20 Wrenches In The Software Startup Machinery

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20 Wrenches In The Software Startup Machinery


The following is a guest post.

I have had the misfortune of personally making every one of these mistakes during my years as a software entrepreneur.  I am currently reviewing a startup that seems to be trying really, really hard to make all of them in one go.  As a result, I decided to put this list together in the hopes of saving as many startups as possible from crashing in to the rocks of false hope and misguided thinking.

20 Ways To Put A Monkey-Wrench In Your Machinery

1.       You think that your product must be awesome because your buddies are telling you it is the greatest thing since sliced bread.  Unless they are willing to hand over cold cash to use your product, they are just being nice.

2.        You are finding that your product is so versatile it could solve just about any problem.  This is a clear sign you don't have anything worthwhile.  

Dharmesh:  This is one of the most insidious problems in software startups.  As developers, we tend to like dealing in higher abstractions.  Writing a simple business application is boring.  But, writing a framework that lets others auto-generate a business application (or any application!) is fun and challenging.  For startups, it is usually unwise to try and build a framework or platform as your flagship offering.  Most people use apps not platforms. 

3.       You have found a client, but in your euphoria you have forgotten to ask yourself if this client is an anomaly.  You need to make sure that the client represents a real market, otherwise you are just building a custom solution.

Dharmesh:  This is what I would call the "you can't build a software company one custom implementation at a time".  It's fine to find big clients that have big problems they're willing to spend some money for.  This is an easy to way to get started and some cash in the door.  However, it's imperative to look for the patterns in the customer's needs and be thinking about future customers.  If you have multiple sets of code running for multiple customers, you're going to be in trouble.

4.       You keep coming up with ideas for all the many different ways you can make money with your product.  You can sell it to Google, ISV's can include it in their products, Adobe for sure will be interested.  If you are not focused on something specific, you are dead.

5.       You choose to work with verticals that don't have a lot of money.  Sure they like your product, but they can't afford to pay you enough for it, so why focus on them?

6.        You choose to work with a small client first instead of one that will be able to help you get more clients later on.  Just because Joe's Fish & Chips is using your product doesn't mean Motorola will be impressed enough to try it.

Dharmesh:  Closing on some smaller clients early isn't particularly a bad thing (in fact, you might be targeting the small business market).  As long as you can find some repeatable pattern so you can build software for many people (and sell it to many people), you're probably ok.

7.        You think you can't work with a "real" client early on because it's too risky.  But you aren't selling them the product - you are selling them the idea of the product.   If you can't sell them the idea, you are never going to be able to sell them the product.

8.       You start building the product before you have a (real) client identified.  Again, if you can't sell the idea, you are definitely not going to be able to sell the product.

9.        You think you can't sell the idea until you have a product.  This is a major killer - you think that as soon as you have feature X or Y, you can start showing people your idea. One more time - if you can't sell the idea, you can't sell the product.

Dharmesh:  I agree.  Reminds me of  "Stealth Mode, Schmealth Mode" posted earlier.

10.    You don't want to stop or throttle development when you aren't really sure you are on the right track.  You just want to keep on going, because you just know that soon the product will be so awesome that it will dazzle everyone with its brilliance.   If people aren't buying the idea, you better stop wasting money now until you have figured things out.

11.   You think that just because your product can solve a generic problem like "collaboration", you have a sure-fire winner.  You have to ask yourself how your product really stacks up against the competition that is already out there and why people would buy yours, and if they would, for how much.  Often, the current solution being used is simply good enough, and even if yours is significantly better, no one is going to buy it.

12.   You underestimate the power of a penny over free.  If something is free and barely does what you need, you will stick with it versus something that's much better but requires you to pull out your credit card.

13.    You think that just because someone says they would definitely use your product that they actually would use it - or that they would pay to use it.  Talk is cheap.

14.    You think that just because people say they would pay for your product (and actually mean it), they would pay enough to keep you off food stamps.

15.   You think that just because there is a company making money in your field, there must be a lucrative market that you too can take advantage of.  But there may not be room for more than one successful product in this particular area.  And the incumbent has a much better chance than you do of succeeding.

16.   You think it's not a big deal for a user to create yet another login to use your product.  But it is.  This is like the penny versus free.  They have to have a really good reason.

17.   You think because your product integrates nicely with a bigger product, you're golden.  But you forget that there is inside-out and outside-in integration.  If I am in Google and there is a tool (like a gadget) that I can easily access (i.e. I don't need another login and password), I am much more willing to try it than if I have to go to another site, sign up, sign in, and then get to my Google application from there.  So if you are going to integrate with an application your target market is already using, it must be inside-out integration, not outside-in.  Facebook applications are a good example of inside-out integration.

18.    You think you can get users to pay a reasonable monthly subscription fee, but you forget that you need a LOT of $19/month subscriptions to make real money.  Do you really understand how many subscriptions you need, and how realistic is it that you are going to get there?

