This is a tie-in for my series on How to Build an App. Please checkout the other posts in that series, but especially the one on App Startup Canvas.
Use the App Startup canvas to define the ground zero for your app development efforts: your team, your expertise, your plan to get revenue that will offset costs.
Listen to the above to understand some important takeaways:
* Your app is at the end of the day a channel - its part of a business
* Vanity metrics don’t beat customers - the ones that pay money
Please also checkout the episodes in the series How to Build an App, or at bare minimum this one on Product Owners and UX Design.
The Pattern that Repeats
When I was building apps for folks in the startup co-working spaces where I sited my engineering consulting business Smithsoft I saw a pattern repeat over and over.
* I have a great idea for an app
* Here’s a pile of money to build it
* When the app is finished
* We’ll make so much money
What happens? What goes wrong?
The folks involved in the app business are working in their day job, maybe they mortgage their house, get a loan or have mom-and-pop investors; but they phone up the app development house that they found on the internet and after months and months when they see the first iterations of the app they get increasingly upset when it doesn’t meet their expectations.
Then they either crash or die.
Die means they never get something they can take to their planned launch, which honestly might be less heart-breaking for them. They write off the money they spent, and go back to their day jobs, but with all their savings or investment burned.
Crash means they put the app out there, and spend more money on marketing, only to find no-one downloads the app, their ideas about what people wanted were not strong enough for anyone to use the app let alone generate revenue from it. Then they are not only in the situation of savings or investment burned, but also massively in debt.
What it Looks Like
A startup is a business founded to handle extreme uncertainty. It can also be a “high-growth” startup, which makes it an investment target, but it doesn’t have to be. And I’d advise against it. As I discuss below, customer money is better than investor money.
The founders get together with their marketing effort and plan out when the app is going to launch. They pin all their hopes on a big marketing splash, with a set of features that they have asked the overseas app development team to build.
It looks like this in their mind:
At the bottom left of this — imagine its a chart with each position being some combination of feature — we have our team jumping on board and digging in for the journey to launch day.
Toward the top right — so the plan goes — actual paying customers will see the list of features in the App Store, after being led there via a marketing campaign, and will download the app and create revenue.
What Actually Happens
Startup means uncertainty.
Let’s imagine a company that doesn’t instantly crash and burn, and has some insights enough to get analytics or market research back about how customers are perceiving the app. They head out with some stake money, and a plan to get to actual paying customers.
You’ll also hear the term product-market-fit or PMF. I prefer the term “paying customers” because an acronym like that rapidly degrades and loses all meaning, just like “minimal viable product” or MVP does. I advise against using PMF - focus on customers.
So what actually happens looks more like this:
* The first course charted is off the mark (unbeknownst to the team) and it seems the app build is not approaching what customers want. Product-market fit is off.
* An investor surfaces, off the starboard bow, and one of the team says “we should hear they have to say” — next minute you change direction chasing money that never appears. Customer money is real, investor promises are not.
* The team course corrects, and is on track toward paying customers when the build runs into regulatory, legal or standards issues that they ought to have forseen but didn’t.
* They’re closer to PMF, but one of the team says AI is everything these days and they need to up their game. They work to cram in some AI features, even though none of the customers asked for this.
It’s at this point that the stake money runs out and you are high and dry. Limp back to port and sell you ship for scrap. If you’re lucky.
This is Fine
No, no it’s not.
But we are working our way to product-market… I mean on our way toward paying customers, right?
Yes, but at what cost?
This is what it looks inside the engine room and wheelhouse.
* The view from the Product Team is limited. They have their feet in the product space and it’s hard to navigate. But they do their best to chart that course.
* Down in the engineering space they are driving forward, but every turn of the screws costs money. Every day that goes past cash burn is eating your chances of success because once the fuel is gone, you’re done.
Here again, is my recent session on Design and Product. These are how to sharpen your team structure so that you have the best eyes up in the wheelhouse.
You will not get investment if you cannot show customers. And if you have customers you don’t need investment. The first time you get customer money — real customers, not someone’s Dad, or that company you used to work for — it will change everything about your app startup plan.
Some folks do break my rule here and manage to persuade investors — angels, or sharks — to invest. Fine.
I was there with my startup. We got investor money. It’s seductive because you think you have time, and can build something and find customers later.
Wrong.
Now you are back working for someone again, because that investor has a lot of control. They can tell you where and when to site your team, what to build and how to market. If it all goes sour, or no customers turn up you still wind up out of pocket, but with a reputation hit, maybe family impacts, health impacts as well.
How to Escape from this Death Spiral
Listen carefully to the messages I have in my presentations. I don’t do this stuff to exercise my jaw. I’m not a “thought leader” or an “influencer” - I’m an engineer. I’m one of the very expensive pieces of the puzzle for getting apps built, and I’ve seen folks follow this pattern over and over.
