Sorry, your “cool” webapp is probably not going to make money


Sorry for crushing your dreams but your web app for tracking happiness levels (or for “social-aware” todo lists) is probably not going to make enough money to let you retire in Hawaii. Many programmers and web developers find making a web app very satisfying and there is nothing wrong with that. As long as you are doing it for fun, it is OK. But making web apps is the trivial part. After all, most web apps are nothing more than a slick interface for CRUD operations. The key to making money is to find a market where people are willing to pay for those simple CRUD operations.

The usual approach for making web apps (or “startup” as some would like to call it) is this:

  • Have a “cool” idea
  • Implement it in X number of hours
  • Try to justify its need by finding users who may use it

I am just making up a statistic here, but I have seen 9/10 efforts losing hope after the third step and the web app just languishes with the creator given up on it after initial euphoria.

That is a wrong approach.

If making money is the objective, I suggest going with the market-first approach (as opposed to idea-first approach). If you are confident that you will be able to make a good enough product/prototype, I suggest taking the following approach:

  • Find an industry (ideally, an old fashioned one) where people are making money
  • Find the single differentiator which will put your app apart in the already established industry (read or research what pain points are still not addressed by top 3 solutions)
  • Make a web app, market it, refine it based on feedback, monetize the app
  • Slowly incorporate all standard features expected out of a solution in that industry so you can shoot to be a market leader

Note that I never talked about the idea here. That’s because I believe in market-first approach. Any sufficiently big market will give you tons of interesting ideas. Why do you need to come up one of your own?

As far as finding industries that make money is concerned, I will blog about it in next post. But I will leave with an example: Survey Industry. Did you know Survey Monkey makes $45 million a year in this (boring) industry? Then there are other players who are most likely profitable: Wufoo, Survey Gizmo, Kampyle, etc. So, instead of an image-gallery app, why not make a survey software specifically targeted at, say, event attendees. Once your app is ramen profitable, fire all your engines and pivot as full-blown survey software.

Aim is to make money, not justify your “cool” idea.

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36 Responses to “Sorry, your “cool” webapp is probably not going to make money”

  1. Atul Gupta
    10. January 2011 at 17:03

    Excellent article!!
    I’m eagerly waiting for your article on finding industries that make money.

  2. Atul Gupta
    10. January 2011 at 17:12

    Paras,
    I’ve been doing some research without any result to find
    -how the companies I’m researching are working?
    -Is there any real profit in that business model?
    -How to copy that business model and start your own company,etc?

    I can’t understand how to go about researching this stuff to get credible information

  3. qna
    10. January 2011 at 17:16

    Maybe a cool idea is just to be cool instead of money making. :-)

  4. Paras Chopra
    10. January 2011 at 17:17

    Atul, that is actually the hard part. Figuring out which markets are making money (or could potentially make money) is one of the toughest things to do but I would try to detail how to approach it in the next post.

  5. Zachary Burt
    10. January 2011 at 17:53

    Atul,

    The book “Start small, Stay small” by Rob Walling has some good tips on picking a market. For example, if there’s a magazine for it, it’s probably a worthwhile niche.

    Zack

  6. Paras Chopra
    10. January 2011 at 17:56

    @Zach: great suggestion!

  7. Rishav Rastogi
    10. January 2011 at 17:58

    Yeah May be, but does the second kind succeed as well.

    I worked with several startups, following either approach, there are alot of things that have to click.. Statistically speaking both have them equal chances..

    So such generalizations are anyway common knowledge…. but most startups know them but they don’t do them… for example incorporating feedback into there workflow.. building some kind of community around there product. Getting the users/customers involved early.

    Most people go after a cool idea because it has a some differentiator… possibly big and small…. what makes them tick varies from startup to startup… and some of them don’t even ace that list

  8. Paras Chopra
    10. January 2011 at 18:00

    @Rishav: “Statistically speaking both have them equal chances”

    That is the point I am trying to make in the post: market-first approach has much more chances of being successful as compares to idea-first approach.

  9. Jed
    10. January 2011 at 18:10

    Hi Paras,

    Great article and very well written. I assume you are referring to generic webapps and not for the enterprise?

    If so, I somewhat disagree. In my opinion, it is safer to build a “generic” webapp to a market where there is existing competition. You can’t just enter any industry especially when there are zero apps that is available for them.

