Vanity vs. Value
I commonly see startups that create businesses based on an idea that they think is cool, instead of creating a solution to an actual problem. I call these vanity businesses. The founders are left wondering why they aren't getting any traction and the answer is usually pretty simple: the customers don't think that their product/service is nearly as cool/useful as the founders that created it do. The logic, build it and they will come has never worked. Even the best products/services require tremendous amounts of awareness and strategic marketing to reach customer acquisition and mass adoption. Other things that I consider vanity businesses are those that try to compete on price and minimal uniqueness. Competing on price is difficult unless your price point is drastically lower than the competition and even this isn't always enough to get customers to switch from an existing product. Also if you only have a few differentiated feature sets in your product, it's usually not attractive enough to get customers to drop their existing solutions and start using yours.
So how do you create a valuable business? I'd recommend examining true pain points that haven't been effectively solved yet. The B2B market is a great place to look for pain points because so many large-scale organization rely on legacy and antiquated solutions. If you can create a solid product/service that eliminates inefficiencies and saves a lot of money, then you're off to a great start. A Capital Innovators company that has done a great job at this is Hijro, which is the financial operating network for global trade powered by distributed ledger technology. (ie. blockchain tech) If you would like to learn more about the value of blockchain technology, ready my books Bitcoin Basics 101 and Block Party on the Blockchain. One of the things that Hijro did throughout our program and continues to excel at is developing relationships with their customers. This feedback allowed them to completely transform their business model throughout our Accelerator to develop a platform that is incredibly valuable to their industry. They met with one potential customer after another to learn as much as possible about the pain points in the supply chain and trade finance industry before developing their solution. Based on the feedback they received and continue to receive, they developed an amazing and necessary platform that is going to change the game in trade finance. This technique is so easy, yet commonly overlooked by startups. Go into your market and talk to all your potential customers to determine exactly where they have problems and then build your solutions to solve them. It's not rocket science.
Another thing that creates valuable businesses is relentless testing in all areas. The businesses that grow the quickest are constantly testing everything such as the product, pricing, marketing, customer segments, sales methods, distribution channels and more. If you are not testing and tracking your results, then you are not going to determine which methods in various areas of the business are most effective. It boggles my mind how often I meet with companies and they haven't been tracking the most important metrics for driving their business forward. Might as well close your eyes and throw a dart and see where it lands, because a lot of businesses are running their operations like this and wondering why they aren't growing. It does not cost a business anything to track your results; so do it. Another area of testing that helps creates valuable businesses is inquiry-to-order metrics. This is the equation that allows you to learn how many emails/sales calls need to be made in order to get a desired amount of sales. I'll use an example below to better define this:
You make 100 cold calls
Of those 100 calls, you get 20 people interested in the product
Of those 20 people, 10 people decide to move forward with a demo of the product
Of those 10 people that watched the demo, 2 people ended up purchasing the product
So for purposes of this example, your inquiry-to-order ratio shows that you need to make 100 cold calls on average to get 2 sales. How could you test this to better improve conversion rates? Try developing several different sales call scripts and measure which one performs the best. We had a company that was making a ton of sales calls but was having a lot difficulty closing deals. After we sat down with them, recorded their sales calls and then restructured their sales script, they made drastic improvements in sales conversion rates. Sales testing is so important as revenue generation is the lifeblood of a business. When you can create mathematical precision to your sales process, you're going to grow quick. Another common issue with founders and sales calls is the fear of actually making them, but that is another post altogether. While I'm on the topic, founders do not need to hire a sales person in the early stages of a business to sell their product for them. You built the company thus far and there is no one that knows more about the product/service than you do. So don't waste money on hiring somebody to sell it for you. "Just do it" -Nike
Another thing I hear frequently is "I need $50K to build a website before I can get this business started" without even testing out their market yet. First off, never go spend a large chunk of money to build out what you think is needed without testing it first. I tested Triumph C-Suite Solutions and generated revenue before I even built the site. How did I do it? I learned that startups needed experienced talent, but they couldn't afford to hire them full time. So I screened several qualified C-Suite Partners to place with startups and made placements where they worked on a fractional basis. (ie. 1 day a week) I used google docs for free to track everything. Once I realized this was working, I spent a couple hundred bucks and built a site in Wix in a few hours. It's a drag and drop solution and anybody can do it. We continue to make C-Suite Partner placements and provide value to startups through Triumph. The purpose of this example is to highlight testing and that you can create a valuable business on a dime.
As you can tell, I'm a big fan of testing to create valuable businesses. Most testing can be performed for free and will allow your business to create more value in the long-term because you're saving money. As you create and grow your business, think of how you can always be listening to your market to develop something valuable that customers need, instead of a vanity business that customers may or may not want. These tactics will also make you look far more attractive to a potential investor.
When you compare vanity vs. value, it's pretty apparent which companies will likely succeed.