On building awesome business applications

As recently as five years ago, it wasn’t uncommon to see startups raising hundreds of thousands, if notmillions of dollars, before they had a customer-ready product. Mostly, this was due to the high costs involved with internet startups (servers and bandwidth weren’t cheap). Things were expensive and you had to obtain permission from investors (via funding) to do any of it.** **Today, that barrier is almost non-existent. Many founders are focusing on ramen profitability, the cloud has significantly reduced infrastructure costs and open-source technology stacks have become incredibly powerful. Perhaps most importantly, it’s easier than ever for startups to easily collect revenue by building on top of easy-to-use APIs (Chargify, Recurly, CheddarGetter, etc). Lean startups FTW!

If you’re a hacker trying to figure out what to work on next, please stop building the next Twitter, Facebook or [insert social-media-oriented-consumer-business-du-jour]. Small businesses need your help and they have money. Lots o’ money. With your name on it.

Consider this:

  • The majority of gas stations with convenience stores in this country are privately owned. These mom-and-pop stores are forced to buy franchise approved point-of-sale systems — that’s fine. The problem is that they all use a basic CRM/inventory management system to track store inventory and nearly everyone uses the one incumbent in this space. The product is terrible, it’s expensive, has no supportand they win because they simply showed up.
  • Most (hair, beauty, nail, etc) salons know that their products (nail polish, shampoo, etc) are the highest-margin items in the store. As a rule of thumb, it’s almost always easier to sell something to a customer that has already purchased something from you. So why aren’t these salons cross-selling and upselling? Because no one has made this easy for them.
  • I get my hair cut every two weeks by the nice old man down the street. I’ve been going to him for years but, to this day, he only knows my first name because I have to write it on a sign-in sheet every time I walk into the store. Do I need to say more?

Technology is not the problem

It’s 2010 and finding smart people to build feature-rich applications for business is easy. NEWS FLASH:business owners don’t need features, they want solutions to real business problems. Help them turn tables faster, identify high margin items sooner, cross-sell and upsell customers easier. They will pay you for this.

Salesforce.com is powerful CRM software (and they make a shitload of money) but most small businesses don’t care about 90% of the features. In 2010, more features does not make a better product. Your customers, business owners that just want to run their business, don’t care how cool your technology is or how many features you’ve crammed into your product. To them, the interface is the product. The successful business apps of tomorrow will take complex business operations and roll them up into beautiful, easy to understand applications that anyone can use. Great user experience will be the differentiator.

Smart money is getting easier to find

It seems that nearly everyone with a little bit of money is itching to throw money at startups. Unless you’ve been hiding under a rock, you’ve also noticed that discussions about VCs, Dipshit Companies, And Super Angels have been dominating the blogosphere lately. I don’t think it’s necessary to add yet-another-opinion into the mess, but here’s the point:

Today, IPOs are practically non-existent, which means that we all have to deal with the reality of smaller exits.

To a VC, many startups are “dipshit companies” because they can never get to a scale that will generate “VC returns”–defined as a 10X return on a $5 million investment that buys you 1/3 of the company. For that to work, you have to sell for at least $150 million ($5 million X 10 X 3) and probably more.

But for a founder with a majority stake, a $25 million exit is life changing. Hell, a $10 million exit is life changing.

Layer in the fact that VCs go for a home-run strategy that results in no money to the founder in a super-majority of cases, and it’s no wonder that entrepreneurs are flocking to super angels like Dave.

Everyone wants to invest but founders prefer smart money on good terms — just having money simply isn’t enough anymore. “Dumb” money will increasingly be excluded from the earliest rounds to make way for “smart” money (probably via high resolution fundraising) — investors who bring connections, domain knowledge and functional expertise will win. That’s good news for founders but bad news for (most) investors.

Traction is hard to define for B2C, but much easierfor B2B

Traction in consumer internet companies is roughly defined by eyeballs and actions. B2B startups focused on solving real problems have it much easier — they have customers (other businesses) that will pay good money for products that solve real problems. Traction in these deals is much easier to find: B2B companies either have paying customers or they don’t. If you can’t get a customer to pay you for your product, you pivot. Repeat this until you figure it out or realize that you’re solving the wrong problem. (Contrast this to a consumer product where each pivot is usually followed by a long period of trying to pull in enough traffic to figure things out.)

If you hang around tech blogs long enough, you’d think that being a startup is about creating the next Google, Twitter or Facebook. That’s all well and good, but the biggest opportunity lies in solving real problems for “traditional” brick and mortar shops — the companies that haven’t seen innovation in many years (speaking from experience: MailFinch and NotaryCRM are two good examples of this). This is awesome(read: huge opportunity).

Build awesome business applications

…and tell me about them. I want to help.