161. How To Start A Startup: Building Your Prototype & Fake It Until You Make It

19 takeaways from this video:

00:01:02 While having technical skills is great, non-technical founders shouldn’t just be written off. You don’t have to know how all the code works and what happens behind the scenes; there are equally as much of the population that are intelligent, entrepreneural, curious, observational and ambitious and that don’t know how to code than those who can.

It’s not imperative to be tech savvy in order to start a startup.

[EDITOR’S NOTE: Recall in Janne Jul Jensen’s workshop User Interface Design: Step-By-Step User Interface lecture that when building your product, website, etc. you want to level the playing field between the tech savvy and the non-tech savvy.]

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00:04:44 The above process almost NEVER works, and for several reasons:

  • This process takes a tremendous amount of time and money.
  • The odds are against you that you won’t succeed.
  • You’ll have to sign away a tremendous amount of your company share in order to get anybody involved.

00:05:13 You should quickly develop a stong value proposition from the start to capture investor interest. If someone else can hear your idea and then steal it from you, then you’re the wrong person to do your idea. If you’re launching an idea only because it seems like it’s such an awesome market and opportunity, if there is somebody else better suited for and more passionate about that project, then bring that person into your project and let them do it while you focus on other things only you can do.

[EDITOR’S NOTE: Recall in my interview with Joshua Waldman of Career Enlightenment that the only reason why you do things in your passion is because you’re going to be more patient when things don’t happen the way you want it to happen.If you do something that’s out of your passion because it’s a better market, you’ll give up faster.

For more on the importance of creating a business you’re passionate about, watch the talk Managing Your Professional & Private Life by Oussama Ammar (Oussama’s talk is in French, but the notes have been taken in English).

Also, for more on capturing investor interest at the beginning of your pitch, watch my lecture How to Introduce Yourself so Investors Want to Invest.]

00:06:30 Today, it is easy and nearly free to launch something; your idea doesn’t have to be a $10M company the day that you launch it. Don’t spend your money having somebody build something precisely tailored to your specific idea when you can use someone else’s free service and invest that same amount of money collecting 2,000 pre-orders or emails.

It’s not about doing everything. Your startup’s success depends on proving one specific value to one specific audience, and showing that you can do it.

00:07:33 Don’t waste six months solving algorithms and worrying about all the wrong things. Instead:

  1. Concentrate on making a minimum viable product, service, or prototype to test your most basic assumptions and prove that you have a business idea that is both valuable and lucrative
  2. Get your copy (the text in your documentation) right
  3. Put it on a landing page
  4. Invest $1,000 in highly-targeted advertising driving people to your landing page where they can sign up for updates, an advanced copy, etc via email. Being able to say it costs you only $1.50 in facebook advertising to convert a consumer is powerful and shows value. 
  5. Monitor conversion rate: how much you actually paid to convert each customer.

[EDITOR’S NOTE: Recall that in our interview, Author and Entrepreneur Joshua Waldman gives the example that assuming a 2% conversion rate, for every 100 visiters you’ll get 2 conversions (people who do what you want them to do such as buy your $10.00 ebook). $10.00 x 2 = $20.00. So 100 visiters = $20.00. So don’t spend more than $20.00 on advertising to get 100 visiters. It’s simple, but that means you have to do your research and know your variables.]

00:10:10 Switching from an ugly landing page which gets you 3 signups per 1,000 to a beautiful, modern website which gets you 10 signups per 1,000 is great for increasing turnover by X%, but what startups need to focus on iscreating an optimizable business mode and creating an idea that people want to get behind. Going from 3 signups to 800 signups per 1,000 doesn’t happen if you don’t have a product or a service people want to begin with. You can’t optimize your business to success.

Don’t confuse your vision and the products/services you offer that support your vision. At the early stages you need to prove that your vision, not your product, is viable. It’s possible that your vision is sound and viable, but the products and services you’re offering aren’t interesting. It’s also possible that nobody cares about your vision.

First validate that your vision is fundamentally sound, then optimize. If your landing page is ugly but is converting like crazy, then imagine what a beautiful landing page would do.

00:13:27 One of the main advantages startups have over larger behemoth companies with deep pockets is your extreme flexibility and adaptability and ego to believe that you can actually become successful in the face of overwhelming odds.

