Photo by programwitch

It’s to figure out whether your idea for a startup is the “right” one.  If you’re on the verge of starting a business, chances are you’re starting with a few (or dozens of) viable ideas, and weeding the list down to one is a daunting task.

Of course, I don’t have a magic formula for figuring out the answer, but there a few things I’ve observed that I think one can do to help increase the odds for success:

Ask Yourself

I think the best idea is one where you can answer honestly that you’ll use the product yourself (and if you’ll charge for your product, that you’d pay for it). Don’t answer this as a hypothetical “you” in an alternate universe — ask whether you would buy this product today to solve specific problems you currently have.

Similarly, if you’re in a role where you’re frequently asked to make product recommendations or buying decisions for other parties — ask yourself whether this is what you would select for your client.

This certainly isn’t the only criteria to test whether or not an idea has a chance for success, but it leads to a well-established pattern: 37signals created Basecamp so they could manage their projects, FreshBooks was created so they could invoice their clients, MailChimp was created so they could send email campaigns for their clients, and I created FormSpring because I had to build online forms for my clients.

Ask Others

Neil Patel’s advice is to quit asking people what they think and just start implementing.  He’s right — most people won’t really know whether your idea will work or not.   And those close to you are apt to try to make you feel good by saying your idea is the best thing they’ve ever heard, even if it sucks.

However, I still think you can get a lot of value by talking to people you know that fit your target market to get a sense for whether or not the problem you’re trying to solve actually exists. Focus your discussion on the problem you’re solving, rather than your idea itself.  Most people will open up truthfully about how painful a particular problem is for them, and you might get a sense for why existing companies aren’t already solving that problem.

Ask Your Market

Finally, before you spend time and money building out your idea, test it out to see whether a market for your product really exists, and gauge how hard it will be to generate leads and sales. Launch a fake AdWords campaign, as Eric Ries describes here — something that you can do quickly for less than $50.  Unless you’re launching rockets, it’s probably going to be much harder to get enough customers to spend money on your product than it will be for someone to actually build it.

Note: this post is an expansion of a response I posted here.  Head there if you’d like to read other answers to the same question.

Last week 37signals launched Haystack, a directory for finding web designers.  I don’t have a strong opinion about the site itself one way or the other, but upon it’s launch I couldn’t get this thought out of my mind: 37signals could start selling boxes of sh*t and people would buy them.

(By the way, if you’re in the market for that kind of thing, a service for you already exists).

I’m not saying that 37signals products aren’t great in their own right — I’ve used, purchased and recommended many of their products and services — I’m saying that they’ve built up an incredible platform that increases their odds for success hundredfold, almost regardless of the product.  And that’s what I admire the most about them.

Basecamp was making $5k/mo just six weeks after it’s launch, something few startups will come anywhere close to replicating (considering it was their first product and probably had an average customer spend of about $30/mo).  Subsequent product launches did even better, and they appear to see similar success with their book and job board.

Hundreds of companies launch better products and do “all the right things”, yet hardly get off the ground, much less thrive.  There’s just an incredible advantage when you launch products targeted at the very people that are already listening to you, especially when there are hundreds of thousands of thousands of said people.

I believe they’ve had to work incredibly hard to build that audience — nobody’s just given that kind of attention and respect.  And they’ve also done a tremendous job of not disappointing their audience (as some have done).

So what does this mean for us mere mortals — those of us who measure our FeedBurner stats in units of tens or hundreds?  Once you realize that you’re not 37signals, it’s important to emulate the right things.  Recognizing what makes companies like 37signals successful means that you don’t emulate things they do that might be  wrong for you.  You might need to offer phone support for your customers, accept checks, or focus on just one project instead of 7.

The corollary of this is that you shouldn’t believe what 37signals tells you to do.  Listen to them frequently, but put what they say into context.  Much of what they say is probably good advice, but there’s no good way to differentiate what works to make them successful from what works because they’re successful.

Of course, this certainly holds true for anyone you’re listening to. Listen to me least of all.

The Town of Fishers has evidently been paying attention to the freemium model:

Sign up now for a completely free stop sign in your residential neighborhood.  If you would like to upgrade to the rolling stops package you can do so for only $155 per incident.

Call one of our friendly officers if you would like to take advantage of our fly-through-at-85mph-while-hammered-with-expired-plates package and get a complimentary one-night stay in the county jail.

Photo by johnjoh

When I started my first business in 2000, we didn’t have new-fangled tools like Facebook, Twitter and LinkedIn to make connections with potential clients and partners. We had to go to Chamber of Commerce networking events and shake hands with insurance salespeople and office supply reps. I hated going to those things.

By 2006, when I started Recursive Function, the landscape had changed and I revolted against traditional networking. It even took me several months before I bothered to get business cards made.

