It takes three years to build a business
jacquesmattheij.com
jacquesmattheij.com
My own experience this seems likely too, I started my own startup about 6 months ago,( solo founder, I'm doing it all myself) and extrapolating my current customer base, and success rate, I think I will break even and then continue to grow organically at the 1.5 year mark.
On a side note here's some stats to keep you new founders going (just a little positive news to add to the mix):
- I'm a solo founder, you can do it too! It's less common, but I have determination like you wouldn't believe, I am up every morning at 4am to go for a run before I put in 3 hours of coding before leaving for my day job.
- I have invested about 500 pounds so far for the cost of the domain and hosting, that's my total expenditure (excluding my time coding it) I have made about 7000 pounds so far, in the last few months with my first customers etc.
- I consider my 'break even' part, to be when I can pay myself a 50,000 pound a year salary and can live comfortably , I think this will be about the 1.5 year mark as stated above.
Keep going all you solo founders, you can do it!
Evenings are for time off with my partner, we play ps3 together and generally relax ... I also spend the evenings reviewing my own code / doing administration and billing and other non brain intensive things ... makes for a good work/life balance
Can I ask, was it hard building your application 3 hours at a time? I lived off savings for about 6 months and worked full time, then after the hard parts were done I transitioned into the arrangement above. Even now I get a little frustrated as I just get into the swing of things, then I need to leave for work !
Thanks for posting by the way. I think more people need encouragement that while incubators are great, you don't need necessarily need them to be successful.
I do usually have to set aside a couple hours for family time. I used to bring my laptop and try to get something done, but it wasn't enough benefit to deal with the added stress while trying to enjoy family time.
So that's my advice:
* Do something to clear your mind and give you energy before you work on a side project/job
* Be realistic about when you can get things done - "you don't need more hours, you need smarter hours" ~ Rework
That is a great tip. I am struggling with coding in the evenings and on busy weekends. My day job is less demanding coding wise, but by the evening I don't have the energy to code more.
I hate running and exercise in general, but I promised myself I would do anything to get my company going, and anything includes things I dont want to do, so I force myself :)
Bonus points: Since I started running 6 or so months ago I have lost 28kg!
I usually break up the day with the run. The great thing about being an iPhone developer is so easy to break even. In my first 2 weeks I broke even, it helped getting a mac for work. I continued to work for the next 15 months, until I had some savings, and was sure I could survive if things turned bad for a while.
My customers are usually start as friends / acquaintances / random business people I meet, then spreads through word of mouth.
Sorry if it's vague, let me be give my most recent example (The sales prediction software). I have a friend who is a manager of a small supermarket chain in New Zealand, I ask virtually every business owner I meet (anyone anywhere, including random people I meet on the train), a list of questions, one of which is "What is the biggest problem in your business at the moment" ... he said "Inventory Management". We got talking about his purchasing process, how he orders, what determines the levels he orders, all those sorts of things. I tell them to treat me like an idiot, this gets us to the root cause of the problem faster and also builds a good dynamic if I 'admit' I'm dumb ... I become less intimidating.
I then build MVP, iterate rapidly based on their feedback. MVP (v2) is always quite different to MVP (which is why I dont spend a lot of time on MVP)
Quickly my supermarket buddy is talking to his supermarket buddies saying "you have to use this software" ... so I make my customers do the selling for me. Kind of cheeky I know, but hey, it works.
I'm by no means a pro ... I have build a good 20 other projects that have all failed miserably. But leant from them all, and as I said in an earlier post, I have the sheer bloody minded determination that means failure can punch me right in the face and I will always get up again (haha)
Asking people what their biggest problem is sounds like a good idea! I should do that too.
Have you tried telephone sales, by the way?
Some projects are: Optimal restaurant placement in large cities (based on demand and existing restaurants)
Prediction of mechanical failures in industrial systems (sorry I cant be more specific on this point) .. basically I predict mechanical failures based on MASSIVE amounts of sensor data so a technician can perform preventative maintenance on the equipment. This gives my client a huge competitive advantage because their equipment appears to never break down.
I wrote a sales prediction software for a large food company in Australia that predicts sales based on some important external factors (cant specifically mention them) but it gives them much better inventory management.
If you ever want to bounce ideas off someone, I'd be happy to talk.
