Recently a friend asked me for some advice about building an online business. Essentially, he has invested some time building contacts in a particular field and has developed some unique content. He is looking to find a way to build a business based on what he currently has. There is already one website out there that is similar to what he is thinking of building although he would not be using the same business model. One thing he wanted to know was how much it might cost to build something similar.
To give him a ballpark figure is not hard. But at this point I think it’s the wrong question to ask.
He is struggling to identify how he will make money. He has a family and little free time. He wants to make sure he is investing in something that has a good chance of making money.
Reading books on business doesn’t make me any more of a businessman than reading books on surgery would make me a surgeon. Still, I have a little experience when it comes to online business so I felt comfortable sharing my thoughts. We had a few discussions and then I wrote him this email:
I would suggest that looking at the site’s functionality is putting the cart before the horse. You asked for my thoughts and I would never want to give you some watered-down feel-good bs.
If you were really involved in [the field he is interested in pursuing] you might build a site like this simply to connect with like-minded people. In that case, you might not care if it makes money as long as you’re having fun. Sure, you might get lucky and end up developing something lucrative but that would be icing on the cake. Because first and foremost you are simply an enthusiast and building something like this would be fun regardless of its financial success.
From our discussion it sounds like you are looking to approach it more like a businessman and make money vs approaching it like an enthusiast. That being the case, the first thing you need to do is identify your customer and your product and then you need to find a way to test it against the market to see if it is worth investing in. I wouldn’t invest money in anything until I had identified, at a minimum:
1. A product
2. A customerAt that point, the next thing to do is to build the simplest thing possible to test the market and see if it makes sense to move forward. Testing may or may not cost money. I can’t be more specific because how you test would depend on the product and the customer. But that is how I would approach it.
Consider this definition of a business model (taken from here):
A business model describes the rationale of how an organization creates, delivers, and captures value.
In order to build a business, my friend has to find or develop a model for:
- Creating Value
- Delivering Value
- Capturing Value
That all depends on:
- Having an offer/product.
- Having a market that needs or wants that offer and is willing and able to pay for it.
What about Facebook, YouTube, Twitter and other sites that started with no business model or created markets that didn’t exist before they came along?
They are exceptions.
If you want to pin your future on exceptions and essentially buy lottery tickets—that’s fine. You are betting on that one in a million chance which means the odds are against you. That makes you a speculator and speculation is a topic for another day.
If you want to invest your time in a business where the odds are more in your favor, identify your customer and your offer, make sure you can reach your customer and make sure they are willing and able to pay for what you offer.