It’s is in the blood for many entrepreneurs, but there are a great deal of us who cringe when thinking about going to networking events. We enthusiastically welcomed the advent of social networking because that meant we didn’t have to go to boring events, eat stale hors d’oeuvres and shake hands with a bunch of strangers. And we welcomed it so much that it started to seem like an investment in Twitter and other online networking tools should be enough.

The beauty of the web is that you can be connected to people all over the world, but if you’re starting a company and not well-connected to people in your city, it’s going to be hard to be successful.  You need good relationships with vendors in order to get things done — lawyers, accountants, web designers, IT consultants, and yes, even good insurance salespeople and office supply reps.  You need to make connections with talent in the area when you start to hire employees (it’s so much easier to convince someone to work for your startup when they know you or know of you).  You also benefit from the advice of peers, and while you learn a lot from blogs and conference speakers, there’s no substitute for listening to stories or getting advice over coffee.

And if you’ve worked Twitter to death but don’t have good relationships with potential vendors, have someone that you’d hire in a second if the right position opened up, and have a credible peer or mentor who’ll help you with a challenging problem in exchange for a Guinness or two … well, then your networking strategy has fallen short.  And no, “there’s nobody doing anything interesting in this town” is not a valid excuse.

It took me a while to fully appreciate the importance of these business relationships, and the key ingredient for building these relationships: I have to get out there and shake hands.  This is a no-brainer for some, but I don’t think it’s so clear for those of us who are more comfortable behind a computer screen than in a crowd of strangers.  In theory, it seems like you can build your network through social media tools alone.

Despite a full list of online followers, friends and contacts, I have a hard time thinking of someone who’s had a strong, positive impact on my business that I haven’t yet met in person.  I can also think of a handful of people that I met “cold” at a networking event and probably wouldn’t have met otherwise.

Social networking sites are good tools for keeping connected and up-to-date with contacts, but not a great way to establish lasting relationships.  It’s not often that I’ll friend or follow someone I haven’t met or don’t know of, and very rare that I’ll actually be engaged enough to read their blog or tweets.  Even though I can be a bit of a Twitter curmudgeon, I’m pretty sure this is the same for power users too — people won’t pay attention to you on Twitter unless they’re already familiar with your work or have met you in person.

You won’t get the most out of your online networking if you don’t occasionally attend the Tweetups, join a user group, or attend local conferences like Master of Business Online and TechPoint Innovation Summit.  You don’t have to turn into a power networker or even go to any of those dreaded Chamber of Commerce events. But you do need to force yourself every month or two to get out there, shake hands with old and new contacts, and buy a round of beers.

Photo by jesper

I saw a handful of negative comments toward FormSpring pop up on Twitter last Friday from a critic. I was a bit startled at first, but welcomed the dialogue and was glad we had the opportunity to respond publicly. Even though I ultimately think most of what he wanted was impractical, we came away learning something, and there’s a possibility that we’ll be able to apply that towards improving our service down the road.

There are few things I want more for Indianapolis than for us to fulfill our dream of becoming a city known for its web-based software companies. Foremost, we need a solid cache of thriving companies to fit that bill, and we’re well on our way to accomplishing that. But in addition to the cheerleaders, champions and evangelists, we need a healthy supply of vocal critics.

Cheerleading comes natural to most of us, especially when we want companies to succeed. Being a critic is a lot harder — we don’t want to turn potential customers away from a company, and we don’t want to offend owners and employees that we have relationships with. But we’re not going to grow if we’re all cheerleaders.

Criticism helps us build better businesses. No company is without its faults, but in many cases owners and employees are way too close to the business to clearly see glaring issues. It’s often that the only way these issues will ever come to light is through seeing public criticism. At the very least, public criticism gives companies an opportunity to respond and debunk criticisms that may have otherwise been silently turning away customers anyway. For example, Facebook changed their terms of use because of widespread criticisms about privacy issues, and Twitter has many times been able to calm outrage about repeated downtime by publicly responding with details about their architecture and plans for improvement.

Criticism creates more interesting dialogue. Saccharine posts that do nothing but praise the virtues of a company hardly ever fully engage readers and spread virally. They’re good to see from time-to-time, but the more people we have engaged in dialogue, the more customers we reach.

This is hardly scientific, but for giggles I culled a list of the most commented articles on the 37signals blog in the past year. In order, they are: Why the Drudge Report is one of the best designed sites on the web, Every Mac I’ve owned has failed, Get Satisfaction, Or Else…, Happy Birthday – Basecamp Turns Five!, and The next generation bends over. Even though the overwhelming majority of posts from 37signals are positive (yes, it’s true — count them yourself), three critical ones made it into the top five. It’s also interesting to note that one of the five was positive, but about something that most people are critical about. My point is just to show that readers tend to be more engaged in dialogue that involves criticism, even (especially?) if they don’t always agree.

