Do You Have an Idea or a Business Plan?

With modern application development frameworks, like Ruby on Rails and the iOS SDK, first iteration app development can be measured in double digit man-hours. As an example, I built Uptimetry™ (press releasewebsiteiTunes) from scratch in around 12hrs, including the web app, web service API, and iOS app. The app is very simple, so this is not to say that your app concept could be built in a similar time frame. In all likelihood, it will take a few months and cost you $20-50k.

The reason I built it was not because I thought it might be cool to do, but rather because I knew there was a market for it. More specifically, I built it because I knew the amount of time I would spend building it would be well spent, given the prospect of the possible revenue I could generate from that bounded effort. I didn’t have a business plan formally drawn up. I didn’t try to pitch it to investors. I didn’t need to. I was willing to invest a weekend to build an app that might never make any money, but probably would make at least enough to justify the investment. But that’s one case, and it’s not likely to fairly reflect yours.

The following is an excerpt from an email thread with a pro bono client, who pitched an idea to me today, hoping it might be a viable business.

While i agree that a new app desperately needs users and metrics on how those users interact with the system, that should be a natural progression, not a forced phenomenon. In fact, i would argue that a lack of early adoption indicates a deficiency in your business model. Successful businesses don’t usually grow in a vacuum. They arise from a clear and present need in an existing marketplace. I’ll give you a real world example. No one hires a maid service because they show up at your house unannounced, ready to clean, asking if you need your house cleaned. People who don’t want to clean their house seek out a service provider to do it for them and happily pay the fee. This effect is context-sensitive. It doesn’t work for a maid or car repair service, but it does work for a lawn service or an ambulance chaser. Even the most opportunistic lawn service and ambulance chaser ultimately make the sale based on the service they provide, not on their pitch. If you don’t have a clear product to sell that solves a problem in an existing market, you’re at a substantial disadvantage.

Believe me when i tell you you do not want to invent your own market. You’ll spend a lot of time preaching to your potential customers, telling them how awesome your product is, only to see them ignore you repeatedly. The few who do sign up don’t stick around long enough to develop anything resembling a user community. Loyalty is derived almost exclusively from perceived value. It’s easier to attract users when your app is free, but it is more difficult to retain them with a free app than with a paid app. When the user pays for an app up-front, they make an investment in something they value. If they get the app for free, whether they keep it or not is dependent on the perceived value of the service being provided. A free app can continue to be perceived as valuable if it provides or facilitates a net positive value to the user.

Groupon is free (valueless). Its perceived value is derived from the ability to find discounts on things you already wanted to buy, like meals at your favorite restaurant. That may be a bad example, since brand recognition plays a large part. I don’t think so, though, because a big part of what makes Groupon great is the emotional component. I have enjoyed their offerings for the last year, and i tell people about it because it’s exciting. It would be more difficult to market their iPhone app if it were not free. In terms of customer satisfaction and loyalty (which i firmly believe go hand in hand), the top examples in my list are Groupon and Netflix. Both offer free apps. One facilitates fantastic deals. The other delivers tons of content for an almost ridiculously low monthly fee. Neither is ad-supported.

If you have an idea you think might make money, chances are you’re wrong. If, on the other hand, you’re already shooting fish in a barrel, and you want to expand to a second barrel or use a different gun in the same barrel, you’re probably going to make money. We can take a tip from Sun Tsu here. If you only choose to fight the battles you are certain to win, you have a fighting chance, and you still might lose. If you rush in blindly without a plan, the city will seek out a service provider to come clean your festering corpse off the stained pavement, and your soul can rest knowing someone made a profit, even if it wasn’t you.

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