Since I started trying to become a successful entrepreneur, I’ve identified 4 main approaches to starting a business. Often times the differences are subtle and a business could be somewhere between these approaches, but I haven’t seen a business that is so different that I would call it a different approach. These also tend to manifest a little differently for a service vs a product, but not that much. The same basics apply, but the different barriers to entry can make it look a little different.
The Standard Approach (Build and Launch)
This approach is what most people expect when you say you’re going to start a business. The steps generally go like this: Think of idea, build product, market and sell product. This method can leave inexperienced entrepreneurs with a product that nobody wants and is also the reason that failure rates for new businesses are so high. Those that are successful with this approach are either lucky or know the market well enough and have enough experience that their success is all but guaranteed. This biggest thing this approach lacks is validation prior to investment.
Example 1: I build a service website and when I launch, everybody uses it. (does that ever really happen?)
Example 2: I notice there are no restaurants near some huge employment centers, so I open a restaurant nearby. Fail or Succeed, the restaurant is built on chance. No amount of talking to customers beforehand can fully validate this idea.
Many of these businesses can find success by starting small and growing.
Example 3: I start mowing lawns with my push mower (no investment). Then, as I get more customers I buy a riding lawn mower and eventually start hiring employees.
The Test and Pivot Approach (Advocated by Eric Ries in “The Lean Startup“)
Think of this approach as many many small consecutive standard approaches. The idea is that you build a very quick, cheap, minimal viable product (MVP) and get it into customer hands to see how they react to it. Then you change a bunch of stuff to see what works and what doesn’t. You test and tune every aspect of your business and if you see that a major change is needed, you make a “pivot” or a change in business direction toward a more successful product. You are constantly testing and changing direction toward higher degrees of success. This approach was developed in a software environment, where (for example) you could easily pivot a social networking site into a dating site. I do know, however, that Ries also teaches the principles of speed and continuous validation to major established businesses.
Example: I build a website to add text to photos and test it with customers. They want photo filters, so I add photo filters. They want to be able to easily share the photos, so I add photo sharing capabilities. I notice that most people don’t edit their photos at all, they are only using the sharing functions, so I pivot the business and become a photo sharing service. The evolution continues…
The PreSale Approach (Advocated by Dane Maxwell and his organization: The Foundation)
In this approach you attempt to sell your product or service prior to developing it, thus your offering is perfectly validated. The steps in this approach are generally as follows: Talk to a bunch of people in a market to see what they need, sell them a solution to their problems, then build that solution and fulfill your sales while making more sales. The problem here is that finding the needs that customers are willing to purchase is hard. It takes somebody with awesome sales/marketing chops to pull this off.
Example: I call a bunch of farmers to learn about their needs. I find out they need software to help them track farm activities. I presell the software to 10 farmers and use the presale money to develop it.
The Copy and Compete Approach
This approach is pretty straight forward. You find a business that is already successful. You then open a similar business for a different market. You could open in a different geographic market or a different demographic market. You could also open in a market that is being poorly served.
Example 1: You notice that a Jogging Photography Tours are popular in San Francisco, CA, but don’t exist in Austin, TX. You start a Jogging Photography Tour service in the Austin market.
Example 2: You notice MatchMakingWebsite.com isn’t serving Christians very well. You open ChristianMatchMakingWebsite.com
Example 3: You notice that the only bar on 5th St. is really slow and has a terrible atmosphere, but since it is the only bar, EVERYBODY goes there. You open the only other bar on 5th St. and yours is faster, cheaper and more fun.
The danger with this approach is assuming that the business is perfectly validated. If you’re wrong, then you really just used the Standard Approach, but were less creative about it. You still need to find ways to validate the business before starting. I would bundle franchise businesses in the Copy and Compete category.
What Approach Should I Pursue?
All of these approaches seem to find both success and failure. My first attempt at starting a business, I would categorize under the standard approach. I built a product and then tried to get people to use it. It failed for various reasons (see my last post). Realizing that I was a little out of touch with my market, I am going to try the other end of the spectrum. I’m going to attempt the presale route. In this attempt I want to put market engagement and validation at the forefront of my business. I plan to work on my sales and marketing skills and see if I can find some success in that arena.
I’m curious to hear what other’s experiences have been. What approach did you use? What went well? What went wrong? What could you do differently?