how a user might solve a problem, etc.

      • Dave

        How do you know which users to ask questions of? Whose needs/problems are you trying to solve? The OP talks about putting a product in front of customers by seeing who might be interested enough to click on a google or facebook ad so you’ve effectively gained yourself a “validated lead” who has the problem you’re solving. In your approach it seems like you have a hypothesis about who the customers are (that may not be the right ones?!) and you ask them questions – doesnt seem like quite the same thing.

  • http://www.facebook.com/people/Hank_Mobley/1706002252 Hank Mobley

    Yes, sounds like Usability Engineering to me.

    • http://www.fanduel.com Nigel Eccles

      Usability engineering is when you want the product solve a known problem for a known user. Customer development starts with both the customer and the problem being unknown so it is much broader. Usability will make a product better but if it is for a problem your users don’t care that much about then it still won’t gain traction.

      • u cannot b serious

        Nice post, Nigel. It’s hilarious how so many people think it is the same as usability. How clueless.

    • http://www.startbreakingfree.com Brian Armstrong

      Great post Nigel…just wanted to add there is also a nice shortcut to this approach you can use sometimes: being the first customer yourself!

      If you are fixing a pain point that you yourself have and are going to be the first customer, you already deeply understand the target market. This is sometimes called “dogfooding”. Even Williams talks about doing this when he started Twitter.

  • morkmork

    What is wrong with this picture?

    “convince some investors, they raise money”

  • http://www.facebook.com/people/Rizwan_Iqbal/849835283 Rizwan Iqbal

    Love the article and I can relate to this methodology.

    However, I don’t quite agree with wtf. If you have an idea, I dont think you should enshroud in your basement and start working on it….if you have an idea, share it with the world, if they are any good….you will have to push it down peoples throats.

    The idea is one thing, execution is another. You should never care about people stealing your ideas, you just shut down one valuable source of feedback if you do that.

    We are on the verge of launching a new product, we have moved on to the development phase and writing it down, this article will be my bible when I decide to take it to market :D

    • Dominic son

      I’m getting flashbacks of screwbookprices.com, an on campus book exchange I started in college. Everyone always told me ‘wooow good idea! Whata good idea!’ funny thing is that it seems like the ones that said it never ended up using the site.

      When pazap came around, I wanted innovation – buying and selling with ur cell phone so that transactions could be more instant. Again, ‘ wooow what a good idea, good idea! Can you sense the beginning of my bitterness? Barely anyone called into the line. I will give you 5 years of my life so far in 1 lesson: its not about a ‘good idea’… Now this sentence is incomplete, I’ll come back in another 5 to complete it. Wish me luck on resumerace.com

      • http://twitter.com/chinmi chinmi

        haha… yes

        For the project I’m working on, I sent the url of the prototype to several of my friends.

        One was so positive and enthusiastic when I asked her for feedback, but when I went through the logs it showed that she never even went beyond the welcome page!

        That upset me a little, but I know that she means well =)

        Don’t be bitter man!

      • Hmm

        Don’t ask. Launch the most basic idea. Tell people. See if they use it. Yell louder, tell more people. See if they use it. After a while, if they don’t, you’ve got your answer.

      • bert

        hey dom/Nguyen–

        looked at your website/email, sorry to, hear about your lack of success/probs when, dealing with college textbooks…

        doing a great deal of preliminary work for a function targeting, the college textbook market.

        could be a good thing to talk to you about this….

        your whois cell number is disconnected. if you get this, check your gmail and shout back of you’re interested..

        peace..

        -tommy

    • asdf

      Nice philosophy. But you forgot to share your idea with the world.

    • http://objektorient.blogspot.com/ RolandK

      “We are on the verge of launching a new product, we have moved on to the development phase and writing it down, this article will be my bible when I decide to take it to market”

      Wow, life is better than

    • http://objektorient.blogspot.com RolandK

      “We are on the verge of launching a new product, we have moved on to the development phase and writing it down, this article will be my bible when I decide to take it to market”

      Wow, life is better than
      You know it was all about doing it NOT this way

      scnr

  • http://www.ngap.net ngap

    Yes, we all heard this story along time ago … but I totally agree that the biggest problems of the process is trying to sell our vision to investors, customers and employees at the same time … and as constantly … that’s the expensive thing. So I think, not only vision, but also ‘networking’ and trust. Thanks you

  • http://www.facebook.com/people/Travis_Stanley/598587983 Travis Stanley

    this is good information. Thank you.

