How to start developing a software product and what is a startup?
The concept of startups is vast and includes lots of aspects. So what should you be focused on when creating a new project? What are the most common misbeliefs? What practices are well-proven? Let’s see into the matter - where to begin and how to get ready for the start.
What is a startup?
It is important to understand three basic concepts of a startup:
- Startup is a primary state of business that has no analogs. The startup’s task is to find a business model with two key qualities:
- Scalability - the possibility of growth. Such a possibility shows that the equation of demand and supply has been found. There are clients interested in your product.
- Reproducibility - a possibility to reproduce and sell the product multiple times.
A startup exists in the conditions of indeterminacy. That means that the team must be flexible, study their audience and learn through errors. The audience analysis, creation and attempts to sell the minimum viable product are some of the tools that allow the project to develop in the conditions of indeterminacy.
Startup is a complex of tasks. The founders are not busy only with the programming or technical matters. The list of tasks includes research, hypothesis creating and checking, testing, marketing, identifying the most effective ways to promote the product and communicate with users. To solve all these issues the team must consist of specialists capable of dealing with a wide variety of challenges.
First steps
Founders can define the development milestones. But the conditions of indeterminacy make it difficult to identify clearly which actions are useful right now, and which are slowing the process down. What does the client need at the moment and how to check whether you have chosen the right direction?
User research
Some founders believe that their idea is so good that clients will appear once the product is ready. But these founders should remember the importance of user research. They have hypotheses about the product’s design and what it should deliver. All hypotheses exist to be either accepted or rejected.
The main advantage of a startup over a major company is the speed of testing hypotheses.
What problem does your product solve and does this problem even exist? There are consultancies that analyze market, perform user research and define issues that users are facing. However, such services are expensive, and interviewing people is a simpler way to get this information. Get the feedback directly from potential clients.
Founders should communicate with perspective customers. It is important to have a clear understanding how they are dealing with issues right now. How much time, effort and money do they spend on it? It is crucial to learn the easiest way clients would like to solve the problem.
Do not waste your efforts and time on a product that will not be demanded.
If the interviews let you know that the problem your product should deal with simply does not exist, or it does not really bother people, stop wasting your time on that project. This product will not be demanded. If founders come across difficulties on the stage of searching for interviewees - it is a sign that selling anything to them will be an extremely tough call.
Hypotheses testing
Each startup has a central goal. To achieve it, a number of steps must be taken. Each step is a hypothesis, a stage of development. In the absence of the plan, founders might get busy with multiple mixed tasks and lean toward different directions. It is necessary to keep testing hypotheses to make sure the project is developing as it is planned. And there is a method that allows to either accept or reject a hypothesis and adjust the actions accordingly.
- You have the hypothesis. For instance, you are planning to add a new feature to your application and want to make sure that this innovation will be demanded.
- Perform the action - interview the audience to check your hypothesis’ relevance.
- Get the feedback.
- Analyze the data and make a decision.
Another important advantage of communicating with future users is that the problem is formulated and described with their own words. You will need this in the upcoming web promotion, when a laconic product presentation is an advantage.
The interview’s top priority task is not to describe your solution, but to understand how the market functions without you.
User interview methodology
Startup founders tend to waste time and efforts on solving either irrelevant problems, or the ones that do not exist. Such situations happen if the founders interview clients incorrectly and fail to get useful feedback. Learn to ask the right questions to avoid this.
The question “Would you buy or product” is a great example of what you should not ask. A polite user might want to cheer you up and will sugarcoat the truth, while a potential client who is having a bad day can say that the product will never be interesting to anyone.
You need to get only the facts from your clients. “What product did you use last time to solve the problem? How much time did you spend on this?”
Obtain the facts about what and how users did. Hypothetic situations are of no use.
Use the hypotheses that can be accepted or rejected as the basis for your questions. Such an approach helps to avoid wasting time. Focus on effective questions.
Minimum viable product
One of the most popular developers’ misbeliefs resides in a desire to present the finished and ideal solution. The concept of minimum viable product has proven to work well in the conditions of indeterminacy. The point is to create a product’s version that is not resource-consuming, but capable of solving one primary problem. It allows to use the solution right away. It is not ideal yet, but it works.
It is better to provide clients with a raw product with limited functionality than to make them wait for the final version for months.
