I can’t tell you how many entrepreneurs pitch me “great” ideas that all hinge on a one-time purchase. While I’m not suggesting that a patent is worthless or that it’s impossible to get rich or successful off a one-hit-wonder one-time-purchase product or service, it also isn’t preferable or the easiest path (unless you’re charging ultra-premium prices).
Here’s why:
- The cost of acquiring customers often isn’t cheap, so if your profitability hinges on your one-time-purchase’s profit far outweighing the cost of acquiring that new customer, you’re walking a fine line
- It’s typically cheaper and easier to retain a happy customer or upsell them into additional products and services than it is to go acquire a new cold lead and convert them into a customer
Additionally, if you’re planning on building any type of tech platform or service, I’d argue stickiness is almost a requirement for success. Why? Because whether your tech product is valued on individual B2C sales or B2B ad revenue generated thanks to your high number of users, your ongoing success and profitability require that those users continue to engage with your product, app, or platform.
This is one reason digital platforms attempt to collect your information, even if they never sell it: They’re able to use your prior information and engagement to make your future customer experience more tailored, convenient, and enjoyable, and thus cement your place as a loyal repeat customer.
If you can build a product or service that stores prior customer preferences, feedback, purchase decisions, actions, or behaviors and use that to improve their future experience, you’re on your way to building a sticky business that ropes users back in on a daily, weekly, or monthly basis, ideally for years to come.
Question 1: How sticky of an idea is this (or could tweaks be added to make it more sticky)?
If you think you’re building your business in a vacuum, independent of and shielded from outside economic or industry trends, I’d venture to guess you’re in for a rude reality. That said, just because current industry trends don’t initially seem to be in your favor doesn’t mean your idea (or pursuing it now) is a lost cause. In fact, you may be able to use the very trends that scare competitors off to your advantage if you’re strategic enough…
For example, if the industry is in a temporary lull right now (thanks to a current recession slowing sales and scaring competitors), it might be a good time to get in when competition is lower (and less resource-armed) than usual, yet customer pain points are still there.
However, some trends indicate a dying industry or stark change in consumer behavior that might not bode well for your venture, so it’s important to take stock of those indicators before going all-in.
Question 2: What are the global and local industry (and market) trends?
Along the lines of trends for the future of your industry, it’s equally important to consider how long you believe the product or service you’re creating will likely be in demand.
In other words:
- Will new developments or technologies likely render it obsolete in a few short years?
- Is it only solving a temporary problem?
- What is the expected customer lifetime (how long will you retain each individual customer)?
You might be surprised by just how many “great ideas” are far too short-lived to make real entrepreneurial sense (unless you’re in for a fast cash grab before switching to your next venture). Some short-lived ideas may still be worth pursuing, but the last thing you want is to be blindsided when the tides abruptly change and the venture you’ve sunk your life savings into is on the brink of extinction due to factors outside your control.
Question 3: What is the likely longevity potential of this venture?
Imagine building a company into the tens or hundreds of millions, only for it to be displaced overnight by a larger industry incumbent who simply replicated your services or features without paying you a dime. Unfortunately, if you don’t have a patented or proprietary and defensible product or technology, this is not only possible but probably more common than you think.
Some would say it’s the smaller company’s fault for not having built a bigger moat with more brand recognition and customer loyalty, while others would say it was a missed acquisition opportunity (to sell to the incumbent). While both may be true, the best defense would of course be to build something that isn’t so easily replaceable and at risk of a surprise ambush at any time.
A few ways to make your venture less replaceable:
- Patents and protected, legally defensible proprietary features
- Partnerships and deep-rooted connections with other brands, organizations, and public figures
- Stickiness that makes switching to a competitor more painful than rewarding for existing customers
Question 4: How easily replaceable is this venture, and how can I make it less replaceable?
No matter how great your idea, product, or service is, one of the biggest obstacles most entrepreneurs face is in getting it in front of the right target market. This is where connections and easy access can come in handy as a major advantage for those who have them. Whether it’s industry-related connections from a company you used to work for or a peer or relative you could poach as an advisor, board member, or even team member who has a direct line to your chosen audience, these access points can be the secret weapon to help you launch with a bang.
For those thinking you can simply pay for access through ads and influencer partnerships, you’re not necessarily wrong. However, it’s a lot more cumbersome and expensive to pay your way into a foreign industry of strangers to whom you have no ties than to leverage a back pocket easy access shortcut in the form of a genuine connection or relationship.
