On probably half a dozen different occasions some aspiring entrepreneur has asked me:
Would you be interested in a hosted solution for selling screencasts?
In most cases, the promised solution never goes beyond talk. In a few cases I’ve been sent invitations to beta test. In all cases, a successful business has failed to materialize, and 6 to 12 months later the domain is up for grabs.
These results are completely predictable, for a few reasons.
First off, as I’ve written about before and will probably write more about in the future, this space is ridiculously well-served. When it comes to selling media or communities subscriptions online, there is a full continuum of solutions available. From rolling your own Heroku-hosted Rails app plugged into a video host and a payment gateway, to fully hosted solutions where all you do is upload your content and set a price, and every point in between, there are established players ready to serve you.
That’s not to say that no new players will ever come along to shake up the market. But I promise you this: when they do, it will take one of two forms:
- Someone who has experience selling to this market will take that experience and use it to build a new solution with some novel features.
- Someone from the content creation side of the equation will get frustrated and decide to move into the hosting sector. (No, I have no plans to do this myself.)
There is this pernicious bit of guidance that I keep seeing people following in the software entrepreneurial world. I’m not sure where it first came from, but it goes like this: “ask around, find someone in business with an itch to scratch, and build a minimum viable service or them!”
This is terrible advice.
Well, I mean, one part of it isn’t so bad. It’s true that there is a lot of money to be earned in vertical markets. You probably have a much higher chance of success trying to serve a vertical, then in trying to create a new consumer market a la Instagram.
But software entrepreneurs seem to frequently make one of two mistakes when trying to follow the advice.
First, instead of looking where the need is strongest, they look for solutions that they can easily imagine building.
I totally get this, because as a software developer, my brain is constantly doing this to me. “Hey, I watch screencasts! And I can easily imagine writing a Rails app with videos hosted by S3 and integrating Stripe payments! I should create a SaaS for this!!”
Second, they try to jump in the market that they have absolutely no direct experience with.
The scenario goes down something like this:
Developer walks into the local feed supply store and asks for a bag of layer pellets. The shopkeeper says “let me see what I have in stock”. He pokes awkwardly at 1990s-vintage PC running Windows 95 for 5 minutes. Developer gets a bright idea says “Say! Would you be interested in a modern cloud-enabled feed store inventory system?”. The shopkeeper replies “uh… sure, I hate this old thing.”.
A month later, developer comes back and demos a working proof-of-concept, and asks for a check to validate her MVP. Shopkeeper replies: “it’s nice and all, and lord knows I do love me a flat UI, but it’s not actually worth real money to me to move off the old system.”
The trouble is, the economics of selling a service for less than $10/month are damn near prohibitive. And there are literally an infinite number of itches out there which are not actually worth ten bucks a month to scratch.
I’ve seen a lot of fresh, disruptive services emerge, serving a variety of business domains. Each has their own story. But they tend to follow one of a few common templates:
- “Growing up my dad sold feed, and I used to work in the store as a teenager. The software we had for tracking inventory was terrible, but the real problem had to do with… [insert brilliantly lucrative niche product here].”
- “We had been doing one-off website projects for plumbers for years, and we saw a opportunity to take our experience and create a hosted service.”
- “I used to do the accounting at a car dealer, but I found out I liked writing VB macros more than the accounting part. From there I started automating our inventory system, and then it was just a step to…”
- “We thought we were going to start a business catering to real estate agents, but then we realized that all the “virtual tour” software out there was terrible so we turned our VR component into a SaaS that we now sell to other development shops.”
One success story I have yet to hear is:
- “One day I walked into a vape shop and divined their deepest business needs and sold them a service and now I have a Ferrari to match each of my cats.”
The point is: stop looking for other people’s itches, and start looking for the excruciating backache that you are intimately familiar with. And yeah, I realize that if your only experience is with software and no other fields, this puts you at a disadvantage. This is probably why I’m not filthy rich yet. Or at least it makes for a good excuse.
But there’s probably some other field you have a relationship with. What did your parents do for a living? What are your hobbies? What organizations are you part of?
Your first stab at a business plan is still liable to be a miserable failure. But if you have a handful of darts, you’ll learn more by throwing darts in the vicinity of a dartboard, and iterating from there, then by chucking them at the first wall you see.
Really interesting write-up, Avdi! I’ll have to revisit some of my business ideas, but now I have a good excuse to tell relatives at Christmas who want to talk to me about their “cool app idea”. =)
One thing stuck out to me reading this, and I was wondering if you’d be willing to elaborate on it further:
“The trouble is, the economics of selling a service for less than $10/month are damn near prohibitive.”
Would you mind explaining how you came to this conclusion? Thanks!
Answered in the form of a post: http://www.virtuouscode.com/2017/04/21/the-daunting-economics-of-cheap-services/
Wow, thanks for taking the time to craft a whole post in response – I learned a lot from it!
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