The internet is an entrepreneur's dream. Thanks to the web, a greater number of individuals around the world have been given the opportunity to start a new business.
But while the internet has helped bring entrepreneurship to the masses, the internet hasn't changed the difficulties entrepreneurs face in starting a company, and arguably, it hasn't improved the odds of success.
According to Adeo Ressi, who founded the venture capital rating site TheFunded and the entrepreneur training program, The Founder Institute, starting a new online business can be done with less than $2,000 by following 10 simple steps:
- Buy a domain and email.
- Develop some wireframes.
- Create a logo and corporate collateral.
- Develop a PowerPoint pitch deck.
- Build a landing page.
- Set up a blog.
- Perform some test marketing.
- Survey prospective customers.
- Plot a roadmap.
- "Ghetto launch".
Easy, no? But is this really a recipe for success?
Not quite. In my opinion, it is somewhat pointless to promote the notion that you can launch a new business for $y in x steps. While there are certain basic tasks that just about every entrepreneur must complete when starting a business, such an approach ignores the fact that no two businesses are exactly alike and each new business will have different requirements. It's also somewhat disingenuous to pretend that putting together good wireframes, PowerPoints, etc. is 'free'. Entrepreneurs may be willing and able to invest sweat equity, but the cost of that sweat equity is never free.
In response to numerous comments questioning his game plan on TechCrunch, Ressi responds that his approach is really just a way to test a market:
If you do not test your market and your positioning before building the final product that may take months or years, then you will definitely fail. If you watch the presentation, the end result is not a finished product. It's a startup alpha launch to test the market. Big difference.
While it is absolutely true that many entrepreneurs spend lots of time and money building out products that will never fly, I think most entrepreneurs would be ill-advised to follow Ressi's approach. The reason: you may be able to create the impression that you've got a business, but at some point you actually have to deliver the goods. If you don't have the time, money and skill to do that, you've just wasted everyone's time, including, most importantly, your own.
Knowing this, creating a landing page, buying advertising via AdWords and Facebook, conducting surveys and trying to acquire "beta customers" when you don't even have the most rudimentary alpha ready to go is sort of like promising the delivery of a new house next month when you don't have construction tools.
To be sure, Ressi's concern over investing too much in building a product before validating demand is a legitimate one, but Ressi seems to ignore any concern over investing too little. As a result, he quite literally offers a 'fake it until you make it' plan of attack. For obvious reasons, this isn't going to work for anyone who can't sell water to a whale (which, truth be told, is most of us).
Fortunately, entrepreneurs do have a middle ground option. By focusing on unmet needs in markets in which they have expertise, relationships and skills, entrepreneurs can often minimize many of the unnecessary risks that come with building something before there's any validation whatsoever that it might be viable. In short, expertise, relationships and skill can each be used to provide enough validation that convinces the entrepreneur to make a greater investment in the opportunity he or she thinks exists.
But no matter which path entrepreneurs take, it's wise for them to do away with the fanciful notion that you can eliminate all risk. It can't be done, and at the end of the day, a new 'business' that is all smoke and mirrors will share the same fate as a 'steakhouse' with no meat and bones, no matter how good the idea behind it.
Reader comments (14)
3:13PM on 1st September 2010
It helps as well if you get your first client contract early on. And you should have a hard stop of how much you are willing to spend before calling it a day, like traders and poker players do.
Digital Marketing Expert, Speaker and Trainer at New Terrain Limited
4:12PM on 1st September 2010
I've worked for myself for what feels like hundreds of years (12 nearly). And it's a great way to live. It's waaaay better than working for someone else ;)
I meet lots of people who agree with me and who would also love to work for themselves.
But they can come up with 101 reasons why they couldn't and about 1 why they could.
I try and explain it's actually all quite simple. Especially the start-up phase.
But they look at me blankly and don't have any idea where to begin.
Which is why I like this approach.
Sure, Adeo is offering a lightweight framework. Yet that's all many businesses need. Indeed, the more complex businesses become the more likely they are to fail IMHO.
