Building a mobile app is hard and building a mobile app business is harder. One of the most important decisions determining the success of your mobile app startup is made before you even start: it's choosing where to start. My favorite takeaway from Zappos Founder Tony Hsieh's book Delivering Happiness is his analogy comparing choosing your industry to playing poker. He'll describe that the most important decision in poker is choosing which table to play at. Do you play at the table with well-rested, skilled players? Or, the table with tired, alcohol induced players with uneven chip stacks? The answer is obvious in this context, but deciphering which is the right table in real life is much harder. Especially when contemplating the entrepreneurial prospects of launching a mobile app business.
Here are the 5 tips to creatively identify the best table to sit at.
1. How easily can you be squashed?
Does a modern monopoly already exist in the industry you want to enter? If you are planning to compete against well-capitalized and entrenched competitors, get ready for a costly war. Public companies are very good at putting up barriers to entry and starving potential competitive threats of cash.
Am I saying that the existence of a public competitor means the market is too crowded?
No. Private companies also contribute to how crowded a market is.
If you are just getting started and a private competitor has raised over $50 million in venture capital, it will already have serious momentum that you will have to overcome with a great strategy and near-flawless execution.
In platform business, market leaders experience even stronger barriers to smaller competitors because of the nature of network effects and winner-take-all dynamics. There are exceptions to the above. For instance, if a private company raises a debt round instead of an equity around, that could be a flag. If the company hasn't raised in a long time (unless they've suspended capital raises because of profitability) or raised a down-round, these may be signs of trouble in your larger private competitor.
All that said, don't be deterred by the sign of competition. If there is NO competition in your market, that is the biggest red flag of all. It doesn't mean you are brilliant and have thought of something no one else has (that's almost never the case). Instead, it could mean something much worse...that other people have tried and failed when faced with insurmountable obstacles. Do deep research to understand your competitive environment. Learn from the successes, but dig to learn from the failures. Those insights are priceless.
2. Downloads are deceitful. Usage is insightful.
A business thrives on repeat customers. Churn, or when a customer who would have normally generated additional future revenue for your company stops being a customer, is a huge KPI to measure the lifetime value of your customers.
For platforms like Uber and Facebook, you not only need repeat consumers (users scrolling through their news feed or passengers requesting a ride, respectively), but also repeat producers (users sharing photos of their family picnic and drivers, respectively). Both sides of your ecosystem need to have a strong, repeating value proposition that keep them coming back for more. Initially, it's ok to subsidize value to incentive users to download and use your app in the beginning. But, if your strategy relies on you continuing to subsidize value for repeat usage, this is a costly proposition and a strong indicator that your mobile app doesn't have the legs to be a standalone successful business.
3. How to get to 1,000 transactions, the right way.
Would you rather have 100 users do 10 transactions or 10 users do 100 transactions?
The answer is easy: the latter.
Density of interactions > number of users.
If you can show sticky, repetitive usage from your users, you're doing something right. At that time, your pitch to investors is simple: people love my product, invest in my company so I can acquire more users who fit a similar profile. Based on their repeat usage of your app, you'll know something about these users and then be able to figure out ways to find similar users elsewhere.
Rinse and repeat.
Figuring out the product-market fit which results in strong density and stickiness is one of the hardest challenges to overcome. And, as you scale, this challenge continues to manifest itself in different ways.
4. History repeats itself.
Learn from the successes of those who came before. The tech and VC community on the internet shares a lot about what worked and what didn't work. Find these thought leaders and find analogs that you can apply to your idea and business to avoid the same mistakes and to steal great ideas.
There are defined strategies for how you can acquire users. In platforms, hitting an initial point of critical mass is a huge milestone. You need to have a number of strategies at your disposal for how your business will get there. Simply spending money on marketing won't cut it. Platforms call this challenge the chicken and egg problem (read about Applico's 7 strategies for overcoming it).
5. A vision to inspire.
Not only do you need to be passionate and motivated to accomplish your vision, but you need a lot of other people to help get you there too. Is your vision powerful enough to rally your troops behind? Will it resonate with employees, investors and users? In the beginning, your utility to users will probably be the driving message in your branding and marketing; however, as you grow, your marketing will need to evolve into more aspirational messaging. When Airbnb started, they were called Air Bed and Breakfast. Now, they are a symbol for a much larger community of users passionate about adventure and culture.