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How to Finance your First Business

© by epSos.de

We read articles on Techcrunch everyday of new companies getting huge investments for their next breakthrough product. We dream that one day our own ideas can attract that much excitement (and investment).  So what are your funding options for starting an online business?

1. Borrow from people you know.

Ah yes, borrow from the three Fs – friends, family and fools!  I have done this a couple of times, with three different projects.  I had friends who had money, but no ideas.  I had tons of ideas but no money. It was a match made in heaven!

Make sure you have a backup plan if things don’t go according to plan (which they rarely do).  Your relationships should come first – so find a way to pay them back, if things don’t work out.

2. Borrow from people you don’t know.

This would of course be third party investment from angel investors or venture capitalists.  There would have to be some particular reason for them to invest in you though.  You may have the greatest idea in the world, but investors prefer to see the ability to execute first.  You could show them this ability to execute by doing any of the following:

  1. Have previous experience in startups.  Of course this becomes a chicken and egg situation – how do you have experience if they won’t give you the funding first?  Maybe try option 1 or 3 for your first few projects then, before coming to option 2.
  2. Have a great education from a name brand university.  One benefit of graduating from a good university is the connections that come along with it.  If you’re fortunate enough to have these connections, make use of them!
  3. Win a contest!  Join a startup weekend – go through the process and see what happens.  You’ll be able to make great connections, and even form a team of talented people willing to help you. Heck, if you’re good enough and lucky enough, you may even win.

3. Bootstrap: 

Bootstrapping refers to starting a business on your own, without any external help.  Just tap into that huge trust fund you have, and you’ll be all set!

What, you don’t have a trust fund?!  In that case, you’re in even better shape!  One of the benefits of bootstrapping is that you learn quickly to make your business profitable, since it’s the only way it’ll survive otherwise.

Figure out the cheapest, viable way to get your business started.  Reinvest any profits back into the business to keep improving it.  Raise prices as you raise the quality of your product.  Lather, rinse and repeat.

I’ve done this over and over with projects that look big and complicated today, but which started off as tiny projects, with incremental improvements over time.

Bootstrapping lets you prove your business worth to yourself and others.  Start with $100 and see if you can turn that into $200.  Then move up to $1000 and see if you can turn that into $2000.  Then work your way up to $10 000, $100 000 and later a million dollars!

Bootstrapping will take you through the school of hard knocks.  The pressure is all on you to perform. The buck stops with you.  Can you motivate yourself to succeed?  If you can’t, then how do you expect to lead a larger team later on?

If you fail, then figure out your mistakes and start again on a new project, until you can succeed.  No sense in moving to the next grade, if you can’t pass your current one.

Work your Way Up

In my short business career, I started with bootstrapping my first site, then later my own apps.  This experience gave me the courage to get friends to invest in me on bigger projects.  From there, I moved on to Startup Weekend, which the team I led recently won.  We are now working on a project that would be my biggest to date.

Every journey begins with the first step.  So don’t fret if the end seems so far away.  Work your way up. Enjoy the process.  Enjoy the scenery.  Make lots of friends.  You may need to borrow money from them later.

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How much should I charge for my Product?

Sale priceYou have done your market research and found the demand. You have now created a product to solve this demand.  So what should you price it at?

With traditional products, you figured out your costs to make the product, then added a sufficient markup to come up with a price.

You could also factor in supply and demand.  If your supplies were lower than the demand, you could charge more for your product, and vice versa.

With digital products, such as an ebook, access to a website or a software download, cost isn’t an issue.  Neither is supply.  So what other factors can you consider?

Competition:

You could take a look at what the competition is offering, and at what price they are selling it for.  If your product has less features, then sell it for less.  If your product has more features, then sell it for more.

Obviously there is more to it than that.  The competition’s price may have brand recognition included in the price.  So competing products without the same recognition have to price themselves lower, with the same features in order to compete.