Users should understand that your product, despite its current incompleteness, can solve their problem. Also the MVP concept allows to implement timely edits and evade misspending resources on an unclaimed product. You know you are on the right track if customers are ready to pay for the MVP version.
Customer segmentation
Once the clients get their hands on your solution, the next stage of analysis begins. Many founders made the mistake of estimating the overall data, whether it was the revenue metrics or the number of users. Such a method is not critical in the beginning, because the project achieves the intermediate objective of getting the first clients. But then you must systemize the flow. If your clients are wealthy, they will probably not have many questions about paying some extra money for new features. But chances are that students will. For young people the increased cost can be crucial, and they can reconsider their wish to keep using your application.
Evaluate the data per each client group. Different groups require specific approaches.
Project team and investors
With reference to the IT-specific startups the idea of getting experienced developers to your team makes perfect sense. However, it is way more important to create a versatile team that will be able to work effectively in the startup environment.
The one-man-army-specialists are valuable in the early days. Perhaps, you will launch the project with the three-person team, but each member will be able to deal with any kind of task. When the project leaves the startup stage behind and becomes a full-scale business, you can hire a person with the required qualifications for each process.
In the beginning your team should be versatile, and it is the internal parts of the company that must be the most agile. Do not count on outsourcing too much.
The team both creates a product and represents the company to the investors. Venture funds are specialized in working with heightened risks, and they inspect not only the project’s idea and the number of paying customers, but also the team’s skills set. If everything works out, the investors buy a share of your company. Now the founders must realize that the responsibility for the project is shared between the stockholders. You earn or lose together.
Worth of the product
You love your project. You see clearly how good and useful it is. But does the world know about this? You solution can have great features, but you must be able to tell people about them. Many founders are sure that they will get clients only because they have created the product.
Sometimes clients do not even try to find a solution after they have faced a problem. They are okay about it. Others tried to search for a solution, but abandoned this idea and could not get the appropriate tool. Some are already using your competitor’s solution.
It is not enough to create a product. It is important to tell your clients about its worth.
Make sure you are equipped with the worth formula of the offer:
- Clients A in situation B can solve the problem C with the help of the solution D and benefit from the worth E.
The worth that is well defined controls the price. The selling of the product that lacks visible worth can hardly be scaled. The price should be attractive in regard to the current solution’s value. And do not forget to take into account the efforts for the transition to your solution.
- Price = ((current solution’s value + transition efforts) - your expenses) * X
X depends on the number of competitors and can be in the range of 0,1 and 1. If you do not have direct competitors and the transition efforts are low, X can be up to 0,99.
Startup management
Working cycle
One the misbeliefs comes from the attempt to work out a plan without paying attention to the conditions of indeterminacy. The methods that fit classical business models are not suitable for startups. It is extremely important for founders to understand that changes are inevitable, they are part of the game. In real-world contexts the startup is built on the cycle of hypotheses testing, creating the minimum viable product version, and constant analysis of the current situation. This cycle lets you escape major planning mistakes.
The ability to adapt to changes is a distinctive feature of startups.
We can compare a startup with driving. You start the journey from point A to point B, and you are able to modify the route as many times as the situation demands. If the feedback proves that the company has chosen the wrong direction, it is high time to change it. So, you change the strategy, create a new hypothesis, and check it. The key here is to enrich your experience. Major companies are less flexible, their actions are more like a space shuttle launch. They have to calculate everything at once.
Promotion and economic modelling
The product’s promotion is as important as its creation. Advertisement should make you think outside the box. Use information channels efficiently and check that none of them is wasting the budget. There are services of end-to-end analytics at your disposal. Find the appropriate methods of calculating the customer capture and channels’ effectiveness to have a general view of your promotion strategy’s results.
Unit economics is a method of identifying the profitability of your business model. It is based on the calculation of profitability per one customer. The basic concept states that a business can be successful only if every single unit of your product earns profit.
You must estimate the unit economics stats on the earliest stages of planning. The perfect forecast is hardly possible, but you will get the general picture. For instance, if your profits depend on the small percent from each trade, you have to ensure a large consumer traffic.
Conclusion
Create hypotheses and check them. If you realize that the product is demanded, start designing the minimum viable product. Communicate with your clients and get feedback from them. Do not be afraid of making changes in the project, even if they are dramatic. Explain to your clients how the product can make their life better. There is no universal plan that fits all the projects, each startup has its own way. But the methods described in this article should help to avoid making unfortunate slips.
