3 Digital Start-up Business Mistakes to Avoid

www keysDigital business (previously called Internet businesses) are still all the rage and therefore the majority of new start-up business plans are digital business plans.

In some ways this is good – as it is a fast growing sector with very high levels of innovation (and failure rates). On the other hand, it means that we see the same errors of strategic business thinking repeated again and again.

So, to help out, I’ve laid out the three key mistakes that I’ve seen after 11 years working in digital innovation.

You may have some of your own – so please feel free to contribute.

1.) 1 in 100 Chinese customers

Many business plans start with this fallacy. They begin with the population of the world, or a country or a business sector and then say – ‘if we could only get 1% of that market’ then we’d have a business worth £x million.

Of course, this is designed to make ‘1% of that market’ sound tiny. But this is because you are working top down.

Take China for instance. The population is 1.3bn people. Okay, so 1% is 13 million. Is that a lot? Well, it is greater than the population of London. It is around half the UK’s working population. 13 million is also around about the peak level of TV viewing in the UK of the England vs Slovenia world cup football game.

So, when a start-up business begins with a huge numbers and asks if you could take just a tiny part of it – 1% say – they are making the mistake of working from the top down.

Instead, it is better to ask, what does it cost to gain a single customer? From which you can then ask what it would cost to reach 13 million viewers – well advertise around a major England football match – but to win 13million customers is going to require constant marketing and conversions of leads from your advertising. To give you an idea, a single 30 second TV slot reaching 13 million world cup fans would cost £300,000.

The error then, is to work from the top down. Begin, always, with what does it cost to acquire 1 customer? And then argue whey you customer acquisition costs will reduce as you gain size and momentum.

2.) If I build it – they will come

This is the Google error. Okay, okay, Google had one massive success – the search engine – and ever since, every product has failed to deliver or failed to dominate its market in the way that you’d expect the Internet giant to do, given their brand reputation and quality of engineering.

Take a look at this great article about why Google projects fail – and you’ll find that it is because Google does not do marketing. Amazing really, as their income is entirely dependent on classified advertising that they themselves don’t do marketing.

Apart from one success, Google has delivered many greatly engineered products – but doesn’t lead the market in any of them.

That is because Google still believes that if they build it – the customers will come. Well, that simply isn’t true for anything but the most ground breaking of products (such as search). All the other products are great – and could be excellent if they included marketing.

So, why don’t business start-up entrepreneurs include the marketing? Well, simple – because the costs are huge! And, if fully costed, probably make the idea untenable.

Therefore, the successful entrepreneur has two options – reject the business idea – or do it anyway, but use stealth marketing. That is use the new (and therefore) cheaper channels – such as PR or social media or digital marketing – using freelance contracts. But you do need to be very good at this.

Either way, for consumer products, marketing will be 50 to 60% of your costs (okay, this may include commissions to 3 parties) and for industrial products, this might drop to 15 or 20%.

Nevertheless, fail to include enough marketing spend, and unless you have an utterly amazing product, you’ll end a failure.

3.) I haven’t built anything, haven’t done anything but if you give me lots of money, this will all change.

You may laugh, but this is the most common mistake.

Often it comes from someone who is thinking in a corporate way – ie. build the plan and then persuade – rather than an entrepreneurial way – ie. let’s have a go and see what happens / we learn (but without spending too much money or time.

The difference is massive.

One the one hand, you have a highly practical ‘go out and make it happen’ approach – which whilst it will be messy, will actually deliver some results. And those results – either good or bad – can be used to devise the next step in the business strategy.

On the other hand, you have a planner who shows no sign of being able to implement something on a tight budget.

Now, no matter how much cash you raise – your budget will always be tight in an entrepreneurial start-up business. In fact, if you can’t run a tight business, you shouldn’t set yourself up as an entrepreneur.

So, the reason that so many business plans don’t get cash – is because they don’t get started. Investors and business angels want to speak to your customers to see if you are any good. If you don’t have customers – there is no one to speak too – and the risk level on your business idea goes through the roof and the investment cash stays in the pocket.

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What do you believe are the biggest start-up mistakes? Let us know by adding your comments below….

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by Editor

Leader. Speaker. Trainer. Helping snr execs and entrepreneurs achieve their business and funding goals.

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6 Responses to “3 Digital Start-up Business Mistakes to Avoid”

  1. Lou Gaskin says:

    Hi

    I think number 2 hits the spot. In this day and age there is an overwhelming amount of evidence to state you will not be found if you don’t put the effort in to point people to where you are.

    I think another business start-up mistake is not selling why you are different to your competitors. So you could be a hairdresser but why are you better than the hairdresser down the road or you could be selling organic cosmetics but why is the products you sell than the leading online stores. It’s about questioning what you can offer above and beyond your competitors, if you can’t think of one benefit you have over others in your niche market, than don’t start-up until you get one.

  2. by Editor says:

    Good point Lou – I guess the key to marketing is to a) identify the difference (or redesign your product until you have one) and b) shouting it from the roof tops! And then c) using customer feedback to review a) and then adapt b)…

    I reckon many non-marketers forget that marketing looks outside to customers and prospects but also looks inside to change the product and services too…

    And yes, both of these cost money and need to be in the cost plan.

    Br
    Neil

  3. Tuval says:

    First – regarding Google – it is kind of weird – at Google you have Nikesh Arora at the helm of Sales and Biz Dev. He is a master Marketeer – so what is going on here?

    Secondly – I completely agree with the 2nd Item – But can we further develop it? for me this means the marketing approach needs to be directly linked to the product or business unique properties and qualities.

  4. […] This post was mentioned on Twitter by Joanna Kinch, Neil Lewis. Neil Lewis said: 3 classic mistakes that digital start-up businesses make. Do you have any favourite errors that you want to share? http://lnkd.in/z4Ppp5 […]

  5. Oli Rhys says:

    Brilliant article! – The worst thing for me is when I point out these issues to people, they complain I am being negative! 😉

    The one other thing I would suggest is ignoring the working capital. A business is started on a shoesrting, and they have enough money to last a few months. By the time they have worked out what aspects of their business will work, and what doesn’t, they have run out of money.

    Related to this is the daft idea that hosting costs are static regardless of customers. If you have a hosting package for £20 a month, do you have enough bandwidth to service, not only the customers your planning to get, but also all the other visitors who have no intention of buying your service? The 1% rule kicks in here, and it goes over the heads to too many startups!

  6. by Editor says:

    Hi Oli – I really get that conundrum – if you point out issues, then you get told that you are being negative!

    People just don’t like being told that their idea needs more work – but the reality is that all ideas need more work and the more you expose the idea and the more issues you can address the greater the chances of success.

    I’m reminded of the same issue in the investment world where 1 dollar/ pound lost is twice as painful as 1 dollar/ pound gained.

    This is why it is more likely (but more painful) that you’ll make money betting against what most people do – because the investment decisions remain emotional.

    The same is true of business. Once we’re into our idea – we find it really hard to let go …

    … hence developing that skill early on is pretty crucial and is one of the reasons why making mistakes is so important – it teaches us that we are not omnipotent!

    br
    Neil

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