There is a tablet war going on right now, with several companies selling their own tablets to compete with Apple’s iPad.  The initial batch of competing tablets had more features, and so were priced higher than the iPad.  Sales were disappointing, and they have since had to lower their prices to undercut the iPad, just to compete.

Customer Type:

Another angle to consider is what type of person you are trying to attract as your customer.  If you are competitive on price, then what types of customers will that attract?  I have experimented with pricing with my apps on the app store and have noticed that different prices attract different types of customers.

  • Free: The majority of customers on any of the mobile platforms have never purchased an app.  There is a huge selection of apps in the free category, so there is no need for this group to ever need to purchase an app with a price tag.  If you’re targeting this group, then you should have a good freemium strategy, or find other ways to benefit from them.
  • $0.99: This group loves bargains.  They look for apps that are on sale, and rarely purchase apps at full price.
  • $0.99-$4.99: This group will purchase apps that solve their need for the right price.
  • $5+: This group will purchase apps that solve their need, regardless of price.
  • Would you prefer to have 100 customers purchase your product at $1 each, or would you prefer 20 customers purchase your product at $5?  20 customers may require less support and maintenance than the 100 customers.  Then again those 100 customers might recommend your product to more people.  Which is more important to you?  Price accordingly.

Value:

At the end of the day, your product is worth what customers are willing to pay for it.  So your goal should be to show the value in it.  Things you could do to show value include:

  • Free trial.  Get your customer using your product, so that when the trial ends, they can’t live without it.  This strategy works especially well with products where a user has accumulated data, that they don’t want to lose when the trial ends.  Customers will pay more for products they are familiar with and have satisfactorily used before.
  • Feature Chart: Summarize the features your product has, versus competing products.  More checkmarks on your side should suggest more value for your product.
  • Segmented Products: If you’re targeting different customer types, then you can have separate products for each of them.  For example you could have a cheaper product for individuals, a more expensive one for small businesses and the most expensive one for large businesses that can afford it.
  • Choice Products: Another approach is to create a very expensive product, whose main purpose is to create value for the main product you want to promote.  This works with the segmented approach above.  Very few customers may purchase your most expensive product, but having it there creates additional value for the cheaper ones.
  • Bulk Price: People shop at Costco to get bulk pricing.  How can this apply to your business?  If you’re selling subscriptions, you can offer long term subscriptions for a cheaper per month cost.
  • Add-ons: You can also break down the price of a product into components that can be purchased separately.  This way customers can purchase the exact features they want.  I use this strategy in my Contact Manager app.  Add-ons are also easier sells since the customer is already sold on your product at that point.

Whatever pricing strategy you end up using, keep it simple for your customer.  Your customer already has to make a decision on whether to purchase your product or not.  Don’t also give them a decision of what product to buy as well.

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When should you Outsource?

© by Damek

Outsourcing has been recently viewed as the cure-all for many business problems.

  • Costs too high?  Eliminate some of your jobs, and outsource the rest.
  • Is there a skill that you need but don’t have?  Don’t fret – outsource that aspect.
  • Is your job getting too time consuming?  Not a problem – outsource it, so you can sit on a beach and drink margaritas all day.

Obviously things aren’t so simple.  Before you start outsourcing your life away, I’d first take stock of a few areas.

What are you good at?

Obviously if there is something you are good at yourself, then it may not be something you need to outsource.  Then again, just because you’re good at something doesn’t mean you want to always do it yourself.  If it’s an area that you’re confident in, you can still benefit from outsourcing it out for a cheaper price.  You can then use your skills to make sure the quality of the outsourcing is up to your standard.

What are you not good at, but need done?

Here is where you have to make the decision on whether you prefer having someone in-house versus having it outsourced.  I would recommend someone in-house when:

  1. There is a lot of explanation required, that would benefit from face to face interaction.
  2. There is enough work available for a person to work full time on it, or have regular part time hours doing it.
  3. It is an important enough job that you’re willing to pay more for someone locally to have it done.

