Where do you begin when you’re trying to build a business?

I used to start by coming up with ideas. Taking this path led me to build and launch products into impossibly competitve markets, build products with thousands of users and no revenue and generally and just generally get stuck.

If you’re trying to build a business it’s probably a good idea to think through the requirements for what you’re trying to build. That’s what I’m trying to do here.

What are my criteria?

I’ll borrow from Jason Cohen and break the problem down into different categories.

Revenue model

I’m just blatantly stealing Jason Cohen’s revenue model here.

I’d want to make at least $10,000 per month because otherwise I could just get a developer job somewhere.

  • Recurring revenue not one-off purchases + enough of it
    • 150 customers because you can get there if you “scratch and claw”
    • $70 / month on average - $50, $99, $299 / month
    • Adjective ~ “Boutique”
    • Not a business where you’re ‘picking up pennies’ -> you want to go get customers and charge them lots of money

Market criteria

  • Good: a market I can compete in without having to struggle too much.
    • A niche that is too small for large well-capitalized competitors.
    • A niche that is inexpensive to reach ~ ads are affordable.
  • Good: a market where I can leverage my advantages.
    • A market where I have existing connections - people I already know.
    • A market where I have existing experience - engineering, my hobbies, etc…
    • A problem that’s web-software based - that’s what I know.
    • A problem that happens across devices iPad, Mobile, Desktop and Web
  • Good: a market where customers install once and keep getting value.
    • API products, automation, etc…
  • Good: something customers have to do that happens over and over again.
  • Good: simple to understand problem + value proposition
  • Good: sticky
  • Good: B2BC
    • Reachable and business
  • Good: a problem that is naturally recurring and therefore justifies a recurring fee structure.
    • Subscriptions had better make sense ~ tools like Adobe, etc… don’t fit subscription well unless a customer is a heavy user.
  • Good: a big overall market (though maybe start in a small niche).
  • Bad: Enterprise
    • Going to be hard to access these people
  • Bad: a market where customers have to change behavior or learn a complicated new skill.
    • I’ll be less able (as a single founder) to educate / compete with bigger competitors.
  • Bad: a market where it requires a lot of tending / moderation.
    • PC was tough because of the people issues. I would prefer to not have to deal with that.
  • Bad: a market where a lot of support is required.
    • I don’t mind helping people (particularly with technical issues) but will get burned out if I have to help a lot.
  • Bad: something that happens infrequently or that’s not a requirement to solve.

Customer acquisition model

How will I get customers? What am I good at / not good at?

  • Good: I can acquire customers through ads / content marketing
    • This would only be possible if there’s enough revenue
    • Requires obvious value proposition / clear pain where people are searching for solutions
  • Bad: Social ~ acquisition that requires a lot of storytelling / inspiration / hooks / education. Actually I like the idea of selling through content, but as a solo business getting good at content channels would not be very scalable. I can pay for this if I want to go down this path.

End game

The business will grow… when do I get out?

  • Good: an automated low-maintainance cash machine in a small market
    • A few employees that I like working with
  • Bad: constantly having to fight for my life with competitors
  • Good: a sale (to a competitor, or partner) after building the business to a reasonable size because I wouldn’t mind starting over and doing it again even better

Some businesses that I think are good examples

Revenuecat

It’s hard to build a back-end for managing in app purchase subscriptions. It saves developers time and doesn’t cost a ton of money.

What I like:

  • API product ~ hook it up once and never think about it again.
  • Root problem is collecting payments ~ it’s a perpetual problem and always painful. It’s definitely not optional.
  • It’s a cash machine. Once a customer gets big they end up generating more and more money.
  • The niche feels small ~ flutter developers implementing in app payments for iOS and Android. They have sponsored lots of YouTube videos and created their own integration libraries.

What I don’t like:

  • They’re not collecting money up front… so maybe they could be spending more on ads.
  • There are lots of copycat competitors (actually I don’t know if RevenueCat was first)… the current CPC for ‘flutter in app payments’ is $3 - $25 / click.

Ayrshare

This is a product for accessing social media APIs via one unified API gateway.

What I like:

  • API product ~ hook it up once and never think about it again.
  • The maintainance problem is pretty eternal. Facebook and Twitter change their APIs often and this insulates developers from those changes.
  • The automation here is potentially adding a lot of value ~ if you’re a social media marketing power user this could be very valuable.
  • Niched tiny market ~ social media scheduling for developers.

