The first two companies I started were product companies in the specialty food space. The plan was simple. Make a product, go to retailers, make money. Or, setup at farmer's markets and festivals and sell my little heart out. People practically handed me money. And at nearly 5x the price of nationally-branded competitors. My food company is incredibly profitable.
And My Web App is Not.
I launched Gredio into beta three weeks ago. Nearly 20 people have tried the software (for B2B, I'm psyched). And no one is paying. I haven't made a dime from it. But, I didn't start this company for the money. I'm building Gredio so other food producers like myself can effortlessly run their business. Plus, I want to build my skill set and sell what I've never sold before - a service.
Service based businesses are the hot way to build a company. But they take forever to grow, as noted in an amazing presentation by Gail Goodman, the CEO of Constant Contact. It's like doing a hill-sprint to the top of a hill, only to walk back down and start all over again. And repeat. SaaS businesses are created every day because people dream of monthly recurring revenue making them millions. And many of them are failing.
I'm not surprised.
I wanted to take this post to further examine why I'm not surprised and what it means for my own start-up. Here's what I'm thinking:
1. Recreating the Wheel Recreates Failure
Everything is a web application. There are enough online music players to make your ears bleed, there's enough project management apps to sink a ship, and email marketing software is probably the most crowded market I've ever seen. And that leads me to the first reason why your web application is going no where: You're fighting for the tiniest sliver of market share. Going after an enormous market is what everyone else has been doing. Don't recreate the wheel and go after the same market. Market specifically to a niche. And create tools only they find valuable. Ruling a niche market is a lot more attractive than keeping your head above water in a large market.
Gredio's fix: We're targeting roughly 25% of the entire food producer market. This means, our addressable market is small, however we plan to control half of it in 5-7 years.
2. You're Still on a Quest for Value
Here's the deal: Would you rather have no one pay for your app at $49.99/mo or ten people pay for your app at $29.99/mo? Coming to the realization your charging too much is hard. But, if it means more of your market adopts your product, then you have a business. Now you just have to create enough value to justify your price. Once you have enough value, you're welcome to raise prices - but only when your user perceives excess values. The team at Intercom.io has a great post on pricing for value. I've read it three times already.
It comes down to testing, lower your price, increase your price. (Yes, it can work to your advantage). You have to play around with the value-price equation. It's a funny game. What you think your product is worth is almost never what your users are willing to pay for it (in my experience). A/B test the dollar signs out of your value-price equation.
Gredio's fix: Gredio has an unjustified price because I thought we should charge from the beginning. Maybe I'm crazy. But, we're working on features users have been asking for. Then, the price will stay the same, and we'll be able to justify the value of our product. My co-founder and I set out to create an MVP (minimum viable product). Now, we're close to an MDP (minimum desirable product). Then we'll worry about pricing.
3. Your User Experience Blows
I never thought I'd get into user experience, but I've developed a little bit of an obsession. It's the glue that keeps your app together. Why? It increases new user adoption, it keeps users coming back, and well, it makes your web application easy to use. I'm no UX expert, but I know a well-designed app when I see one. When you land on a menu as confusing as Microsoft Excel, your users are bouncing. They have no idea what to do next. And don't make it so damn impossible for me to get to a point in your app where I say "Man, I love this." If I'm not there within ten minutes it's the nail in the coffin for your app. (Price is Right Horn)
Gredio's fix: When you're two people (a programmer and a marketer), a designer is like the Captain Planet of your team. I've been working with a great friend from college who freelances in UX design. We're slowly making changes to our app. As I use the application for my own food business, I'm realizing the little nuances of our interface that drive me nuts. Thankfully, my co-founder hasn't killed me yet.
Those are my quick thoughts on why I'm struggling with my new web application - and you may be, too. It's not easy. In fact, it's the hardest thing I've ever done. It takes a lot of figuring out, frustration, time, and a little bit of money. Good luck, founders. I'm right there with you.