When I first set out to start my own app business, I figured it would require a few basic things: a business plan, developers, an alpha version, and then lots of angel and/or VC money to make it all come together. But, this week has really made me realize that I was very wrong. Let’s take a look the “why” for each area.
- Biz plan: In my years in the Bay Area, I’ve come to be highly suspect of any business plan, especially the revenue projections. Moving to Hawaii and working with some non-Bay Area companies has only reinforced my belief that business plans are akin to resumes for businesses: slightly inflated at best, outright lies and fabrications at worst. Business plan financials are notoriously inflated, because unless they show a billion-dollar market opportunity, they are worthless to VCs. So, every business plan creator then fabricates that billion-dollar opportunity out of thin air (and Gartner reports). It’s one of the many dirty little secrets of startups: everyone knows that it’s a lie, but everyone just goes along with it. (In place of a biz plan, I created a simple, three-page “concept document” to pass around for feedback.)
- Developers: I wish that I could code. I wish that I could create some whiz-bang app that used your GPS coordinates to tell you the optimal inflation for your mountain bike tires, or could use a photo from my phone to tell me if that slice of bread is bad before I make toast with it. I wish that I could take all of my ideas for the next killer app and make it a reality that same evening. Sadly, I’m limited to Google’s App Inventor (yes, I’ve already created my very own “whack-a-mole” app), WordPress (you’re looking at it right now – and you’ll see a different version if you visit this page with your mobile phone), and have just been introduced to Jquery Mobile. What does that mean? Well, the combination of these three (plus others, like Mobile Roadie and this list), make it easy for anyone with some basic knowledge of code to create at least a nice alpha version of any mobile app and at best a fully functional product.
- Alpha Version: Ah, the all-important alpha version: creationism. Sure, it might not actually process credit card payments or use the stars for navigation, but it will give you the ability to give a great demo and introduce your app concept to friends, partners, and potential users/customers. Using Jquery, it took me about one day to create my first mobile web app – mostly functional! I made a “Call Now” button fire off the phone’s dialer. I used coordinates to create a “Map It” button that opens Google Maps’ navigation tool. And, it all looks pretty darn nice, if I must say. That’s amazing, and significantly delayed my need to pay real money to real developers. Sure, I’ll need great developers very soon, but it’s amazing what can be accomplished easily and free these days.
- VC mondy: How much have I spent so far? Well, not counting my own time and Starbucks purchases, I’ve pretty much spent zero dollars and have a “real” version of my concept app that I can show to everyone. It doesn’t cover the full breadth of my concept, but it gets the point across and does it much better than me saying, over and over, “Imagine if you had this on your mobile phone…” Now, I can show them what I mean, and get exponentially more valuable feedback, ideas, and direction.
So, why do I even need VC money? Last fall, I watched this video by Jason Fried. One of his points that resonated with me was around taking outside investment: once you take that money, you’re focused on spending it, not on actually making money. It was a great point, and I’ve seen that happen countless times in Bay Area startups. Get $X million, spend it like you’re already making millions in revenue, then scramble for your next round of funding when you realize that you aren’t pulling in the revenue for which you set expectations in your business plan (see #1 above). I also recently met with a friend who has had success in numerous startups, large and small. When I mentioned looking for some angel funding, he was almost offended. Why would I want that false sense of security, he asked. Why would I plow money into development, or marketing, that wouldn’t be sustainable after the money ran out? Why would I take seed money at a fictitious valuation, which then requires a valuation increase for Series A, which then requires an inflated valuation for Series B, and so on? Why would I want to dilute my potential? (Of course, I can see many reasons to actually take outside investment, like the expertise provided by the advisors, to enter new markets, or to expand a proven model.)
In the few short weeks that I’ve been at this, I’ve talked with a bunch of developers (CA, HI, Mexico, and India), a few VCs, and a ton of friends and colleagues. While 100% of the feedback has been valuable, only about half of it has been positive. In most cases, I tend to agree when they point out flaws, challenges, and competing products. It helps me to hone my pitch and focus my concept. It makes me better at what I’m doing, gives me a thousand more ideas, and helps me to really figure out how to make this work.
Yeah, I’ll probably need VC money to make this work. But, I’ll never get tired of reading the stories about successful entrepreneurs recounting the dozens and dozens of people who told them, “That’ll never work.” On the VC side, I just hope I don’t have to plow through 298 more rejections before I reach the level of Pandora…