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On Hatching Chickens, Eggs, and Startups

You may not have not realized it, but launching a new product-based startup requires that you navigate a number of chicken-and-egg problems successfully. Which comes first?

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You may not have not realized it, but launching a new product-based startup requires that you navigate a number of chicken-and-egg problems successfully. Which comes first? While seemingly logical, there are a number of preconditions which you need to meet in order to stop being a startup and become a real business.

I once visited an industrial chicken farm. I had a friend who bought a chicken farm with some investors, hoping that he could turn it around. As it was initially in a state of disrepair, his primary effort focussed around re-establishing a clear marketing and promotional strategy. The original owners only thought of themselves as chicken guys. As a result of that mindset, they had inadvertently positioned themselves as commodities. They could only compete on price.

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In fact, he discovered, not only were there 39 different types of chicken - each serving a different purpose either when sold in retail or for industrial purposes - but there were a number of things he could do with the eggs. One of the most profitable he discovered at the time was to sell dried eggs as an intermediate component of various baking mixes. For example, pancake mix is just flour and dried eggs. The rest depends on what you do with it. He ended up turning it into a 12 million dollar business.

As a business founder, your primary aim is to make money with your new product idea. Unfortunately, if you don’t have money to invest, you can’t make more money. That’s the first big problem you need to solve. What comes first then, the chicken (the earnings) or the egg (investable product idea)? That’s just the beginning of your worries.

Here are a handful which I’ve experienced both in my previous attempts to launch products and from my discussions with entrepreneurs:

  • Don’t know how much time to invest in a specific idea, if you don’t have extensive resources and you have mouths to feed.
  • Don’t know who your clients will be, so you can’t figure out the most common need in a particular niche.
  • Don’t know how to reach buyers, because you haven’t decided who they are.
  • Don’t know what to sell, because you aren’t sure what will be attractive enough for people to want to give you money.
  • Don’t know how to position yourself against competition, because potentially anybody is your competition (since what you sell defines who you’re competing against).
  • Don’t know how to approach potential investors, because you don’t feel confident or clear enough about your idea.
  • Don’t know how much money to raise to implement your idea, because that depends on the scope of your idea.
  • Don’t get customer feedback, because you don’t have any paying customers yet.
  • Don’t know how to describe your product attractively for prospects, so that they are instinctively pulled towards your idea.
  • Don’t know what to charge, because you don’t know what you’re selling yet: units, transactions, monthly recurring service, spread, upfront, freemium.
  • Don’t want to hire more staff to free yourself up to do more valuable things because you don’t have enough money.

There’s a very simple way out of this complex mess. To succeed as a business founder, you need to make money first. Ideally, you can re-invest this money in the business.

To get money, you need a sale. For a sale, you need a prospect. To convert a prospect, you need an offer. The offer is the starting point, then, of all business ventures. If you have a powerful offer, you can then proceed to figure out the remaining pieces based on trial, error, and experimentation.

The beauty of starting with the offer and dashing to the sale is that you can re-invest the revenues you earn into improving the offer. Revenue is the lifeblood of every business. Once you have revenues growing, you can redirect the revenues to invest in the business to help you improve the offer. In the case of a product business, this will typically mean actually building out the product.

Why not start with building your business systems around that? Try iterating on that as quickly as possible.

To summarize, if you want to break out of the chicken-and-egg logical loops, here is the sequence you need to iterate on quickly:

offer -> prospect -> sale -> money -> improve offer

Once you get money, reinvest it in the offer. Rinse and repeat.

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Topics:
startups ,investment

Published at DZone with permission of Lukasz Szyrmer. See the original article here.

Opinions expressed by DZone contributors are their own.

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