Bet on Yourself

How comfortable are you with the idea of relinquishing control over something important to you to someone who doesn’t really wish you well? How about relinquishing control over your career? Over your family’s livelihood?

Whenever alignment of interests isn’t present at the workplace, that’s exactly what employees are doing – they’re relinquishing control to the manager who has completely different incentives. If you’re working in a big company, your career success – your next years’ bonus, your promotion – are in the hands of someone who has no rational reason to wish you well.

Don’t give me the empathy argument. Don’t tell me that your manager wants to help you because it will make him/her feel good inside.

Incentives rule the world. People optimize for the way they are rewarded. The manager will optimize for what will make them get their next promotion. When it costs them nothing, they might even invest in you – if they’re what we consider a “good manager.” But do not kid yourself – there’s no incentive for them to systematically make you better off. You’re just a cog in the machine. A stepping stone.

… How comfortable are you with the idea of gambling? Of betting something valuable to you on a phenomenon with relatively unpredictable outcome? 

I’m not much of a gambler; the idea of having zero control over the spinning wheel of the roulette gives me a heartache. Someone else throwing the ball… Someone else programmed the roulette… Just standing there with my fingers crossed makes me feel powerless. A victim of the odds. A fool that disrespects the probability theory.

But what if you could change the game? What if you could be the one throwing the ball, programming the roulette, training for hours on how to beat the odds? What if after months of training, you were presented with a chance to make a bet – on yourself, on your own skill – and be the one playing your own game, with so much under your control?

That’s what startups are about.

You’re gambling – yes. You’re playing against the odds – most startups fail. But you’re betting on yourself – your own skill, your training, your intellectual horsepower. You’re creating a new world – every day. Your hunger inspires you to do more than humanly possible. You’re riding a roller-coaster – but it’s your own path.

Moreover, people around you – your manager, your peers – are all in exactly the same boat. If you don’t pull your weight, you will hear about it; others will jump in to make you better. If you’re doing well, your leaders have a purely logical incentive to get you the recognition you deserve – because it will make THEM succeed. Because it improves the odds of the startup succeeding. Because you personally are contributing a big, noticeable chunk to the bottom line of the value of the startup.

The most important factor here, of course, is the ability of every employee to make a meaningful difference on the company’s bottom line and having a share of the gains. This is what changes the incentives for everyone.

The wise Glenn Kelman says that “startups are the most intense way to live.” I couldn’t agree more. The thrill of a bet on myself – combined with the responsibility that it brings – is making me feel alive more than ever.

Advertisements

What Are People Paying for This Today?

So, your brilliant idea is shaping up, and you’re ready to go all steam ahead – get some funding, quit your day job, and move into your mom’s garage. One key question you kept asking yourself was “what is the potential of this business?”

Your typical market sizing goes like this: “20 million target customers; with target penetration of just 1%, we should have 200K clients, each bringing in $50, so our target sales for us are $50*200K = $10M.”

This is all nice and great, except that this model is just full of crap. You have no idea whether clients will pay $50 for your service. You have no idea whether 1% penetration will be even remotely achievable.

Let me offer an alternate model – a model summarized by “what are your prospective clients paying for this today?” It’s based on a fundamental idea that if you have to convince your clients that they have a need, you’ve lost already.

Here’s how it works:

  1. Pose the problem that your business solves.
  2. Find the ways that customers are solving that problem today. If they aren’t solving it today – through some clunky or inefficient means, hopefully – go back 3 spaces and come up with a better idea.
  3. Find out what the customers are paying for this problem. This will be the cap of what you’ll be able to charge for your improved solution.
  4. Find out how many customers are paying to solve this problem. This will be your target market size, the one you’ll multiply by the imaginary “market penetration target.”

Let’s try going through this on some of the businesses / ideas that are close to my heart.