Criticism prepares us for a broader audience. If we’re not ready to hear from critics in our backyard, especially from friends, we won’t be ready at all if someone with a big audience tears us a new one. If we’re unprepared for dealing with broader criticism, it’ll be harder for our companies to flourish outside of Indianapolis, and doesn’t paint our city in a good light to outsiders.

The truth is that critics are already here, we just need to bring them to the forefront. There are scores of Indianapolis companies who are using online forms, an email marketing platform, blogging software, a content management system and a virtualized data center … but aren’t using Indianapolis companies for any of those things. I really take no issue with that (especially since I’m guilty of this to a big degree), but do take issue with those who silently vote with their wallets and refer others elsewhere without making their concerns known.

We have a lot of great software companies in Indianapolis, but each company has its problems that turn customers away — hard to use, too expensive, bad customer support, buggy software, etc. It seems polite, even helpful, to keep quiet, but in the end it helps us improve our companies by voicing criticism and bringing issues to the forefront for those who can make changes that matter.

Photo by vinaydeep

Jason Cohen recently wrote a great post about Survivor Bias, the tendency to focus on learning only from successful companies.  I think much of what he says is on the money, but I couldn’t help but question the comparison of repeated business success to a series of coin flips:

“So I put 1000 people in a room and tell them to flip a coin ten times. Sure enough, a woman named Margaret makes “heads” ten times in a row! The chance of her getting heads ten times in a row is only 1-in-1024, so I conclude Margret has special abilities.

The chance that somebody in a crowd of a thousand would flip heads ten times is a whopping 62%! Because so many people are attempting the feat, some normally-unlikely events will happen. This isn’t a test of Margaret’s abilities at all!”

This is similar to the coin tossing experiment described by Warren Buffett when talking about investing.  It’s easy to see the comparison here — when picking stocks, the decisions are limited and creativity is minimal:

1. Pick a stock
2. Choose when to buy
3. Choose when to sell.

You can simplify the process enough to automate it or delegate to your 3-year old son.  Sure, your 3-year old will probably lose all your money and resent you for the rest of his life, but the point is that somebody’s 3-year old will make millions, grace the cover of Forbes, and become praised world-wide for his genius.

Starting and running a business is so much more complex, and there are many many ways you can screw it up: hire the wrong people, choose the wrong partners, build a bad product, choose the wrong market, undercapitalize, overcapitalize, set the wrong company culture, spend too much on launch parties, spend too little on legal counsel … the list is near-infinite.

There are also varying degrees of execution.  Putting together your marketing strategy or designing your product isn’t a simple on/off switch like it is with a sell order on a stock.  You can follow all the right steps, but execute poorly and results will be dramatically worse.

If you normalized all these decisions into coin flips, the number of flips in the lifetime of a business would be too many to count. You don’t have to flip heads thousands of times in a row, but you have to get most of the important flips right.

By the way, I think the same can be said about successful career investors. I hardly think Warren Buffet’s success just came from luck, whether or not any stock picks paid off because he flipped heads 10 times in a row.

It’s been 20 months since my last post. And no, I’m not breaking the silence with a blog post apologizing for not blogging. With apologies to Mr. Durden, the first rule about blogging is: you don’t blog about blogging. The second rule about blogging is: you don’t blog about blogging.

However, I will bend that rule to say that I’ve been inspired to start blogging again.

It’s hardly same ‘ol same ‘ol around here.  In the last 20 months:

• I fired all my clients
• I shut down Recursive Function
• I spun FormSpring out into a new corporate entity
• I let our remaining web apps join the Web 2.0 Walking Dead
• I brought on a business partner
• We took a relatively small amount of money from angel investors
• We hired new employees
• We moved to new office space
• We worked on dramatically improving pretty much every area of the business
• We watched as our customer counts skyrocketted

I’ll eventually write some catch-up posts to talk about all this in more detail, but for the time being I’ll just focus on getting back into the habit of writing.  More to come soon.

I ran across this interesting Starbucks fact (via Seth Godin):

It wasn’t until several years after the company was up and running that they realized it would be a good idea to sell any beverages at all. All they sold was beans.

It’s inspirational to think that a successful company like Starbucks had a much different business plan when they started. The company made $5.4B profit this year off people like me who, despite having some excellent Guatemalan beans and a working percolator at home, frequently find myself weekday mornings in a drive-thru line a dozen cars deep.

The business world is full of stories about companies who started in one direction and ended up finding success by doing something completely different. It’s easy to hear these stories and nod with understanding — we all want to believe that someday we’ll get struck with the perfect idea, slap a $4 price tag on a cup of espresso and milk, and retire with billions.

