It can cost just a few thousand dollars to start a startup. CB Insights argues that today’s open-source technology and cloud-based tools allow every entrepreneur to launch a startup quickly and cheaply. Does this mean anyone can build an app and fund the early stages of a startup for three, four or five thousand dollars? Not really.
The cost of starting a startup has gone tremendously down because entrepreneurs today don’t need to buy a fancy software for app development while other expenses like hosting and marketing management can cost as little as a few dollars per month. However, open-source technology and tools aren’t going to build and manage themselves. Depending on the scope of the product, certain skills are needed to build, manage and improve it. Therefore, it is still costly to launch a startup considering the hourly rate of good software engineers exceeds $100 and no matter how skilled the entrepreneur is in programming an application, other engineers with complementary skills will be needed eventually.
The reality is, depending on how starting a startup is defined, the cost will vary significantly. For many entrepreneurs, a startup is synonymous with an application. It is often believed that without an application we do not have a startup and it isn’t until we launch the product that our startup is born.
Entrepreneur and author Steve Blank defines a startup as a temporary organization built to search for a repeatable and scalable business model. There are many stages entrepreneurs need to go through in this search period during which is building several versions of an application. One of the biggest mistakes founders make is build a product no one or not enough people use and pay for. The easiest way to make this costly mistake is to build an advanced and expensive application before sufficiently validating the need for it. Therefore, if some of the key early stages of a startup are not skipped, it can definitely cost just a few thousand dollars to start a startup.
Here are the three most important pre-app stages for entrepreneurs to minimize costs and increase the likelihood of success of their startup.
1. Verify There’s A Customer
Many founders build products they wish they had to address their own need. Other founders identify a gap in the market through observation and research. In both cases, neither the founders, their friends, family, acquaintances or online research validate a customer.
Data is required to validate a customer and the best way to gather data is through interviews. As a rule of thumb, if 60% or more of your interviewees deliberately and passionately discuss the problem and its pain, there is sufficient proof that the problem exists and a buyer is in need for a solution. Furthermore, if in addition to the 60% benchmark there is a clear customer persona, that is, it has become clear who the customer is, you have another layer of customer discovery.
The interviews are key because they are the best and potentially the only way of discovering other problems that may have not been initially clear. Another mistake many founders make to skip the interviews and force a solution into a mild pain.
2. Build A Solution
A business exists when a buyer and a seller exchange value. The seller offers a solution in exchange for money. In a startup, such solution doesn’t necessarily need to be 100% app dependent. Technology should be used to facilitate the offer delivery process but doesn’t have to be the only way sellers solve customers’ problems in the beginning. In other words, ask how you can design a solution under the condition of the unavailability of the app.
To use an example, in the first few months of the food on-demand startup DoorDash, despite founders’ technical ability to build the app, they started with a simple landing page and leveraged existing apps like Find My Friends app and Square to dispatch orders and get paid.
This is an example of a solution that didn’t need an app and didn’t cost money or time to set up. If you focus on building a solution, you can quickly verify if there’s a business before investing in a scalable app.
3. Verify There’s A Business
By following those two important stages, the easiest way to verify a business is by offering the solution to the interviewees from the first step who deliberately expressed a need for it. Chances are if the people who took the time to share their pain points are not willing to pay for it, it’s either because the solution is not viable enough for them or, in most cases, it wasn’t that big of a problem in the first place.
In both cases, it’s good news for entrepreneurs because gaining this much insight didn’t require a major investment in product development or marketing. If people don’t buy, learn why then redesign your solution accordingly until they do. With customers, you’ll be able to gather quantitative as well as qualitative feedback that you can use to build an app with higher success predictability.
Many variables need to be accounted for in the calculation of the required initial investment to start a startup. In sum, the best way to allocate startup initial investment wisely is by leaving the biggest expense, which usually is app development, for last. Instead, build a solution that can get your customers’ job done even for the first month or two so that when you build, you know what to create and you can have a customer advisory board that can help you build the right product.
By Abdo Riani
I help tech entrepreneurs build startup products (apps) that generate revenue quickly with a higher probability of success to serve either as a side business venture or a stand-alone startup with growth potential. I am also the founder of StartupCircle.co, a mentorship platform for passionate startup founders.