  • http://www.netcrema.com/?p=12132 The long lost formula for start-up success. No, really « Netcrema – creme de la social news via digg + delicious + stumpleupon + reddit

    […] The long lost formula for start-up success. No, reallyuk.techcrunch.com […]

  • http://allmyapps.com Thibauld Favre

    I overall largely agree with what is being said in the article but I’d like to emphasize that doing market is important but not as much as getting a product out imho.

    Once you’ve *pretty much* identified your core users and thought of a feature set for your product which will *probably* appeal to them, then you need to forget about market studies and user feedbacks for a while (I mean: collect them but do not take them into account… yet!) and just release a first product.

    Confronting a product to the market is the best customer study ever. Once it is out, then you can stop coding and go on with analysing how well it meets customer expectations: think / execute / think / execute / think… These are clearly distinct development phases.

  • Andy

    A useful post. Many thanks.

    (I’m about to start development of a product, so the post’s timing was uncanny popping up in my feed reader this morning. Steve Blank’s book doesn’t seem easily available in the UK though after a quick look on Amazon.)

  • http://www.fanduel.com Nigel Eccles

    For entrepreneurs based in the UK, Sean Ellis is coming to SeedCamp in London in September and then to Edinburgh in October. Let me (@nigeleccles) if you want to come to one of his Edinburgh workshops.

  • http://www.siteclick.co.uk James

    Great post.

    Most small start-up tech entrepreneurs have a technical/creative background rather than having been to business school. This kind of information is invaluable to them – especially when summarised so neatly.

    Sounds like it’d make a great read over a slice of pizza in a dingy basement somewhere :)

  • http://www.rohitshah,in Rohit

    Totally agree with the article. Also usability is something which comes into light after customer discovery research.
    It would have been great if you had written this article considering entrepreneurs are providing free services and not just paid.

    • http://www.fanduel.com Nigel Eccles

      To be honest, customer development doesn’t square very well with free applications because you don’t have a paying customer. Unless you have a paying customer you can’t validate whether the product is something people are willing to pay for.

      You can of course use many of the tools of customer development such as customer interviews, surveys, product and hypothesis iteration etc.

      • Hmm

        All you gotta do is put a unit to making a dollar. So if you have a free product, backed by advertising, come up with how many pageviews makes you a dollar. 2000 pvs makes you a dollar? Cool. You got 4000 pageviews/day from 100 people? People are willing to pay you 4cents/day.

  • William Tucker

    A very useful insight… There are countless web services and applications out there… How many do we use everyday? How many do we or would we actually pay for?

  • Moe Glitz

    Perhaps this Customer Development Programme should be used by new Start-ups whenever they send out special invites to the first 5,000 beta users of their site.

    For the first month let all of the invites enjoy the basic serices of the site, then use the Customer Development Programme at the end of this beta trial to gain important feedback as to whether or not their Start-up has legs.

    • Aron

      Good idea, but need to be careful on assuming those first 5000 will represent the customer base at large. The risk is those 5000 folks are apt to be the most enthusiastic, and most likely to be early adopters. Unless your niche is ‘enthusiastic early adopters’ you are likely to get a skewed view of results.

      These folks could be more critical than average folks. They will probably use technology more, are more engaged in the new product, be more tech savvy, tend to be early adopters in the technology adoption lifecycle, potentially have some skew in their demographics that would not play out for the ‘average’ consumer of the startup, etc…

      Insights can be learned, but one would want to be cautious and at least understand those results within the framework of another survey that used the whole market to understand consumer reaction.

  • Aron

    Sounds a whole lot like new product development research. Don’t be fooled by the name, good NPD research involves a heavy focus on the customer, as well. The initial discovery stage you describe happens through a well-known technique called ethnography.

    Once you have some hypotheses, the quantitative step of understanding who the audience is, and what they need, is called (wait for it) needs based segmentation.

