Failing Business, When to Walk Away

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I know, I know most of us techie people don’t like to talk about the big elephant in the room MONEY. Maybe it’s because of our personality type, or maybe because we have a high starting salary or maybe because we are to deep in C++ code to care about it.

Tell me about the Business?

When I am not hard at work, taking care of my clients I like to work on my own ideas, because we all know that you cant keep trading hours for dollars. Last semester we had 5 days outside the class room to tackle any problem that you would want to solve using C# code for one of my colleges classes in my CS course work. It’s enough of a short tine frame to really create something that you have always  wanted to build, in other words a Minimum viable product (MVP), but yet not enough time to shoot your self in the foot like trying to build a 3D game in C#. Cutting the story short I went ahead and created my MVP and everyone I asked if they liked the app they said yes. With this new motivation, I went ahead and took an extra 3 weeks  to polish up the work test out my code and write some documentation along with completing a mobile application for android.

Whats the app about?

It’s actually really simple, here where I live in Salt Lake City, UT we have a very popular site where people all over the state post items for sale. It’s like the modern black market of items, which brings back where I got the idea to create the app in the first place, bit more on that in a sec. The application allows users to setup a search query of the item they want to purchase along with price and a email to get notified when that item is available for sale, this is great because as soon as the item become available they get a notification with the link to the item to contact the seller. That’s it.

Why did you create the app?

I don’t live in the cleanest neighborhood, crime rate is pretty high along with the use of drugs. Since this is the type of world that I live, I know for a fact that a large amount of the items that go for “deals” on classifieds websites are “hot” meaning someone took the hit for that “deal” which is what is contributing to feeding the theft in the valley. So I saw a problem created an app and now next time someone comes up and runs away with my phone “snatch and grab” I can actually be tracking for it, if it comes for sale on this classifieds site.

When to Walk Away

All sounds good right? Well not exactly, I did a bit of simple math and if I want to make any sort of income from this application it’s actually going to be costing me a whole lot of money that I personally  do not want to dump on this idea anymore. Here is the break down of  my analysis which is simple, all  you have to is figure out the following.

  1. Break even point
  2. Cost of customer acquisition
  3. ROI (Return on investment)

You are a fool, every business person knows this. Exactly my point business people know this like the back of there hand, for us developers it’s a bit different because personally I don’t like spending my time on finances of the business, but yet it’s a the blood that keeps the mammoth running. Since this is my startup, then it is my problem to figure out how I can make this into a profitable venture. Now let’s take a look at my cost analysis of my current expenses, I did the numbers if I was to keep investing and running the business for 2 years the numbers are not exact but it gives you an idea of what I am looking in order to determine when to KILL the business.

 

Overall project cost:

$10 x 24 = $240 hosting

$5 x 24 = $120 nodes hosting

$75 x 160 hrs = $12,000 Development

$380 x 24 = $9,120 Advertising

$0.11 x 2500 = $293.84 10,000 paper ads

$80 x 10 = $800 labor for delivering ads

————————————————–

Total $22,573.84

The cost of customer acquisition

10213.84 (Marketing Budget) ÷10000(Leads)= 1.02 * %99 = $100.98(Cost)

 

Number of clients needed: 22,574

Profit = $1

So You are saying it’s going to cost you 22K+ in order to make a $1 dollar profit?

Brutal right? Everything here start breaking down and one of the things that I did not notice when I was programming the application was the price of customer acquisition because I have made such a niche application, it cost me a little over $100 dollars to acquire one customer that will pay $1. THAT’S INSANE!  Now the tables have turned, because for the past decade I have been train to be a consumer and not a producer, now I can see why companies have large amount of budget in the marketing departments it’s what kills you or makes you, not only that but the value of an american is well so valuable.

Pull the plug!!

So you look at your business and try to understand where you are failing and come up with the decision to keep going or pull the plug. How do you get the guts to kill your baby? You just have to be brave,  pick up what you learned and have a great funeral and be prepared to take this experience on to the next great idea. For me I have picked up a couple of great pointers, for example I am always going to run the numbers for my business and let that be the guide if I am failing or succeeding. Next would be to test out ideas as early as possible and keep on improving and disproving assumptions. For this project I will keep paying the hosting and keep paying for the site to stay live because It’s a useful services that I find valuable. But that’s where I draw the line no more money towards advertisement and acquisition of users.

 

What’s next? 

The next thing might actually shock you! It’s kind of ironic how you try one thing it fails horribly and than you got right on to the next thing. So what’s next? Well I am not sure exactly what it is but I do know it’s a startup because it has the potential to grow rapidly  in a small amount of time. I am going to be forking off a bunch of ideas from all kinds of places even from my baby that I killed in order to create a MASS(Metal As A Service) for the cellphone industry, like i said this idea is still is in it’s infancy with no major road way to take yet. If you are a business developer and would like to know more about the idea take a sec and look at my pitch.

Author

Rick H

Rick H - Responsible for evaluating business requests to determine feasibility, identifying options, and recommending solutions for software development and enhancements. Assist with interpreting customer requirements into conceptual design specifications. Developing interfaces/prototypes and maintaining/testing solutions, conducting root-cause analysis of system, and recommending solutions based upon findings.

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1 Comment

  1. Karate James July 7, 2014 at 11:52 am

    Rick, they only mistake you really made was that as the owner/ inventor your *don’t* get to pay yourself that $12,000 in development! That gets delayed till you’re profitable – that’s why being an entrepreneur isn’t for everyone.

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