Lukewarm success is almost worse than failure because it can keep feeding a project that you should kill.

[EDITOR’S NOTE: Recall in Oussama Ammar’s talk Managing Your Professional & Private Life for The Family that starting your business isn’t supposed to last a lifetime. If after 3 years your startup is still a startup, seriously consider giving up and moving on.]

00:21:00 Your company should first and foremost be about what you can do (your core expertise that you do better than everyone else), and then what you can ‘also’ do (extra features in addition to your core expertise). This can be done by knowing which measurements to focus on, and by knowing how to ask the right questions so people give you feedback that you can actually use to improve your product.

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To hack the above metrics, look at:

  • Revenue: Green F#%king Dollars (GFD).

Are you actually making money from the sale of your product or service? Go for the first sale(s) as soon as possible. People are liars until they are buyers. They will tell you what they want all day, but until they actually put money down for it, what they say shouldn’t be taken too seriously.

  • Customers: Can you get a non-binding letter of intent (LOI) from a potential client? It’s a contractual equivalent of nothing and you can’t yet count it as revenue (GFD), but only a person seriously considering purchasing your product or solution would formally agree on paper.
  • Users: Signups and pre-registrations. 4,000 signups to a landing page for a product that doesn’t exist yet is better than 6,000 signups to a protoype you spent six months building because the former shows that people are willing to invest in something that doesn’t exist yet, and it shows that you, the entrepreneur, are efficient and knows how to maximize your time and money.
  • Additions to team: Fractional/Milestone commitments. You can’t hire people when you don’t have money to pay them.

 

[EDITOR’S NOTE: For more on how to hire as a startup, watch the ycombinator lecture The Importance of Choosing Your Team & Execution by Sam Altman]

  • Actions: Turk it. Turk is the idea of paying people a little bit of money to perform micro actions, such as paying a person $0.10 per tweet.
  • Actions per user: frequency of revisit, actions per session, convert to lead, funnel progress. At the beginning it’s important to measure, but more importantly track, these numbers because they will change drastically from month to month. For example in January 80% of your core users might be 30-35 year old males who sign up for your newsletter, and in March your core user becomes 35-40 year old females who purchase your product. Knowing this happened, along side the modifications you made to your product offer and social media activity helps you understand how to adjust your company in the future.

Emails and free versions can act as an indicator that people are interested in what you offer, but giving you their email address isn’t the same as giving you their money. Going from offering your product for free to selling it for $1.00, you will lose 97% of your users.

[EDITOR’S NOTE: Recall in the ycombinator lecture Optimizing For Growing Your Business by Alex Schultz that:

  • A good product leads to customers, but you need those customers to stay on your site – retention. Retention is the single most important thing for growth.
  • A lot of your metrics will overlap: Daily Active Users will be pretty close to Monthly Active Users, Total Amount of Content Shared is also highly correlated to how many users there are because new users share new content. So you need to choose the deepest metric to be that one ‘north star’ metric that aligns with your company’s mission and values that you can focus on for the next few years and that guide your decisions.

For more information on how to conduct effective consumer testing, read my interview with entrepreneur and consumer tester Peter Spear.]

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00:29:54 If you have a large number of people sharing your blog posts, news updates and special offers, but very few people actually clicking on your link to read it or to take action, then what’s likely happening is that those people who are sharing your links are only doing so to make a personal statement about their interests and image, not that they actually care about you and what you offer.

00:55:07 Below is a list of ways to help you get ahead of your business on a budget:

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00:52:30 Professionals don’t have an email ending with @hotmail.com, @gmail.com, or @yahoo.com. Buy a domain name and set up your own professional email address. Equally as important, make your domain name and email address obvious to understand and spell. If you have to explain to a potential new client or investor how to spell your company’s name, or access your website, you’re needlessly making things difficult for yourself. It should at least be spelled how it sounds.

00:56:23 Being professional isn’t about trying to convince people you are bigger than you really are; being a professional is about convincing people you are the best solution out there. Don’t try to sell yourself as a 400 person company if you are 3 university students. Instead, be a good version of 3 university students.

