There has never been a better time to start a digital business

Ask pretty much any politician what the key to getting ourselves out of the current economic mess is and they’ll say “business growth”. Ask them where that growth is going to come from and they’ll say “Small- and Medium-sized businesses”. If I’m feeling generous I’d say that the credit crunch and the global recession have finally woken politicians up to big business not being the answer to every economic ill and if I’m feeling less so I’d say that these answers basically amount to “we don’t know, you lot need to sort it out”. But either way they’re right: big business is too busy battening down the hatches to go looking for opportunities and creating jobs.

If we want growth and more jobs we’re just going to have to do it ourselves.

The good news is that there has never been a better time to start a digital business (and if you’re reading this I assume you have some involvement in web site or software application development). Here’s why:

  • A digital business isn’t limited by its location. Its just as easy to develop a web site or mobile app in Hull as it is in London or Silicon Valley and customers of digital applications and services are increasingly agnostic to where that product or service is supplied from. Trust me on this one: I regularly talk to our customers in Hong Kong, New York and the City and they just assume I’m in some plush office in London. The fact that I’m actually in a little village in the Yorkshire Wolds is my smug little secret.
  • Digital businesses are increasingly cheap to set up. If I wanted to start a web-based business 10 years ago the first thing I’d need to do is buy or rent some hardware and software to run it on. If it was a big idea I’d need millions of pounds to do that and even a small idea would require tens of thousands. Today there are a whole load of ‘cloud platforms’ I can build on that not only dramatically reduce the amount of work I need to do but also cost just a few quid to get started with. Take a look at Heroku.com, Force.com, Google App Engine, EngineYard.com, Google AWS and even WordPress. Or if mobile apps is your thing all you need is a phone and a computer to develop on, Apple, Amazon and the like have solved the problems of distribution for you with little up-front investment required on your part.
  • We’re in the middle a huge financial slump. Sounds counter-intuitive but the middle of a downturn is the best time to start a business. If its a good business it will survive and as conditions improve it will come out the other side with a solid financial and customer base to build on. If its not a good business it will fail pretty quickly and that is no bad thing; if its going to fail better to waste as little time and money on it as possible.

So lets suppose you have an idea for a digital business, what next? If you watch Dragons Den you might be fooled into thinking that you need to turn that idea into a three-year business plan with a six-figure valuation and then go tout it around to investors. My advice: don’t bother … at least not yet. Here’s how I would spend that time instead:

  • Talk to people who are potential customers about your idea. Ask them whether they would buy your service or product if it existed. If not, ask them why not; if they would, ask them how much they’d pay for it. Listen to them: you’re not just trying to validate your idea, you’re trying to come up with a business that works and it just may be that they have a better idea about that than you.
  • Spend as little time and effort as possible in creating something that those potential customers can buy from you. If it solves a problem they really have, they’ll pay for it no matter how rough around the edges it is or what problems it doesn’t solve. We sold our first license within 6 weeks of writing our first line of code; great for our confidence, our bank balance and for keeping us focussed on what actually mattered.
  • Sell it to them. As techies we tend not to like the process of asking people for money. But even if you don’t like it, learn to live with it because it doesn’t matter how good or valuable your idea is – if you can’t sell it you don’t have business. Freemium and pay-if-you-like models are fashionable and dodge that awkward question of putting a price on your work but unless you have £10m of VC money to burn, grasp the nettle and demand cash in return for your hard work.
  • Listen to and act on feedback. Chances are the idea you start with isn’t going to be the one you end up with and your customers will tell you what they like and what they don’t. If you ask they’ll tell you how they’d like to see the idea develop and if you deliver they’ll become increasingly loyal and increasingly happy to spend their money with you.

People have been bootstrapping business this way for years but recently there has been a lot written about starting up like this. It’s been dubbed ‘Lean Startup’ and there’s a great book on the subject: http://theleanstartup.com/book. I also have a few top tips of my own.

