Almost tricked myself (again) into starting an unprofitable business
In looking back at all of my failed business ideas, there's a common theme: I tricked myself into thinking they were potentially profitable businesses. My flawed logic always was some version of this: "I'll build this app, and then people will use it and like it, and then I'll charge money for it."
As obvious as it sounds, when you start a business you need to make money as quickly as possible. Companies that make money stay in business, and then you have the luxury of time to fix things, scale, or hire people to do those things. As Paul Jarvis says: "If you’re a company of one, you’re not relying on massive influxes of cash from investors, so every minute you spend getting set up and started is a minute when you aren’t making money."
If you don't have funding or another source of income, you also don't have time to develop a product that might make money. You need to get customers with the smallest possible upfront investment.
I've only done this once successfully (and many more times unsucessfully). When I was building Code-Free Startup, I was consulting at the time (additional revenue), but the software project I was working on was ending in two months. So rather than getting another consulting gig, I gave myself two months to get profitable. After recording the first three courses, I built a very shaky platform to host them and launched the product. About 20 days before my project finished, I launched on ProductHunt and the Bubble forum (where I had built up some credibility) and in one week built up to just under $3k MRR, enough to barely cover my living expenses (thanks, SF rent). Now that I didn't have to consult, I focused 100% of my time on it, and in the next two years recorded nine more courses, grew to 15k students and eventually sold the company last December.
So you think after all this, my next idea I'd stick with what worked and work on 'profitable from day 1' ideas. But nope, I fell into the same trap because apparently I'm incapable of learning this lesson.
I'm reminded of the great Feynman quote, "You must not fool yourself, and you're the easiest person to fool" - because I just lost a few weeks and almost fooled myself.
The problem starts with falling in love with an idea. In my case, a learning app that solved a problem I had and was really excited about solving. I daydreamed of the potential, the growth, and how I'd build and scale it. And in the back of mind, somewhere, was a small rational voice saying "well what's the business model?" and I thought back (but didn't say out loud because that would be crazy) "well I'll build V1, and then get traction and then charge for additional features for pro users". And that was enough to start building it.
The only reason I was able to snap out of it is by holding myself to the rule "companies I start need to be able to make $1000 in the first three months."
It sounds harsh and limiting, and it definitely is both. But a principle like this one, that helps you filter ideas can be your best friend when you're fooling yourself about possible earning potential.
It seems like the best types of online businesses to achieve that rule, and quick profitability, fall into three categories, ranked below from easiest to hardest to make successful:
- Productized services: this can start out being glorified consulting. Also, it's one of the smoothest ways for people working full-time jobs to reach full-time entrepreneurship. Ex. your full-time job is to work in Excel to make X easier for your boss. Productized: you make a landing page offering to make X easier for other people like your boss in different companies.
- Specialized business software: B2B apps solving a very specific problem tend to need fewer customers and make more money in a shorter period. Instead of charging $6/month and hoping every digital nomad subscribers to your consumer product, solve a business need, and get rewarded $400/month per seat. The reason everyone isn't doing this: it's hard to find these ideas unless you're drawing on inside industry knowledge. You can interview people and find bottlenecks, but sometimes this is just a result of realizing something like "hey Salesforce makes it really hard to convert X to fields, maybe I can build on that" (there are hundreds of highly profitable companies based on that one idea because Salesforce is a monster).
- Consumer app so helpful people will pay for it over the next best free option: this one is difficult because I'd like you to think of the consumer apps that you pay for. For most people, the list includes Netflix, games on Steam, and that $4.99 app that you thought would teach you French. Consumers get bombarded with high-quality free things, and social media dominance by FB/Twitter has made it quite challenging to build a business that breaks through this noise. As a general rule, a consumer app needs to be 5x more useful to be able to be profitable (ex. weather apps - Dark Sky can charge because their radar/forecasting is at least 5x better than the next best free option. NomadList can charge because it's travel information is at least 5x better than TripAdvisor for travelers in that niche. Plenty of more examples, but a lot of successes in this category are highly niched.
So now I've abandoned my unprofitable idea (for now) and am back to the drawing board. I've got a couple of productized service ideas and one B2B idea I'll try out, but they aren't as exciting on paper. Maybe that's a good sign :)
__Why this succeeded:__
Most likely because I began by writing this on Reddit. I'm following a new writing process that is helping me cut out the fluff (and currently there's a lot) from my thoughts.
- write 1st draft on Reddit or Twitter to help the truly valuable info come to the surface
- write 2nd draft to my email list to take that info and make it more conversational/approachable
- polish the writing and publish on blog
Since this post got nearly 500 upvotes and many positive comments, I didn't believe there was as much polishing needed. Reddit link here.