I would recommend outsourcing it when:

  1. The workload is inconsistent and is on a project by project basis, rather than regular hours.
  2. Quality control can be maintained from afar.
  3. You are comfortable using online tools for communication such as email, screen sharing tools, Skype and other chat clients.
  4. You are able to transfer your vision into a document that your outsourcing counterpart would understand.

Other factors to consider:

Create your own set of rules for what you want your business to look like.  For me, I wanted to be the face of the business and handle all customer service issues myself.  So that was one part I didn’t outsource.  Fortunately it was quite manageable.  If it wasn’t, then I would have been forced to reconsider.

Make your own set of rules for what you want to do yourself, what you want your in house staff to handle and finally what you’re willing to outsource.  Doing so will go a long way towards improving the efficiency of your organization.

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How to Increase Sales and Satisfaction Through Add-Ons

© m.gifford

The freemium model introduces users to your content.  Your goal then is to offer something worth purchasing beyond the free content.  However don’t stop there.  Real fans will want more beyond that.  Make sure you have something to keep offering them.

My Chinese Learn Online (CLO) website attracts users with its free podcasts.  If they like what they hear, they can purchase a subscription.  Users continue the subscription in order to progress from basic to higher level content.

My CLO iPhone app is available for free.  If users like the content, they can purchase additional lessons.  If they like those, then more lessons are available for purchase beyond that.

My STL Contacts Manager app has a free version for users to try out.  If they are happy with it, they can purchase the full version.  If they are happy with that, then additional add-ons are also available for purchase.  My long term goal is to continue offering additional products beyond the app to satisfy the demand from current users.

If you have a choice between creating new products for a new market, or creating additional products for your existing market, choose the latter option first.

Your job should be for your products to continue fulfilling demand from the same audience.  This could be done by offering:

  1. Higher levels of difficulty (eg. language learning)
  2. Additional feature sets (eg.  iPhone app add-ons).
  3. Additional stories that continue a plotline (eg. sequels to books)
  4. Other products of the same genre (eg. line of cookware, fashion,
  5. Alternate ways to consume your content (eg. ebooks, mobile apps)

These add-on sales are a much easier sell since you are selling them to a group who is already satisfied with your product and actually wants to purchase more from you.  They would rather buy it from you.  But if you don’t offer it, then they will be forced to look elsewhere.  Don’t make them do that.

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Why you should Love Freeloaders

Couch Potato © by Furryscaly

Freeloaders are common in most businesses.  They are the ones who collect all the freebie samples you give out, but yet never return to buy the full product.  They are the ones who go into bookstores and spend all day reading without buying.  They attend free seminars but never purchase anything there either.  They consume all the content you provide them, but never upgrade to a paid membership.  They download free apps, but never upgrade to the full ones.

What can you do about this?

We live in a society of free.  Why pay for things when there is so much available for free already?  News can be read online for free.  Blogs can be read for free.  Podcasts can be downloaded for free.  Wikipedia can be read for free.  So many apps are free.  Can you blame people for wanting things from you for free?

The trick is to change your business model to embrace freeloaders.  What can you do to benefit from them?  By emphasizing the following aspects of your business, you can actually get them to increase your business revenue.

1. Social Media

Encourage your users to share your links on twitter, like you on Facebook and join your fan page.  These are all activities that don’t cost anything, but end up promoting your product to other potential paying members.

2. Ratings and Reviews

Ratings and reviews of your products can be crucial for generating future sales.  From time to time, I’ve put apps on sale for free to get more downloads, which lead to more ratings and reviews.  Obviously this strategy can backfire if your product isn’t worthy of a good review.

3. Recommend to a Friend

Make it easy for users to recommend your products to other friends of theirs.  This could be through social media links, or through email templates with your product link already in them.

4. Provide feedback

If you are receiving negative reviews on your product, it is in your interest to find out why.  Respond to support emails promptly.  Even after solving any issues you may have, maintain your relationship with the user.  If they took the time to point out an issue to you, they may be willing to provide feedback on other aspects of your product.  I’ve used this strategy several times with my mobile apps.

