Mastering uncertainty for a startup means asking the right questions and constantly questioning yourself and your development. Uncertainties follow a pattern, and if you ask the right questions they will morph into certainties and that will in turn map out the right course of action at the right time. That certainty can mean we are headed in the wrong direction, thus giving us the opportunity to change course. Or we notice half-way that we’re on the right track, but that we are ahead of ourselves – we made the second step before the first. As long as we don’t ask our questions when it’s too late, certainty will be the point where new options for action will open up. What we have to find out is what our customers on the internet really want.
With DELUXE MUSIC, the free TV music channel I have co-founded, we sold music CDs, as this was still an option back in 2005. I had the option to either buy readily-compiled CDs for a low price and to re-sell them without added value to a TV audience for what was then the going rate of €12.99, or to sell high-end music in an appealing package using extensively-produced advertising for €16.99. I chose to test both variants. The result was that hardly anyone bought the low-price CDs. As a TV channel we were not authentic, and bargain-basement products just were not our thing. But viewers did buy the expensive CDs that had been presented in glitzy ads. On average each buyer bought 2.5 of them. We experimented with various price ranges and ways of advertising the product until we had the right product/market fit. During the first year we had an average cart size of €47.00 and a return rate of 0.2% – and that was the time when overall CD sales figures had gone into a nosedive. The Campari Lounge was one of the most successful SonyBMG partner products in the year 2006/2007 and it sells to this day.
Facing the truth
Confronting reality early on is key. Otherwise our product will be out of touch with the market, leaving us wondering why it won’t survive the collision with reality.
An established publisher usually relies on the success he has had in the analogue world, his experience with his print customers and his brand.
Predictability is a constant in the analogue world; it’s been built up over decades. Production was predictable, subscriptions were predictable, advertising was predictable – the whole value-added chain of publishing had been honed to perfection until the internet turned everything upside-down. The rules of the analogue world do not apply on the internet.
Bringing analogue business models to the internet is killing innovation in the name of predictability. Innovation does not only mean inventing “new” things, it also means just listening to the user, observing the various market participants who are bringing new concepts to the market, understanding what people want and adapting to new paradigms.
On the internet ideas and concepts are accepted or rejected fast, and that is why it is so well suited for experiments. When an idea evolves into a business model, however, speed is of lower priority. It takes time and many iterations to develop a successful and sustainable business model and to gain acceptance in the market. Rolling out a business model on the internet without testing it with users is similar to expecting potential passengers to board a bus while it is racing past the stop without even slowing down.
The freedom to experiment
A startup will enter the world without a political or commercial legacy, it will work by trial and error, by experimenting, by re-thinking, and if necessary by pivoting entirely. It is a constant walk on the edge.
The earlier its products and services clash with reality the greater the probability that it can stay on top of the consequences and come down in a controlled crash that will allow it to develop further.
To come back to the bus analogy – a startup will not begin by setting up a whole network of bus stops and an armada of busses. It will try out first if people want to ride at all and for what price. Then it will see where people want to board their bus. It will check out a few neuralgic points and as soon as there is sufficient proof that it can work, it will start building the infrastructure. A good startup will first look for its product/market fit and then invest in development and growth.
Uncertainties are the price we pay for the opportunities we are given on the internet. Recognizing them means accepting constant change as a way of life. On the internet change happens fast and market research companies who try to tell the future by looking at the past are not suited to predict success. It is the Users who will do that with the immediate feedback they give to publishers – one by one and directly or in an organized fashion via Social Media, from the first minute of a new product until its last.
That is an incredible opportunity: to develop products with the market and not against it. For that we have to build our concepts and business models around the user, try them, experiment with them and weave our vision into the market’s demands in order to create a new product.
What makes the DNA of a startup will have to find its way into the thinking of publishers. And then it’s time for experimenting, listening, adapting …
The internet forgives everything, but it never forgets.