Monday, December 10, 2007

Time to Give Up!

You are a great software programmer and one morning in the shower an idea hits you – you are all excited. You spend the morning doing some market research and realize that while there are tools out there that resemble your idea none of them does exactly what you want to do. Great!

Countless sleepless nights follow and finally you have a product – you form a company, put up a website and release a public beta. Now you need to let all potential users now of your great creation. After a few days you realize that what you had thought was the easy part is turning out to be the harder one! Messages for products that you believe are inferior to yours seem to be everywhere while your message does not show up anywhere. The prices for advertising seem sky high considering your “budget”. However, with persistence and hard work you manage to round up a few hundred people who download your product.

A month later your tally says that your “baby” is on the hands of over 300 people and when a handful of those start sending you suggestions you are ecstatic and are seriously thinking of quitting your day job. You jump into implementing those suggestions and find yourself spending hours upon hours enhancing your product … this is a critical pitfall that deserves serious consideration but we will leave that discussion for another day so that we don’t divert from the subject of this discussion.

The big day comes, your hard work will finally pay off – version 1 of your product is released! You have managed to collect some hard cash from friends and relatives. You put up your first pay-per-click ads and now can’t wait for your first print ad to appear on that prestigious magazine and your banners to appear on those all popular newsgroups. These are exciting times!

The magazine finally reaches your desk and your confidence shakes a little – your quarter page ad for which you paid dearly seems almost invisible compared to the competitor’s full page. But hey, your product is better then theirs – users will eventually discover that, right?

Days fly by, you keep watching those downloads and wait for the first sale. Finally it comes and it is time for celebration! Now the money from the sales will start feeding the marketing and you can almost feel the g-force of the take off and anticipate the relief you will feel when you will be flying!

A lucky few will actually manage to take off – the evolution of that successful “branch” is outside the scope of this writing – it will be the subject of a future blog entry.

So, let’s go back to the case of the un-lucky many who never manage to take off.

It has been a few months since your first ads appeared and you are disappointed with the results (un-fortunately no one ever told you that a potential customer needs to see your ad about 17 times before being converted into a customer). You can’t afford to get paid help so you start seeking out partners to help you with marketing and further development.

It’s been 6 months – you have spent all the money you borrowed, you have poured every once of your energy juggling between fixing bugs, responding to potential customers and trying to send your message out and you are due for another shock – two of those competitors with inferior products have just released new versions of their software and they are blowing their horns hard. You can’t help notice that they are touting new features that you introduced 6 months ago – it both flatters and angers you! Yes, you are the innovator, they are copying you but unfortunately no one knows that except for them, your competitors.

You don’t have the marketing muscle they have but you can beat them with a superior product so you decide it is time to give it another push to get a new version out there – a version that will outshine theirs and take their customers away…

The more time and energy you pour into this venture the harder and harder it becomes to even consider giving it up. The forgone opportunity cost is huge – should you have accepted that offer to go work for let’s say google when you had just started this you would be a millionaire by now!

So, the question is: how can one tell whether the additional required effort is actually increasing the chances for takeoff OR simply raising the walls of the self-built trap making it ever harder to get out of it? When is it time to give up your dream?

The numerous factors involved make it impossible to come up with a definitive answers – it really depends. But, here are some guidelines to consider – nothing ingenious but helpful guidelines that are often ignored by enthusiastic entrepreneurs:

1. Conduct a financial review every 2 months. Estimate the potential of your product as best you can. Develop three basic scenarios: a best case, great success scenario; a worst case, miserable failure scenario; and a drag along, “midway” scenario. Assign $ potential and probability of happening for each scenario for the next 3 years. Example: successful -> $2M revenue / $500K profit / 20% probability of happening; midway -> $1M revenue / $50K profit / 50% ; failure -> $250K revenue / $200 loss / 30%. If you add the numbers in this example up you will find that you are predicting that you will make a likely profit of $65K for the next 3 years. Is it acceptable considering what you are having to put in? Chances are that when you are just starting you will assign a much higher probability to the success scenario and things will look bright but keep doing this simple exercise and refining those numbers as you gain more experience and deeper knowledge of the market. It is a great exercise that will help wake you up from your dreams and give you a much needed dose of reality.

2. Consider your financial situation periodically and set checkpoints on the way to make sure you are not diving too deep – you need to have enough breath saved to avoid drowning. If you can afford to keep going and you are passionate about what you are doing then by all means keep going, you will find that the numbers (see the paragraph above) after having taken a sharp dive from the early highs will start improving as your product eventually gains acceptance in the market. There is no doubt that good times are ahead if you can persist long enough. You should do this “checking” every two months in conjunction with the checking mentioned above.

3. Carefully monitor what your competitors are doing – if you notice that they are shying away from the products that compete with yours and focusing their efforts on other products it may be that they too are not getting the numbers, so, maybe the demand for your product is just not there.

4. Talk to people who have been successful and ask for their advice – see what they think of your idea. Share the situation with them and ask them pointblank whether they would advice you to give it up or continue pushing it. Many of those successful people have a highly developed sense of when it is time to quit and assuming no conflict of interests are involved their advice is invaluable.

5. And of course, talk to your customers and potential customers as much as you can – ask them what they think of your product; does it provide a good value for them; would they recommend it to someone else, etc. It will give you a fresh perspective and help you focus your efforts on the right areas.

I am sure there are many more checks and indicators that you can, and should consider when deciding to keep going or giving it up. So, please feel free to not only comment on the above suggestions but to list your own suggestions as well. There are many bright programmers with entrepreneurial spirit working on all kings of great products that can be “saved” by a structured, cold hearted approach to evaluating their grandiose ideas.

To all entrepreneurs out there – the biggest favor you can do yourself is to diligently scrutinize your idea periodically to determine whether it is worth to keep investing on it. How you do it, what factors you consider etc. is all up to you and not critically important – making sure you actually do it is what is really important.

Hope this helps many and doesn’t annoy any :)

1 comment:

Steve said...

Henry Kissinger had the rule of creating four scenarios, not three. The idea being that three scenarios is a mathematical exercise, whereas four makes you think of divergent possibilities.