Even though you may not directly benefit from freeloaders monetarily, it is in your interest to continue publishing free content to them through freemium type models.  Their engagement in your product is what will introduce it to the real paying customers who will be following behind.

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10 Lessons Learned at Startup Weekend

Startup Weekend Taipei

This past weekend, I attended Startup Weekend Taipei.  If you’re not familiar with what a startup weekend is, it is a weekend event that attracts developers, designers, marketers and anyone with an idea.  They get together to form a team, develop an idea over two days, then pitch it in front of judges for a prize on the final evening.

Friday:  

The event was sold out and had attracted around 120 attendees.  Each attendee wore a name tag with a dot to identify their skill set.  Mine was red, signifying “Business / Marketing”.  The joke going around was that these were the people with no specific skills.

I had come in with several ideas of my own, and was toying with which one was the best for this event.  To date, all my projects have been developed on my own, through outsourcing.  This was the first time that I would be able to form my own team and manage everyone from the same room.  I was looking forward to the process, experience, and the contacts I hoped to make along the way.  For most people, the networking is their biggest gain from this event, and I too expected to gain from that.

The pitch I ended up doing was an app (web and mobile) to help users search for food items they were craving, and find restaurants nearby that served them.  There was a long line-up of about 30 people waiting to present, and I was in the middle of the pack.  I didn’t want my pitch to get lost in the shuffle, and wanted a way to stand out so people would remember it.

I noticed that most pitches were done in Chinese, since the event was held in Taiwan.  I thought about doing my pitch in Chinese as well, but then decided to do it in English.  I figured that I wanted the members of my team to be able to speak English, so doing the pitch in English would eliminate non English speakers from joining.  It would also make my pitch stand out among English only speakers.

Lesson 1: You don’t always need to target the biggest market.  It can sometimes be better to be a big fish in a small pond, than a small fish in a big pond.

Rather than just describing the problem that I hoped to solve with my product, I told a story of how my pregnant wife always had cravings for particular foods (true story!).  For example, she might suddenly want a Kung Pao chicken (宮保雞丁) and would send me out on my scooter to find this food.  I talked about how frustrating it was to not know which restaurants served those particular foods, without being able to see their menu first.

After the pitches were completed, attendees got to vote on which ideas they wanted to see continue.  The top 15 ideas were then selected.  Many people came up to me and recognized my pitch among the rest.  “You’re the one with the pregnant wife”.

Lesson 2: Use stories where possible.  People remember stories.

As our team was forming, I realized that we needed the right match of skills.  We had three coders, a mobile and a marketing person.  I was informed that we needed a designer.  I sent one of the members out to recruit a designer.  He did well, and returned with one shortly.  Our team was complete.

Lesson 3: Form a team with skills that complement each other well.  Your idea is only as good as the team that surrounds it.

Our mission that evening was to come up with a team name.  This was tough for us, because our target market was local Taiwanese, so traditional English names wouldn’t necessarily work with them.  We ran through several combinations.

Foodjing Logo

We found some that we really liked, that were promptly rejected by the local Taiwanese members of our team as not being “local friendly”.  Eventually we settled on Food Jing, a play on the word 附近 in Chinese which means “nearby”.

Lesson 4: Choose a name that resonates with the market being served.

Saturday:

The coding team, led by Dobes and Greg spent all day developing the front and back-end of the product, working in tandem with our talented designer, Quaint.  Will worked on the mobile aspect.  In the mean time, Hao who had previously claimed to have “no relevant experience” was one of the hardest workers on the team – developing a comprehensive customer survey, and then interviewing a lot of people to get feedback on the problem we were trying to solve.  Later, he would visit twenty restaurants (the Taipei rains didn’t help his cause) to get feedback from owners there as well.

Lesson 5: There are no small roles.  Every member of your team can contribute somehow.

