This morning, I received a phone call from a good friend who has, what I believe to be, a great idea for a software product. The software could potentially disrupt a large but sleepy industry that hasn’t seen much innovation in many years. As I listened to the types of software and processes currently used in the business, I could easily imagine a sleek, new product that would make people’s lives easier. Toward the end of the conversation came the brass tacks question: how much would something like this cost to develop? As with most things in this stage of development (the idea phase), the cost is really anyone’s guess. Maybe it could be done for $50K, or maybe $150K. Maybe a minimum viable product could be pounded out for less. No matter what the exact number ends up being, as with most things in software development, it will be a lot of money.
I gave my friend the same advice I give most people – and it is the same advice I’m going to give you: Don’t develop a $50K product that you hope you can sell to someone. Instead, first prove to yourself that there are people willing to pay you money for your product or service before developing anything.
Case in Point
Several years ago when I was just getting started in the web business, a business person come to me with an idea for a product. The product would be marketed directly to consumers all across the United States and it was estimated that the demand for this product would be gigantic. So $40,000 was spent on product development, $2500 for the website, and $30,000 was spent on an advertising campaign. The ad campaign would target a metro area the team had identified as being “ripe for the picking.”
At the end of the ad campaign, we had 10 orders for a product that cost $19.95/ea. I won’t do the math for you but trust me, the ROI was really, really, really bad.
Being older and somewhat wiser these days, my advice would have been this: build a simple website (cost: ~$1,200), complete with some Photoshopped product photos. Then do a digital marketing campaign ($cost: ~$1,500) and see how many people come to your website and click “Buy Now.” If not enough people want to buy your product, then you can stop development right there. In hind-sight, we could have found out for less than $3,000 whether we had a viable product or not. Instead, it ended up costing about $72,500 for us to learn that lesson.
How can I sell a product that doesn’t exist?
Some advice books and blogs out there advocate doing just that; selling items on a pre-order basis and actually taking your customer’s money. If it doesn’t work out, they explain, provide everyone with a refund. I don’t advocate going that far but you could explain that your product is “out of inventory,” which wouldn’t be a lie as you would, in fact, have no inventory. Then simply ask if your customers want to be notified when the product is available again. Alternatively, you could explain that your product is still under development and provide a form that collects your customers’ information. Then, when the product is fully developed, notify them and convert them into actual customers.
Learn, then pivot
When a founder launches a business, that person knows the product or service the company will provide and the types of customers who will want to buy it. Many successful businesses, however, end up in a much different place than where it began. You may, for example, think your primary customers are going to be in a certain industry only to find out the biggest demand is going to come from a completely different industry. A situation like that could mean a complete revamp the way you market your product. By going ahead and marketing your company before you have fully developed your product or service, you are able to learn those lessons much earlier in your business’s development, shortening your time line to profitability.
The entire point of this blog post is to convince you that you need to validate your idea as quickly and inexpensively as possible. That way, if you fail, you fail fast and fail cheap; and if your business is to ultimately succeed, you get feedback as quickly as possible so you can make adjustments.
If you’d like to delve deeper into this line of thought, I’d encourage you to read The Lean Startup by Eric Ries. It is one of the best books on the subject and can provide you with more information on how to quickly and inexpensively validate your business idea. Good luck!