Hobby for a Career
I often hear people say, “I loved doing X, so I turned my hobby into my job.” I love hearing this when it works. Passion is really important in a startup. The problem is that many people misjudge their desire to focus their hobby skills to serve clients. If you own a hobby startup, you are likely CEO of a company with an exceptionally small valuation. For a hobby-startup to succeed, the hobby must take a back seat to your customer’s needs. The CEO of a heli-skiing company must put his employees’ and clients’ safety and happiness well above their own need to make fresh powder tracks. Don’t get me wrong; I want people to do what they love. But I also want founders to recognize that they must have more passion for solving their customer’s problems than their own.
You may be running a hobby-company if …
- You failed to validate your product before you built it
- You haven’t thought about how to deliver your product or service
- You can’t quickly and easily describe your customer’s problem
- You’re more interested in the solution than the problem
- People say, “That sounds like a fun job,” rather than “How can I get that?”
Patents Mean High Value
Patents are necessary, but just because you have a patent, doesn’t mean you have a higher valuation. Unless you have an expert in patent law on your team, you probably have no understanding of the value of your patent. If Samsung and Apple can litigate back and forth about the difference between a tap and a zero-length swipe, do you really think your patent and financial backing will stop the big fish from swimming in your pond? Probably not. For most companies, a patent’s main purpose is to protect you from competitors or patent trolls who may want to stop you or extract their pound of flesh. Inevitably you’ll want a patent, but don’t place too high a value on the patent (pending or not).
The Market is Huge!
Nearly every pitch I see says something like, “If I capture even one tenth of one percent of the market, we’ll make bazillions annually!” So, why isn’t every startup worth some multiplier of that bazillion dollar revenue? There is a very big difference between a market existing and being able to capture that market. Almost every cable subscriber I know wants better cable. Yet, capturing any portion of that market from the big players proves to be hard because of rollout costs and customer acquisition costs are astronomical. Every startup has a bazillion dollar expected revenue, so your extreme revenue projections won’t necessarily gain you a higher valuation. Looking at the historic market share and valuations data for similar startups to yours may provide better metrics.
Yes, killer tech is awesome. I love geeking out on tech, tech and more tech. It’s fun. Killer tech can make or break some companies. But more often than not, I see startups developing killer tech for the fun of it. Killer tech does not always lead to a better user experience. Killer tech does not necessarily appeal to the customer’s desire to feel cool – or look good – or save money – or succeed. In fact, having tech that doesn’t benefit the customer in some substantial way decreases your value. If that tech doesn’t decrease cost or increase sales, it just costs you money to maintain. For techies, killer tech is the hobby. Beware of running a hobby company. Contrary to popular belief, “killer tech” can and often does kill startups.
- When valuating your startup you should gather as much numbers and data as you can . Make sure your valuation is justified when pitching to investors, know the market size, your potential percentage of the market, validate extensively and have an understanding of the purchase intent from consumers for what your offering.
- Only 19% of all funded companies filed at least one patent application prior to receiving funding. –Tech Crunch
- If you’ve found a solution, great! But don’t lose sight of the real problem at hand. Problems evolve and so should your solution and business plan.
Author: Jesse Lawrence
Founder and CEO of @Boulder_Bits also a Sci-fi lover, game theory strategist, and idea generator