During the day, several mentors who had been assigned to assist teams, came to visit us to monitor progress.  They asked questions about our business model and there were several that I couldn’t answer.  After each visit, I found myself redoing parts of the plan to address the raised issue.  It seemed that just when we thought we had thought of everything, someone new would point out something we had overlooked.

Lesson 6: You can’t see the forest for the trees. When you are truly invested in a project, it is easy to get too focused on the details.  Outside opinions can be extremely valuable at these times.  If they don’t get it, there’s probably a problem to be fixed.

By the end of the day, we had made good progress, but there was still something missing.  Our Facebook fan page hadn’t gotten the traction we had hoped it would get. (We would later find out that we had accidentally restricted it to fans in Taiwan only, which blocked a lot of fans from getting through – oops!).   So we needed something to get us back some momentum.

As part of the marketing team, I noticed that the word foodjing could be used in many creative ways.  So I found a freelancer online to create a parody video of “Killing Me Softly” by the Fugees.  We would later release it as being by the Food Jies.  Fans loved it, and it helped market our brand as being a little zany and over the top.

Lesson 7: Problems and challenges will arise in any venture.  It’s how you overcome and rise from them that determines your future success.

Sunday:

The final day was spent completing the demo and working on our presentation.  I decided to build on the momentum we had from the previous day, by ordering tshirts with our logo, for our team to wear on stage.  This proved extremely difficult to get done in a single day (on a Sunday no less).  Once again, Hao came to the rescue, running across town from vendor to vendor until he found one who could print just one for us.  We took it!

During the practice presentations, I had worked to overcome all the questions that the mentors had given me the previous day.  I invited more to grill me further.  Mark Koester recalled a stunt that his startup team performed during their final presentation.  They had ordered a hot dog during the demo, that was later delivered on stage.  We decided to do the same thing in ours by ordering a taco during our demo.

Lesson 8: Find ways to make your presentations different from the rest of the pack, so it will be noticed by the judges and audience.

One of the visitors who gave us advice, would later turn out to be one of our judges.  He asked me about where our revenue would come from.  I told him that while Taiwan had a lot of smaller, mom and pop restaurants, we planned to focus on the larger restaurants that could afford to use our services.  He frowned and commented that if it was him, he would be focusing on those smaller restaurants, rather than the bigger ones, since that’s where the real opportunity was.

I thought about his comment a lot and realized it made sense.  I refocused our presentation to emhasize the smaller restaurants and the long tail of food.  This also further differentiated our product from competing ones on the market.

Lesson 9: The mentors are provided for a reason.  Listen to their advice and follow it!

It was presentation time.  Pandey started us off with massive enthusiasm.  During the demo, he showed how a taco could be ordered.  During my half of the presentation, the taco was delivered on stage to a thunderous ovation.  I wore our branded tshirt underneath, and revealed it during the presentation, which also drew applause.  Finally it was down to the judge’s questions.  Practice makes perfect.  No surprise questions there, so no problem with the answers.  The crowd seemed to like the extra touches we had prepared.

Lesson 10: Have fun with it.  People like to deal with happy people.

FoodJing Team

Judging from the responses, I suspected we had a chance at a top three finish.

As the second and third place winners were first revealed, I wondered if coming in first place was possible.  Out of the corner of my eye, I thought I noticed Sascha Pallenberg aim his camera phone at me, as if expecting to see us win.  Sure enough, we were announced as the winners and pandemonium ensued on our team.  All the work we had put in had paid off, and we had come away as winners!

Later, I had a chance to mingle with the judges to ask what specifically they had liked about our team.  The feedback given included having a clear message of the product we were trying to sell, as well as execution of this idea.  Business cards were exchanged.  New relationships were formed.

The Future:

Now that startup weekend has ended, a new chapter begins.  There has been great support on our fan page, which has inspired us to continue this process.  Meetings have been arranged this week and next, and the business plan has been honed down further.  I realize that there is a long road ahead of us, but it’s one that I’m looking forward to traveling.  I hope to document more details on this blog as they happen.