Technological change is like an axe in the hands
of a pathological criminal. — Albert Einstein

Get out there and change the world.

Believe me, you can.

But where to begin?

There are lots and lots of things that need “saving.” Just look at your backyard. You probably should have mowed the lawn last week, and the kids trampled all over the neighbor’s rose bushes. Don’t forget to get your oil changed, the mechanic keeps warning you to take care of that before it gums up the engine.

Hm, let’s see, by the time you’re finished with all of that, you should have just enough time to pick up the groceries for dinner.

No one said this world changing stuff would be easy.

No matter how big your final idea is going to be, you should begin with an initial concept that is small enough to put your head around. That was the big take away from the last chapter. That concept should contain the core idea that you are trying to express and nothing else.

Anytime you try to create something that tells too many stories, not only will you start to forget the problem you were trying to solve in the first place but your customers will also have no idea what question you are trying to answer for them.

How do you prevent feature creep? Write down your product plan and stick to it.

Until you launch a first version of your product, you are painting in the dark. You have absolutely no idea who will use it, how they will react to it, and what they really want to see. The only thing that you do have is the nagging suspicion that what you believe about your market is correct. In most cases, even this is going to be off by a few degrees.

By sticking to a limited set of features, you save three things that could save your entire enterprise:

• Time
• Money
• Stress

You might be jumping out of your skin to add that “game changing” new feature you wrote on the white board a few nights back, but you need to trust yourself and show some intellectual discipline. There will come a time when you will know whether the cool new widget that you planned to add 50% of the way through development is the medicine you need, that time is not today.

Survive long enough and you will have plenty of time to test out all of your pet projects; initial development is neither the time nor the place to start.

This is the point in the book where I close my eyes. When I open them I’m hoping that you have finished something resembling a prototype. It doesn’t have to be perfect, in fact, it is probably far from it but it should be enough to start looking at a bit more critically.

Now,

Some Things You Wish I Didn’t Tell You

‘But then,’ thought Alice. ‘shall I never get any older than I am now? That’ll be a comfort, one
way–never to be an old woman–but then–always to have lessons to learn!’ –Lewis Carroll

Now that you have something to show, it’s easy to think your work is almost done. If you’re really lucky, you might have some BETA testers telling you what they think. At this juncture, the most important things you can do for yourself are:

1. Congratulate yourself on your progress so far.

2. Recognize that there is still a long way to go.

Here are some thoughts to get you moving in the right direction.

Your initial publicity in no way reflects how your product will perform in the long term. Assuming that having a “big launch” will save you from having a bad product is a death sentence. If your revenue model requires any of the following in order for it to function, then it’s not a revenue model –

• 100,000 users in 3 months.
• $50,000 in advertising sales this quarter
• Big deals with huge suppliers/vendors/companies going through in under 3 months, “We need to sign an advertising deal with Microsoft to kick start our ad revenue stream.”
• Consumers to shift an intrinsic behavior pattern.

If any of those are true, you should go back a few chapters and take better notes.

Only 1 in 30 of the lawyers, consultants, PR agents and marketing gurus who will pitch you early on are worth their fees — probably less. Get references and check with three (or more) of the former clients of any service provider that you choose to hire.

Unless you are well connected or very lucky, you will never close a round of serious Angel funding, let alone court a VC, if you have fewer than 10,000 users. If money is absolutely critical, turn to your friends, family or bank to see you through.

You don’t need anywhere near as much money as you think you do, and you need it for entirely different things than you imagine.

Everyone wants to become rich — right now. Give it some time. The first 18 months of your startup is not about finding a way to retire early. Your job is to find a way to squeeze a real revenue stream out of your model.

Almost all of your critics are correct. That doesn’t mean that your idea is bad, in fact, if they are willing to waste their time chatting with you about it, this is usually a good sign.

The romantic picture of startups going from nothing to being sold for hundreds of millions in 12 months is a crock. Every time a startup pulls off this trick an Angel gets its wings.

Nothing about getting your first 50,000 users is trivial. Imagine trying to move a small city in the same direction when no one has a phone, and everyone is being barked at by 12 people at once.

