How to Flip Your Startup in 5 Steps
Steve Blank, author of Four Steps to Epiphany, has helped formulate the thinking behind the Lean Startup methodology, together with Eric Ries. I had an opportunity to meet him during a discussion around the Startup Genome project. He observed that most startups that succeed aren’t lean: their goal is to have an exit rather than a scalable business. What would be the methodology for startups that simply want to flip?
Flip startups are agile startups that aim to exit quickly. Unlike Lean startups, their priority isn’t to learn in order to create a scalable business model. Instead, their goal is to create a promising product. For example, it could be a successful single app or game. The idea is to build a hit that would make the founder(s) an appealing and quick talent acquisition (sometimes referred to as an acq-hire). This is lean development without any customer development. The focus is on building. Recent examples include Blindtype, Hipster or About.me. All three were bought before or right after launch.
The many hackathons such as GameJam or Garage48 have shown that it is possible to create a viable game or Web service in 48 hours. In addition, channels such as Applifier, Appsumo or the Humble Indie Bundle have made it easy to reach large groups of users. There is a growing amount of microfunding platforms, such as Kickstarter, Appbackr or A-List Games.
The consolidation of the social graph by Facebook, the various app stores and the abundance of cloud-based services lower time to market. Lastly, large companies that seek new talent will likely hire promising individuals through a small exit. All these factors combined make it more likely for a single coder to create a one-time hit.
The lean methodology aims to find and create sustainable value, regardless of the state of the market. Flips, on the other hand, thrive on trends: what better time for an entrepreneur to create a startup than when valuations are up, investments are quick, exits are plenty and deal flow is increase? These are the times when there is more demand for startups.
Here’s a tentative methodology for flips.
1: Find a Simple Idea
If your goal is to exit quickly, your aim is to deliver an MVP as quickly as possible. This means looking for an idea that is easy to execute with a limited set of skills. In the case of Blindtype, the software was mostly based on AI and required no frontend.
If your idea is simple, it not only means it’s easier to deliver, but also easier to sell: your app/technology is probably easier to integrate and meet another company’s needs if it has a limited scope. However, an idea that is too simple and doesn’t stand out will be difficult to sell.
Furthermore, if this project doesn’t work, you’d like to be able to reuse some of its code, in order to iterate new ideas quickly, so you might want your code to be somewhat generic. Eventually, you should focus on an idea you can deliver, reuse, in a field you know really well, so that you require little to no outside help. This should also help valorize you in a acq-hire scenario.
2. Build It
The development part is similar to a lean startup: you want to be agile. The part where they differ is that lean startups will seek to implement analytics and track user feedback for their next iteration, whereas flips won’t.
Build your product on top of existing blocks. You may have existing code lying around from earlier projects, or be able to use open-source components or libraries to make your life easier. Hosting can be pushed to public clouds, authentication to OpenID or Facebook; services like Launchrock or Optimizely can help create a landing page. The same goes for payments, analytics, emailing and more. Once you have those out of the way, you can focus on creating only your actual app, game or service.
Services such as Cabana or GameSalad let you easily create an app using drag and drop. There is nothing inferior about using such a tool to create something meaningful rapidly. However, this will impact the value of your IP.
3. Create Buzz
Every startup needs PR, but this is even more true of flips. No one is going to buy your product if they don’t see potential in it. The key is that you want to create the promise of value and showcase your idea in the best angle. There’s nothing wrong with hype; movie trailers do this all the time, after all.
Hipster got pre-registrations because of their name and the rumor they were working on something amazing. Blindtype posted a video on Youtube that showcased its technology. Creating quick buzz and social proof is not the same a developing long-term customer development, but it pays off.
A good way to get attention is to get catchy metrics. Being the most-downloaded app in a small country, generating the most traffic or the most downloadable content sells. For a small investment of money, you can get your friends and family to buy your product and extensions, and buy your way to top of the app store. Consider it a type of SEO investment!
4. Don’t Pivot, Reboot
The vast majority of startups fail. At this point, you will probably think about what your next steps should be. The key for a flip is to make sure you don’t put all your eggs in the same basket and diversify as fast as possible, to maximize your chances of success.
Think of yourself as a VC. You have a limited fund, bandwidth for deals you can work on, and a portfolio of existing code and skills. In that sense, lean startups are similar to a focused investment strategy, whereas flips are more like diversified, “spray and pray” approach.
How would you handle your failed investment? Do you have anything of value to get out of it, such as traffic, brand or technology? Ideally, you’d like to be able to piece the stronger parts together to create something event stronger.
If things go well, you may want to persist with your idea, but do keep in mind that transitioning from a product built on a hunch to a scalable business is a risk. At that point, you should seriously consider becoming a lean startup.
The good news is that the goal of a flip is aligned with VCs; their aim is to sell too, not simply to build a sustainable business. The problem is that they are also known for their herd mentality. Your idea might fit their portfolio or a hot trend, but your early traction isn’t enough to be the basis of a healthy business. After all, you haven’t proven any assumption yet.
One more thing to consider is whether or not you feel like turning your successful hobby into a full enterprise, and recruiting and managing a team. Do you want to stick to this idea in the long term and possibly gamble further, or fold?
Flip or Lean?
The decision to create a lean startup or a flip is entirely dependent on your ambition. If your goal is to show off your skills, create apps, make a quick buck and maybe get hired, flips are the way to go.
While I expect many supporters of long-term value creation to be detractors of this approach, I think it is safe to assume that we will see more and more small apps being built and propelled to success in this way in the coming years.
What remains to be seen is whether flips are dependent an environment where large companies are constantly making talent acquisitions and where apps can scale to hundreds of millions of users, or whether this methodology is sustainable regardless of industry trends.
Photo by nighthawk7