OnStartups

How Many Lightbulbs Does It Take To Change A Startup?

Posted by Dharmesh Shah on May 30, 2007 in strategy 9 Comments

So, how many lightbulbs does it take to change a startup?
 
Founder's Answer:  "Just one more.  I'm not convinced yet that we need to change..."
 
Note:  If you found this less than satisfying, for more unsatisfying humor, check out "How Many Startup Employees Does It Take To Change A Lightbulb".
 
In any case, on with the article...
 
Generally, I'm a big believer in sticktoitedness when it comes to startups.  Many entrepreneurs give up too early on their idea.  This could be driven by economics, impatience or a simple lack of focus (jumping from one idea to the other).

Having said that, based on entrepreneurs I've talked to and what I've read, one of the key "patterns" in lots of successful startups is that they were able to shift their idea and strategy somewhere along the way.  Sometimes, these entrepreneurs are responding to a "lightbulb" type moment that makes it blindingly obvious that the old strategy is likely not going to work, but perhaps a small tweak would make it viable.
 
So, here are some of the common lightbulbs that I think we should look out for as signs that it may be time to revisit the strategy.  Of course, some of these lightbulbs are brighter (more obvious) than others.
 
Warning:  I'm not advocating that at the first sign of any of these you should drop everything and pursue something different.  Startup issues are generally much more nuanced than that.  That's what makes them interesting.
 
 
Signs That Your Startup Might Need A Change
 
1.  Overwhelming absence of co-founder enthusiasm:  Lets say you've been at it for a few months.  You've even recruited a co-founder (or tried to and failed).  If after this time you just can't get your co-founder on board with the idea, something might be wrong.  If she doesn't wake up on at least some mornings all fired up and ready to take on the world, it might be time to sit down and take a hard look at what you're doing.  If you have failed to recruit a co-founder in the first place (despite pitching the idea to many, many people), that might also be a sign.  They could all be simple-minded and lacking the vision to see the brilliance in your idea.  Or, it could just be that the idea's going to be really, really hard to sell.  Even great ideas, at some point, are likely going to need to be "sold" to people like co-founderes, employees, investors, partners, customers, etc.)
 
2.  "Just one more feature and someone will buy...":  This is a really interesting one (and a common one too).  Finding early customers is really, really hard.  For purposes of this discussion, we'll call "customers" those people that give you money and that are not obligated in any way to do so (i.e. not friends and family).  A common delusion in entrepreneurial circles is to believe that by fixing some aspect of the product, customers will all of a sudden start rushing in.  In most of these cases, if the market collectively is just not responding to what you have to say (or sell), there's a chance that the base idea needs to be revisited.  Perhaps you haven't identified a sufficient point of pain yet.  Perhaps nobody cares.  Rarely is it because of the lack of some specific feature.
 
3.  "Stupid customer! That's not what the product was designed for...":  You wake up one morning to discover that one of your customers is being really stupid.  They're not using your product to its fullest potential -- or in a way that you really designed it to be used.  In fact, what makes it really stupid is that they're paying way more money to you than they should because if all they wanted to do was [X] then there are lots of others ways to get that done.  A week later, you find a similarly stupid customer doing something similarly stupid things.  Guess what:  The customers may have identified a more relevant market opportunity for you.  It may be worthwhile seeing if there's a pattern to this atypical customer usage and whether you could tweak the product or its packaging and go after more of these types of customers.
 
4.  The $1,00 product vs. $10,000 solution problem:  Lets assume for a second that customers are buying the product.  Woo hoo!  That's great.  Now, the problem is that shortly after they buy, they want some other things:  implementation support, training, migration assistance, etc.  Basically, a whole set of services that surround the product.  In the enterprise software world, we call this a "solution" (i.e. te product + services needed to make it useful).  The point here is that though your "idea" may be to setup a website and let customers try/buy your software online, the actual business for your market may not look that way.  It's possible that nobody will buy the $1,000 product but lots of people would buy the $10,000 solution.  If you find that most of your customers are immediately asking for services (and seemingly willing to pay for them), it might be a signal that you need to rethink what your offering is. It's also possible that what you're trying to do is sell a solution, when what customers want is a simple product that they can customize themselves.
 
5.  The "We'll Make It Up In Volume" Syndrome:  There's the old cliche: "yeah, we're losing money on each customer, but we'll make it up in volume!".  This particular strategy is not necessarily a bad thing.  If there are a lot of "fixed costs" involved in the business (like writing the software for example), then you are likely to be losing money on the early customers, but hit profitability at some point.  That's not what I'm talking about here.  What I'm talking about is when the variable cost per customer far exceeds the money you make.  This is simple economics, but startups make this mistake all the time.  If the actual cost to deliver the value to the customer is too high (compared to what you can charge), volume is not likely to fix your problem.  Yes, you heard it here, there are startup business ideas where the fundamental economics just don't work and this doesn't become "obvious" until a bit later in the rpocess.  Do some simple math and figure out what it would take to make each customer profitable.  You don't have to get to this point on your first few customers, but you better have an idea of how to get there at some point.  If not, change something.  Change the offering.  Change the price.  Change the market.  Charge for services.  Do something to make the economics viable.
 
That's all I have for now.  There are lots of other "signs" that I see that startups (including my own) need to look out for that that warrants revisiting the product, the strategy or other things.  It's good to be determined and stick to your plan.  But there's a fine line between determination and stubbornness.
 
What are your thoughts?  What other things should entrepreneurs be looking out for that might signal that some change is in order?  Please leave your thoughts in the comments