19.    You think that you need to offer an onsite solution to go along with your SaaS solution, but you forget the huge costs involved in supporting on-site software.  Besides, if think your market is both an on-site corporate solution and also a SaaS-based consumer application, chances are one of those assumptions is wrong.

20.   You think you have come this far, you can't possibly stop now.  It's like you are swimming across the lake, and you are more than halfway there.  So you just keep on going, but the shore keeps receding into the distance…


If you have your own list of "signs of trouble" in a software startup, please leave a comment.  Or, if you've got a great article that you think will help software entrepreneurs, email me to discuss making a guest submission to OnStartups.com. 

Posted by Dharmesh Shah on Sat, Jun 28, 2008


I agree a bit with Tony--most of these are excellent, but some ideas (not most!) need to be experienced for people to get them. 
We had an idea and the typical repose was "oh, that's nice". So, instead of raising funding, we built a prototype and then showed it around. Once they saw the demo, three of the biggest Internet companies were interested in acquiring us... 

posted on Saturday, June 28, 2008 at 2:49 PM by Dan

No doubt that a prototype is worth its weight in gold. It allows you to feel out which parts of your product will be the hardest to implement and which features are the quick wins; both of which I think are invaluable when promising potential clients what features will be in your product.  
I think people are also more receptive to an idea if they can see a product demo (even in rough form).

posted on Sunday, June 29, 2008 at 4:56 AM by Shaon Diwakar

> For startups, it is usually unwise to try and build a framework or platform as your flagship offering. 
I have been down this path. It's a heck of a lot more difficult that anyone could imagine (even in a niche area). Thankfully we ended up using our platform to build an app which customers happily put down money for; ensuring our survival. 
Framework/platform adoption is always slow and you have to be in there for the long haul, even if you have a great product.  

posted on Sunday, June 29, 2008 at 5:40 AM by JK

Great post. I agree with all except for #15. If there really is a market, there's usually room for different segments within. You may not end up the biggest or unseat the incumbent, but you can find your own niche within it and exploit it. Of course, your investors may not be happy unless you 'dominate'. 
And sometimes your niche may end up being the big winner.

posted on Sunday, June 29, 2008 at 10:43 AM by Fred Yee

Nice list. Here's my favorite: 
21) You think you have a great business plan just by painting a hockey stick with your key performance indicators

posted on Tuesday, July 01, 2008 at 12:14 AM by Isaac Sacolick

I'd add these 2: 
A) Remember that Adolf Hitler sold nazism to the whole of Germany: your product can't be worst. People buy everything if they are reassured by someobdy whose judgement they trust already (which, incidentally, means it can't be they themselves...) that a product is good. It is then a matter of your ethics if your product is good indeed, because in theory you could sell a can of crap: if you market it properly and with big funds, you will find thorves of flies that want to buy it. Sad, but true; don't complain, after all you too (and me too!) don't take from a shelf a brand unknown, do you? 
You know nothing about that product: you ONLY know that a rockstar on tv said it was fab, and THAT and only that sufficed. 
B) If your product is truly innovative and a breakthrough, you're in serious troubles: you will have to push it down the throats of people, everybody will say you have an unfeasable unusable abhorrent product, that it is riddled with defects, and that you will go nowehere. Remember: pepole are used to believe that if something is not bought, it must be because it is bad - like a restaurant with no one in, you don't get in and yet it dishes might be better than the crowded nearby Macs. 
So, they are right: a great product is regarded as nothing if you haven't Pam Anderson telling the world it is great. Only then, they may realize it is good. Before that, they will only see you're unusual (you offer 20 good things? no one does that, come on...), and stick to the usual (2 bad things, but oh so familiar!).

posted on Thursday, July 03, 2008 at 1:10 AM by Al

This is a fantastic post. I think one of the hardest ideas for most of us to grasp is that ideas don't mean sh*t unless they generate real cash flow. Too often egos and roundtable talk take precedence over hard data and market focus.

posted on Tuesday, July 08, 2008 at 4:25 PM by Boston Bachelor

I did a post that expanded on this idea in good detail using yet another search startup as an example. I even got the creator to chime in in the comments. Click here to read it.

posted on Thursday, July 10, 2008 at 12:58 AM by David Saintloth

Great list! This should be one of those things that is printed on cardstock and hung to the left of your monitor. 
I routinely recommend that people read "Crossing the Chasm" when they are talking about launching a company. I can now suggest this list for those too busy to read a book.

posted on Friday, November 14, 2008 at 12:42 PM by Ichisan

I am in agreement that many people in a start-up situation become blinkered to their own perceived benefits of new "baby". However, there is still something wonderful about the "build it and they will come" approach and its important that this hope approach never be extinguished otherwise we would not have the google.com of this world.

posted on Sunday, January 04, 2009 at 1:44 PM by Michael Higgins

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