In fact, the more we analyse something, the more time we give ourselves to find flaws and weaknesses in our ideas. Which often means we're less likely to act on them.
So, whilst I understand your point Patricio, I think Adeo is a genius.
My advice?
Think like Google and keep your embryonic business as a 'Beta' version until you've got it right. If you fail, fail quickly and as painlessly as possible.
Pick yourself up and have another go. And another.
But, whatever you do, make a start...
4:22PM on 1st September 2010
Nice post. I would strongly argue that you can start a business with under a $100, yet alone $2K. In my book, "How to Start Your Business with $100," I walk step-by step through outlining start-up costs and where to find the resources that are needed in order to get going. It doesn't matter if it is an online business or one that is brick and mortar.
$2K is nice, but most entrepreneurs start a business out of necessity and do not even have that amount to get the ball rolling. Being resourceful and leveraging ones network are key elements to starting a business with little to no money.
Ja-Naé
@TheSunQueen
Author of "How to Start Your Business with $100"
11:51PM on 1st September 2010
There simply has to be a demand for the services or products being offered. I have seen some pretty downright pitiful looking websites become very successful businesses because there was a great need for the product or service and there wasn't enough supply to fill the demand. Of course there are other things that go into it, but that's a good starting point. Also, I actually think that 2k is a high ball number and it can be done for much less as long as there are no major physical products to develop.
6:39AM on 2nd September 2010
Yep, and $2k is a luxury! I started a fully registered business at the start of this year in Australia for $500 (Ja-Nee, your example won't work in Aus as registrations alone are over $100). The business has been going for 4 months now and is on track to be valued at $1million in 12 months. You don't need a big client, you need the motivation to go forward and the smarts to look for leveraged partnerships and deals.
6:41AM on 2nd September 2010
And to Patricio, I believe the step you put up at 8th should be towards the front - a true entrepreneur is one that finds out what customers want and gives it to them, no point going down one path only to find out later that it was the wrong one when up-front market research would have prevented that.
Director at WSI Yorkshire
10:58AM on 2nd September 2010
My Tip would be to understand your business model before you start, eg what are your costs in bad months not just best case months, then keep your overheads low and flexible.
If starting by yourself keeping the sales pipeline fed while you deliver the product or service will be important and again understanding your cost base as you start to take on staff or freelancers.
11:06AM on 2nd September 2010
Interesting !Great article. I kept looking for the "real costs" though.Confidence, hard work, strong willpower and skill can each be used to provide enough validation that convinces the entrepreneur to make a greater investment in the opportunity he or she thinks exists.
Tech Reporter at Econsultancy
4:38PM on 2nd September 2010
Andrew,
It should be noted that Google was essentially formally founded with a $100,000 investment by the co-founder of Sun. So while it's nice to "think like Google", the reality is that Google would not be what it is today without the financial backing it received.
I also think it's important to draw a distinction between being a self-employed provider of services and building a "business" that sells a product or service. In his example, Adeo is clearly talking about a business designed to sell a web-based product.
Ja-Nae,
I haven't read your book, but I would note that in most countries, $100 won't even get a business entity registered, let alone cover the cost of a business license.
More importantly, your comment that "most entrepreneurs start a business out of necessity and do not even have" $2,000 hides an unfortunate truth: most of these entrepreneurs fail. Undercapitalization is one of the biggest problems for new business ventures, and in reality, those who start a business with too few resources are far less likely to succeed.
Seb,
The time you put into building your product has a cost greater than $500. Obviously, there's a dollar value, unless you consider that your labor is worth nothing, which is not realistic for the vast majority of people. If you spent 100 hours building your business, and the going rate for the type of work you performed is, say, $75/hour, you really invested $7,500 in starting your business.
There's also a greater cost entrepreneurs must consider: opportunity cost. An entrepreneur who invests days, weeks, and months of sweat equity into a business must consider a) what he or she could/would have earned working for someone else during that time and b) the potential value of other opportunities that existed but were put aside for the opportunity pursued.