    Now if you’re creating enterprise apps then thats probably okay.

    Jed

  10. Matt Moore
    10. January 2011 at 18:18

    Great post Paras, I think you hit the nail on the head with this one.

  11. Jason Grant
    10. January 2011 at 19:02

    Generic nonsense galore!

    First of all, most successful web apps were built on a whim and from experimentation, without any real market ‘need’ for them (Twitter, FaceBook, Google, even Amazon and eBay), etc.

    Secondly this goes straight against what 37 Signals preach about how to build web apps.

    Thirdly, there is almost no markets left where there is no competition and arguably the marketplace is so big that there is virtually unlimited demand for these types of things (how many social games are going to be sold this year, even though they are just re-skinned versions of the same thing).

    I agree about marketing aspects you talk about, but that goes for any product – you can’t just have a product, you need to market it also.

    Failure is also part of the success. An initial solution may not be what is needed, but it serves as a concrete lessons learnt for the next iteration. Research only does so much, while trying things out concretely will give you real feedback.

    And also are you posting this from your own experience or from what you ‘know’ for sure. There are always exceptions to the rule and the rule itself is often unclear and hard to define in the first place.

    So I think this is a pretty worthless post to be honest, but well done for putting words onto a web page anyway.

  12. Paras Chopra
    10. January 2011 at 19:05

    @Jason: there are exceptions to everything and in my opinion most successful web apps (as you say: “Twitter”, “Facebook”, etc.) are exceptions, not the rule. I don’t think what I say goes against what 37Signals preach and even if it goes, why does it matter?

    Your third point of having “no competition” is what I want to address. If you have “no competition”, there is probably a good reason for that.

  13. Sarasota Real Estate
    10. January 2011 at 19:06

    Another good tip is to find people using Excel spreadsheets for something they shouldn’t be, and create an app around that process.

    I also appreciated the Paul Graham ‘ramen profitable’ link.

  14. David Quigley
    10. January 2011 at 19:23

    I totally agree with looking for your market first if you’re goal is to make a profitable business out of your web app, but I think it’s worth mentioning there can be other goals or reasons for building a web app.

    You can do it as a demo piece to get new consulting gigs or to having a resume piece to show you’re knowledgeable about a topic. Or simply as a way to scratch a personal itch and learn a new programming language.

  15. Adrian O'Connor
    10. January 2011 at 20:21

    This is a very interesting post. However, I’m not sure it’s at all as clear cut as you think — I’m sure that somebody who could take a market opportunity and carve a successful (and profitable) idea out of it is also the kind of person who could take an idea, validate it against a market, and then run with it only if it’s got a good chance.

    I guess what I’m trying to say is that I don’t think the idea-first approach is wrong — I think you’re mixing cause and effect. I think having ‘big ideas’ is something that appeals to our techy brains, and we just ignore the most important part (finding real customers) and hope that our great idea is good enough to find a market all by itself (which of course it won’t, because that’s not how it works).

    For my own part, I have a Document Management system that I wrote over 4 years ago and virtually nobody uses. It’s demoralizing to look back, but I went with the idea first, then the implementation and I totally missed the most important steps — validating the market, finding customers and making money. The trouble is, if I could go back I’m not sure what I could do different, except to partner up with someone who CAN do all that stuff.

  16. Jason Grant
    10. January 2011 at 20:28

    One of the key ‘troubles’ with software is that ‘looking for a market’ is a misnomer as it implies solving problems for people you don’t know and problems you don’t know much about.

    For example, a time sheeting problem is so varied across different companies that it’s virtually impossible to solve properly, plus there is loads of (rubbish) competition that does well in terms of marketing themselves. Then companies are stuck with a solution for a long time.

    One of the only alternatives is to solve one’s own problem first and then promote that problem around as a solution that other companies should use.

    This is common to what Google, Twitter, 37Signals and FaceBook do all the time. This is also why web developers often ‘jump on’ coding something and calling it a ‘start up’, both of which are false and doomed for failure, but it’s not a wrong thing to do, as it is a concrete way to learn what works and what doesn’t.

