By Scott Abel and Justin James
Note: This is part one of a three-part series written by Spiceworks' CEO, Scott Abel, and TechRepublic contributor Justin James. Although this article is co-authored, "we" refers to Abel and his business partners, not Abel and James. This article is also available as a PDF download.
Depending on your perspective, starting a company looks incredibly easy or incredibly hard. We see some overnight successes like YouTube, but others take years to blossom, like Google. Is it all luck? Is it all smarts? Does the idea come first or the people? How do you get a company started? Where does the idea come from? How do you get it funded? What should you focus on in the first 12 months?
Over the last 20 years, I've had the honor and pleasure of being part of six startups and the founder of three. With that experience as a backdrop, I've tried to answer some of these questions. Rarely is there a right or wrong answer. Business is like life: It's always changing and adapting. What works for one company in one era doesn't work in another. So take all this with a grain of salt; some of these ideas will work for you, some won't. But you'll have fun no matter what!
Where to start?
Before you can start a company, you've actually got to have an idea for something to sell to someone. No product (or service), no company. So how do you come up with a new product idea? Simple. Find a need in the market that isn't being met and build a unique solution to that problem. Okay, easy enough to say, but how do you do it? Here are four steps:
- Pick a market. Truth be told, sometimes you pick the market and sometimes the market picks you. At Spiceworks, we picked the systems management market because we knew it so well. Our experience told us there was a large underserved segment of the market that needed a simpler way to manage its computer networks. But this isn't always the way it happens. Jeff Bezos, the founder of Amazon, had the idea for a new way to find and buy books online, and that's how Amazon got started. The market (online retailing) effectively developed around him.
- Identify a need that isn't met. You can really think of this as the problem you're going to solve. What is it that users in this market want to do that they can't do? Why can't they do it? Is it that there is no existing solution at all? Is the existing process completely manual and could be automated? Are all of the existing solutions too complex and expensive to deploy? Does it take too much effort for users to assemble a solution on their own? Answers to these questions will hint at what kind of solution you need to build. For Spiceworks, we saw a big opportunity in creating management software targeted exclusively at the IT professional in a small business. We prioritized simplicity and ease of use over power and flexibility. Different markets will have different needs.
- Create a solution that actually solves a problem. Seems obvious doesn't it? But you'd be shocked how often people overlook this step. They do steps 1 and 2 and then forget to go back and validate that the solution they've come up with actually addresses the need they identified. Maybe they became enamored of some new technology they've developed and the product becomes all about that. Remember, people don't pay for technology; they pay for solutions to their problems. Look at Apple and the iPod. It took what was a complicated process and leveraged technology to make it brutally simple. The result: It now has 80 percent market share in the MP3 player space, all because it used technology to hide complexity. At Spiceworks, we've followed Apple's approach. We leverage technology to simplify the management of a computer network. The product just "does the right thing" in 80 percent of the use cases. No setup or configuration required.
- Make sure it's a big problem. In business school, they call this market sizing. But I like to think of it more simply. The question really is this: How many people have the problem you've identified—andhow much do you think they'll pay to make it go away? Does your idea apply to 10 million people who would pay $10 each? Or does it apply to 1,000 organizations that might pay $100,000 each? This tells you how you'll have to take the product to market. This is business school code for who you sell to, how you reach them, and what sales model you use.
The idea percolator
If you're like most budding entrepreneurs, you haven't come up with just one idea; you've come up with several. We did before starting Spiceworks. How do you decide which one to pursue? We like to use a process we call "the idea percolator." It's pretty simple, actually. Weigh each idea using the steps listed above. You don't need a full business plan for each idea, a simple outline will suffice. Write one page per step, just the facts. These four pages make up the "strawman" business plan for each idea.
Now the fun starts. Start punching holes in each plan. Be ruthless. Any potential investor will be. Ask all of the tough questions. How much will it cost to develop the solution? Who are the potential competitors? How will you find potential buyers? What is the unique competitive differentiator? Is there any significant barrier to entry for other competitors? If not, how will you defend against them? What will compel your potential customers to adopt your solution? Why will they pay what you're asking? What is the compelling value proposition?
You get the idea. Pound away at each plan. You'll uncover new questions and answer them. As you do, some plans will rise (become stronger) and some will fall (become weaker). The good ideas will percolate to the top of the stack. Whichever one stays on top is the one you should pursue. How long should you give this process? It probably depends on how much time you can spend on it. But a good approach is to just pick a date and say, "Whichever plan is left standing on that date, that's the one we're going to do." For us, that was about 60 days. There's nothing like a good deadline to keep you moving forward. Otherwise, you'll get stuck in analysis paralysis.
The second installment will look at the process of putting together a business plan that spells out how you'll build your product, take it to market, and eventually make a profit. I'll also offer a few tips on raising money to fund your new venture.
Scott Abel has started three software companies over the past decade and previously worked for industry leaders such as Apple, NeXT, Motorola, and Apollo in sales and engineering. He is co-founder and CEO of Spiceworks, which developed the first free IT management software to help IT professionals in small and midsize businesses easily inventory and manage the software and hardware assets in their networks.
Justin James writes in TechRepublic's Programming and Development blog. He also contributes articles on a wide variety of topics, from graphics programming in .NET to building and configuring SOHO router/gateway appliances.