Startups: Is Tech really irrelevant? Is Sales all that matters?

Mohtashim wrote a piece "Code is Cheap" which highlights a common theme among 80% of startup advice you’re likely to get: stop trying to tweak your technology, figure out how to sell. More specifically (from the post):

Sell, sell sell, share, sell, market market market. Your brand, your domain, your service.

I agree with Mohstashim in that he’s talking about after your product’s in beta and before it reaches version 3. That’s fair, but if you spend enough time asking for people’s advice, you’re likely to hear the same thing about very early stages as well… put out a broken product and find someone you can sell it to, they’ll say. Let the customer pay for the development costs, they’ll boast. You’re likely to hear this advice from everyone from Guy Kawasaki type entrepreneurship mentors to local advisors.

Unfortunately, I dont agree that this choice is a binary one of choosing between tech or selling, and I wish mentors or advisors spent more time considering the gray areas in between. Here’s my take on this issue, in an attempt to guide any other startup who’s been confused out of its innocent little wits by people pushing down this message too hard.

And with a deep sip of coffee, here we go.

Here’s a few important things to keep in mind or ask yourself when you’re trying to answer this question:

1- Is your goal to create money in the short-term, or to create value?

Here’s a hint from my experience — you cant beat brand equity by short-term gains. Building a reputation as a company, as a person or as a product, and building a brand around it that people want to believe, can open up several different types of revenue streams down the road which just arent possible by focusing on near-terms sales.

I’d argue that near-term sales will infact drastically slow down your ability to gain early traction, market-share, reputation, or brand equity – but then this argument will probably fall of deaf ears in the pak IT startup culture.

But if you do have a worthwhile product, think about your goals for a bit – do you want to take an exit from the company in 3-4 years by having the product acquired or something? If you seriously think your product solves a global issue that has demand today, then wouldnt it make more sense to try and get a head-start on anyone who might follow you once you’re out in the public… gain as much market share as possible, which can later be retained via attention, relaunches, service, value-addition or other things?

In the early stages, there’s a huge difference between free and charging even a $1. Even a $1 will drastically reduce your product’s ability to spread virally.

Even if you were broke and thought of selling your way through – the "let the customer pay for your development" argument only works if your product’s price point can cover your next release cycle… i.e. if you’re charging between $50,000 – $300,000 for a single license.

Some products just arent built for that, and its fine – even from a business point-of-view, some products are built to capture the "consumer surplus" of the market, or the long-tail of the market, both of which can eventually nett you more money than that single license, but over the lifecycle of usage of the product by a single customer paying in smaller transactions. Thats fine! Figure out what you can sell for – here’s some tips … here’s some more.

2- Can tech creates barriers to entry?

Well the obvious way is to create patentable technology and ride the wave. If you’re one of those startups, why’re you reading this anyway?

There are lots of ways "business stuff" can create barriers to entry… but none of them are as solid as a barrier to entry technique employed by web2.0 web app designs – the network effect.

Most "social" software, collaborative software, or otherwise software design for user input gets more and more useful for each user as more users enter the system.

Mind you this isnt a clever business hack – this is pure techy genius. Picture Youtube without videos or slideshare without powerpoints… utterly useless. Or picture Twitter without its key users.

Picture Facebook but without your friends.

These sites are incredibly easy to clone, sure (I mean who couldn’t make a twitter clone when practicing php) – but you cannot, and will not, beat twitter at its game because thats where everyone already is! The network effect is one of the reasons you cant call yourself a serious startup company if you’re trying  to create another social network, or twitter clone or something.

Sure we can find examples of some of those networks working within "localized contexts" but … please I’m talking about something that can gain enough market share for you to get acquired.

You can choose the "techy" approach of designing your apps so that there are benefits from the network effect…. make sure the more data users put in, the harder it is for them to go away from it. Then give it for free for a while until everyone’s addicted. Then pick from any number of ways of monetizing their addiction. Forget the business types and their sales preaching.

3- Tech gives you the opportunity to market yourself

This line I take from Seth Godin… tech itself wont help you sell, sure, but tech will give you the opportunity to market and sell stuff.

Before you can believe that, you’d have to choose whether you want to take the Microsoft approach and ask "What are the features that someone wants to pay for today? Ok lets build that and charge what they’re willing to pay"  OR   take the apple approach and ask "What are the features that will delight our users? Ok lets build that and charge premium".

Which one you choose depends on a mix of how broke you are and how much you understand building premium value. If you’re judging the value you create by how much lands in your pocket in a month then this conversation wont go very far I’m afraid.