    So I think your post is too generic and doesn’t help much, as sometimes people simply don’t have access to a market. Sometimes there is no problem to solve (like Twitter), but the solution is interesting. Sometimes it’s just about doing things a different way and sometimes it’s just some sort of a hook that attracts people to a service (a brand name or some sort of an article, etc.).

    Things can happen in any way and ‘traditional’ approach does not mean the ‘right’ approach.

  17. Francisco Costa
    10. January 2011 at 21:45

    Yes it is!

  18. Satpal
    10. January 2011 at 21:54

    “Aim is to make money, not justify your “cool” idea.’

    I tend to disagree.

    Not with the general idea but with the specifics.

    Internet as a platform is undergoing innovation at highly unprecedented rate.I doubt steam engine went through same level of activity during and after its creation. People are building thing on internet are doing so not to build business but to understand what is working, how its working and what is missing. these hackers and hobbyist were always there. with the falling price of computing, ease of programming and very nature of internet have this become more fun. Business press, VCs and likes of Goldman Sachs are also making there worthy contribution.

    Business minded people do what they always does: Business. We will have survey monkeys. But I doubt people who are building apps do not know how to make money. They know what they do is not about money. Its about fame, about thrill of exploration, sheer luck of hitting jackpot withs something cool. they they can build a survey money any other day.

    Beauty of internet is nobody knows how to make money. i am not talking about 45 million or 100 million. The race is to own the internet.

    twitter is cool application and so is Facebook. Are they making money? No. Will they? Maybe. For making money is priority but definitely not the first.

    This the very culture of trying and doing things for fun and exploration is what makes Silicon valley most innovative place in world.

  19. Feature Overload » Blog Archive » WHAT A DOWNER
    10. January 2011 at 23:03

    [...] Rough for a Monday morning, but good points. [...]

  20. Atul Gupta
    10. January 2011 at 23:25

    Zack,
    Thanks and yes I will surely check out the book.

  21. bluepicaso
    10. January 2011 at 23:36

    Great article.
    Thank you

  22. Aniruddh
    11. January 2011 at 00:01

    Had this been the case, we would have seen many types of reinvented wheels but no car to use them!

    PS: Using example of facebook might not be correct as facebook did what myspace and friendster were already doing. They just did it better! Having said that, I too humbly don’t agree with the post. It was never about just making money. The thrill is to be at the fringes, own the market(internet or non-internet), do something remarkable! I can earn money by doing a job anyday. Why a startup if I just have to make money?

  23. Todd
    11. January 2011 at 03:42

    If all you want to do is make money, why not get a job at Facebook?

  24. Abhishek Tiwari
    11. January 2011 at 05:13

    Very interesting write up Paras, though I will not say it was on of you best. Today you believe in market-first approach but what about 3 years back? I have been watching closely you and your work for so many years. Except Visual website optimizer all of them were idea first and none of them you as yourself count as successful. But at the same time you missed the importance of those ideas first projects in terms of creativity and learning which remains primary ingredient of your latest market-first creation. You must have learned so many things but today you are not ready to accept them. I guess this post more like you regret and frustration about you efforts in past which you cant value anymore.

    From your own startup life, I will suggest people should always start something with idea-first or things they are passionate about, for sure they will fail few times but there they will learn a lot, particularly how much difficult it is to implement those ideas. Once you are done with idea-first phase and you think you can take on market-first competition you should move on.

  25. Paras Chopra
    11. January 2011 at 12:41

    Abhishek: Great point. Yes, it is true I had started with many idea-first approaches which gave me a lot of learning but that is precisely what I am trying to pass on through this blog post. Why do other people need to make same mistakes that I did? What’s the harm is going straight to market-first approach?

  26. Abhishek Tiwari
    11. January 2011 at 15:42

    There is no harm in going for market-first approach from start itself but believe me you might not have that kind differentiation factor. One of my idea junky friend realized the same thing after 5 or 10 startup ideas, adopted market-first approach, now cloning Groupon model with a pinch of difference somewhere in India with initially success. Learning from failures is integral part of an entrepreneur’s life, so better not avoid it.

  27. Atul Gupta
    11. January 2011 at 18:23

    Lets get this straight.

    90% of us so called entrepreneurs want to make money and really ugly amount of money. When we see the ideas like “Facebook”, “Amazon”, “Google” taking off and now evaluated to be of billions of dollars we think that we can do it too.