You should strongly consider whether you even need to get 50,000 users. Depending on your business model, you might be able to survive just fine on a small, niche userbase.

Now, For the Bonus Round . . .

These questions will help you think your way through version one of your product:

How are you going to get users?

• Unacceptable answer - “Viral!”
• Marginally acceptable answer - “Word of mouth”
• Most acceptable answer - Look at your demographic, find the channels that intersect with them and promote there.

What’s your six month revenue projection?

No, I am not talking about the imaginary number you wrote on your business plan. Based on your current sales, and a reasonable increase in sales from month to month, how much do you think you will have made after half a year? How can you improve that value and how can you assure that the assumptions you are making in your estimate happen?

Can you explain your product in one sentence?

People need to understand what problem you are trying to solve. If you can’t understand your own value proposition well enough to explain it succinctly, the odds of anyone else being able to do it approaches zero.

Do you need that neat new feature that will set the project back two months but will, “totally beat [insert nearest competitor]“?

We just went over this. No.

At the end of the day, do you design your product?

This one you might not be able to answer, so let me help you out.

As an entrepreneur, unless you are a talented mind reader, it is hard to tell what you’ll need to build to get people to drop what they are doing to use your product. Stop trying so hard to guess. Now that you have an initial product ready to be tested, start soliciting feedback as soon as you possibly can. Take the best suggestions from your users, and use them to make a better product.

Wow, it’s almost time to celebrate the end of the first stage of your product development, but before you do we still have one more question to ask.

Now Your Product Exists But . . .

The architect should strive continually to simplify; the ensemble of the rooms should then be carefully considered that comfort and utility may go hand in hand with beauty. —Frank Lloyd Wright

Why?

None of us ask “Why” often enough. It’s surprising, considering it’s the one question with the power to save your product.

When you were putting together your feature list, you should have been constantly asking yourself “why.” Why should you add this whosit instead of that dodad? Why is this particular widget worth dozens of design hours while that one isn’t? Why does your list have ten items instead of twelve or eight.

If a feature didn’t pass the “why” test, you should have gotten rid of it.

Moving forward, “Why” extends beyond initial features into the way that you run your business. Before you spend money, plan strategy or make a serious decision about the direction of your product, ask yourself why you’re doing it.

It’s really easy to get swept up in the rapid fire decision-making process that entrepreneurship demands of you. If you aren’t willing to slow down and really question your decisions, you’ll find that your enterprise will begin to be run by chance as much as by your vision.

Since we will be dealing with features for a long time to come, let’s take a closer look at our relationship with them.

Divorcing Your Features

Are you trying to make an easier way for people to post their pictures online (Flickr)?

Are you trying to organize a user’s social media identity (Friendfeed)?

Maybe you are just trying to build a fun place for people to share their latest Karaoke adventure (YouTube).

The point is that before you start throwing features onto your product you need to find the question that defines you.

Good products solve a single, focused problem. People use good products because they can easily understand what it is that they’re going to get from it. Every feature, every UI decision, every aspect of the design is crafted to make someone’s life easier to manage and provide a solution to their pain.

Bad products are a sea of confused decisions. No part is particularly bad, and no idea is particularly ludicrous but there is no guiding light leading them to shore. The user is left half-blind and unsatisfied because they have no idea what the product was trying to do for them.

The biggest threats to the success of your product are your own good ideas. Every “brilliant” new addition to your product is another step towards muddying your original purpose. New features are fine, but they should be created for a reason and that reason needs to be inline with your products core purpose.

Here are a few questions to ask before implementing a new feature:

• Does this feature help to solve my original problem?
• Does this feature make the user experience more difficult?
• If I left this feature out completely, is it something a user would send me an email requesting?
• Am I adding this feature for my users, or because I think it’s cool?
• How often would an average person use this feature?

Answering these questions will tell you whether competitive tagging is just what your product needs, or whether your focus should be directed elsewhere.

Now, let’s take a brief look at pricing.

