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Wednesday, October 10, 2007

When No is good

Failing Fast It's a good thing
The only thing better than a "Yes" is a quick "NO". When you are raising money, selling a customer, or trying to get a deal done, it is the long drawn out process that never ends that will kill you. It is the same thing with startups. Being successful is always the goal, but if it is going to fail...Fail fast.

The traditional model - When I first got involved in the startup world the typical path was to raise several rounds of VC money, take two or three years to develop a product, then raise more money to hire an enterprise sales force and go to market. Sales cycles were typically 9 to 18 months. It could be 5 years before you really knew if the company had a good chance of success.

Today a product can be built in a few weeks or months. Development tools are powerful, easy to use, and cheap. Infrastructure for hosting, storage, and bandwidth are inexpensive, scalable, reliable, and secure. Ten or fifteen years ago each startup built their own infrastructure at a cost of millions of dollars.

Who needs an enterprise sales force? Today you can get directly to your customers on the Internet. There are ready built e-commerce systems that can handle sales, credit cards, fulfillment, and shipping.

The advertising revenue model has created a whole new class of businesses that don't need a sales force. The product or service is free. No customer acquisition cost. The revenues come from advertising and sponsorships.

Double Down or Fold? - All of this amazing technology and infrastructure doesn't guarantee success. Far from it. As Paul Graham says in his post "The Future of Web Startups"

If it gets easier to start a startup, it's easier for competitors too. That doesn't erase the advantage of increased cheapness, however. You're not all playing a zero-sum game. There's not some fixed number of startups that can succeed, regardless of how many are started.

There are more startups than ever before, and more competition. However, the good thing is you will know pretty quickly if your product idea is hot or not. You can get a beta product launched and start getting user feedback within a few months. To use a poker analogy, you can decide very early whether to "double down" or fold.

OK, I have 400,000 users, now what? You might remember a story I did about "Where I've Been", the Facebook App that grew incredibly fast. Lots of users but no business model or revenues. They actually figured it out and are now generating revenues.

Yes doesn't guarantee success, but No avoids wasting time. - So getting to a quick NO is good. Getting user feedback early and often allows you to dump bad ideas early and redeploy onto another better idea. Yes can mean lots of users, but you still need to solve the business/revenue model before declaring victory.

So, next time you get a quick NO, just say thank you, and move on to the next customer, the next deal, or the next idea.

By Don Dodge

He is a veteran of five start-ups including Forte Software, AltaVista, Napster, Bowstreet, and Groove Networks. Don is currently Director of Business Development for Microsoft's Emerging Business Team. The goal is to help VC's and start-ups be successful with Microsoft, and together, provide great products for our customers. He writes a daily blog, Don Dodge on the Next Big Thing.


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