People might even consider doing business with you, but nobody wants to be 'first' for fear of being burned.
This can also work in your favor...
It's rare, but sometimes you can find someone who does want to be your first customer. When this happens, it's solid gold and one of your fastest shortcuts. Others call them "champions"; I prefer "sugar daddies".
I have had this happen several times with great success. This is how it usually worked...
Sometimes they knew me, but sometimes I was introduced. In every case, they were desperately looking for something they couldn't find, sometimes for years. They would say, "If you could build this, you'd be my hero." (or something like that). They have offered me office space, access to their people and systems, and often an advance because it was in everyone's best interest that I'd succeed. Sometimes, but not always, they wanted equity. And all of them had peers with similar problems, so Prospects 2 thru x were already lined up.
We should all be building stuff people want. When you find one of them with their checkbook open, take a good hard look. It doesn't happen often, but when it does, it can save you a lot of runway.
BTW: the 3-year rule-of-thumb rings true for me too: a year to get the first customer (putting it out there and improving it for a year); a year to refine it/build the customer list; a year to make money hand-over-fist. (Unfortunately, by then I also got competitors, and worse, I also got bored.)
I think that if you wrote an article detailing your experiences and what you learned/inferred from the experiences, that it could be quite a popular article.
It is basic economics, "build stuff people want", and every time I think about things that I should do for money, I think I should be an auto mechanic, because lots of people have cars that need being fixed (or plumber, or other slightly-skilled-but-not-everyone-does-that-but-everyone-needs-that type profession). While logic may take me there, I am not sure if that is the best way for me to go and while it isn't a glamorous "build the next facebook"-type starting business, it is not even a "build something no one else has" type business.
Thanks,
http://edweissman.com/53640595
The pawn shop guy, the employer of the friend I met for lunch, and the stranger I met at an industry dinner all turned out to be sugar daddies.
That is the situation I am in. I have developed solutions to problems for the US's 4th largest company in a space with hundreds of other competitors. I own the technology but they would certainly take a dim view of me selling it to their competitors - and stop using me thus cutting off my only source of income.
Any ideas how to capitalize on what I have developed?
Started as a consulting company. Made one-off web apps for businesses in a particular industry. Realized a pattern in what these businesses wanted. Built a generic web app product. Sold the product to (and migrated) the old customers. Flourished as a product business.
You could make them a partner so that they can make a little extra money selling the clever solution they conceived, but that's really hard to do at the enterprise level. That works much better with a small business alpha male owner.
Some of the things to consider when taking your sugar daddy's solution to market:
Are they enterprise? If so, this probably isn't worth the trouble. Too much red tape and illogical thinking.
Does the solution provide them with a distinctive advantage over their competitors? If so, it only makes sense that they'd want to keep it for themselves. If not, they may gain favors among their peers by sharing it.
Is is a horizontal solution? Then there's really not much of a competitive threat by sharing it.
How opportunistic are they? Some people want to be sugar daddies because they're jealous of our IT margins. They can make as much sharing their technology as they do in their primary business.
Does wider use of the technology help their primary business? Some solutions become geometrically more effective if your trading partners are using them too.
But, don't forget with enterprise customers you can offer to sell the company to them. 2-20 million for a long term strategic advantage plus your proven track record can be seen as net win for everyone. And if negotiations break down they are less likely to think they already own you.
I would be cautious of any sort of long term profit sharing, but offering to share a few years revenue from any 'connections' made in the industry can offset the feeling you are burning them by sharing the secret sauce.
http://viniciusvacanti.com/2011/09/12/the-long-grind-before-...
However, how does this fit into the "fail often, fail quickly" advice I have seen so often in this forum? Does quickly mean 3 years? Just a thought...
Welton's rule: for each bit of trite business advice, there is an equal and opposite bit of trite business advice.
In fact, fail often fail quickly, if done effectively, will lessen the number of years to break even (IMO).
> Three years. Sometimes a bit less, sometimes a bit more.
3 years is pretty quick in terms of success, in terms of failure it is an eternity. It all depends on what you perceive the trend to be. If the trend 'flatlines' then you can draw a negative conclusion much earlier. After a year or less you can probably predict quite accurately what the future will look like.
Three years is pretty quick on the scale of a viable business.
In the early days, it is an eternity in terms of strategy when that strategy is failing.
