Saturday, April 23, 2011

Startups, Focus and Monetization.

Somebody posted a question on the Startup Weekend Linkedin group about whether a focus on monetization is something that you do more when you have been through the process of building a comany before and how it changes with experience.  The answer to this can't really be addressed until we tackle the broader topic of, "When should you start worrying about monetization?"

The answer to the first question: "Does this change with experience?" is an emphatic YES.

As to whether folks with more startup experience tend to consider monetization more or earlier than those starting a company for the first time, it made me reflect back to my first startup, back in June 2000.

Background: I am now working on my 6th software/web startup; I am fairly non-technical; I have had a couple of successful exits; my company is angel-funded and is about to close an "A" round.  Also, as a consultant, founder, executive-for-hire, contractor or investor-side mercenary, I have worked on, for or with 33 startups since 1999.

So, back to what has changed since I started...

Maybe because I can't write my own code, I have always thought that the point of starting a business is to make money. Therefor I have always been focused on how a company would do that, from the very beginning.  However, I have learned over the years to focus on the "why."

  • Why would someone buy it
  • Why would they buy it instead of a competitor's product
  • Why would they buy instead of doing what they have always done
What it comes down to is a simple physics analogy; specifically Newton's Laws of Motion. (at the risk of sounding pretentious and all esoteric)

It is really hard to get someone to do something that they have never done (An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.) Based on all of the questions that I have been asked by customers and potential investors over the years about how the company is going to make money; now, whenever I look at an idea, the first thing I do is try to figure out if the founders have considered how they are going to sell it/gain adoption. (an idea is "an object at rest" and the first goal is to provide the unbalanced force which sets it into motion)

We have seen that it is way more important to get an installed user-base first, than it is to try to figure out how to make money. Getting an installed user-base for your idea is akin to taking an object at rest and putting it in motion. If you were to go out to your driveway, put your car into neutral, turn the wheel all the way to on side then start to push, you would probably find it difficult to get it moving and to make it go where you want it to go. However, if that same car were traveling forward already, even slowly, it gets easier to steer. (an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.)

Same thing with monetization; If you start off by immediately worrying about pointing your company in the exact direction you think you need to go to make money, you end up focusing on the wrong thing first. However, if you start out knowing where you want to go, but focus all your energy on just getting the damn thing moving, it is WAY easier to steer it toward the money once it gets moving.

So, I would say, it is important to have a broad idea of where you are headed, otherwise you just end up crashing into things and getting stuck, but don't kill yourself trying to point your business directly toward that goal at the beginning... just get it rolling and worry about how to make make it to your destination later.

It'll be is easier to maneuver and apply that unbalanced force once you already have momentum.

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Darren Cox

Darren Cox
Founder and Chief Evangelist - CaSTT - Commerce and Search for Technology Transfer