Recently The Dublin Entrepreneurial Center hosted Nick Carter, Founder and CEO of AddressTwo for a presentation on building a company without external funding. AddressTwo provides small businesses with tools and processes to manage their sales and marketing, via a CRM and marketing solution. Since June 2008, Nick has grown AddressTwo to over 500 customers and over 5,000 users. This growth has occurred using a business model based on simple go-to-market strategies that maximize early revenue and drive customers to fund development. In addition to AddressTwo, Nick has written the excellent: Unfunded: From Bootstrap to Blue Chip, Starting a Fire without the Fuel of Round-A Capital.
Nick’s approach to starting AddressTwo was to launch and bootstrap with an elemental feature which he believed customers would pay to use – a simple business model to be sure. Nick's vision for AddressTwo was much larger, but he knew that going to market with a full-featured application or a mature business model more advanced than the simple product required posed unacceptable cost and time risks. AddressTwo entered the market as an MVP – minimum viable product. In other words, he built it as a bare bones application and entered the market quickly.
“When you are pursuing funding, you lose focus on creating and selling your product.”
Nick’s asks “What is the first feature you can build and enter the market with?” He advises creating a one-dimensional solution, not a product built with multiple cool features. This is the essence of an MVP. The more complicated your product, the longer the sales cycle and the greater number of your customers' internal approvals needed to purchase. In addition, your ability to bootstrap is compromised if you build a full featured product prior to market entry. Development costs of minimum viable products are more than the first customers can cover, which immediately puts the product and business model at risk of failure or in need of funding. So, before building your killer application, keep your big vision and ask yourself “What is my minimum viable product?”, then build that product and go to market.
Nick has launched over 20 products that nobody has ever heard of – i.e. not accepted by the market. He followed the MVP principle, and the investment was minimal. Asked how he knew they were failing and he should move on to the next idea, Nick responded “They made no money, had little customer interaction and few requests for additional features”. In contrast, AddressTwo, as an MVP, lit up customer interaction immediately, sales and use grew and requests for additional features began to flow.
How do you get to an MVP? Nick suggests that Elemental features are key. Make a list of features you want to include in your product. Winnow this down to the Elemental or first feature. Which feature will the market accept and which can you bring to market quickly? What features in your list does the Elemental feature “beg” for or point to as next features? Those are likely your development path for adding features, guided by customer requests. Along the way, gauge customer interest and “pre-sell” features to your customers, but never build a feature to make a sale. If customers won’t pay for a feature, the market is assigning a value; add only features that build revenue.
“Go to church three times a weekend – at different churches – and build your network”
Nick is a strong believer in the business model based on marketing via networking. Known contacts are the least expensive marketing network, so network like crazy; it is key to success. Marketing to strangers is always expensive; spend money to move strangers into contacts, not to sell to them. Nick is using Unfunded to market to strangers and to convert them to known contacts. He is also using his website, twitter, a blog etc. for the same purposes. Early on, Nick spent a boatload of money on a pay per click campaign which yielded no results. With that lesson learned, he began to purposefully leverage his known network and AddressTwo's first sale was to his known network.
Nick also developed Influence of Marketing, an e-course that helps reach potential customers. He uses “drip” campaigns – unobtrusive, regular contact that asks recipients to comment on blogs, announces workshops etc. Nick tracks click-throughs and follows up diligently, giving away content and building trust to attract known contacts that convert to customers.
On building the company, Nick’s approach is simple. Hire from a cash position – if there is free cash flow to pay an employee, in addition to covering your own salary and other costs, that's when you add employees. Before adding the first employee, Nick held the only two full time jobs in the company – Marketing and Development. Early on, he also did marketing consulting to generate cash to live on, working nights and weekends to bootstrap and grow AddressTwo.
If you are in the process of starting, building or pursuing funding your company, I highly recommend Unfunded as a guide for approaching the market simply with a minimum viable product and growing via customer sales. As your company grows you may need funding to scale effectively, but early on focus on what matters in the business model: the product and sales and bootstrap your way through growth. Go Unfunded!