Should you start a tech company?
I occasionally get very hands-on in accelerating a raw start-up. Typically this is when an engineer comes to me with an unquestionably clever idea and asks me — sometimes in very broken English 🙂 — whether and how he can get rich from it. So let’s collect some thoughts on the subject.
This post can be construed as fitting into my “not-very-organized series” about the keys to success. In particular, it draws on my July, 2014 post about judging opportunities.
The product plan
A start-up product idea needs to satisfy multiple criteria. Awkwardly, they’re rather contradictory to each other.
- It should be obviously appealing to sufficiently many customers, and be worth sufficiently much money to them.
- It should be something the startup can do with very few resources …
- … but which much larger potential competitors cannot.
That usually means that the idea:
- Should be based on an architecture that is anti-strategic to incumbent players …
- … but which fits customers’ technology strategies just fine.
Criticisms I’ve made repeatedly of specific ideas include:Â
- Yes, that’s a nice feature, but it doesn’t outweigh all the features in which you’ll be behind …
- … except, perhaps, to a niche market too small to matter.
- You’ve just declared that your target market is outfits that don’t want to pay established vendors’ prices, and indeed want everything to be FOSS (Free Open-Source Software). How much money do you think they’ll be willing to give you?
- To deliver the benefits you’re claiming, the features you’re proposing aren’t nearly strong enough.
- The incumbents can close the feature gap with you long before you establish any kind of traction — should it be the case than any customers actually care.
In essence, what’s needed is favorable-seeming answers on my strategic worksheet even for your 1st release, plus confidence that there will be 2nd, 3rd, 4th and further acts shortly thereafter. A product idea that can be regarded as meeting that test generally has the characteristics:
- It can be added to an existing technology environment without great disruption.
- (This generally overlaps greatly with the first point.) It doesn’t add much perceived risk. If it doesn’t work out, the customers can sadly stop using it, having wasted time and money, but not being otherwise worse off for having tried.
- It solves an acknowledged problem that is hard for existing technologies to deal with.
- There are lots of great features that can later be added to it. These features will probably also be unique in the marketplace when they first come out.
- In general, it will be hard for alternative products to achieve anything close to feature parity, due to some combination of:
- Architecture.
- The brilliance of the start-up’s engineers.
- Intellectual property protection. (This one generally arises mainly in hardware businesses, since software patents are largely useless.)
Getting to a good plan
Entrepreneurs with interesting ideas can be overoptimistic about how the market will react. Market watchers like me stock ample supplies of chilled water in response. Pivoting to a more sensible plan can be aided by the same folks who trashed your first one, but beyond that you need direct interaction with potential users.
But please don’t fall iton the trap of, having abandoned your overoptimism about what a simplistic product will accomplish, becoming equally overoptimistic about how easily you can build out the more sophisticated new product concept you pivot to.
Gathering resources
The toughest thing about starting a company is neither good ideas nor good general execution. Rather, it’s gathering scarce resources of sufficient quality, in areas such as:
- Personnel.
- Investment.
- Attention from early design partners.
If you can’t recruit and lead a team of great engineers, you probably shouldn’t be starting a company, so let’s move on to “business” and financial concerns. Deadly yet common mistakes include:
- Being too willing to rely on businesspeople whose knowledge and experience don’t match your situation, or who are simply mediocre.
- Being too eager to please skeptical investors.
The latter has two sub-categories, by the way:
- Actual investors.
- Imaginary investors whose preferences who think you know because you’ve read or heard about them as a group.
As for the former, I outlined what kinds of experience may be most relevant in the post linked up top, when I wrote:
- High-end engineering skills (architecture, management, etc.) often draw on accumulated experience with similar technologies.
- Strategic marketing skills often draw on accumulated experience in similar markets.
- Sales skills often draw on accumulated experience with products at a similar level of maturity and customer impact.
- General entrepreneurial flair often transfers well from one kind of business to another.
Finally, my thoughts on design partners start:
- Design partners have multiple roles.
- They give you guidance on what features to build in.
- Hopefully, they test your product.
- Hopefully, they use and/or buy your product, providing validation to investors, press and others.
- It is helpful if design partners are representative of a sufficiently large set of customers with sufficiently great willingness to pay.
- Very prestigious design partners are … prestigious. That’s useful. But some of them, such as elite internet companies, may not truly be representative of any kind of paying constituency.
- Even beyond that, elite companies sometimes have needs that more ordinary organizations do not.
- The right number of design partners is >= 2. A single partner will lead you down blind alleys, due to their unique needs and, even more, to the needs that they don’t have which many other organizations however do.
- Inherently, you’re working with a design partner over (at a minimum) many months. Their opinions may change over that time. (For one thing, their relevant personnel may change.) So a sale at the end of the process is unfortunately not assured.
With that, I’m conveniently out of space, so I’ll duck the subject of just how these essential resources might actually be gathered. 🙂 But please stay tuned.
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Starting with a market large enough to support a real company seems to be the tough nut to crack for a lot of tech firms.
You can only reach a small fraction of the full market, only a fraction of that addressable market will actually buy from you and only a fraction of buyers are large and/or truly profitable. The end revenue numbers get small very quickly. I personally look for products where 1% of the market ends up a really big number since the intervening fractions tend to be guesses when you start out.
>> If you can’t recruit and lead a team of great engineers
Are they supposed to work for free? To recruit team of engineers one must have already some cache in the bank account?
Even recruiting ones who’ll join you when you have money is hard. At least, it’s hard for most people.
[…] for product feedback and advice, I actually wrote about that in a post about startups last month. So in conclusion I’ll just quote myself […]