Directly on the coattails of my previous post, I am ready to call out another common failure point for entrepreneurs.  Major mistake #2 is approaching your web developer / partners / bank / focus group with baseless (or undetermined) pricing.

As a web developer with loads of startup experience, it is my job to give entrepreneurs direction with their web presence, but I am still amazed at how many people ask me “how much should I charge? or should it be free?” at the beginning of the project.  Don’t get me wrong, I very much enjoy the process of helping people derive a dollar value for their service based on their expenses.  It’s actually quite fun and gives me unparalleled insight into how their biz will operate both logically and financially.  I rarely build two web apps that operate in a similar manner or industry and, so, I hardly ever have “all the answers” at the point when I initially engage with a client.  Therefore, that process is necessary.

But the part of this process that is silly is why am I the one that is instigating it?  When entrepreneurs are deciding whether their idea is financially viable, the core part of the exercise should be computing operating expenses (especially marketing — which everyone neglects — e.g. “I’ll send out emails to all my friends” … ugh).  Weigh cost of operations against startup capital to see how long you can last in the negative.  Now you know if you need a primary revenue stream (advertising, for example) and whether you can afford to offer a free service.  Generally, after about 15 minutes of work, entrepreneurs see that they cannot support a free model.  And even better, it’s pretty clear how much needs to be pulled in each month.  Divide that by the number of users you are going to have.  Now divide that by 10 because that is the REAL number of users you are going to have.

I don’t expect enterpreneurs to come to me saying, “We need to bill $3.14 every three weeks”.  I expect lots of gray area.  However, sharp entrepreneurs should really be asking me the questions that allow them to refine their costs.  Like, how much is hosting?  How many servers do I need and what will they cost and can that be amortized over X months?  These questions indicate to me that the entrepreneur has determined that his model is at least somewhat financially viable.

Worse than this, however, is the client who tells me that pricing should be $9.99 per month “because it sounds good”.  I’ve heard it way more than two or three times.  To this day, I still can’t prevent my jaw from dropping when a prospect says this.  Next time, I should probably tell them that their project will cost a flat $69,500 … and when they ask why … wait for it … oh, hell, you complete the joke yourself.

Anyway, fon’t be a tool; run through this process and be hugely conservative when it comes to the number of advertisers, users, and revenue streams you’ll have.

I’m starting a new series of blog posts cataloging enormous or classic blunders that I’ve witnessed firsthand.  These are the mistakes that entrepreneurs made in their ventures that unequivocally caused a project to fail.  But this isn’t me just sitting on the sidelines calling fouls.  These really happened.

Now I know I am going to catch flack for the in-your-face title, so I’ll give a brief explanation.  If you are an entrepreneur and you can’t check your ego and absolutely inhale all of the data that is out there (mostly bad, some good), then you don’t belong in this game.  That MBA from Wharton isn’t going to get your site launched, real life lessons will.  Every biz-related datapoint that you run across needs to be weighed and you need to make a case as to why it doesn’t apply to you.  Don’t put up a wall and claim that you are immune from idiocy and failure.  Wholeheartedly accept that failure is your project’s most likely end point and move forward keeping that very real prospect on your short-list of outcomes.

That said, if you can’t make the case against a datapoint, then you indeed have that problem.  Don’t fight it.  However, that isn’t what makes you so foolish, sir.  It’s your inability to accept and adapt your strategy.  Once again, check the ego.

Many years ago, a friend pointed out that I had no backup for my lead programmer in my development workflow.  I railed against that concept of single point of failure, claiming it was not a valid concern so why should I invest time in training senior coders to be architects.  Care to guess what happened?  I lost my lead, nobody could take her place, the client lost faith and walked a short time later.  Single points of failure nearly caused the doors to close back in 2005.  The lesson: I was a fool with an ego.

Alright, so now that we have a level playing field, mistake #1 is trying to launch a project without a recurring revenue stream.  Google will not buy you.  Google buys about 10 to 15 companies in a really big year. I launch about 30 sites a year and I am one small developer.  Seriously, you have no chance if this is your strategy.  You have to have some incredible, patented tech to even catch their eye at all, much less get purchased.  Profitable operations is one sign that a technology is solid (when the crowd opens their wallets, that heralds mainstream acceptance).  That last sentence there, THAT is your datapoint.