1 post tagged startups

When we launched AgileZen, Niki and I made a deal. We’d earmark $20,000 — almost all of our savings at the time — for launching and running the business. We promised ourselves and each other that we would only spend this money, and no more, on our crazy attempt at entrepreneurship.

In retrospect, this was one of the best decisions we made as we launched the company. It allowed us to think of the business as an investment — and since we suffer from a certain level of egotism that seems to be necessary in entrepreneurs, we considered an investment in ourselves to be a good one. Being a bit of a control freak, I’m most comfortable with situations where my success or failure is largely determined by my own actions. The worst situations aren’t ones where you fail because of your actions, but because of the actions of someone else. But I digress.

We devised a bare-minimum budget, and after doing the math we determined that we could get our burn rate low enough that our twenty grand gave us somewhere around 16 months of runway at zero revenue. As it turned out, AgileZen generated enough revenue to cover our operational costs in the first 24 hours after launch, and was profitable enough to cover all of our living expenses in four months. Since we generated revenue from day one, we only spent about $700 of the $20,000 that we’d earmarked.

Having limited resources made us approach the endeavor much differently than if we had raised outside investment before we launched. Because we didn’t have the money to do any significant pre-sales work for individual customers, we were forced to focus on building a product that our customers would sell for us. A great salesforce can amplify your product’s ability to sell itself, but early on this amplification can mask deficiencies in your product. There’s certainly a level of company and product maturity at which a salesforce makes a great deal of sense. However, if you hire a great salesforce before your product has stabilized, you risk building a mediocre product and not realizing it since it’s selling so well.

The lack of a salesforce also meant that we typically couldn’t sell to large organizations, at least through large-scale “enterprise-wide adoption” sorts of deals. Even before we were acquired by Rally, we had plenty of customers who are small groups inside of large organizations, but we never flew out to meet with CXOs to convince them that AgileZen could make them more efficient. Because we designed our business model to sell organically to small teams, we could design our product the same way.

Just as you have to have your audience in mind when writing a book, you need to understand your end-user when you build software. If we had the potential to sell to both small and large organizations, we’d have been forced to design software that could be used by both. That’s much more difficult, and maybe even impossible.