  1. CocktailBuilder.com. Motto: find drinks you can make from ingredients in your bar. Do customers have this pain? Yes. Do they PAY for somebody/something to solve it? Nope. Result: complete fail as a  business.
  2. FindTouch.com. Motto: help create quick job connections in the Health and Beauty industry. Do customers have this pain? Yes. Do they PAY for it now? Yes. What are the existing solutions? Use Craigslist. How much are they paying? $25 per job posting. How many are there? A hundred postings per month per metropolitan area.  Result: sales potential of $25 * 100 * number of major cities. Much lower than you’d get through other forecasting approaches, and MUCH more realistic in hindsight.
  3. kCura, a company built by a talented gentleman I met recently. Motto: help companies save money on the e-discovery part of litigation. Do customers have this pain today? Yes. Do they PAY for it now? Yes, $400/hour to lawyers reviewing thousands of documents. WOW, now we’re talking. Give them a 20% efficiency gain over existing methods, and you’ll save them a TON of cash. Result: fantastic growth and a very promising business.
  4. Cloud computing. Motto: help ride the usage curve without investing into infrastructure. Do customers have this pain? Heck yes. Do they pay for it now? Of course, through all of that hardware that just sits there most of the time. You get the drill.

Apply that same model to your business before leaping forward.

A niche that’s bigger than a green field

I don’t believe in Facebook.

No, let’s try it again – I don’t believe in YOU being able to create another Facebook. Don’t get me wrong, it’s not you – I can’t make one either. And it’s not because we’re dumb – it’s because facebook solves no particular problem at all. Nobody had a need that facebook solved. Nobody was begging for it, crying about millions of wasted dollars that could have been saved if only facebook was there. Since there was no need, the chance of facebook ever succeeding was basically zero.

Yes, this post is about finding your niche.

Let’s start debunking one of the most famous myths in entrepreneurship: the need for a “large enough pie.”

“My product is applicable to every adult on the planet! If we’re even mildly successful, we’ll be able to sell to just ONE PERCENT! And that’s amounts to a billion dollars a minute!..”

Fine, I promise you – no more exaggerations for a couple minutes.

Admit it, though: you’ve heard some version of this pitch, with similar numbers that seemed so believable. A product that aims to serve everyone serves noone. If you are creating something that truly everyone can use, it is by definition so shallow in its usefulness that noone will extract serious value out of it and pay you for it. And don’t bring up the iPhone as a counter-example – it’s not a product created from scratch. It’s a product created by people who’ve been making similar products for a decade, with a multi-billion-dollar investment.

If you’re lucky, you’ll create Mint.com.

Let’s look at Mint and why they’re successful. They chose a TINY niche – personal finance – where people were really struggling. Existing solutions cost money and were incredibly clunky; there was more than enough research suggesting that individuals that track their finances tend to be better off in the long run. The public had a need and a want; creators of Mint didn’t have to make one up for them. Their product took off like fire – a typical seven-year overnight wonder.

Why? It is much easier to sell something that people *already have a need for* than convince them that they have a need, and then sell them your snow in winter. Do people *need* a fart app? Do they have some sort of mental gas that they need to pass?..

Contrast this with a coloring book kids app that my friend makes, Colorama. People have a need to keep their kid busy when they’re in a social setting. That need doesn’t need to be explained – it’s obvious to the parents. The simple app my friend built just capitalizes on that need – a very niche need, that is – and simply delivers on this very narrow promise.

I’ll claim that the narrower the need, the easier it is to satisfy. And the happier the people will be with your product in the end.

I’ll also claim that there are unmet needs – small needs – everywhere you look. From scheduling software in your dentists’ office, to a yield management system for the nearby restaurant, to organic/fair trade coffee shop in your neighborhood.

Moreover, these small needs have another characteristic: the solutions frequently need no capital to start. Your customers are right there, just talk to them. Start your company as a consulting business if you have to. Do you know what most consumer-focused startups would pay for a customer that’s telling them how much they need their product – and is willing to pay for it?..

Who cares that your product doesn’t have a potential to be a billion dollar business? Who cares, seriously? Are you telling me that you won’t be happy with 10 million? 50 million? Because mint.com was sold to Intuit for $170 mil. Not too shabby, huh?