School taught you an outdated way to start a business in the digital age.

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You've learnt the wrong way to start a business in the digital age.

At a business school, whether that's high school or university, we have been taught a very traditional way to start businesses.

I want to let you know that these traditional methods are outdated and don’t work.

Generally how we start is we come up with an idea or a concept. Once we have gotten an understanding of that idea or concept, the first thing we have always been asked to do is write a business plan. This plan covers a little bit more detail around our marketing strategy, the customers, the product, competitors, and so on.

After that, you’re supposed to seek funding. Generally, this is anyone who'd like to give you money, usually it’s friends, family, the bank or any fool with some spare change.

When you've received funding, you then look at hiring the right team from sales, marketing and product development.

Then you create the product which you then put out into the market to see what happens.This approach is very much built the product first, then check whether it sells later. This is a very outdated approach and doesn't necessarily work any more. 

 This approach is very much a  “build the product first, then check whether it sells later” method. It’s a very outdated approach and doesn't necessarily work any more.

I've prepared two examples for you to show you why you shouldn't follow this process.

Let's have a look at Segway.

segway - selfstarters

Segway's vision was to revolutionise city traffic flow with it's product that takes you from A to B quite quickly on an electric engine. So why did a company like Segway fail?

Number one, negative satisfaction of customers was prime. You can charge it for eight to 10 hours and get about 16 to 39 kilometres out of each use. Each Segway sold between five to 7,000 US dollars which put it in the competitive market space of scooters, small cars, and alternative public transport. This is one of the key reasons why Segway failed. The price put it at an immediate disadvantage.

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Another reason why Segway was not the most successful and widely adopted is that consumers had hesitance in utilising this new technology. A further hindrance around the adoption for Segway was the uncertainty around its use. Each country and state has different regulations around where you can drive them, whether it's a footpath instrument or a vehicle for the road.


So the lessons we can take away from Segway is don't just focus on the product, but really have a look at the wider environment. Understand your competitive landscape, understand your market and have a closer look at your customers. Some of these aspects are covered in your business plan but HOW users respond is not.

This is the tricky part that Market validation tries to figure out. That is whether people will actually use your product.  


 

 

Let's visit another case. 

The Iridium Satellite phone is a fantastic example of build first, check later. A very traditional way. Iridium was a '90s company focusing on making telecommunication available worldwide to anyone. The company spent $5 billion USD, sending 66 satellites into space and developing the infrastructure it needed for a great business.

Having a great product and a strategy does not necessarily set you up for success. Iridium itself forecast 500,000 subscribers for year two. Its initial adoption into the market was less than 10,000 subscribers for its product. In 1999, Iridium filed for bankruptcy failing to pay back $1.5 billion worth of debt. Part of that again is that the factor of price and competitors as well as timing in the market.

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The price of an Iridium satellite phone was $3,000 after which you would have to pay $5 per minute of phone calls. That was not the only issue. It was not just the price, but the competitive landscape was changing. This is around the same time as mobile networks, and cellular networks became more commonplace. You could buy a mobile phone and have a significantly reduced telecommunication bill at the end of the month. Regarding user experience, it also had some flaws with it.

If you think about using a satellite phone, often you had to get out of the building as satellite frequencies could not penetrate the building structure. Another thing was moving objects. If you were in a car, a boat, a helicopter, a plane, you struggled to get satellite signals and were unable to use its services.

 

Learning

After having looked at traditional ways of starting a business, and taking into account the two case studies of Segway and Iridium, you cannot just build products and put them out into the market any more. Consumers are overwhelmed with choices and have become pickier to compensate. You need to build something that is compelling and you need to figure out what makes it compelling before you build it.

Customer experience is needed at every single step of the way. Pricing is essential as new competitors arrive all the time. You don't need to focus on the product but the customers themselves. Starting with the product has a higher chance of failure.