Question 5: Do I have any connections to the industry or target market, and if not, how will I reliably get in front of them?
Make no mistake: It is very possible — dare I say, even common — for an entrepreneur to create a business in which the daily operations suck. By “suck”, that can mean anything from they have some major scalability issues to exorbitant (yet necessary) expenses to the fact that they may just require the entrepreneur to do things they can’t stand all the time. Daily operations is also one of those afterthoughts that far too few entrepreneurs even consider when dreaming up their million-dollar idea.
As someone who’s built businesses for which the daily or weekly operations were far from my cup of tea, as well as many subsequent businesses built for scalability, profitability, automation, and low maintenance, I assure you this is a question to ask before you launch, not after. I also know multiple newbie founders in the “puppy love” phase with their startups, who won’t admit that they’ve built operations they hate but see no way out, so they choose to grin and bear it. In my opinion, entrepreneurship is too hard and precarious to build a business you can’t stand running, so here are a few considerations to avoid that:
Question(s) #6: Do the daily operations suck? Can they be outsourced? Can they be automated? If not, do they require an industry expert, a consistent brand-facing personality, or salaried workers that demand a minimum spend and thus a higher sales requirement to break even and profit?
If you can’t find a single competitor or company even coming close to addressing the problem your startup solves, be scared. On the off chance, you’re the first one who decided to tackle this problem for which there’s significant demand, congrats. More likely, if other companies aren’t addressing it, there’s a good reason (like a graveyard littered with the failures of ventures past…).
Nonetheless, countless entrepreneurs get scared off by the presence of competition, which is really just an indicator of current demand. Competition itself isn’t necessarily a dealbreaker for your business, but flawless, indestructible competition that solves your target market’s problem as perfectly, conveniently, and affordably as possible is definitely something to look out for.
That said, the good news is that if you’re innovating or improving on the currently available products, services, or solutions on the market, there are often subpar competitors to which your target audience is currently resorting (until they switch to your better solution). If there aren’t worse competitors, then perhaps your product or service isn’t actually as innovative, needed, and revolutionary as you thought…
Question 7: Are there current and popular subpar solutions to the problem? In other words, are people currently paying for less valuable, more costly, or more inconvenient products or services to solve this problem, thus confirming demand and an opportunity to insert yourself as the better, more convenient, or more affordable option?
Let’s be honest: Starting any new business requires a significant investment of time (if not other resources and finances to boot), and the odds of success aren’t exactly compelling to the average better. Simply put, anyone starting a new venture should be well aware that it might not pan out how they’d like. I’m not reiterating these Debbie Downer odds to spread doom and gloom, but rather to highlight how an aspiring founder can determine whether those odds are a risk worth taking.
There’s the financial calculation of how much money you’re willing to put in before seeing a positive return, as well as the time calculation of how long you’re willing to push forward before you call it a bust. However, those arbitrary decisions aren’t actually the best way to assess whether the worst-case scenario is acceptable enough to attempt this business. Instead, that decision can be made by asking a few material questions that outline exactly what you’ll get and where you’ll be in the event of failure:
Question(s) 8: In the worst-case scenario if my business isn’t a success, what do I come away with? Do I have an asset to sell that holds some value? Did I augment my education and expertise in an industry of extreme interest? Did I acquire a new skill set I can use in subsequent jobs or ventures?
If the worst-case scenario isn’t compelling enough, leaving you better off than where you started in some way or another, you may be building a venture on a precarious foundation, and perhaps it’s worth another think before launching.
If you’re an aspiring (or current) entrepreneur, there are a few things I’d guess you might like:
- Money (uncapped financial upside potential)
- Location freedom
- Time freedom
- Autonomy to be your own boss
However, there’s one thing that will ideally accompany, if not supersede, all of those desires: An affinity for, passion for, or deep interest in the product, service, or industry you’re pursuing.
I can tell you from experience, it is possible to profit (even handsomely) from a random widget in an industry about which you don’t really care. That said, I can also tell you it is so much more fulfilling and easier to persevere through the ups and downs of entrepreneurship if you’re selling a product or solution that you actually truly like, love, or care about.
Question 9: How much do I care about or like this product, service, or industry?
As irrelevant as this “like” factor sounds to a business idea’s viability, it can be the necessary gauge of how or if you’ll be able to weather the inevitable storms you may face as roadblocks emerge starting this new venture.
