Friday, May 22, 2009

Second session at Founder Institute

Well, after the terrific first session at Founder Institute, new week comes and our new topic is "Validate your idea with industry professionals". Sounds interesting, huh?

Especially, if I'll mention our mentors for it. They are:
  1. Joe Betts-LaCroix. I don't know pretty much anything about him, except that he's Founder and CTO of a just ceased operations OQO. And this is going to be something everybody would be happy to hear about. Could be a great lesson to all of us. I also know that he's a Harvard and MIT graduate.
  2. Ken Ross. Once again, I know almost nothing about him as well. He's told to be Founder and CEO of ExpertCEO, MIT and Stanford MBA graduate.
  3. Trip Adler. He's a serial mentor for Founder Institute so far, as he was one of the mentors for the first session. Well, yeah, I already know much more about him now. He looks to be a smart guy, ignoring the age.
Hopefully, you're already jealous.

Well, so let me get back to topic of the session. My understanding is that we're going to listen how these serial entrepreneurs learn about the market before turning product into a real life. Personally, I found this to be pretty challenging problem, because the wrong market estimation can turn your product into "the great thing that nobody wants".

So, well, let me share with you my experience in this subject. Previously, I had a number of startups myself. However, I'd like to make a stress on only two of them.

One of them was our first company in Ukraine, telecommunication and Internet service provider Extra Communications (often abbreviated as Extracom), which we built, run, broke even and sold in 8 months. I can't get into deep details on this, but overall it was a great experience, but not really anything else. We didn't make a fortune, but we were lucky to get the investments back (it was self-funded by myself, and "triple F" — Fools, Friends and Family, well, maybe without Fools though :).

We were the local ISP for high-speed Internet. Those days the "Internet over the phone" service was pretty mature, but the phone companies were pretty bad. This mixture made a lot of people mad. And there were no DSL on the market, available to home users, yet. Mostly, because it was still a headache to acquire the phone line, which will allow to run DSL speeds on it. Yes, we're doing something close to what cable companies are doing through their cables, but we had no such service there, as well.

So we decided to built a high speed Internet provider aiming the multi-family residential buildings (it's like 20-40 entrances per building, 10 floors per each entrance and 4 apartments per each floor). And the typical building was about 800 apartments each. Internet service was a very first draft of our idea. Actually, we're planning to create a huge, very high-speed social network of neighboors, with streaming music and movies, TV and radio channels, games and whatever not.

Building an ISP is a pretty expensive thing with a long-term payoff. We had little money, so we tried to keep the cost of experiment very low. So all of us decided that we need to research the market first, although we're sure there is an interest in such service. So what did we do? First of all, we developed a plan of how we would like to start our expansion. We choosed the buildings with the maximum amount of apartments, came up with the subscriptions costs and estimated the minimum number of users that should express intent to subscribe, for us to start into this venture.

I really don't remember these numbers, but they were rather modest, we lowered a bit a number of available apartments, but raised a little bit higher the minimum number of users who'd like to subscribe. Second, we had to get a phone number where people should be calling for sales. We got a mobile phone, with free local incoming calls. As far as I remember, it was about $60 or $70/month per month. That was pretty expensive, but we could keep the phone number if we'd like to run into this venture later, and we didn't have to have an office. Why not the office? The cheapest and two-persons-only reconstructed studio like hole-in-the-wall could cost us about $200/month plus landline phone service of $10/mo with no chance to keep the phone number later on. And somebody always should stay there, as the most phone calls, as we discovered later, were coming after 7pm and till 12am (yep!)

The next thing was advertisement, and we purchased a "running text string" TV ad block, which was supposed to run during prime-time on the local TV channel. It wasn't expensive, but we've got only 1 or 2 calls while having it running. So, that was unacceptable. And we decide to go into printed ad. It was regular A4 papers, printed on our own printers, with description about what we do, our plans, prices and phone number. Then, we split into teams and start to go through every single apartment and put the paper into the door. That took a lot of time, but that was great. We started to receive calls almost the same one or two hours when one of our teams were "attacking" the apartments with "SPAM". ;)

And, yeah, we decided that 30 days would be enough to make a decision about are we going into it or not. Well, we've got a little bit less than planned number of "intentions to subscribe", but during the last meeting decided "what the fuck, lets do it!".

To crown it all, I should say we had some kind of formal marketing research, that had to be done before we'll get into the venture. We did a good job on estimation of the numbers. We were aiming only 20% of potential customer base during out research, so we had a potentially growing market. And as we figured later, a lot more people actually was aware about us, but were just waiting for the "second call". To make sure this is not a scam and not just a marketing research. :) So the conclusion is — taking time for the market research is not a bad thing and not always a waste of time.

Okay, now my other startup I'd like to tell you about is Atomkeep. It was one of my first startups since I moved to US, which was remarkable by the facts that:
  1. It was built in less then a month.
  2. We've spent absolutely nothing on marketing, but got about 10,000 of subscribers in the first month of our release.
  3. We've got our server crashed because of being featured in Life Hacker. :)
  4. Eventually, we've got featured in Read Write Web and Mashable (no crash anymore!), and
  5. Atomkeep was named one of the Top 50 Web Tools 2008 by LAPTOP Magazine.
Well, I can come up with more facts about why I believe Atomkeep to be an interesting thing to tell you about, but why bother? :)

As for Atomkeep, we choose a very differnet approach and we did absolutely no market research at all. We had a few reasons for that. First of all, we had the problem of social profile synchronization ourselves. I like to try things, but hate to keep them updated. Why bother anymore? For the second, we had a group of about 5-10 close friends and fellows, who expressed the same need — which was to keep the track of accounts and keep the updated. And the cost of experiment to enter this market was unbelievable low. It was our time only and that's it. So what should we wait for?

Frankly speaking we're very excited about Atomkeep and stupidly didn't pay attention to many minor details which become very major bottlenecks eventually. But this is not what the story about. :)

I can't come up with a good conclusion for our market research affair with Atomkeep, as we basically didn't do that, but if we did, I don't really see how would it save us from our mistakes that we made. But that's the nature of Web. Things tend to happen very fast here. You're given only a moment to make a decision and rock the world, or somebody else is here in line waiting for his turn.

So, well, I've been there and done that, so once again, I'll be very excited about listening how to approach markets and estimate the potential payback before bringing the product for real. Hopefully, I'll get all answers very soon.

My questions for the session would be:
  1. How to research the Web market without sharing your idea? Should we be afraid to share it?
  2. How to make a preliminary research and gather "expressions of interest" without having a real product done?
  3. Should we be afraid of waking up next day to make our market research and finding out that somebody already released the similar product, just because he though "screw it, lets do it!" ?
Maybe something else will come later on.