Archive for December, 2006
Many business ideas stem from an “aha” moment when a founder is frustrated with a certain task and thinks of a solution. This leads to some great products and innovations, but doesn’t necessarily lead to great businesses. A business is an organization that sells a product or service, and so to be a successful business you need to have something that can be sold and the foundations for a selling mechanism.
So if you have the next great idea, run it through these filters:
Who is my customer and will they pay for my idea?
All businesses have customers. Some pay for a service, some buy a product, some use your service, some buy advertising, but to be a businesses you need to have customers.
Understanding who your customer base is makes it easier to determine if they will be paying you.
Am I competing on price or benefits?
There is a tendency when developing business ideas to assume that a business can attract users by competing on price. This works in a vacuum, but not in a competitive business environment. Unless you have a tremendous technological advantage that you can leverage to create significant savings (think VOIP), competing on price will not work. Most users will be unlikely to make a change to an unknown startup for a little bit of savings, and if they do, then your competitor will lower their pricing.
Features however, makes it much easier to attract customers and if they are significant, can also make it very hard for competitors to quickly match.
If everything goes right, what are my competitor’s barriers to entry?
Assuming your idea checks out with the above questions and you are ready to rock and roll, you should probably take a step back and view the idea from a long-term perspective. You are about to dedicate much time, energy and money to this venture and you want to make sure it wont be easily killed by a larger competitor. So ask yourself, if it all works out how difficult will it be for someone else to enter my space.
This is the hardest question to answer because the best defensible strategy is good execution, and there is no way to know how you will execute until you do. Nonetheless, the better the barriers the better the idea. I will write more on this issue on a latter post
So now you know you have a great idea for a business and it makes sense to start doing more research and diligence. Good luck!!!
I recently received a question regarding the breakdown of start-up costs, specifically technology development versus marketing. This obviously varies business to business, but the topic is interesting nonetheless.
I am pretty young so I feel foolish talking about the way it was, but from what I understand the most significant cost that a technology start-up faced as recently as five years ago was the development of a proof-of-concept application. However, thanks to the “flat world” we live in today, the proliferation of open source development tools, and the commoditization of hardware, creating software or web-based applications is cheap.
At the same time, the cost of marketing has not dropped. I might go so far as to say it has increased. There are so many more messages being transmitted to the average consumer, that to get the same effectiveness as $1,000 delivered 5 years ago, one would have spend significantly more. Google has added accountability to the industry, but it hasn’t made it cheaper.
And just to clarify, because I know some of you will ask, the internet does lubricate the wheels of viral marketing, but please read my thoughts on the subject to understand why I don’t think this lowers the marketing cost for most businesses.
So the cost of development has gone down and the cost of marketing has gone up. Why is this important? Because it means that the larger expenses no longer come at the beginning of the start-up cycle but towards the later part. This means that entrepreneurs don’t have to take money up-front and can wait to have a fully working service before launching. It means entrepreneurs can build value for less and keep more equity. It also means that more and more seed stage funds will emerge providing smaller sums of money than they used to. All of this is happening not because starting a business is cheaper, but because the cycle of costs has changed.
The first company I started was an advertising based business. My partner and I bought/licensed/rented advertising inventory from minor league baseball stadiums and repackaged it into regional networks. We figured that teams that were averaging a few thousand fans a game couldn’t afford the type of sales force necessary to sell-out their advertising, but if we could roll-up their inventory into a network we could find a way to sell it.
What we quickly found out is that advertising is incredibly difficult to sell. It’s not that it isn’t effective, or that it isn’t needed, but selling is all about benefits and it is very hard to quantify the benefits of traditional advertising.
I think the reason everyone is drooling over web advertising is because they are confusing who measurability is good for. Web-advertising is great because it is so easy to sell and because it makes a marketer’s job easier, but does it really do a better job at delivering a message than TV or Radio or Print?
The other mediums are figuring out that measurability is good for business and are developing the tools to measure the ROI of their inventory. When this happens, web advertising will be just another advertising tool in a marketer’s repertoire and the allure of web advertising will be gone.
Yesterday I was looking for an old article about my first business that I wanted to link to. In the process I came across a fantastic blog about marketing and brand creation written by another Eli Portnoy. Aside from the fact that we share a name, I think he writes a great blog and I encourage you to check it out.
There really aren’t too many Eli Portnoy’s around that I know off. The name Portnoy is not very common, though thanks to Phillip Roth, it isn’t easily forgettable.
Firstly, I want to apologize for the long delay in my postings. Things have been pretty busy over the last few weeks. We are working on a complete re-launch of the site and will be unveiling some very cool new features.
One of the hardest things for me as a young entrepreneur is to understand when an initiative needs more time and when it is just not working. The business cycle has been dramatically cut short and now more than ever companies need to be innovating and pushing forward new features at a dizzying speed. That means throwing a lot of things at the wall and seeing what sticks and what doesn’t. That being said, you sometimes need to try throwing the same thing a couple of different times before it sticks, and sometimes you need to try different angles, but mostly you just need to cut your losses and move on.
As the months go on I feel more comfortable reading the subtle hints that tell you if a feature needs more work and time, of it is just not going to work. But no matter how much experience I accumulate, and no matter how good I get, I will never be good enough.
So if you will allow me, I would like to occasionally blog about features we are considering or are about to roll-out. I would be forever grateful if you share your opinions and comments and let me know if you think the feature will work or if you think we should can it.
I bought a Sony laptop for my mom 4 months ago. I went all out and got her a great system. I made sure it was light, but had a big screen. I gave her tons of RAM and a big hard drive. I spent a tony of money and went with Sony because I had my own Viao about 3 years ago and it was a thing of beauty.
To make a long story short, it was the worst purchase I have ever made. The thing broke down 3 weeks after I got it, and since I had bought my mom a full warranty, we sent it back. The thing is Sony doesn’t sell its own warranty, but rather re-sells some third party crap. So, after 3 weeks get the computer back and though the initial problem was fixed a new one had emerged.
I sent the Viao back again and it took them 5 weeks to send it back. My mom got it back yesterday and the problem wasn’t fixed. What could they possibly have done for 5 weeks with a computer? They sure as hell didn’t fix it.
I spent about 4 hours on the phone with Sony today, with the warranty company and I have had zero luck. It doesn’t matter what I do Sony keeps pushing me back to the warranty people and the warranty guys send me back to Sony. Needless to say I am frustrated and I will never buy or recommend another Sony product…
How did such a great company fall so hard (see PS3 for additional examples)?