It All Comes Down To Money

Too many of us look upon Americans as dollar chasers. This is a cruel libel, even if it is reiterated thoughtlessly by the Americans themselves. –Albert Einstein

Broadly, there are two warring factions when it comes to monetizing web products.

One group will tell you that you should do everything you can to gain users. They are focused exclusively on building up the brand, “getting eyeballs” and otherwise increasing their product’s visibility. To this end, they’ll usually give it all away for free in hopes that people will sign up in droves. The light at the end of the tunnel for products like these is the acquisition, the hope that they will be able to ride their fame for long enough for a larger company to snap them up.

Another group, often headed up by people who made their fortunes in the brick and mortar world will tell you to focus exclusively on extracting as much as you can out of the audience you have. Everything has a price tag and you should attach a price tag to everything. If you are selling yachts or condominiums, this is not a bad idea; however, for anyone who relies as much on exposure as they do on sales this is an equally myopic view.

Like most things, the ideal scenario is to strike a balance. Be willing to offer some portion of your service for free but hold just enough back that you can charge your best users for premium access.

Four Ways to Keep the Lights On

It never ceases to amaze me how many web companies set up shop without any idea how they are going to make revenue, let alone turn a profit. Almost as bad are the startups that have a plan, but that plan is completely worthless unless they have 100,000 users and manage to convince some large percentage of them to buy into some crazy sociological shift.

A part of the problem is the culture.

The classic game for entrepreneurs over the last eight years or so is to collect enough eyeballs to court an acquisition. Everyone knows that the real money on the web is in getting bought out. That was fine and good when investment capital flowed like cheap wine, unfortunately, with the economy flagging and investors turning their gaze inwards, purse strings have drawn closed and everyone is being a lot more careful about where they are putting their investment dollars.

What does that mean to you and me? We can no longer rely on acquisition as an exit strategy, which leaves only one clear path to survival - developing a product that can sustain itself - which translates to, selling something.

Here are a few ways to turn your product into money.

Specialized Ad Networks

Not Google Adsense.

Ask yourself whether your product targets a specific demographic? If it does, there is probably a boutique advertising network out there that is trying to reach your audience. The benefit of signing on with a specialty network is that if you meet their traffic and quality requirements, they will almost always pay large multiples over what a standard advertising solution would.

This doesn’t change the fact that advertising typically works better as a secondary income stream, but for small teams with very modest income needs, specialty ad networks are a solution that can work.

Data

Would the information you collect allow you to create an consumer report around your industry? If the answer is yes, you might be able to monetize your data. The nice things about collecting trending information is that it’s typically done automatically and you have a lot of control over how it is arranged. The problem with it is that like most information products, it needs to be deeply compelling for someone to want to buy it.

The best types of information products help me (the purchaser) make more money in my own industry. If you give me a report on how to sell to a particular demographic, or on the purchase habits of a hard to reach vertical I am a lot more likely to buy it than if you tell me something I could easily discover with a Google search or two.

White Label

If you can license your software to another company, consider it. There is a huge market in creating features to plug into larger platforms. Especially if your strength is not in marketing, always consider ways to make revenue through business development.

Subscription Models

Ask yourselves the following questions:

• Are you offering a service?
• Once they commit to using your product, does it become a part of their everyday lives?
• Is it difficult for them to start using your nearest competitor once they start using you?

If you answered yes to all of these questions, you are a perfect candidate for a subscription model. Subscriptions work best for utilities. You continue to pay for your electricity bill month after month because it’s just easier than finding an alternative to electric lights. I continue to pay for my email marketing software month after month because it’s easier than setting up the entire thing all over again somewhere else.

The advantage of subscriptions is that they offer month after month revenue, which reduces your businesses reliance on constant, consistent sales. The disadvantage is that pricing becomes critically important because it’s much harder to convince someone to plunk down $10 a month than it is to ask them to give you $15 one time.

By now you are probably asking yourself, “Steve, how do I charge anything at all? Everything on the Internet is Free!” Let’s explore that in more detail.

Surviving The Culture Of Free

One can survive everything nowadays, except death, and live down anything, except a good
reputation. – Oscar Wilde

Here are some common thoughts on web pricing:

The Internet has killed the economy and digital property is worthless.