But if you want to believe in premium-pricing via delighted customers, then you should be able to understand that – clearly – the products with better (better == MORE RELEVANT ; MORE USABLE) tech would have a much easier chance of marketing themselves and selling for a premium above their competition. I used CAPS there because the typical comeback to this argument I hear is "No, more features doesnt mean easier to sell" I didnt say more features… I said a focus on building better / more relevant / more usable technology. Even Basecamp succeeds because of better tech (usability).

There’s naturally a balance to this… and what you have to figure out is when is the tech enough to get the premium you were targeting, and when is it time finally unveil and sell or market the product, but make no mistake you should want to put in the time in your tech required to create something valuable to begin with.

4- Tech can enable better customer service from your firm

Trust me, the last thing you want to do is start selling too early, and have you first client ask for a small new feature that you realize will take you 8 months to deliver, just because your architecture is so messed up.

Ultimately, unless you’re building really obscure enterprise products, you should realize you and your users live in an era of abundance. They have about a dozen other options for pretty much any software you can offer them. Considering that most software helps users do something they want to do, they always have the option of NOT using your software and keep living (without it) doing what they wanted in whatever hard, oldfashioned way they were using.

Much more than code, the easiest possible thing to lose is customer attention (I didnt want to say customer attention is cheap… its incredibly hard to gain, but incredibly easy to lose).

You need to expect that your first 20 or so customers will look at a beta and request 20 features each, which the next 10,000 users are going to need…. this is especially true if you’ve been picking your first 20 alpha / beta testers properly and they represent the exact profile of people you’re seeking.

Trust me, you want to be able to make tweaks and new feature additions timely, or people leave. If those 20 leave, 10,000 never join. Trust me, you need decent architecture if you’re gearing up in a fast-paced space like web-apps.

5- Tech can enable better competitive advantage.

Remember this post? In this I compared a product startup to someone selling carrots. And I said:

If the product is the whole suite of vegetables required for making a meal, then how much would it cost the customer to get the product?

If you dont have carrots, the customer will drive to you, buy 4 things, drive elsewhere, buy 1 thing – the total cost includes driving, fighting traffic, walking from parking lot to the storefront, checking out, dealing with people, bearing the heat, spending petrol, and more.

In other words, the customer would just rather save this economic cost and work with the person who has the whole suite of vegetables to begin with, carrots included.

Consider this now from another angle – if you’ve got half an analytical eye and you’re studying the web apps space, you know that the structure of the products people want cannot now be served by a single piece of software or a single web service… people want highly cohesive integration between many services… that WHOLE is the product they’re seeking.

And what if your product cant integrate with anyone else or doesnt have an API or cannot become a micro-service for a bigger product offering? Whoops, bang, gone.

But if your product has tech that can easily integrate 5-6 other micro-services to make niche products on the fly, you’ll basically be faster than your competitors at offering the whole solution.

Obviously, this depends on the space you’re in… but the lifecycle of industries is that as any industry matures, it seeks out horizontal integration to offer higher value-adds to customers (thats when the individual pieces are getting too commoditized to be viable revenue sources in the market). So sooner or later your product will have to have tech that plays nice with others.

I’m sorry to think this but I dont think any local mentor would have a clear understanding of this – the local industry is far too small right now to require horizontal integration…. but take a quick look at the consumer electronics or semi-conductor industries and you’ll see what I mean. If you wanted to build software in those spaces today, it’d better have the tech to integrate with others, or it could go home..

And again, ofcourse, there’s a dozen ways in which "business stuff" will gain you a competitive advantage, but I dont like discounting "tech" as an abomination unto startup-kind that easily.

Ok there are more points I could dig up but lets leave it at that.

After you’re public and launch beta your startup lifecycle, thinking, strategizing will change a lot and you’ll have to focus on money or traction or business issues, but dont get pressurized into coming out too quickly with a broken product thinking you’ll make do selling it one by one.

What you do will vary a lot depending on how much resources you have, how much time you have, how much energy you have and more. If you’ve got 5-6 support staff on duty, you might be ok about releasing a bug-ridden infestation on the world. If its just gonna be you, you need to measure how many bugs you want to handle a week… it doesnt make sense to get overwhelmed and lose customers because you cant service them properly.

Bottom line is, think hard about your space, your product and — very important — think hard about how techy decisions today will help make business stuff tomorrow easier, i.e. how execution can be easier with the right framework in place.