If you own a business start-up or plan to set up one soon, there is a good chance you have come across this statement: “Over 70 percent of businesses do not survive the first two years.”
Start-ups are challenging, and if we are focusing on the wrong things or applying mundane strategies, we are not just shooting ourselves in the leg; we would be using a semi-automatic weapon to do just that, thus crippling the whole thing even before the first step at progress is ever made.
So how do we focus on the right things? That question has so many valid answers and I am yet to discover all. However, I have a few and would like to share one that would help you understand what to focus on in your start-up sojourn.
Here is it: See your start-up operations as one of these two orientations majorly, transaction-oriented or engagement-oriented.
Start-ups that fall into this category would want to worry about quickly sealing deals as it were, because that’s what actually brings in the revenue. Money doesn’t come from customers spending time interacting on your platform, money comes from them actually paying, so you would want to speed up processes that lead to paying and forsake any technology that slows that, no matter how “engaging” it may be .
A simple example of a transaction-oriented operation is a hotel booking service. This is highly transactional; no time to beat around. I simply need to get somewhere nice and comfy to lay my head and perhaps have a few meetings. But then, a typical idea of hotel business meeting technology, of which online hotel booking is the most common, would miss this. This is because its executors would be more concerned about engaging the customers via their great looking website (wasting time) rather than getting them closer to the goal (booking and paying ) as fast as possible – which is what brings in the dough.
You only win when the hotel wins. You do not win when online visitors look at the nice banner pictures of the rooms of different hotels, navigate around and read about this hotel and its facilities (so much of time wasting). Executing online hotel booking this way is a great ruin from my standpoint – it depicts an entirely different business model and should not be fused with online hotel booking.
Remember what started it: Customers that need to spend some time away from home, and have a meeting or two. How have they done it before you built your shiny hotel booking website? They walked into a hotel of choice and at the reception, they book and pay; they don’t check the rooms or ask about the history of the hotel (we assume they may know or may not; it really doesn’t matter).
They simply walk-in, book and pay. Transaction completed.
Replicate that model online, have the hotel know they have an extension of their business on the cyberspace and have them pay you for carrying out more transactions for them, then you can maintain doing loads of that and have a business; a tech business.
You’ll be getting paid for how many customers you bring in. Not how many of them clicked around.
Another classic example is a taxi booking service. It follows the same model as I have explained, but I would like to give it a bit more context as I have, in the past, thought of developing a mobile solution around it.
Just like most techies today, light-bulb! What if people could get to book taxis online?
Yeah! Great idea. Let’s do this!
I built the thing half way and I thought, “how do I even push this, how do I make money?” Now, this was a time when Red cabs, Metro cabs and co were all still shiny and new; they had just started business.
Eventually I discovered it was all a sham, since delivering value (getting customers to pay a cabbie) was going to be the toughest thing ever (My solution was mobile web back then, but it was pretty good).
Why was I going to fail hard if I had gotten crazy about it and continued with the development?
I was slowing down the transaction process via my app.
Most folks that need a cabbie would rather call or text one at best. Even the best apps that would pick your location via GPS and display a picture of the cab you have booked and even give you GPS tracking are not sustainable in my opinion. Online taxi booking service is not an engagement thing majorly; it is transactional, and it needs to be fast.
A sustainable solution would be phone call and SMS, which can deliver a good enough experience for less cost than a mobile app today.
My point exactly: For transaction-oriented start-ups, identify what delivers value and get that done ASAP and repeatedly. Forsake “cutting-edge” technology and get it done the fastest way possible. Speed is the keyword in transactions.
Start-ups that fall into this category are the toughest to develop into self-sustaining businesses, but when a good model is discovered, they return on a massive scale. Here, stakeholders deal with users mostly and not customers. This is pretty difficult because users don’t pay. Only customers do.
So we find most start-ups trying to convert these users to customers, or trying to find another paying entity to sustain the business start-up.
Music services like Spinlet, Spotify, Jango radio, Deezer etc, all fall into this category. Stakeholders definitely want to worry about good interfaces for their applications and focus on things that would allow long lasting engagement with it. The aim is to maintain the interest of users and basically get them hooked.
Unlike transactional, it’s a much slower process towards capturing value so engagement is really the key here. In traditional business, I could liken this to a good customer service and experience.
Other examples would be instant messaging/chat services, social services and premium games.
In IM services or social services, users simply want to interact with other users, communicate, share photos and videos and gifs, comment, like, plus, tweet, pin, keek, e.t.c. The ability of these platforms to do these things are what keep the users there, and because value is only created when users get on board, it does not sound right to make them pay. Without them your platform is dead. A social network cannot exist without people – this, my friends, makes it tough.
So how do these kinds of start-ups capture value that would be sustainable?
Most of them turn to advertisement, which makes advertisers the customers. Some offer extra services to users, in this case some of the users are converted to premium users (customers), and in other cases some turn to big data business.
The point here is start-ups in this category have to keep doing what they are doing to maintain the engagement between users. If the engagement stops, the show is over.
This is why I think Whatsapp may be having a pretty hard time monetizing its service. They have a good number of users which they are trying to convert to customer status; I am one. I don’t know how far they have gone with that and since they are bent on not turning to ads, it may be really tough to make Whatsapp self-sustaining.
Paid advertisements, in some other cases, may be the sustaining model, since there is a good chance of making large impressions on the users. However it needs to be properly executed to yield returns, else they become intrusive and ruin engagement.
By the way, ads are coming to Instagram soon. So far it does not generate any revenue. It would be interesting to see how that comes through.
Free games that have no in-app purchases clearly fall into this category and have potentials for very interesting money-spinning models.
Apart from in-app purchases or game currency, look out to Rovio (Angry Birds guys). Those folks developed a successful merchandise business from Angry Birds, and I hear there is a movie in the making – which just means more dollars.
There are some that fall in between; one need to apply a right mix of the way things work in both worlds to execute successfully. e.g E-commerce services.
So next time when you think about start-ups, try to place them in one of these two categories and hopefully it helps you understand how you should go about your execution and your potential for success.
I’m not exactly sure how this sounds to the average tech person, but if you see things in a different perspective, please let us get talking in the comment space below. Additions, subtractions, and feedback are also welcomed.
Ayo Dawodu is a technology startup developer and norm opposer. I’m always looking to improve the economic figures of Africa by helping small businesses exploit technology. I’m an avid fan of Android. Follow me on twitter @tjwizking