You might as well pack up your ball and go home.

If you charge and there is a similar, free substitute product is on the market, they are going to take it.

Why are you even trying to make money off of this stuff?

Sad story, isn’t it?

Luckily it is — for the most part — a complete fiction.

First, let’s take a trip back to High School Economics. When thinking about pricing, recall that basic economic theory states that most every company that has spent any significant amount of time in an industry should be giving its wares away for “free.”

I use “free” very loosely here, let me explain.

Price competition wants nothing more than to force prices down to marginal costs. If your industry doesn’t have significant barriers of entry, competition should flood the market until everyone is selling their products at around their costs to produce.

In a perfectly competitive world where making cars was easy, a Honda Civic and a Jaguar should be around the same price. They are both motor vehicles with comparable manufacturing costs, after all.

Why do I contend that even in this world Jaguars would cost more than Civics?

We don’t live in a perfect world.

Over time, Jaguars have acquired a reputation for luxury and quality that Civics cannot match. There is real, monetary value in the prestige that Jaguar owners feel when they are puttering around town. While this has something to do with the higher quality parts used to build a Jaguar, it has a lot more to do with the feeling they get when they say they drive a Jaguar versus saying they drive a Civic.

This reputation has cost Jaguar hundreds of millions of dollars to develop, and they roll every cent of that cost into the price of the car. Even if the manufacturing costs were identical, this prestige would still drive the price of the Jaguar up.

You can see this same mechanism in the clothing industry, where brands like Abercrombie and Fitch charge hugely inflated prices over competitors like Old Navy, not because their costs of production are so much higher but because the brand they have paid to build allows them too.

How do you compete with free? Learn to add value, prestige, and cache to your brand.

Zappos, an online retail outlet specializing in footwear, made $840 Million in revenue in 2007 not because their shoes were any different than the shoes sold by any of the million of other retailers on the web, but because they choose to make customer service their focus. They offer “surprise” shipping upgrades, call centers without call time limitations and a 365-day return policy among other benefits. These value points would help them justify their price even if it was a bit higher than a competitor with an identical product.

What your product is worth in “real dollars” is meaningless. What your product costs to make is just as inconsequential. Just because web products are “free” doesn’t mean that you can’t charge for the right to use yours. People don’t make purchases based on manufacturing or distribution costs. People make purchases and pay premiums for value (perceived or otherwise).

The Short Version

This chapter was about features, growing pains and pricing. Here are a few things that I hope you take away:

• For your initial launch, whittle down your list of features to those that are absolutely core to your product. Once you have established this list, stick to it.
• Completing your prototype is fantastic and you should be proud of yourself! Now it’s time for the real work to begin.
• When deciding on new features to implement, there are a series of questions you should ask yourself to make sure they are necessary, the biggest question is “why.”
• There are many paths to monetization, most of them are better than relying strictly on advertising.
• You can charge for your product, even in a culture of free, you just have to remember that people aren’t paying for the thing itself but the experience.

Homework

• Revise your design document (you do have a design document, right?), putting every new feature
  you have added in the last week under the microscope. If you don’t absolutely, positively, need
  that feature for launch trash it.
• Calculate your burn rate for a month. Take the total amount of cash that came in this month,
  subtract from it the total amount of cash that you spent. That’s your burn rate. If the number is
  negative, make a list of all the things you don’t need that are keeping you in the red.
• Take one more look at “Things that you know that you wish I didn’t tell you.” Write down your
  answers to each of the questions presented at the end of the section.
• What question defines your product?
• Run all of your major features through the questions presented in “Divorcing your features.”

  Create your one sentence revenue model by filling in the blanks. I plan to make ______ a month by selling ______ to _______. In order to do this I will need the following features ____________________ as well as ___________ users and at least __________ %conversion rate.

• Make a list of all the data that your application generates on a sheet of paper, flip your sheet
  around and decide what additional data you would need before you had something worth pitching
  to advertisers.

Next: Brandon Pollet, Embought | You should buy a couple extra copies for the kids.