3 Digital Start-up Business Mistakes to Avoid

3 Digital Start-up Business Mistakes to Avoid

Digital business (previously called Internet businesses) are still all the rage and therefore the majority of new start-up business plans are digital business plans.

In some ways this is good – as it is a fast growing sector with very high levels of innovation (and failure rates). On the other hand, it means that we see the same errors of strategic business thinking repeated again and again.

So, to help out, I’ve laid out the three key mistakes that I’ve seen after 11 years working in digital innovation.

You may have some of your own – so please feel free to contribute.

1.) 1 in 100 Chinese customers

Many business plans start with this fallacy. They begin with the population of the world, or a country or a business sector and then say – ‘if we could only get 1% of that market’ then we’d have a business worth ?x million.

Of course, this is designed to make ’1% of that market’ sound tiny. But this is because you are working top down.

Take China for instance. The population is 1.3bn people. Okay, so 1% is 13 million. Is that a lot? Well, it is greater than the population of London. It is around half the UK’s working population. 13 million is also around about the peak level of TV viewing in the UK of the England vs Slovenia world cup football game.

So, when a start-up business begins with a huge numbers and asks if you could take just a tiny part of it – 1% say – they are making the mistake of working from the top down.

Instead, it is better to ask, what does it cost to gain a single customer? From which you can then ask what it would cost to reach 13 million viewers – well advertise around a major England football match – but to win 13million customers is going to require constant marketing and conversions of leads from your advertising. To give you an idea, a single 30 second TV slot reaching 13 million world cup fans would cost ?300,000.

The error then, is to work from the top down. Begin, always, with what does it cost to acquire 1 customer? And then argue whey you customer acquisition costs will reduce as you gain size and momentum.

2.) If I build it – they will come

This is the Google error. Okay, okay, Google had one massive success – the search engine – and ever since, every product has failed to deliver or failed to dominate its market in the way that you’d expect the Internet giant to do, given their brand reputation and quality of engineering.

Take a look at this great article about why Google projects fail – and you’ll find that it is because Google does not do marketing. Amazing really, as their income is entirely dependent on classified advertising that they themselves don’t do marketing.

Apart from one success, Google has delivered many greatly engineered products – but doesn’t lead the market in any of them.

That is because Google still believes that if they build it – the customers will come. Well, that simply isn’t true for anything but the most ground breaking of products (such as search). All the other products are great - and could be excellent if they included marketing.

So, why don’t business start-up entrepreneurs include the marketing? Well, simple – because the costs are huge! And, if fully costed, probably make the idea untenable.

Therefore, the successful entrepreneur has two options – reject the business idea – or do it anyway, but use stealth marketing. That is use the new (and therefore) cheaper channels – such as PR or social media or digital marketing – using freelance contracts. But you do need to be very good at this.

Either way, for consumer products, marketing will be 50 to 60% of your costs (okay, this may include commissions to 3 parties) and for industrial products, this might drop to 15 or 20%.

Nevertheless, fail to include enough marketing spend, and unless you have an utterly amazing product, you’ll end a failure.

3.) I haven’t built anything, haven’t done anything but if you give me lots of money, this will all change.

You may laugh, but this is the most common mistake.

Often it comes from someone who is thinking in a corporate way – ie. build the plan and then persuade – rather than an entrepreneurial way – ie. let’s have a go and see what happens / we learn (but without spending too much money or time.

The difference is massive.

One the one hand, you have a highly practical ‘go out and make it happen’ approach – which whilst it will be messy, will actually deliver some results. And those results – either good or bad – can be used to devise the next step in the business strategy.

On the other hand, you have a planner who shows no sign of being able to implement something on a tight budget.

Now, no matter how much cash you raise – your budget will always be tight in an entrepreneurial start-up business. In fact, if you can’t run a tight business, you shouldn’t set yourself up as an entrepreneur.

So, the reason that so many business plans don’t get cash – is because they don’t get started. Investors and business angels want to speak to your customers to see if you are any good. If you don’t have customers – there is no one to speak too – and the risk level on your business idea goes through the roof and the investment cash stays in the pocket.

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