How To Start A Startup (Part 2 Continued) What Customers Want!

READ PREVIOUS POST HERE  It's not just startups that have to worry about this. I think most businesses that fail do it because they don't give customers what they want. Look at restaurants. A large percentage fail, about a quarter in the first year. 

But can you think of one restaurant that had really good food and went out of business? Restaurants with great food seem to prosper no matter what. A restaurant with great food can be expensive, crowded, noisy, dingy, out of the way, and even have bad service, and people will keep coming. 

It's true that a restaurant with mediocre food can sometimes attract customers through gimmicks. But that approach is very risky. It's more straightforward just to make the food good. It's the same with technology. 

You hear all kinds of reasons why startups fail. But can you think of one that had a massively popular product and still failed? In nearly every failed startup, the real problem was that customers didn't want the product. 

For most, the cause of death is listed as "ran out of funding," but that's only the immediate cause. Why couldn't they get more funding? Probably because the product was a dog, or never seemed likely to be done, or both. When I was trying to think of the things every startup needed to do, I almost included a fourth: get a version 1 out as soon as you can. 

But I decided not to, because that's implicit in making something customers want. The only way to make something customers want is to get a prototype in front of them and refine it based on their reactions. 

The other approach is what I call the "Hail Mary" strategy. You make elaborate plans for a product, hire a team of engineers to develop it (people who do this tend to use the term "engineer" for hackers), and then find after a year that you've spent two million dollars to develop something no one wants. 

This was not uncommon during the Bubble, especially in companies run by business types, who thought of software development as something terrifying that therefore had to be carefully planned. We never even considered that approach. As a Lisp hacker, I come from the tradition of rapid prototyping. 

I would not claim (at least, not here) that this is the right way to write every program, but it's certainly the right way to write software for a startup. In a startup, your initial plans are almost certain to be wrong in some way, and your first priority should be to figure out where. The only way to do that is to try implementing them. Like most startups, we changed our plan on the fly. At first we expected our customers to be Web consultants. 

But it turned out they didn't like us, because our software was easy to use and we hosted the site. It would be too easy for clients to fire them. We also thought we'd be able to sign up a lot of catalog companies, because selling online was a natural extension of their existing business. But in 1996 that was a hard sell. The middle managers we talked to at catalog companies saw the Web not as an opportunity, but as something that meant more work for them.

We did get a few of the more adventurous catalog companies. Among them was Frederick's of Hollywood, which gave us valuable experience dealing with heavy loads on our servers. But most of our users were small, individual merchants who saw the Web as an opportunity to build a business. 

Some had retail stores, but many only existed online. And so we changed direction to focus on these users. Instead of concentrating on the features Web consultants and catalog companies would want, we worked to make the software easy to use.

I learned something valuable from that. It's worth trying very, very hard to make technology easy to use. Hackers are so used to computers that they have no idea how horrifying software seems to normal people. Stephen Hawking's editor told him that every equation he included in his book would cut sales in half. 

When you work on making technology easier to use, you're riding that curve up instead of down. A 10% improvement in ease of use doesn't just increase your sales 10%. It's more likely to double your sales.

How do you figure out what customers want? Watch them. One of the best places to do this was at trade shows. Trade shows didn't pay as a way of getting new customers, but they were worth it as market research. 

We didn't just give canned presentations at trade shows. We used to show people how to build real, working stores. Which meant we got to watch as they used our software, and talk to them about what they needed.

No matter what kind of startup you start, it will probably be a stretch for you, the founders, to understand what users want. The only kind of software you can build without studying users is the sort for which you are the typical user. But this is just the kind that tends to be open source: operating systems, programming languages, editors, and so on. 

So if you're developing technology for money, you're probably not going to be developing it for people like you. Indeed, you can use this as a way to generate ideas for startups: what do people who are not like you want from technology?

When most people think of startups, they think of companies like Apple or Google. Everyone knows these, because they're big consumer brands. But for every startup like that, there are twenty more that operate in niche markets or live quietly down in the infrastructure. 

So if you start a successful startup, odds are you'll start one of those. Another way to say that is, if you try to start the kind of startup that has to be a big consumer brand, the odds against succeeding are steeper. 

The best odds are in niche markets. Since startups make money by offering people something better than they had before, the best opportunities are where things suck most. And it would be hard to find a place where things suck more than in corporate IT departments. You would not believe the amount of money companies spend on software, and the crap they get in return. This imbalance equals opportunity. 

If you want ideas for startups, one of the most valuable things you could do is find a middle-sized non-technology company and spend a couple weeks just watching what they do with computers. Most good hackers have no more idea of the horrors perpetrated in these places than rich Americans do of what goes on in Brazilian slums.

Start by writing software for smaller companies, because it's easier to sell to them. It's worth so much to sell stuff to big companies that the people selling them the crap they currently use spend a lot of time and money to do it. And while you can outhack Oracle with one frontal lobe tied behind your back, you can't outsell an Oracle salesman. 

So if you want to win through better technology, aim at smaller customers. They're the more strategically valuable part of the market anyway. In technology, the low end always eats the high end. 

It's easier to make an inexpensive product more powerful than to make a powerful product cheaper. So the products that start as cheap, simple options tend to gradually grow more powerful till, like water rising in a room, they squash the "high-end" products against the ceiling.

 Sun did this to mainframes, and Intel is doing it to Sun. Microsoft Word did it to desktop publishing software like Interleaf and Framemaker. Mass-market digital cameras are doing it to the expensive models made for professionals. 

Avid did it to the manufacturers of specialized video editing systems, and now Apple is doing it to Avid. Henry Ford did it to the car makers that preceded him. If you build the simple, inexpensive option, you'll not only find it easier to sell at first, but you'll also be in the best position to conquer the rest of the market. 

It's very dangerous to let anyone fly under you. If you have the cheapest, easiest product, you'll own the low end. And if you don't, you're in the crosshairs of whoever does. Continued Here