For a while now, I’ve had the opportunity to work with two entrepreneurs developing a startup business. Much about their experience may be of interest to you.
Both are experienced and successful business owners. They worked together on past projects, and each respects the other’s judgment and ethics. The combination is interesting because Tom is business and finance oriented while Bob is more creative. The business idea has moved from a concept to initial focus groups to development of a prototype. It is now undergoing preliminary market testing to obtain feedback, reaction and potential user suggestions. Combining their individual knowledge and strengths enabled them to work through the project to date.
Bob came to Tom with the initial idea to develop a unique financial software program to address a specific business problem. After some discussion and some preliminary research, they agreed it was worth pursuing.
To some extent, this was a leap of faith on Tom’s part because he did not have Bob’s knowledge and experience in the proposed method of service and product delivery. Tom did, however, have a great deal of experience working with the prospective end-users of the program. He understood them and the frustration they felt in the area that Bob and Tom proposed to improve.
At that point, Bob wanted to create a prototype. Tom was unwilling because they had no solid research on whether prospects would buy the program. As Tom is fond of saying, “We don’t know yet whether the dogs will eat our dog food.” He insisted on concrete market research. They used a combination of webinars and individual research with both end-users and potential marketers to determine market reaction.
Reaction was almost universally positive and they proceeded to develop the prototype. At this point, they invested about $3,000 for prototype software, prototype assistance and a blog site to begin to educate the market and solicit additional feedback.
Tom was unwilling to spend an estimated $40,000 to develop the product. He insisted the market must prove itself by, in effect, paying for the product development in advance. This insistence caused much discussion.
Tom felt that prospect enthusiasm, while helpful, was not proof that a market actually existed. Remember, their approach was quite different from the one currently offered.
They resolved this problem by determining that the potential user would require education and training on the best financial principles and practices before they could effectively use the software. In addition, they realized there was a market for the training and education on a stand-alone basis, whether the student ever used the software. Again, market research led them to this conclusion.
They decided to market the education-and-training program and use the revenue generated to fund product development. If they were on solid ground as shown by entrepreneurs registering and paying for the education and training, they would then develop the software.
It is too early to know whether the dogs will eat the dog food. However, Bob and Tom have done all they can to minimize risk and cost until they know the answer.
Bowser@BusinessValueInsights.com. Dan Bowser is president of Value Insights, Inc. of Durango, Chandler, Ariz., and Summerville, Pa.
