Formula 1: Will your idea get used?

Formulas for a successful startup

Someday I’m sure a really smart person (probably an engineer) will come up with a sure-fire winning formula for how to build a successful business.  Then they’ll call it an ‘algorithm’ to baffle business people like me.

While I haven’t found this ultimate solution, I do have some formulas that work.  For the next three weeks I’ll outline these conclusions and how I came to them.

1 . Problem / solution / implementation

Start with a problem in need of a solution. Once, in the music industry, a band presented me with a problem. How could they reach fans efficiently and affordably through traditional advertising? Word of mouth is traditional, but difficult to control.  Not impossible. So, I set out to create a system (Posse) that harnessed the word of mouth of fans.  It worked, and was cheaper and more effective than old-style advertising.  Problem solved.

But it’s hard to convince other people to change.  I had to persuade a bunch of old-school music promoters to stop wasting money on street posters. Instead, shift to a system of commissions and prizes to fans in exchange for online promotion.  It required a ton of effort, as they needed to change several aspects of the way they did business.  First, they needed to revamp the promotional budget, allowing for variable commissions instead of set costs.  They’d stop paying people at the poster printing company who they’d befriended over a number of years.

Ever heard of ‘risk inertia?’  It’s the force that prevents people from trying something new in case it won’t work, and / or they’ll look foolish for trying.  Different people have different levels of inherent risk inertia depending on their willingness to embrace change.  A great book to read on this topic is ‘Crossing The Chasm’ by Geoffrey Moore, which outlines a Technology Adoption Life Cycle for new products.  He suggests it’s easier to launch a product to people who are likely to be Innovators or Early Adopters.  You’d expect the music industry to be full of these types, but I’m afraid some of the biggest promoters are fifty-plus males who look more like seventy-plus.  Many haven’t mastered email let alone Facebook.

So here’s a formula to sense-check whether customers will embrace your product. Think about each of these factors; give each a ranking between 1 – 5

x = the size of your customer’s current problem.  1 = not much of a problem - 5 = huge disaster if not solved immediately

n = how well your new product will solve their problem. 1 = it should help a little - 5 = it will completely solve their problem.

y = where your customer sits in the Adoption Life Cycle. 1 = innovator, 2 = early adopter, 3 = early majority, 4 = late majority, 5 = laggard

h = The amount of effort required for the customer to change their behaviour.  1 = very easy - 5 = brain cell transplant.

And here it is in all its glory.

x + n – y – h = your score   

In the case of Posse for music I reckon our customer’s (music promoter / band’s) problem (x) was a 4, our product to solve the problem (n) ranked 3, our customers were both early adopters (younger band managers) and laggards (old-school promoters) so I’ll give them a net (y) score of 3, and the amount of effort for them to change their behaviour (h) was a 3.  So, my Problem / Solution / Implementation equation is: 4 + 3 – 3 – 3 = 1.

Your score must be positive for your product to work and the higher the better your chances of success.  So mine works but only just!  If I were designing a business again, I’d try for a much higher score than this.  It would make the sales and marketing process so much easier.

One vital consideration applies if your product requires two sets of customers like mine (bands and fans).  You need to run the equation twice and make sure it works for BOTH.

It took me a while to realise this.  I thought that so long as I was solving a problem for bands then the fans would all jump on board, and I scratched my head when we didn’t become the next Facebook overnight.  But we hadn’t considered whether the fans had a problem at all.  If not, were we solving anything for them?  No.  The first few versions of our site weren’t solving a problem for the fans.  There was no compelling reason for them to take part.

We pivoted to retail late last year because our problem / solution / implementation score is much better in this market.   There are another two formulas I’ve worked out that I’ll share with you in the next couple of weeks.  These further explain why it made sense for us to expand Posse into retail.

And I’ve spent the first part of this year holding focus groups and interviews with retail fans rather than proprietors, exploring their problems they have, so we can design a solution that solves customers’ and retailers’ problems at the same time.   You’ll see some big changes to the site in the coming months as a result of this research.  I hope you’ll be amazed at the problem we’ll be solving for customers!