I was having coffee yesterday with one of the founders of my company and somehow the discussion came around to technology startups. Why do so many of them fail? He said they fail because most of them don't have a strategy for acquiring customers. The idea could be brilliant but it is bound to fail or struggle if the startup doesn't know the go-to market strategy, how would they have the customers buy their products, and the cost of acquisition of these customers. Simple. Insightful. Profound.
The thing which can kill a startup is the cost of customer acquisition. A startup could be raking in millions of dollars but not be making a single penny in profits because of the high cost of acquiring and servicing customers. In the formative months/years, the startups don't mind paying more to acquire customers when compared to customers average spending on their site as it is all about growth and about getting the market to know of their product. But, it has to be backed up by a sound startegy of bringing these costs down over a period of years so that they can start making profits.
Thus, invest in creating a go-to market startegy so that you can understand the potential and limitations of your idea.
3 comments:
I would have agreed 3 days back but then I read about craigslist.org. Basically after doing some transaction "using" craigslist I was curious about their monetization model. We all know they have more customers than probably any other online classified advertisement company. It is into existence since last 10 years(True acceptable online presence as a real company) and gets 50 million new classifieds every month. A perfect 36-24-36 for an online venture.
But guess what, they dont have any monetization model (Not even ads on their sites) except job posting in 17 cities and apartment listing in new york out of 450 cities they serve. (It pays their operating expenses). Craigslist has a fair amount of fan following and loyals.
I believe the bigger problem is that every online venture wants to be profitable right out of the gates. Agreed that not everyone can be philanthropic like craigslist or twitter (Google wanted to buy it for 1 billion only recently) but then the business models are not plain and simple in most cases as well (Read they dont offer simple,straightforward value in terms of "Guy Kawasaki"). Thus jacking up the cost of customer "acquisition". On most occasions you will find an overly enthusiastic senior executive of a startup getting in some sort of hyperbole (Which should ring alarm bells right at that instant).
Another problem I believe are metrics, especially the ones which define , track and projects growth. They are mostly fudged or inflated to meet the expectation of VC or Investors completely ignoring gartner Hype cycle. All hell breaks loose When it hits the lowest low (Trough of disillusionment) particularly because the targets which were defined when the company was at the peak of inflated expectations.
Rajeev,
The blog post was not only about monetization model but also about creating an online successful venture.
I couldn't agree more with you regarding products like Craigslist and for an example, the complete open-source eco system but I was really trying to throw some light on the classical mistake everyone does while creating a company.
I think most of the techies get lost in the zeal of making the best thing on the planet without really thinking what the customers want or how would they acquire the customer to use their service offering.
I've been down that road and wanted to share something that I learned from someone that it is much easier if you were to focus on the customer needs and how would you actually have them buy the product and use it i.e. having to look at the world from customer point of view rather than pure technology view.
Post a Comment