  • Don’t do it alone. “Two heads are better than one” is a very old saying but it applies just as much to starting a digital business as anything else. Having a partner to bounce ideas off, share the workload with and to keep you sane when the going gets tough is essential. However the other old saying “Too many cooks …” also applies.
  • Don’t be afraid of failure. Most start-ups fail and in the US this is seen as a positive thing: you learn a lot more from failure than you do from success. In the UK we’re a lot less tolerant of failure but that will have to change if this SME revolution is actually to take place. If your idea doesn’t succeed, look at what you’ve learned and try again.
  • Understand what you want from the business. One of the things that annoys me most about Dragon’s Den and the like is that they promote the idea that the only measure of a successful business is whether it makes its founder millions of pounds. Actually, a business that creates a job or a few jobs and allows people to do something they enjoy or interests them is a success. Anything else is a bonus. If you want to create a small business that provides for you and your family, good on you; not being a millionaire is not being a failure.
  • Be bold. The main thing that holds people back from starting a business is the perceived risk. They have a nice secure job in a solid company or the public sector and throwing that away seems like madness. What’s that you say? ‘Solid’ companies are going bust at the drop of a hat and the public sector is cutting jobs like there’s no tomorrow? There is no such thing as a secure job any more and at least if you start your own business you are master of your own destiny and have all relevant facts available to you.
  • Be realistic. Boldness is all well and good, recklessness isn’t. Chances are that idea you had at 3am isn’t going to become the next Facebook or Google so convincing all your family to hand over their life savings for you to gamble on it probably isn’t the best thing you can do. But putting a few hours into fleshing it out and seeing if people will buy it is. If, once you’ve done that, the idea stands up then maybe investing a few more quid into growing and promoting it is a good step. And so on: the more the idea proves itself, the more its worth spending time and money on. But don’t get carried away … just because you managed to sell 1000 copies of your app or get 100 people signed up to your website doesn’t suddenly mean your business is worth £1million and is you should re-mortgaging your house to support it. This is why asking people to pay from the outset is a good idea: you can measure the cost of the risks you take against the value of the revenue you believe they will generate.

If you do all of this, and enjoy a bit of luck and a following wind, you may discover that you have a solid, sustainable business on your hands. If you do, you can choose what to do with it. If you want to just keep things small and manageable then do so. If you want to grow it further then now is a great time to go looking for investment; there’s actually a lot of money available for people who can say “in the face of the current crisis I’ve grown this business from nothing to a solid money-making entity”. In fact given that interest rates are non-existent, the stock market is all over the place, the Eurozone is in meltdown and big business is on one long profit-warnings junket, start-ups that have proven they can get over the first hurdle of actually getting off the ground and generating some income are seen by investors as a relatively safe (or at least no-more-risky) bet at the moment.

Oh, and one more thing: starting a business is a lot of fun. Its bloody hard work and there are times when you may wonder why you bother but being able to make your own decisions, answering to no-one but yourself is a great feeling and there’s a lot of satisfaction in being able to point to the business you’ve built and saying “I did that”.

Image used under Creative Commons – Pesh on flickr.

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6 Responses to “There has never been a better time to start a digital business”

  1. John Connolly
    February 23, 2012 at 9:34 am #

    Great article Paul – thanks for sharing your thoughts.  You’ve challenged me to take a look at force.com and heroku 🙂

  2. willhawkins
    February 23, 2012 at 9:51 am #

    A thoughtful article and an interesting business you have there. Thanks for sharing. 

  3. Ben
    February 23, 2012 at 11:07 am #

    “I regularly talk to our customers in Hong Kong, New York and the City and they just assume I’m in some plush office in London. The fact that I’m actually in a little village in the Yorkshire Wolds is my smug little secret.”

    I don’t think they just assume, they probably go of the London address you have on the bottom of your website. 😉

  4. Paul Dyson
    February 23, 2012 at 12:56 pm #

    Well that’s true!

  5. Jon Moss
    February 24, 2012 at 10:12 am #

    Paul, thanks so much for taking the time to write this. I found myself nodding away throughout the article.

    I especially agree with two points in particular:

    1) Bloody hard work but fun – the HDLive conferences have been exactly that, but the sense of satisfaction and the fact people loved attending makes all the worry, hair-pulling and sleepless nights worth it. At least I’m an old hand it now and will help this year 😉

    2) Location is irrelevant – Amen to this. I’m in a similar position with clients in NY, HK, Canada, France and Australia. We talk via Skype, and stay in touch using email, Basecamp and other web-based services.

    The only limitation right now for digital businesses is trying to pick one to start with and focus on – so many ideas!

  6. Kay Stevenson, KC
    February 24, 2012 at 4:40 pm #

    Pdyson is spot on. There’s never been a better time to start a digital business – and it could be that there’s never been a better place to do it than Hull. As an interview with KC’s Sean Royce in the Hull Daily Mail earlier this week pointed out, the digital sector’s a key driver of growth in the UK. Digital industries already generate £130 billion – 10 per cent of the UK’s gross added value – and even during the downturn the sector’s grown by 4 per cent per year. The roll-out of superfast broadband’s an enabler for further growth of this sector right here in our region.

    You can read the interview here http://www.thisishullandeastriding.co.uk/Super-fast-broadband-help-turn-area-digital/story-15290950-detail/story.html

    And recognising that the digital and tech sector has a part to play in stimulating the local economy, KC’s also set up a £300,000 investment fund to provide start-up and growth financing for new and small businesses in this field. More information here http://www.kc.co.uk/community/how-can-we-help#tab=tab-3

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