I launched my first web business 2 years ago, and just like that the venture flopped. Resurrecting the whole thing was pointless, and I spent a fair amount of time reflecting on what went wrong, what went right, and why it was doomed to failure from the beginning. Since that time, I have met many people in the same boat, or who were heading in that direction. To help prevent others from facing the same situation, I compiled a list of the main mistakes I made and see others making, and some tips on how to avoid them.
1) Not seriously writing a business plan
Many first time entrepreneurs and even some long-term entrepreneurs make this mistake. Everything you read online will suggest writing a business plan, but many people take this step for granted. Perhaps it is hubris that they have skills others do not, and thus are bound for success with their great idea. The problem is that the idea may not be so great, or the execution of the idea may fail. The business plan forces you to consider this carefully and honestly, to assess if it will be a successful venture, and what your chances of success are.
This is an easily avoidable mistake to make. Don’t just commit to writing a business plan, but commit to writing a business plan which is honest, as harsh as it needs to be, and identifies as many risks as possible. The most critical section for new web startups is going to be the financial section and the marketing section. For finance, ask yourself very carefully about the business model, and realize that the vast majority of web businesses do not make money, even for very large sites. Is your model a good business model? How many users will you need to turn a reasonable profit? What are your costs per user and revenue per user likely to be? How many other businesses have turned a profit using this model, and how long did it take them? Did those businesses have success factors you lack? There are many such questions you should carefully analyze and write down a formal response to, even if no one will see it but the internal team.
Secondly, marketing. The question I like to ask is “is this a <major blog in your niche> worthy story?” Would they write an entire story dedicated to your product, or not? If the answer is no, you may want to seriously consider if your product has a good potential of success. The second piece of the marketing section is market research, and really understanding the ins and outs of your competition. On the web, every other site is a competitor, not only in your own niche. If someone would rather be on facebook then your page, they will be. And finally, a good knowledge of other similar sites is critical. What are their competitive advantages? Why will you be able to siphon off their users to your own site? Is your site unique enough or superior enough to cause people to change their habits? To avoid failure, be realistic, even if the answers are harsh.
2) The Me Too Syndrome
I constantly talk to web entrepreneurs who fall into this trap. They see a major success (Some bloggers, twitter, and facebook come to mind) and then say ‘if them, why not me?’ They set out to create an also-ran product with nearly all the same features. The problem is, even if you build something which is fundamentally better then the competition, you still have to make users understand that and accept it. This works sometimes, but is the rare exception and not the rule. Generally, if you are entering a competitive space with a successful competitor, go find a new business.
3) The ‘If you build it they will come’ Fallacy
Some people have the assumption that building something means people want to use it, so they will. I actually made this same assumption when I started my first web business a few years back – thinking that there was search volume for my product, it was well designed, and so people would naturally start to use it. In reality, a business has to build out a customer base through word of mouth, advertising, brand building, and public relations. You can’t sit around for Googlers to find you. They may, but they also may not.
To avoid this, always assume that no user will find your site unless you personally direct them to it. This will help you when considering the proper marketing strategy. Building up the business case and the marketing plan in your business plan will help here. Essentially, you will need to help users to find you. Having a great product only keeps users, it doesn’t generate them.
4) The design trap
I like good design. I am not so good at creating it. My strength lies in the more technical and business oriented areas of startups, not in overall product design or graphical design. Although this is one of my weaknesses, I realize that design is a very important piece of product development. The trap is when the design becomes the product, or when the design is never ending. In the first case, a really cool designed product has forgotten about the utility of the product for the consumer. Who wants a really nice looking lump? In the second, a form of scope creep, continuous refinements in the design space can leave a product less polished, or delay delivery far too long leading to high cost.
I see a lot of web startups who tweak and tweak without ever finishing. I would recommend setting the design early on, and then going through several rounds of refinement, but leave a limit up front, and only exceed it in extreme circumstances. Once you are successful, you can always complete a redesign.
5) Product worthiness
Is your product really something other people want a lot of? Really? Is it iPod good? If you can’t honestly answer yes to this question, then what are you really doing? Perhaps just starting a business without a good product. This, along with the also ran products, is one of the main reasons I have seen many new startups fail.
A friend of mine nailed it one day when we were talking about mobile apps. He said he sees a lot of applications on the iPhone which are ok, but not great. The truly great ones come about when an existing user searches for an app she really wants, but can’t find it, so designs her own, and designs it well. This leads naturally into…
6) Filling a gap
As a corollary from the previous section, does your product fill a gap in your customers needs? If it does not, then why would a customer pay for your product? Even if your product is free, if a customer wouldn’t be willing to pay for it, you should evaluate the overall utility the business you are starting really has. Making sure your product fills a customer need is a basic part of product design, and should be considered before any significant capital has been spent, whether in time or money.
Also consider the life space that your business will occupy and how that will affect price points, even for free services. Utility applications and web sites generally have a higher price point, because they can actually improve your users life. Entertainment or social applications are more take or leave, since they are unlikely to materially improve your users life.
