Starting a new business

This post is about my foray to start a new business with 2 friends following the lean startups’ methodology and what I learn from it.

Recently a very entrepreneurial mentor of mine called to talk about a business idea. This is quite a common type of call I get from him. I see him as a visionary person and someone who can spot a business opportunity from miles away. Most of his business ideas are anything but traditional.

Most of the ideas we discussed are just ideas. Having a business idea doesn’t always mean it will result in a sustainable business. But sometimes through our discussion, some of the ideas spark new insight into other opportunities. This is one that he managed to convince me there’s a real demand for us to supply to. He also convinced a close friend to join us. This partner is an subject-matter-export for the product that we’re trying to create.

Starting Up

Most of the businesses that my mentor started, require him to be on the ground understanding all the intricate details involved and evolving that into what they are today iteratively. But for this new business, it’s going to be 100% online, which is where I can contribute technically. I’ve also worked in a startup going through product-market-fit as well as having read The Lean Startup, or so I thought 🙂

In the first meeting, I was tasked to set the technical direction and ideas on where to “start”. We agreed that it’s a risk if no one needed our product. So that’s the biggest risk that we need to validate before we invest in building the product. Initially, I proposed doing market research to affirm our business idea. Although I’ve read The Lean Startup, I never get to apply the principle of demand validation at the earliest stage. I was lost, but luckily I knew a close friend, Yazid, a design thinking guru who had done this for his highly demanded WagyuBox . He explained how he applied the principle from the book and provided me some ideas to test the demand of our product without actually having the product first!

Demand Validation

So I went ahead and set up demand validation by using Google Ads. Crafting a brief description of what the product is, and then point to a landing page that I whipped up from some free template. On the landing page was a simple form asking for the visitors’ email, for those who want an update when our business is ready to serve.

I didn’t waste too much time setting up the best-looking landing page, but I was also worried if anyone is really going to provide us their email. After 5 days and 95 clicks, I finally saw 1 email in the log! I was so happy that it actually worked. I’ve never been so anxious about my work before 😅

When toying around with the ad’s wording and keyword selection, I noticed some interesting cause and effect. The ad is configured to maximize clicks, and we pay each click by the price Google bids the ad automatically for us. With the “right” keyword, I can surely attract a lot of clicks, but at the end of the day, are those visitors our target audience? Not all visitors equal interested customers. They might have been duped by the “right” keyword, a.k.a click-bait. In the end, I find having an ad with genuine intention provides the best value for money. Why pay someone to come to visit your shop knowing they never going to buy anything. 

Over 4 weeks of experimentation, we managed to attain an average CTR(click-through rate) of 1.59%. For the keyword that’s closest to our product, we managed to achieve a CTR of 5.82%, which we believe it’s pretty impressive. But we also needed keywords of our competitor name in it, to widen our reach, hence an overall lower CTR. As for conversion rate, which represents those with true interest, it averages at 1.61%.

“If you’re not embarrassed by your first release, you probably spent too much time on it.”

Reid Hoffman

After 2 weeks of the ad run, we hired a product designer to update the design of our landing page, and the conversion rate went up to 3.26%. About double, which was our initial ballpark guestimate. That also proves I never belong in the design department 😉

What’s Next

We’ve nailed the keyword and wording on the ad, and most importantly, we’ve validated the demand with just a small amount of ads fee. From those emails we’ve collected, we want to engage with the users to help tweak our product offering to more closely meet their needs. But we have yet to register a company and decided on our branding. So that’s what we’re going to do first.

While waiting for the ads to run, we’ve come up with a list of brand names that make sense for our product, but that’s just our opinion. Why not let the user decides? I’m going to set up multiple ads each with a brand from our list, and we’ll measure the effectiveness of them while removing our personal opinion from the equation! That’s for the next part of this series. 

Take away

Nowadays with the aids of online marketing tools, starting a new business especially with lean startups methodology can help reduce the risk greatly. Knowing whether there’s a real demand for the product/service that we want to sell is really important to ensure a successful business before we invest in building the actual product.