In-Depth

App-to-Market, Part 2: Refining Your Developer App for the Right Market

In this second of a series, we'll find out how to make sure your product is reaching the right market. But first, you need to work on you before you work on your product.

• By Wallace McClure
• 06/30/2015

In part 1, we looked at researching whether your brilliant idea was worth pursuing as a business venture and it all starts with seeing if the need exists. Now that you've validated that there is a need for the product, only then is it time to start building things. Let's take the next step, which is to work through the basics of the economics of your idea.

Let's start with a basic concept of a business. As my father said, "More must come in than goes out." In a similar fashion and as the engineer in me likes to say: "Income minus expenses must be greater than zero."

There are several ways to generate income that I am familiar with:

Create a Product and Sell It--With a physical product, this will involve manufacturing, support, and other costs.  With software, this could be an on-premises product or an offering in software-as-a-service style. For the sake of this discussion, we'll assume it's a software product. An on-premises product will have initial costs as well as ongoing support costs. Think of computers, stereos, or TVs where you sell the product to the consumer. Microsoft Office is a great example of a software product that is sold and installed on-premises.

With a SaaS product, there will be the ongoing hosting, bandwidth, and support that must be covered each month.  In addition, the initial cost of developing a product must be factored into the monthly fee. You won't be able to charge a customer $100K initially and $250 per month, but you can charge something like $500 per month. The extra money per month will help when paying off the cost of the original development of the product. For SaaS, think of Salesforce which is a cloud-based customer relationship management tool for which users pay a monthly subscription fee for access.

E-Commerce--This is the online equivalent of retail. The e-commerce Web site is merely the front end. With physical products, you must handle distribution, warehousing, and plenty of other costs. The best example is Amazon.com.

Ad-Supported--With an ad-supported site, you are attempting to get people to come to your site and to click on the various links on the site. For this to work, a large number of page views is required with a significant number of clicks on the various links. Many newspapers and news sites have tried this income model. Unfortunately, this income model does not tend to work unless the site is one of the top few in a category. Many newspapers are moving away from this model and to a subscription-based service.

Data-mining-supported--Some Web apps have attempted to pay for themselves by allowing third parties to mine the data. There is some question as to whether or not this income model will work. This model is best exemplified by Foursquare. The idea is that they will generate a lot of data regarding favorite locations, and that someone would pay them for querying this data.

These are the income models that I am most familiar with. Companies are not limited to one income model.  They can easily be using a combination or some other type of model.  For example, Facebook takes data about its customers, adds in information from other services, and presents advertisements to their members based on their age, gender, interests, and such.  They will slice and dice the data and sell advertising to companies.  In addition, with their Places service, they have location based data that they can also add into the mix

There are lots of options in the area of producing income. Some will work better for you than others. The key thing to remember throughout all of this is that it is not necessarily important which one you pick as long as what you work with generates income to cover your expenses. Ideally, you want to maximize your potential income, but you can worry about maximization at another time.

Let's Work on You First
Now that you've figured out how to turn your idea into something to sell, an you've validated that there is some amount of market interest in a product, and you've decided on some way to generate income from that idea. What's next? None of this is set in stone, and that is an important thing. At this point, you are going to do two things: look for mentors/coaches and finally start building something.

At this point, you need to take some time and work on you. You need to find some mentors/coaches. These are people who have travelled the startup path before. They are people who you have confidence in being able to help you. These are people who you are going to go to with questions as well as people who provide general advice. 

As you bring these people into your sphere, you must be open to listening to them. Advisors hate it when you ask them for help and then go off and do something that is nearly the exact opposite of what they advise. Imagine an advisor telling you that you need to talk to some specific customers and provides some contacts that they know.  You then refuse to follow up with the contacts. Worse yet, you do meet the contacts, attempt to talk over these contacts that might be subject matter expert, or you won't act on the feedback from the customers. 

The advisor then feels foolish. This will create a problem between you and your advisor. In fact, they may start to talk about you as "uncoachable" or another similar term. You don't want to be labeled as "uncoachable." Coaches talk to each other, and "uncoachable" is one of the worst labels an entrepreneur can be tagged with. There are so few opportunities to change your tag from coachable to uncoachable that the stigma from the term may not go away. So be careful.

 As you are working with advisors and friends, you need to start working on something that you can show customers.  This doesn't need to be a fully working product. In the entrepreneurial space, I hear this labeled with the term MVP, or Minimum Viable Product. 

Your MVP isn't going to have all of the features that you want. It is going to have some things that the customer can see, smell, and work with, so they can give you feedback. As you are building your MVP, you can show it to users, customers, and people who understand the industry you are jumping into. You act on that feedback, show them new updates, and work through that cycle. 

Somewhere at the end of the cycle, you'll end up with a "Version 1.0" of the product that will provide customers with value, and that you will ultimately make money from.

Listen to the Feedback Loop
Somehow during this process, you dig into some issues and need to make some major changes. This can be based on customer feedback, advisor meetings, the marketplace, or something else. Whatever the reason, you need to be open to changes. In the entrepreneurial space, this is called a "pivot." One of the worst things that can happen is that the need for a change becomes obvious, but you refuse to make the change. 

I will never forget sitting in a meeting and hearing someone claim that we would never make the change, because it was not "their plan." Don't get married to the specifics of your plan. In my scenario, this person destroyed a $750K angel investment because it wasn't "his plan." No amount of data from the marketplace was going to change this, and things ended poorly. 

Not listening to the marketplace is not limited to just startups. Major corporations make mistakes. It can cause major issues in the finances of the companies. A few examples of these that have been seen are:

The Coca-Cola Company rolled out a new version of their namesake soft drink in 1985. The marketplace revolted against "New Coke." The company quickly listened to the marketplace and brought back "Classic Coke."

Apple of the early to mid 1990s refused to listen to customer issues, problems, and needs. It took Apple several years to realize their mistakes. They solved this by bringing back Steve Jobs. Steve Jobs created a lot of great products. He made mistakes, but he also recognized his mistakes and fixed them. That is the trademark of a great leader.

Microsoft released Windows 8 without a "Start Menu."  The market responded negatively as upgrade rates were indicative of issues. Microsoft has responded to customers with Windows 10, which will bring back the "Start Menu" for desktop users. Another thing they have responded to is the cross-platform abilities of the .NET Framework. The upcoming .NET Core and ASP.NET 5 will not only run on Windows but is designed to run on Linux and Mac.  That's a major change for Microsoft, and it shows that they are listening to customers.

If you aren't open to changes based on the marketplace, don't try to be an entrepreneur. You are going to fail.

Summary
Hopefully, you have found some of this series helpful so far. The key piece of insight that I have tried to share is that writing code is not the most important thing at an early stage of startup. Talking to customers, getting feedback, and working on an income model are as important if not more important than just diving into writing code.