    It is good that rigor is being put into the world of startups, but I would suggest that some of these ideas are just putting old wine in new bottles.

  • http://hkanji.com/?p=20 Problem #2 - Startup book pack

    […] Eccles, an entrepreneur and a friend whom I got to know while I was at Accel, wrote this post on Techcrunch raving about Steven Blank’s book. He’s not the first and he probably […]

  • http://twitter.com/chrisco Chris Comella

    An intercontinental Steve Blank renaissance, awesome.

  • http://www.facebook.com/people/Max_Niederhofer/589275504 Max Niederhofer

    Steve Blank’s book was the single most illuminating piece of work I’ve read on startups in the last five years. It’s really incredibly useful.

    Eric Ries and Sean Ellis are his main disciples – follow them, attend their talks, meet them.

  • http://hit.theo.lt/2009/08/30/the-long-lost-formula-for-start-up-success-no-really/ The long lost formula for start-up success. No, really « hit & link

    […] long lost formula for start-up success. No, really – http://uk.techcrunch.com/2009/08/30/the-long-lost-formula-for-start-up-success-no-really/ […]

  • http://www.celtx.com Mark

    We took the first 2 months to settle on our technology and business model (free client + subscription web services that augment the free client).

    Then 9 months deciding on the industry (film business).

    Then 18 months building and demoing different prototype apps to people working in the industry (Casting, Equipment, Locations, Art Department, etc.)

    Then we spotted an opportunity (no one serving the pre-production phase).

    Then we spent 6 months building an Alpha that we demoed to potential customers, just to make sure (we were looking for objective advice, so we traveled to Australia for a conference where no one knew us).

    Then 4 years of iterative beta development during which we gained dedicated users).

    Then 1 year to execute on the business model (we launched our subscription service in April of this year).

    It’s been a long haul, but the slow and methodical approach does work.

    • steve

      Where did you earn money/pay for this during this time?

      Start-ups tend to focus on getting a product to market quickly.

      • http://www.celtx.com Mark

        Well, that was the stressful part.

        We (2 of us) started the company with 250 bucks in a cake tin. Srsly.

        We survived initially on rev generated from consulting – ie. building apps and web sites for others. This let us cut our teeth on the process, while also managing to keep the lights on (which were located in our apartments).

        We eventually leveraged some funding programs that are available from the Canadian Gov (NRC) if you’re doing some decent R&D. Lot’s of forms to fill out, but NRC is great to deal with.

        Once we had our product, and a bit of traction in the market, we did a micro round with a local VC, which we repeated about 18 months later.

        And we pulled a few rabbits out of our hats from time to time when things got really tight.

        Throughout, we kept the team small, never exceeding 7 people, the salaries modest, and the overhead very low.

        I wish though that we had moved ahead with our rev model earlier. The thinking was that we couldn’t start charging for the web services until we had moved the client out of beta.

        But the beta period ended up elongated (everything took much longer then it should have, but we were new to the game, and so had a lot to learn), and what we know now, is that people would have been willing to subscribe to the initial web offering.

        So, don’t do what we did on that front and instead, start charging for your product or service as soon as you are able.

  • Mike

    Great post. It would be interesting to see a companion piece on managing cash and people during these phases. How much cash do you need? How many people? How does equity play into this? There are clearly differences by opportunity.

    The key, as you said, is to get customers to give you their money before you run out of yours. Thus is true whether you are bootstrapped or VC-funded.

    • http://sportsblognet.com joe m

      Mike,

      Totally agree. This process could easily make you go broke by the time you get the product out and even before.

  • http://wemediaguru.com/2009/08/30/links-worth-sharing-08-30-09/ Links worth sharing 08.30.09 « Jason Kristufek’s We Media blog

    […] The long lost formula for start-up success. No, really – Nigel Eccles: The main problem is that it puts success down to the quality of the original idea and completely glosses over the most important factor: achieving a product that customers want enough to pay for. And even though most entrepreneurs know from bitter experience that the above story happens only very rarely (if at all), it retains a grip on how we think about growing our businesses. […]

  • http://www.facebook.com/people/Bryan_Hackett/712705832 Bryan Hackett

    Interesting article on startup methodology.

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