    Its not like we can’t, there always be some of us lucky ones or whatever you want to call them that will come out with a revolutionary website, service,etc that will make a dent in the market, the company’s IPO will open in billions, photo on front page of “Time” magazine…..
    We should not quit trying coz the next sergey brin will be coming out from one of us.

    ——————–
    upto this point my reply was for the ones who still want to keep going on the “Oneday” track, no harm in it and no offence from my side.

    But those who do not consider themselves to be lucky enough should:
    1. get as much experience in an industry of their choice, i mean practical experience by working under a successful businessperson.
    2. save a size able amount of money for their initial capital.
    3. copy the business model of successful companies of your industry
    4. be ready to face them up front or carve yourself a different niche in the same market.
    5. keep on growing your company, it will take time.
    6. one day realize that you are big enough to be called a giant in the market.

  28. Damon Cali
    25. January 2011 at 01:30

    After a few attempts at more speculative (‘cool’ in your terminology), I have to agree. My latest product (http://trackjumper.com) is a bug tacker. There are LOTS of bug trackers out there. There’s your market validation.

    And you know what? It’s making money right out of the gate. I’ll leave the what if’s to the visionaries. I’ll stick to making what I know will work.

  29. How to find startup ideas that make money | Paras Chopra's Blog
    2. April 2011 at 13:44

    [...] am glad that my previous blog post Sorry, your “cool” webapp is probably not going to make money received good response and generated a lot of debate. What I discussed in that blog post was that [...]

  30. Allan Ebdrup
    19. June 2011 at 01:59

    Funny you should mention survey software. I build http://obsurvey.com that is actually a survey solution.
    However I would not recommend doing that to anyone. It’s a saturated market, it’s the idea everyone has.
    I’ve spend 4 years on it so far.
    Luckily I only build obsurvey for fun, and to prove that it was possible to build a survey solution that’s much easier to use than any of the others, so I’m not disappointed that I’m not making a living from it (it’s 100% free, no ads, no limitations)

    Instead I would recommend trying to find a truely unique idea. Ideas are cheap and plenty. I build obsurvey because It was fun and I couldn’t some up with a better idea. Now I’ve come up with a truely unique idea that I have high hopes for, I’ve partnered with two friends and I’m leveraging everything I’ve learned from building obsurvey, to make sure my new idea takes off. This time I’m aiming for actually living off it.

  31. matt
    19. June 2011 at 19:54

    i agree with the post and Satpal’s comment some of the rest are a bit dumb

  32. Bill
    25. June 2011 at 03:56

    Paras, watch out for those weird “comments” like “I’m extremely impressed with your writing skills as well as with the layout on your weblog. Is this a paid theme or did you customize it yourself?” Google this comment and you’ll find it plastered all over other sites. You’ll also notice crappy, broken English, a lack of citing anything really specific to what you wrote about, and hidden links and email addresses to sites peddling worthless junk.

    These are attempts by spammers / hackers to social engineer you into an email exchange and trick you into revealing how you are protecting your site.

    I had these jerks try this with my WordPress web site until I turned on an option requiring commenters to register their email address (and receive a confirmation password in the email address) to be able to comment.

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    11. August 2011 at 12:39

    [...] Der Unternehmer und Berater Paras Chopra beschäftigte sich in seinen letzten Blogartikeln damit, welche Geschäftsideen für Startups wirklich die Chance bieten, Geld zu verdienen, und welche nicht. [...]

  34. John
    30. August 2011 at 01:13

    For those who are replying and saying it should be idea first, are you forgetting that even if you find a market to enter before the idea, the idea still becomes a part of it, Paras doesn’t appear to be suggesting to find a market and simply imitate something in a particular market.

    Instead just find a market that is already working, and look for either a problem (pain) within that market or simply doing it better than those already established.

  35. Validate your startup idea by asking 3 simple questions | Paras Chopra's Blog
    13. February 2012 at 15:20

    [...] I wrote earlier, a lot of ideas are cool but they seldom provide value to anyone (and hence seldom make money). “Value” is not some abstract concept I am [...]

  36. Adarsh
    1. September 2012 at 19:40

    Nice Article. Learning a lot from your blogs :)

    Regards,
    Adarsh

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