Building a Business from Scratch

Bootstrapping, or building a business from scratch without any outside financing, can be a brutal way to get into business because resources are limited and founders are often more focused on developing products than markets. But since real customers make or break a new operation, focusing on customer needs should be a bootstrapper’s prime concern.


A young Vancouver company shows how anyone trying to get a business off the ground might benefit from a technique that is taking over the software business: asking potential customers to help develop the product before it’s launched. Allocadia Software Inc., which provides online software to help manage marketing budgets, spent a year in development and market study before launching in February 2009.



The Problem


Allocadia’s founders, twin sisters Kristine Steuart and Katherine Berry, intended to serve corporate marketers whose budgets are increasingly complex. However, they didn’t have the resources to exhaustively survey potential customers’ particular needs. As a result, while they were developing their product, they didn’t know how it would resonate in the marketplace.

 


The Solution


To plumb the minds of potential customers, the Allocadia bootstrappers chose to build their business by adapting a new, low-cost technique called agile development. Typically, a product or service is developed and distributed to interested users who test it and provide feedback on how the product should be further developed.


This is the reverse of the traditional method, where new companies line up the entire business prior to launch and then unleash a sales force to go out and gather customers. Agile development helps a new company manage its slim resources while at the same time aligning the product with the needs of the target customers.


The Allocadia team decided that it should seek out early adopters, who often like to help with the development of new products. To find them, the sisters enrolled in a trade show for marketers and set up a humble booth in which they had a single laptop with their software on it. They asked all who were interested to provide not only an assessment, but also suggestions on what the final product should look like. This yielded about 60 strong leads and several “beta,” or trial, customers who helped shape the final product for launch.


After the launch a year ago, the Allocadia team shifted back to product-development mode to answer early feedback. It rewrote some code, tweaked some architecture and made its online software more customizable so that it could serve a wider array of customers. It is also using the new “freemium” business model – in which some customers get a basic service for free and others pay for more complex services – to create a marketing funnel that channels the most interested customers to buying mode. Again, this is more cost effective.


The streamlined methodology worked. The 
website now has 150 free users providing feedback and about 40 who pay for use. The founders expect to be cash-flow positive in the near future. Once that happens, they’ll move into their third and most challenging phase: profitable growth.

 

Lesssons


• • Be creative. Using a paint-by-numbers approach to business creation doesn’t work in bootstrapping.

• • Be sales oriented. Learn how to talk to prospects like a salesperson, not a developer. 

• • Be like a big company. Have a step-by-step plan and allocate resources judiciously.

Check out Tony’s blog at 
bcbusinessonline.ca/insider