So if it’s not too late to tweak your business plan, then it’s never too early to start with a failing business plan. I think too many people get crippled by trying to find the perfect idea that they fail to get anything started. Would Starbucks have been in a position to execute their current plan if they hadn’t started out with the wrong one?

I often find myself crippled by this fear of failure. When I do something new it’s often because I just made a deliberate decision to close my eyes and take a leap. (Sometimes it’s just because I skipped my morning coffee and couldn’t think straight).

It amazes me to look back at some of the stupid things I’ve done because I don’t remember where I found the confidence to do them. Like how I left a good management job at a Fortune 500 company to start Recursive Function with a shaky business plan, unimpressive savings, no outside income, and a newborn baby. It’s not that I had the perfect idea – I just took the leap.

Out of college, some friends and I founded Bottled Software, my first startup company. We were very naive in our estimates of how successful we would be, made a lot of mistakes, were paid terribly, and ended up closing the door after a couple years of business. But I wouldn’t trade those failures for the equivalent time as a junior programmer at Google or Microsoft. Much of what I’m doing now came from what I learned at Bottled Software, and I can certainly say that I’m starting to make espresso now only because I sold coffee beans many years ago.

I’ve had a lot of failures, but they’ve all put me in a position to create new successes (and failures) — something that definitely wouldn’t be true if I had done nothing at all in the first place.

Anyone have some good stories about their coffee beans?

1. North Pole, Inc. – take some time to peruse the beautifully designed products shipping from the North Pole this season, or read about the corporate scandals and political infighting that has plagued the famous company. It’s all very well done, courtesy of the folks at Brainstorm.

2. Speaking of the North Pole, this is the funniest Santa picture I’ve ever seen:

3. Get $50 at FormSpring’s holiday contest – all you have to do is make a free form with a holiday theme and link to it in the comments on the FormSpring blog. We’ve got a few funny entries so far, but are hoping for more. The contest ends Dec 31st.

4. Three men dressed up as elves – elfyourself.com is a site where you create personalized videos of dancing elves, laugh hysterically, and send links to the videos to everyone you know. Then you realize that you’re a much cornier person than you thought, and hate yourself for ever visiting the site. This is one that August was kind enough to put together, starring the Recursive Function team.

No, I’m not turning this into a link blog. But out of all the web content I consume daily, I run across a handful of things each day that I have an opinion on and want to share, but not enough time or energy to compose a full post. So I’m trying something new and creating periodic roundups where I link/embed semi-related content and blurt out a few sentences about each. Feel free to be blunt if you hate this format.

Links

1. R.I.P.: The Web 2.0 Office Suite – Ninety-four percent of U.S. consumers have never heard of Web-based productivity suite alternatives. A mere 0.5 percent have substituted Web-based productivity suites for desktop software such as Microsoft Office.

Techcrunch makes good points about problems with the survey and Douglas Karr sees the stats as a rallying call for marketing and an incredible opportunity for growth. I definitely don’t see Google Docs killing Microsoft Office anytime soon, but it’s way too early to say the war’s over.

2. Web 2.0 Can Be Dangerous – AJAX, rich Internet UIs, mashups, communities, and user-generated content often add more complexity than they’re worth. They also divert design resources and prove (once again) that what’s hyped is rarely what’s most profitable.

I think Jakob is mostly right, at least when it comes to content-centric websites. Ajax and rich UIs are essential for web applications, but can easily be misused. Developers should always build for the user first, not for the technology. And even though I seem to say so otherwise, I think money should be spent on the bells, whistles and yellow fades long after version 1.0 is up and running.

3. Lack of Funding Most Common Reason to Bootstrap – Only 38 out 100,000 new businesses reported receiving venture capital funding. Another way of looking at that is that of all estimated 650,000 new businesses that will start this year, only 247 will have had funding from venture capital.

That number sounds counter to expectations, given the amount of coverage venture-backed businesses receive. But the takeaway is clearly that if your new business plan relies on getting VC, then it’s wise to have a backup plan. You’re smarter than VCs anyway.

4. Bosses behaving badly - In August and September, as his company is racking up the largest quarterly loss in its 93-year history, Merrill Lynch CEO Stanley O’Neal squeezes in 20 rounds of golf, including three rounds on three different courses in a single day.

He should definitely be criticized for getting a $161.5M retirement package when performance was terrible. But to be criticized for playing golf? Wasn’t most or all of that on weekends and holidays? Should people not get any time off work if they’re not meeting expectations? Isn’t it healthier to relieve stress on the golf course rather than at the office?

5. Blogs in Plain English – A video for people who wonder why blogs are such a big deal.

Another well-done CommonCraft video. I’m guessing most of the people who haven’t heard about Google Docs need to watch, so please share

Click here to view the embedded video.