[EDITOR’S NOTE: For an opposite argument, recall in the talk Buiding A Generalist/Specialist Business by Dror Beshetrit that when he was just starting out he referred to himself as ‘we’ rather than ‘I’ because he expressly wanted his clients to see him as bigger than he really was, knowing that once he won a client with a budget he could contract as many professionals as he needed to make the project a success.]

00:58:00 When creating and tracking a project, convince yourself why you need this project and why it is good for your company, and then try to convince yourself out of this project; why would this project be bad for your company? Play devil’s advocate to get the full picture.

00:59:30 Landing pages work much better when you are trying to convert consumers than they do for a B2B companies. For B2B, a site with informative information such as a blog or a list of downloadable white papers and publications outling your expertise and how buying your product or service would benefit the person’s business would be more prudent.

When you are B2B, what is important is whether the cost of acquiring a new paying client, not a new email signup, is reasonable for your company and budget. You may have spent $100 in Facebook and Linkedin advertising to obtain the email address of every employee in a company who downloaded your whitepaper, but that doesn’t necessarily bring you any closer to that company becoming a paying client for your business.

01:08:45 When paying contractors to build or modify your applications, websites, landing pages etc.:

  • Be frank about what their compensation is: equity in your startup or cash, at what stage in your startup they are coming in, how long they will be involved with your startup, whether or not their contract is short- or long-term…
  • You will get what you ask for, so be very explicit about what you want as well as why. Clear definitions, clear expectations. “I want a cool button so people can click on it” isn’t clear enough. The contractor needs to know location, color, placing, border, font, where the link directs to, does the link open in a new window?…
  • Conduct fixed budget tenders- especially if you’re a small business on a budget. Contractors won’t like it, but on a limited budget it’s the most economical way of finding contractors who will give you want you want at the budget you can afford.

[EDITOR’S NOTE: For more on contract negotiations, watch the Creative Mornings talk F*ck You, Pay Me by Mike Montiero. For a great workshop on how to create a user interface design speck sheet, watch the lecture Step-By-Step User Interface Design by Janne Jul Jensen.]

01:12:56 Your prototype isn’t something you’re going to turn into a long-term business, it is a very small, cheap example of your final product with limited functionality created exclusively to test the viability of your product. Once it has served its purpose, it is meant to be thrown away to begin work on the final version. If you’re the programmer who created the prototype from scratch, it can be very hard for you to throw your baby out and start over, but you must.

[EDITOR’ NOTE: For more on the problem creatives have when it comes to throwing away their ideas, read my interview with Creative Director Rémi Noel.]

Once you’ve finished those early stages of validating your business through research, launching a landing page that converts, and creating your prototype, what do you do next: build the product or pitch to investors?

01:14:54 If you’re confident that you are now ready to begin raising investment money, and that investment money is essentual to the success of your product, then pitch to investors.

If not, then build product because value is valuable, and investors will invest in good product with people willing to pay for it. If you have to take three months off building value to explain why product is valuable, do it. An ugly powerpoint presentation attached to a valuable product is attractive to investors. Investors will be wary of a beautiful, award-winning powerpoint presentation and no tangible value because they’ll think that you’re just trying to sell to them.

If you’re building a product which already has proven value, and investors ask for a better powerpoint pitch, you’re in the position to tell them “No. We’re building the product now. If you want in, get in. Otherwise, I’ve got work to do.”

Raising money is about having a really simple, easy-to-understand narrative, and then having a couple of very smart and influential people say “Yes, I’ve looked at this idea and it works out.”

01:25:22 Look for contractors who know the same people as you. Treat it as a village. If everyone knows each other, the chances of them screwing you over is very low because very quickly everyone will know about it and that contractor’s reputation will be tarnished. The lone wolf probably isn’t your best bet. But that goes the same for you; your reputation is also very important because those contractors will probably also ask around about you.

01:27:30 When choosing your business name, choose a name that is evocative and means something, and avoid choosing a name that paints you into a corner and limits your future business avenues.

[EDITOR’S NOTE: For more information on how to find a good freelance contractor, read my interviews with Art Director Akim Zerouali and Art Director Julien Hérrison.

For more information about choosing your name, read my interview with Art Director Gregory Ferembach.]

Build value.