If someone suggests that you create a startup in an industry that doesn’t exist today, you would probably think that its a conundrum. After all, if the industry is not in existence today, you envisage great difficulties in doing the financial projections, costing and coming up with the business model. In your mind, there is no way in which you can work out the viability of the startup even with a useful app like StartBizUp.
The approach to create a startup in an industry that doesn’t exist today needs to be different. Very different. Here is where it is useful to look at how two technology giants, Facebook and Google started. Facebook was founded by Mark Zuckerberg together with fellow Harvard University students Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes. When Facebook started, it was intended as a social media platform for students of initially Harvard University and then expanded to other Ivy League institutions. Google has its origins as a search engine using an algorithm developed by Larry Page and Sergey Brin at Stanford University.
If you were Mark Zuckerberg or Larry Page, there was no way in which you could do your financial projections or come up with a viable business model in the early stage of the startup. Their startups were in industries that didn’t exist in its present form at that time. Yet today, Facebook and Google under its parent Alphabet, are some of the most valuable companies in the world.
The secret lies in putting customers first before profits. Facebook and Google did not start to make serious money until their customer base expanded to a critical mass. Then when the money came rolling in, it was like opening a floodgate. They experienced exponential growth similar to the graph at the top of this page.
What does this mean for the would be entrepreneur? Simple, the approach has to be changed to one in which building customer base to a critical mass is the first step for the startup. At this stage, it is certain that the startup would suffer losses. However once the critical mass is reached, it is easy to first recover the running costs and after that start generating profits. The problem lies in the period of time needed to build the customer base. If the customer base fails to build up to the critical mass needed, the viability of the startup may be in doubt. Thus the focus of the would be entrepreneur should be on ways to create a strong customer base before thinking about profits.
Some startups try to enter new industries using the traditional method of projecting costs and profits. This approach is doomed to fail as customers tend to be wary of paying too much for something new. At the early stage, costs tend to be high while customers are few and far in between. Even an attempt to make a small profit projection could result in overpricing the product or service resulting in its premature demise. Therefore it would be better to throw out any attempts to make a profit before the customer base reaches a critical mass. Giving away the product or service free is one way of speeding up the build up of customers.