In other words, three years may be an appropriate timeline in which to view overall sunk costs, but that doesn't mean that the business shouldn't be prepared to pivot several times within that period.
I recently posted my companies revenue chart over the last 8 years, and if you'll notice in the first 3 years even if there was growth (year 3 was almost double year 1), it still took a while to really get some good growth: http://www.followsteph.com/2011/08/23/landlordmax-2010-best-...
I'd say if you can do it in less than 3 years, that's amazing. Trying to do it in 6 months is unrealistic, you'd need way too much luck to achieve that.
The good news, as you can see from my revenue graph, is that once you get momentum behind you, it makes all the difference. After some time you learn what works and what doesn't, you start to get systems in place, you have a network of customers, and so on.
Btw, 6 months is barely enough time to even just do split testing on a website, nevermind trying to implement what you find and test it again. Any marketing effort takes at least a few months to really get the hang of.
I salute you for being brave enough to share your failure, that's a major step. As someone else said, you will most likely succeed in the future because you can see and admit your mistakes. But please do expect it to take more time. I agree that 3 years is a pretty standard timeframe to get a business going...
My cofounder and I quit our jobs and had "12" months saved up according to our plan. 9 months in, and no revenue yet, we found ourselves with no runway left, and needed to get contracting jobs on the side. As Jacques mentions, when you take this approach, a lot of your "good time is spoken for".
I joined another person on a startup about six months ago. We have one client and it might start expanding, but then again, we are two months past our expected initial launch and at our current rate we won't be launching until January. He has been getting more excited, but I have been getting less excited. I'm pretty sure I want to pull out because our delays seem to mostly be due to poor management by him (it was his project and is his baby) and I don't really trust it in the long run, however there are some other factors. I see our growth plateauing when he runs out of friends who he can convince to pay us, and I am not enjoying working with him.
I get frustrated when people seem to be saying I should just stick it out. Am I just a wimp who is fleeing at the first sign of trouble? Am I just getting jitters about the amount of investment? Or am I wisely investing my time in other activities that will grow my career in other ways? I don't want to invest three years of my life if the warning signs are all there.
I think my saving grace may be that we haven't formally set up a vesting strategy, so I could exit full participation and become an early investor instead. Our lack of paperwork is another one of the warning signs.
I pointed a goal, and I realized that my mental abilities can get me there. Since there are people who did it, why can't I?
I started in my dorm room, living with my family, and having no income for more than 2 years. Well, I knew little about programming at that time, so it's fair that it took me lot of time.
Now things started to move, I'm renting my own flat, purchasing my own Laptops, screens, hardward... I have one full year of savings, so I'm going to work on projects of my own.
TL;DR: Don't give up. You'll get there. Don't worry. Make sure you don't get broke and you have enough savings. Leave your job or plan to. Be Happy.
(Anyone has an idea how to have a good GF? I failed in this)
When I quit my job in big services firm, I went for advice before moving out & also to say goodbye to one of the vice-presidents (who had run his own start-up which was eventually acquired by this big services company).
His specific message to me was: make sure you have enough money to last 3 years and make sure all your partners will also be able to stick together for 3 yrs. Because anywhere between 2 to 3 yrs is the inflection point when people are forced to quit due to whatever circumstances. If you guys can successfully see through 3 yrs I am sure you'll all figure out ways to make money with your business.
He advised me to start looking at alternate channels to generate revenue right from day one: network & find training / consulting opportunities even while you are building the product. Even one or two weeks of such work in 2 to 3 months will go a long way in sustaining the business was his advice.
In my example, we built credibility with our desired end clients by building great case studies working through channel partners. Once we had these examples under our belt, bigger companies were more likely to trust us. Plus, the channel partner acts as your sales rep until you can get your own sales funnel working in-house.
However, I don't recommend this forever, as selling through a channel has its own set of challenges (e.g., lack of pricing controls, inability to sell into the account without approvals, potential for the channel to copy your product/approach, inability to control the client relationship, etc.).
So I'd normally never consider starting a business because of this long ramp-up time, but the "gold rush" of mobile apps is still very appealing. It seems quite easy to ramp up quickly there. I know a lot of apps linger in obscurity but I think I understand social / viral marketing well enough to do some decent app launches. I don't need a big exit, just enough to support a family.
