startups

Software Startups: Bite the Right Chunk to Enjoy the Rest of Your Meal

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“Hey, the model works let’s build it out into every vertical we can think of ….” This is not another article about how to start up a company or get venture funding. Shoot, that’s the easy part. A lot of you are nodding. Good.

No the hard part is, after you get a company up and running, and you have a product or service and customers and it’s now worth something, I bet there’s lots of great ideas floating around suddenly by everyone on what you need to do to grow that business – like: “Hey, we need a mobile app,” or “You should sell coupons.” Sound familiar?

Take our company, MiNeeds.com, that offers a pretty neat service that instantly matches local professionals with highly qualified customers who seek their services. The service grew quickly and fast: we’ve matched more than 250,000 local consumers and professionals nationwide, and we have nearly 60,000 participating, listed professionals.

We know the opportunity with MiNeeds expands beyond simply binding consumers and local professionals in an easy-to-use, interactive bidding platform. We follow consumer behavior very closely, and we focus on industries where we can anticipate their needs at different stages of their lives.

For us, the lifetime value of each customer is suddenly not just one need, but a long-lasting relationship where we can continue to deliver value to the bride-to-be, homeowner, parent and so on.

Our model is ideal for syndication; but do we bite off half the steak or take a small nibble first? (Here come those voices again asking, “Where’s that mobile app?” “Where’s those coupons?”)

Now Kevin Costner may think, “build,” but this won’t fly when you have finite resources to manage. We’ve all seen how this pathway can be a sure-fire recipe for lots of busy workers, yes, but money burned fast, no revenue in your pocket and no product to market any time soon.

For inspiration we looked at the choices some current favorites in our industry faced.

Yelp’s choices. Yelp has done a phenomenal job in the last few years creating a growing business in a space where few have succeeded (one of the last unfortunate endings in that space being Judysbook).

Compared to say, AngiesList, Yelp is viewed as young and its platform as “emotional.” When I go to a café and love their coffee, I find myself pulling my iPhone, taking a picture of the place, and it’s uploaded on Yelp within moments.

When building its platform, Yelp could have probably gone a number of directions but decided to focus its efforts on attracting and building an active community that addictively checks Yelp regularly to find the highly reviewed sushi spots and other restaurants in their location.

Yelp’s mobile application expanded their reach even further, no doubt; but that was only launched after they established their online presence and had a strong following.

That was smart. But even better, the team behind Yelp is its most valuable asset. Fearless innovators that know how to brand “cool” and expand its market reach via the latest and greatest technologies.

So that’s another smart choice they made: invest in technologies that drive revenue versus trying to build new wheels that drain resources, or “building out our platform” so we can “conquer the world.”

While I presume that most traffic going to Yelp stems from people looking up restaurants, most companies in the local businesses space know well that Yelp continues to be a role model for search engine optimization (SEO); their listings almost always appear on the first page of Google when you do local searches (a great example of investing in technology that drives revenue).

Still, Yelp faces several challenges. Their main local business audience continues to be restaurants, whose owners will first screen the reviews written about their business before advertising on Yelp. Anything less than a four out of five score might sway them away to a safer haven, such as Google, to advertise where reviews are of no concern.

Moreover, as a whole, local business advertising in the United States is slowly losing its charm to the rising appeal of social marketing.

Can Yelp expand beyond passive advertising with social tools that drive direct interaction with customers? Will they buy the technology to do it?

That said, in many international markets local businesses advertising online is virtually untapped. Thus Yelp’s decision to allocate millions on international marketing in 2012 is brilliant.

If they can succeed to do a repeat of Yelping the emotional brand they built in the United States, they will be able to build healthy revenue growth from international markets.

AngiesList’s choices. But what if “building out” or expanding into multiple new markets is not an option? AngiesList has an interesting model because they can still convince consumers to pay to read reviews of local professionals when there are plethora of sites like Yelp, that contain reviews for free.

The question then becomes: how long can AngiesList convince its customers to pay for that service? My gut says that their major increase in their marketing spend in 2012 is driven by their knowledge that the model of charging customers has a short runway with today’s free options. So they’re probably trying to maximize the return of this model before it dies off.

However, deciding to maintain their very low monthly cost (~$6) is a key because it’ll keep their churn rate lower. Rather than build something new, they focus on price. Pretty smart!

AngiesList is now at a prime position with the abundant cash they received from their IPO. Innovation is a must for their survival, and burning cash on things like expensive advertising will only serve them in the short run.

Groupon’s choices. Finally, as we all know, Groupon did a phenomenal job capitalizing on psychological consumer behavior by offering deals available only that day. Consumers could not resist the urge to buy instantly in fear they might miss the day’s deal.

However, there are close to 1,000 clones of Groupon, and most of the users signed up to Groupon are also receiving daily deals from multiple other sites. Also, the barrier to entry in Groupon’s business is small.

The interesting part we’re yet to see is whether branding Groupon into a major daily-deal player will persist and drive users to make their purchases from Groupon versus its replicas. (My opinion: the era of coupon “aggregators” has begun and the Kayaks of daily deals are already underway.).

MiNeeds.com’s choices

Getting back to, “Where’s that mobile app,” “Where’s those coupons”…. Well, we could have drummed up a big funding round and sold investors on everything that does not relate to our core platform. Or maybe we could have acquired the means and technology.

Instead, we looked at opportunities to replicate our model (low cost) vs. building out something entirely new (high cost), with a lean-and-mean focus on “recurring revenue models” and “pathway toward customer retention.”

Guess what: we won’t have a mobile app this year! I know, I know. But our core business is growing; and next stage, when we have more revenue than we know what to think of, maybe we’ll even have some time to toss around the coupon idea.

Raed Malhas is the co-founder MiNeeds.com, the fast-growing online service that instantly matches local professionals who bid on needs posted by local consumers. Prior to founding MiNeeds.com, Malhas worked at Microsoft Corporation in Redmond, Washington, for eight years as a program manager and a software development lead. He delivered several products such as: multiple versions of BizTalk Server, Commerce Server, Windows Workflow Foundation, also Microsoft’s Payment Abstraction Layer. He earned several patents for software inventions. White a student at Purdue University, he created software inventions comprised of designing several educational projects for a local disabled children’s clinic.

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