HOW TO LAUNCH A TECH STARTUP IN 2016
Part 3: Understanding The Responsive Business Model
In the olden days (before the 21st century), the general foundation of business methodology didn’t change all that much. The general business development process generally went something like this: you had an idea, you convinced someone (oftentimes yourself, or friends & family) to fund it, you spent the time and money to develop it, and then, finally, you presented your product or service to the world. Then you spent even more money on advertising, so that everyone would know how much they needed your awesome product or service. Sounds great, right? Of course, in this old-school business model, it was accepted as “normal” that 9 out of 10 new businesses would fail within their first few years.
More recently, however, a new business model has been emerging out of the burgeoning internet economy. As the world wide web continues to mature, we (as a global civilization) have been gaining more and more instantaneous access to data. This has given us the ability to test our business ideas much more powerfully and quickly than has ever been possible before, and thus create businesses that are directly responsive to the needs of the market. New responsive business philosophies, such as that of the “Lean Startup” and the “Growth Hacker” have begun to spring up over the past few years, and have completely revolutionized the way that people do business.
One might say that old-school businesses were like monologues (fully developing an idea and then presenting it, on a silver platter, to the consumer), while new-school “responsive” businesses are more like dialogues (developing ideas through conversation with consumers).
Old-school businessmen tended to “talk at” consumers rather than talking to them. “I have a good product/service; you need this, and you should buy it.” These businesses tended to start with an idea; a founder would convince investors that it was a good idea, the investors would fund the idea, the then, after years of development, the idea would manifest as a product or service. The product or service would then be presented to the market, and consumers would either accept the idea (by spending money to purchase the product or service), or reject it (by ignoring the product or service and saving their money for other things). This “monologue model” led to a huge amount of wasted resources and failure over the past few centuries of economic history.
The new “responsive” school of business, on the other hand, is more like a conversation between creator and consumer. “Would you like me to make this for you? No? What would you like me to make instead? Is this better?” Instead of spending years developing an idea before anxiously presenting it to the market, ideas are presented directly to the market, as soon as possible, in order to get instant feedback. Do consumers like the idea, or not? Instead of trying to answer this question through intuition and guesswork, as founders and investors had done in the past, founders of new-school startups get concrete answers, right away, from the consumers themselves. Based on these concrete answers, startup founders are able to make well-informed decisions; sometimes scrapping an entire business idea completely, sometimes changing direction slightly, and sometimes pushing forward with the confidence (and the funding) that comes from knowing (rather than simply hoping) that the market is there.
This kind of responsive, dialogue-based business model applies especially to internet-based tech startups. While it may be difficult to have a responsive dialogue about a new invention in biochemistry or aeronautical engineering without fully developing the product first, it is easy to test users’ responses to products and services launched through the internet. The data is right there, in real time, in the form of page views, downloads, purchases, etc. This data can be used to steer the company on a daily basis
If you’re planning to launch a tech startup, you’ll want to learn as much as you can about these new responsive business methodologies. In particular, you might want to read up on the following concepts, which we will be diving into in more detail in next week’s article, “Launching Your Startup With a Minimum Viable Product.”
Go back to Part 1: Is This a Billion Dollar Idea?
Go back to Part 2: Do I Have What It Takes to Launch a Successful Startup?