When I was launching GoGrabLunch, my first start up, I made all kinds of mistakes.
Things like:
- I didn’t deploy the product in a phase approach.
- I picked the wrong monetization approach.
- I split equity equally with my co-founders, even though I came up with the idea and funded the entire thing.
- I didn’t validate demand prior to building the product.
This past month I’ve been working with multiple startups on their fundraising and product design activities.
What has been the most interesting is seeing the same mistakes I made back in 2010 show up for this set of founders.
Mistake: Deploying across large geographies all at once
When we launched GoGrabLunch back in 2010, I elected to allow members to sign-up from anywhere. The challenge with that is that the model was a two-sided marketplace. Meaning, it required users and vendors, i.e. restaurants, in the same city. Trying to manage wide-open growth was impossible.
At one point our little startup was mentioned on the cover of the Peruvian national newspaper. Within hours we had almost 700 new registered users trying to use the service. The problem is that there were no restaurants registered on the platform.
Solution: Restrict deployment to a limited user base at first
You might question why you would want to limit growth. Because, for most startups its impossible to scale quickly if the service goes viral.
With virtually any new product launch, you will want to limit your initial user set to a select number of people. Video games do this with beta testers. Another example would be Coinbase’s new credit card that pays 4% cashback in the form of Bitcoin. Limiting access not only allows you to focus on better servicing the initial users, but it also creates some degree of exclusivity and builds up anticipation for the users not allowed in yet, which can be powerful.
Mistake: Picking the wrong monetization approach
GoGrabLunch charged restaurants a fee for sending them business. Not a subscription fee. We thought it made sense for the restaurants to only pay us when we helped them make money. Makes sense, right? Well, it didn’t work. The restaurants were used to an advertising fee model and trying to get them to understand a brand new fee model was harder than you might think. Solution: Use known monetization methods
When you are launching a new product, educating the market can be costly. In most instances you are going to want to stick to a revenue model that is well understand in the market. For example, companies are used to paying a monthly subscription fee for SaaS products.
If you want to stand out, try experimenting within the known pricing models. For example, add more value per pricing tier.
Mistake: Splitting equity equally
Doing business with your family and friends sounds great, until it isn’t. Inevitably I will talk to co-founders who are 50/50 partners in a venture. Many times that is done because having conversations about the value each co-founder brings to the table is hard and no one wants to hurt someone’s feelings. Solution: Determine the equity split based on current and future value
I recommend splitting equity in a startup based on what everyone is bringing to the table. You might think that each founder is going to put in the same amount of work and therefore the same amount of value, but that is rarely the case.
You might start each co-founder with a baseline amount of equity, but then award additional equity based on milestones. For example, if one co-founder is the key person that landed a huge round of funding they might get more equity than the others.
Mistake: Not validating demand before building
I’m working with one founder who has an engineering background. He has already built the entire platform for his startup. It’s amazing. It could, potentially, be too much. This happens all the time. If you don’t believe me, head to X and read some of the posts from the Build in Public community. The number of technical founders that spent a lot of time building a product before even gauging market demand is staggering.
Solution: Validate demand first, always!
There are a lot of ways to properly validate demand. Asking your family and friends if you have a good idea isn’t one of them.
Instead of typing it all out here, I’ve built an entire Product Validation Playbook that you can download for free here. Do yourself a favor and spent a lot of time validating demand before you start building.
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