Digital Marketing Expert, Speaker and Trainer at New Terrain Limited
5:19PM on 2nd September 2010
Hi Patricio
For clarification, when I said, 'think like Google' I echo Adeo's main point which is to accept that your product or service is crappy to begin with and then keep testing and improving i.e. the classic Beta launch process.
The other, more cautious approach is to keep waiting and waiting until it's all perfect and, probably, never starting (which is what many end up doing by talking themselves out of starting a business).
I wasn't referring, nor is Adeo, to Google's finances.
Yes, whilst there is a distinction between self-employment and running a business, there are actually lots of similarities. You have to be organised, disciplined and business-like.
You have to have good project management, have decent people and time-management skills etc etc.
Indeed, being self-employed forces you to be even more switched-on than when you work for someone else (we all know how easy it is to waste work-time and money when neither are actually yours).
And whilst I'm currently self-employed, I've run and managed several businesses. I also currently work with all sorts of businesses in a variety of industries and sectors. Adeo's main point about simply 'getting started and improving as you go' still, however, resonate.
Finally, whilst Adeo does talk about businesses that sell web based products, there are few businesses that cannot think about an effective web and corporate presence. Indeed, in the video, he explains that his approach would also work for product launches too.
Plus, as he points out, all new ventures should put time and effort into looking good. Especially those that are pitching for VC investment.
Once you've actually started your crappy new venture, have conducted the market research as he suggests and even won some new customers, you can, again as he points out, start improving your fledgling business.
As I said in my original comment, it's easier to find reasons NOT to start something. Whilst Adeo's approach is flawed (who's isn't?!) at least it lowers the psychological barrier and shows people how to start a business for low cost and with low risk!
Tech Reporter at Econsultancy
7:24PM on 2nd September 2010
Andrew,
I think maybe we take different things from Adeo's approach. In my opinion:
Bottom line: if it was easy to build a viable business on $2,000 using these sorts of approaches, everybody would own a successful business.
Digital Marketing Expert, Speaker and Trainer at New Terrain Limited
8:17PM on 2nd September 2010
Patricio,
We are definitely taking different things from Adeo's approach.
I completely agree about under capitalisation and risk etc.
But embryonic businesses fail for all sorts of reasons that don't show in the statistics.
In my experience (Disclosure: in the late 90's and early '00's I worked for a Business Incubator Unit), the under capitalisation issue is sometimes due to poor marketing and an inability to sell . By this I mean that they quickly run out of money because they couldn't sell ice-cream on a hot day!
The under capitalisation issue is also because some new businesses spend too much money on the less-than-important e.g. fancy offices, expensive websites, the latest IT equipment, PR consultants, logos and corporate brochures.
And they also often fail because they don't do the Beta launch that Adeo offers.
Start-ups also sometimes spend so much time and navel gazing without really testing the market. They suddenly realise that their 'behind closed doors thinking' and over-preparation meant that they weren't actually offering a product anyone wanted
Adeo's approach at least gets customer input very early on in the lifecycle of a new business.
What's wrong anyway with having an idea for a business (or facade as you put it), discovering it's interesting to people and then creating it properly? In this digital age, this is actually more possible than ever before.
One very successful web design company I know started from their back-bedroom (literally).
When they had some free PR offered to them, they took photo's of their 'offices' in the co-founder's sister's workplace at the weekend. They even had family and friends 'working' at the various desks in the background in order to make it look as though they had lots of staff.
Since then they've gone onto to major success, employs lots of people for real and have built some very important sites.
And if you read books such as Richard Branson's autobiography (and others) you'll see that very successful entrepreneurs often start with very, very little (including capital). They often pull off huge deals through sheer confidence and self-belief. And they then, and only then, work out how they're going to do it!
Finally, you're wrong when you say 'if it was this easy to build a business'. That's not what Adeo is saying.
He's showing us all an 'easy way to START a business'. Not build it ;)
Cheers
4:07PM on 12th October 2010
great post. i would argue that you can start a start new business with $1000, I have seen some pretty downright pitiful looking websites become very successful businesses because there was a great need for the product.
5:45PM on 21st August 2011
If someone needs to be taken by the hand and even considered following a 10 step approach like this then they probably should stay away from business completely.
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