What I don’t like:

  • Social media is not as mandatory as collecting payments.
  • Their revenue model and limites are preventing a lot of use.
  • Facebook etc… have their own APIs. Why wouldn’t you use those?

Bannerbear

What I like:

  • API product ~ hook it up once and never think about it again.
  • Once it’s delivering value it’ll probably keep delivering value.
  • The niche is probably pretty small… but I do think it’s a bit unfocused.

What I don’t like:

  • I think the value proposition is a bit unclear.
  • The target customer is going to have to be pretty technical and based on his marketing it’s not really developers…

How other enterpreneurs have viewed this problem

Jason Cohen

https://www.youtube.com/watch?v=otbnC2zE2rw

He notes that a bootstrapped business faces constraints ~

  • Low money.
  • Low time.
  • Low resources.

For a self-funded company “wants a cash machine” ~ $10,000 / month / founder

  • Revenue model ~ recurring revenue not one-off purchases + enough of it

    • 150 customers because you can get there if you “scratch and claw”
    • $70 / month on average - $50, $99, $299 / month
    • Adjective ~ “Boutique”
    • Not a business where you’re ‘picking up pennies’ -> you want to go get customers and charge them lots of money

  • Cash flow ~ get cash up front and use it to fund growth

    • You should be able to spend $300 to get a customer who will pay $50 / month up front ~ you could get your 150 customers in an instant if you can get that money up front.
    • Test your price

  • Markets

    • B2B not B2C because consumers don’t spend money on stuff
    • Bad: market in which the pain is temporary or only exists at one point in life
      • Example: events, brides, Christmas, code profiler, etc…
    • Good: value is naturally recurring
      • Example: hosting, apis, etc…
    • Good: something you HAVE to do that happens over and over again
      • Example: Invoicing, taxes, support, etc…
    • Good: pain changes by it’s very nature
      • Example: SEO, digital marketing, competitive reports etc… because the industry changes
    • Bad: viral products
      • They almost never work and they’re hard to get going
      • They’re expensive to get going so it’s not a good fit for a founder
    • Bad: something where support doesn’t have to happen immediately
    • Bad: marketplaces
      • It’s hard when you have limited resources to get both sides of the market working
    • Good: Something that can be DONE
      • Not photoshop ~ you don’t want to be competing on features when you have a limited amount of resources
    • Good: An aftermarket - already a successful product that you can tack onto
      • WPEngine is an aftermarket for WordPress
      • QBOBDC aftermarket tool for quickbooks
      • Salesforce, AWS marketplace, Heroku
    • Good: Big market but small niche
      • Doesn’t want you to be in a small market because you have less space to pivot around
      • Room for me too products

  • Acquisition Model

    • Doesn’t like social media
      • He feels like it doesn’t work very well…
    • Likes thinking about paying per click
      • Monthly revenue per customer / 25 - eg: $50 / 25 = $2 / click

  • An End Game

    • Sell before the business is too big
    • Sell to a partner
    • Sell to your biggest customer
    • Raise prices

“Predictable acquisition of recurring revenue with annual prepay in a good market creates a cash machine”

Rob Walling

“Wants a good market because”…

From the book Start Small Stay Small

“Good market” beats “good marketing” beats “good design” beats “good product”.

A good market is ~

A market where you can compete given your limited resources.

He recommends going after a niche in a market because niches have less competition, are easier to defend and are cheaper to advertise to.

A market where you have existing connections ~ he recommends finding niches by writing down names of people you know (including yourself) and noting their niche.

Jon Yongfook

“Something simple to understand and low maintainence”…

https://www.bannerbear.com/blog/micro-saas-evaluation-criteria/

Simple to understand ~ if you have a complicated value proposition you’ll have to educate prospects about it. This will be difficult if you have limited resources.

Something low maintainence for customers ~ some products require a user to change their behavior (communications software or productivity software). These products are hard to grow because they require a user to change their existing behavior.

He things you should go for a low maintainence product instead –>

“SaaS ideas better suited to the solo dev or small teams are ones that require minimal ongoing effort from the user / customer. Ideally, the value proposition should be clearly understood at the time of signup (or minutes after) and from that point the product continues to deliver on that value prop without the user needing to interact with it on a regular basis.”