What I can't shake is the persistant question of "why isn't everyone doing this?"
If you've really got 9 months of salary in the bank, risk 3 of it trying to build something yourself. If you can get some revenue in the 3 months, maybe rethink looking for another job. If not, focus more on getting a stable income. If you're making revenue off your own deal, those 9 months of salary might last longer, giving you more runway to build the business.
The, "why isn't everyone doing this" is because there's risk and it takes real dedication and skill. You will most likely fail. Those 9 months of salary in the bank make failing less daunting. Go for it!
The original guy he's talking about was just freelancing. I'm a freelancer and I made money from day one. A friend of mine quit his job 2 months back. Again, made money from day one. Difference between us and the guy in the story? We had contacts and relationships already built from working a few years.
What I'm saying is that most of this article is way off the mark for freelancing, you won't lose money the first year as long as:
1. You know how to network and get business
2. See 1
I'm not even very good at it and I still make money.
Also my old company's MD loved recounting how they were profitable within 8 months. The way they did this as a software vendor was to land a big juicy enterprise contract and get paid 30% up front. Just as a counterpoint to the 3 years thing.
There are plenty of businesses you can found which can make money very quickly. It all depends on whether that's the company you want to build, larger vision, longer lag.
Yeah, a thing about that is, it's hard to have those contacts and relationships in place when you're 20. A few people manage it, but most build up those networks over a period of years.
Another thing, which I didn't realize when I was 20, is that if you make contacts with a lot of 20-year-olds, when they're 30 or 40, some of them will be in a much better position to partner with you than when they were 20. The guy who was working as a manual software tester for a telecom firm at 20 may be the CTO of a startup at 30; the guy who's struggling through his CS degree at 20 may be managing a project at Oracle at 30. But he has a lot more time to get to know you when he's working at the telecom firm or struggling through CS. So even if you're a world-class connector like David Weekly or Adam Rifkin, with a Rolodex full of 1500 contacts at age 20, those contacts will be a lot more valuable for business when you're 30.
I was contacted the week I updated my LinkedIn profile to list myself as freelancing. An old friend had a husband who needed help with a big contract he had, and we ended up splitting the work fairly evenly, making good money, and creating a good site for a very large client.
I was surprised how easy it was to find contracts. In fact, I haven't had to go hunting for them yet.
I'll admit, I've been making less now than I did with my salary, but that's in a big part due to working on a startup on the side.
Also, making money and being viable is two thing. I myself am trying to survive in the world of freelance. I've been going for a few months now and I make money. But it's very little money, no where near as much as I would need to keep going full time. Is it a failure because I'm 3 months into it? Hard to say, but I don't think so yet.
The take-away point here is that you should know it might take a while to make money & don't count on it being quick.
I started making money within 1 month of quitting my day job to work on my project (product, not freelancing), and just about now (~8 months in) it's starting to look like it's making enough money to live off of in the long term (I was living on savings before that point).
Another thing to take into account is how much money you need to support you working full time.
I'm 28 without dependents & living in Vienna, so for me that sum is a paltry (relative to someone living in SF or NYC) $25k/year.
Apparently HN still reads him.
I like the underlying premise of how businesses take time to succeed. The timing varies significantly with the type of business though. For restaurants, I've often heard "5 years" as the tipping point. For certain kinds of web-based businesses, it can be shorter. And for capital-intensive businesses, perhaps much, much longer.
But basically, you need enough of a bankroll and staying power to last.
i.e. have enough realistic potential numbers to make it happen without having to rely on the hockey stick growth model. "Oh yeah this month we made $300 profit, but with hockey stick growth, we'll be making $50K in 12 months"
I was laid off a couple of years ago and used that as an opportunity to start a business.
You need to have the right balance of being hungry, which can be solved my having enough money in the bank for a year or so.
If you have too much money or are too comfortable, you'll never get your app finished, because there will always be other things you need to do (I've been there many times). If you are freaking out about making rent, you won't be able to concentrate either.
Year 1, Building the business, Year 2, Adapting the business, Year 3, Improving the business.
That's my take on it.
You may have more expertise in this, so deferring it to your good judgment. I was delimiting my stuff to the Gladwell book which attacks " mastery ".
Running a, say, engineering business, is a very different skill set than being an engineer that works in an engineering business. Many people are experts at the latter and totally clueless at the former.