Column: The best motivation is unbearable pain

Part Three of a series on building a valuable IT company

In the initial two articles of this series we have seen how the key to building a valuable company is to build a profitable company. We also saw the key to building a profitable company was to choose the right market. Right, now we’ve got that marketing scenario out of the way lets get onto the fun stuff and build some neat hi-tech product gear.

Nope, don’t go there! We are looking to build value not product and we have a lot more work to do on the market before we are anywhere ready to build something. In fact, we may not really want to or even have to build something. When we get in front of our Venture Capital provider in a later article they will want to know whether we want to be rich or famous. If you said famous, please go back to part one and two and read them again and do not pass go and most certainly do not collect $200 until you are ready to choose rich.

So back to our market; our similar group of customers with similar wants and needs and the willingness and capacity to pay. We need to define them firstly in as many ways as we can. We call this market segmentation and we are looking to find those as similar as possible with as similar as possible wants and needs.

We also want to look at their capacity to pay and now also for people in pain. We looked earlier at the difference between increasing revenue and reducing cost as a reason to buy a hi-tech product.

But the best motivation is pain, sudden and unbearable business pain. “My billing system has crashed and I cant bill my customers” is real pain. “It takes me forever to find my documents” is a lot less likely to be real pain. Pain is having a knitting needle in your eye when you want and need pliers or morphine right then. Give it to me or I’ll take it! We want customers with knitting needles in their eyes that see us as morphine. That’s how we build a valuable company because like Kevin Costner’s movie Field of Dreams, if we build it people will come.

What we don’t want are people with knitting needles who see us as a tube of Berocca tablets. No offence to Berocca, but if you’re looking for morphine Berocca’s not on the radar.

So how do we find these customers in pain with a willingness and capacity to pay? Well first up its not easy. If this were easy everyone would be doing it. Secondly, we have to remember most people who try to build a valuable, hi-tech business fail. That’s a good part of why the ones who get it right are so valuable.

In my experience it comes down to a couple of key factors. Firstly, you really have to know your market very, very well.

In many cases people who have built initially successful businesses have come from within the market they are trying to serve. They know what the issues are and they have suffered the knitting needle in the eye, and they want to build a solution.

This is a good starting position, but as we will see in a later article it’s rarely enough. There are a number of business issues we have to address and in some cases overcome, before we can make much progress. Often you will find start-ups that got to a level of sales typically up to $2 million, hit a ceiling and just couldn’t get any further ahead. In the US these businesses are often called the un-dead, whereas here we tend to more kindly call them lifestyle businesses.

Once you know your market (or think you do) you really have to validate all your assumptions and prove to yourself you have the right market. Once you start looking at a product, you will be investing from 18 months to 12 years of your life in making sure it succeeds. Spending the time to be absolutely sure is very worthwhile.

The most important assumption to validate is that the market actually exists. Often it does not. Venture capital providers usually cringe at the pitch that says, “There is no competition”. No competition usually means no market. If we have to choose between being first to market or being right, we always choose the latter. Right will always triumph over first, if first is not right!

Finally how do we validate? We sell. We don’t want your mother’s opinion (she loves you anyway), we don’t want your friends’ opinions, and we really don’t even want your prospects’ opinions. We want a real prospect to agree to pay money for your new hi-tech product, yes even before it exists! How else will we know if we have the right product for the right market?

In an earlier article I said that customers buy emotionally and rationalise afterwards and later we will look at why having the best product is not enough. But for now we will use our idea for a product (or service) to prove that we have the right market. We will go out and sell it, yes before it really exists and in the next article we’ll look closely at why this is so important and why it’s essential that we do this.

Ok, enough for this issue. It’s probably time to go looking for that Berocca and have a wee lie down and hope that all this marketing stuff will eventually go away.

So lets recap one more time. The way to build a valuable hi-tech business is to build a profitable (now or later) business. The way to build a profitable business is first and foremost to choose the right market.

Then once we have chosen the right market that’s job one. It’s the most important job of all for the next few years of your life, which is to categorically and unequivocally prove to yourself and others it is the right market.

O’Hara is chairman of Clarity Commerce, a publicly listed software company based in England, and an independent director of Tait Electronics. Contact him at www.johnohara.co.nz

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