WRONG: I have a great idea for an app
Ideas are like a*holes - everyone’s got one. Until you make a business plan out of it, it’s worthless.
* Don’t use bad proxies for truth.
* Not: How good it feels, what friends say, what’s trending
* Vanity metrics such as likes or engagement
* Use metrics that include revenue from customers
* In return for actual value that you can explain in a second
Maybe you’re used to fake it until you make it and don’t be a naysayer type messages from every internet based scheme. Look for and listen to good business advice, not glamorous influencers.
Step one is to complete the App Startup Canvas, and make sure you have a business model. Start with the Gaddie Pitch, but don’t stop there. Fill out with your team how you are going to get revenue from customers.
WRONG: Here’s a pile of money to build it
If you throw the app build over the fence to some developer team, your app is guaranteed to fail.
If you throw the app build over the fence … your app is guaranteed to fail.
Because you have no idea where those paying customers are on that feature sea, you cannot succeed unless you are on board. That means being embedded daily in the process. Take on the role of Product Owner, research what that fully means. Or get involved in the other capacities if you have those skills.
But all of you on the founder team needs to be acting as checks and balances. No outsourcing decisions, no leaving important planning to one team member.
WRONG: When the app is finished
In that 👆I talk about how apps are not “done”.
An app is not a garden shed. The wonky course that I show above, is what happens to every app development process. It shows that you — even the best team in the world — does not know what your app is going to be.
Iterating towards it with care, avoiding high cash burn mistakes, is the only way to find those paying customer sweet spots.
WRONG: We’ll make so much money
There was an episode of an old TV show “Married with Children” where Peg Bundy decides to go into business selling makeup. But she buys all her own stock and revenue is a fraction of the $637 she has to pay.
Peg says “I’m getting all these checks!” - and it’s easy to be seduced by concierged money. Now it’s true that a startup business is uncertainty. You need to spend money to make money sometimes. Read this article by investor Paul Graham:
* https://www.paulgraham.com/ds.html
However a business doesn’t last long like that before it sinks below the waves. If the founders are doing unsustainable things like going to shopping centres, or door-to-door then all they’re burning is their energy and time.
Burning that supply in the engine room of your ship as you blissfully power ahead based on guesswork — that is unsustainable in a bad way.
It might involve going to bricks and mortar stores with pull-up banners and printed t-shirts before the app is even working, then when you have a real app finally, actual customers want to rip it out of your hands because they know they want it.
There’s two solutions I know of for this problem:
* Sell the product and build customers before you create the app (recommended)
* Have a very very large stake, and/or patient investors.
You might need a runway of > 5 years. Atlassian needed about 10 years before it really began to pay its founders and EBITDA made sense.
How to tell if someone is a customer
In the context of your app business:
* A customer is someone who pays you.
If someone likes your page, or kicks the tires of your product in your IRL store, or asks for you to put the app on a different platform than the one you’ve chosen: they are not a customer. Promises are cheap. Smile and say “thanks for your input” then move on.
Escape “idea” death spiral traps - customer first
As I said in the canvas video you need to get paying customers first, and then get the app working to be a channel for those transactions. I previously talked in my video canvas about Brian “inventing Facebook” - so start there.
Apps are a channel. Get customers, then build the app for them.
Look at AirBnb and other apps where customer money figured in the early stages. They sold breakfast cereals. They also scoured other platforms for listings and manually concierged their first sales with customers.
If you have another type of app, the principle still applies. A chat app, mobile game or music player all needs to have customers before you build.
An MVP is this:
* The simplest thing that could possibly work
If they can do what you’re proposing with it (via a bit of manual help) then it’s an MVP. Do not use MVP as an excuse to build some huge complex finished app with a list of features, saying that “Oh, no-one will use the app unless we do all of these things!”
Chat app? Example
Here’s a worked example for you. Let’s say you want to build an app startup around a chat play because you have something unique. You’re going to use AI.
Embed someone else’s chat solution in a static page and mock up the UX you think will differentiate your app. Set it up on an iPad.
Show people in the city - ask if they will give their email address to get on the alpha of the app (even though its not known what it is yet) - and if they say yes, collect it.
Show them the premium upsell you plan and ask “Would you pay $10 for this premium app membership RIGHT NOW?”
People will say “Yes” to you one-on-one, and even give you an email address. But if you cannot convince anyone to pay for it, why is it going to be any different with an app? An app is harder to sell through than one-on-one in the street.
Summary
* An idea is nothing.
* Make an app startup canvas or business plan
* Then a mockup and sell it to customers.
* Plans will go off course.
* Either have supplies for the long haul, or
* Exercise great care to resist expensive course corrections
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