Sell Your Product Before Building it!

One of the lean ways to start a company is to sell your products or services before you build them. I know some of you might be thinking, “Are you NUT?! How can I sell something that doesn’t exist?” Well, that’s exactly what I suggest you to do. Selling your products or services before building them brings many advantages.

Let me give you a case study. I run a financial education program for youth called Young Money Master. We train young adults to be financially smart though a creative marketplace simulation. If I were to follow the common startup process when I first conceived the idea, I would do a market research to see whether there is a need for financial education for youth. Let’s say the research result indicates a demand for my idea, I’d invest money and resources to design and build my program. Two months later, I finally get the program ready to sell. After a few months of selling, I might get a few sales but could still be losing money due to other operating costs. Perhaps the poor result could be owing to selling to the wrong market, or wrong value propositions that fail to appeal to the intended market. After identifying the root of the problem, I decide to pivot on my existing business model. I might change the target market, the value propositions, sales materials, the website, program materials, or the marketing channels. And it costs a great amount of money, again.

All of this unnecessary loss and wastage could have been avoided if we had validated the business assumptions before we committed time, money, and resources to design and build it. Certainly, we could validate our business assumptions by selling the products or services before building them. Back to the case study, what I really did was as soon as my co-founder and I agreed on the concept and objectives of the program, we started to sell. At this juncture, no solid program modules and materials were produced yet. We went to talk to the prospects to understand their needs and eventually sell them. We tested the price point, value propositions, and the effectiveness of each marketing channel. We measured the result and learnt from our feedback. We made numerous changes on our sales material and program after gathering enough intelligence. Only two weeks before the workshop then we began to produce the program material. As a result, we saved a great deal of time, money, and effort. The program turned out to be a huge success too!
The strategy above works especially in service businesses. If your business requires a physical transaction of goods at the time of purchase, you may invest a little money to produce aminimum viable product (MVP). MVP is the version of products that comes with essential features only. It serves to enable you validate your business assumptions. Your goal is to sell the MVP to your potential clients and gauge their reaction. You will then learn a tremendous amount of information about your market and product. To learn how to create a MVP in details, I’d recommend you to read “The Lean Startup” by Eric Ries.

In brief, there are three primary benefits of selling before building:
Firstly, it helps you design better services and products. You get to know who will buy it, and who will not. You will learn what is working, and what is not. You get to know your clients’ preference in terms of design, marketing, how the products should be sold, etc. More importantly, you get to learn whether there is really a market for your idea or it is just an idea that gets you excited. It is common for people to get fired up by their own idea and start to design and build the products before validating whether there is ACTUALLY a market for it.

Some of you might ask, “Why do I need to pre-sell if I could just do a market research to ask people whether they will be interested to buy my product and service? If I find it enough interest, then I would just create it and sell it.”

This is a common misconception. Your respondents will most likely tell you they are interested in the products or services, but it is not until they commit their money and resources to make the purchasing decision. There is a real difference between asking people if they would buy and actually buying. I have personally done market research twice, but the inputs I obtained were not as valuable and precise as when I went out to the market and sold it. Thus, selling before building will give you so much invaluable information and understanding about the real consumer behaviour.

Secondly, it helps reduce the risk, pressure and wastage. You will not have much financial commitment initially to build your products and services. You will only incur the least expense until you actually sell your products. It will always be much less expensive to change the final design before it is even designed. It helps you save money. You will not so tensed because you didn’t commit so much investment in your startup. You reduce wastage by saving time, effort, and resources to run your startup in a lean manner.
Thirdly, it brings in positive cash flow from day 1. You let your customers fund your working capital. In other words, you can bootstrap on your startup with limited capital. Truth to be told, my partner and I started Young Money Master with ZERO capital because we had sold before we built it.

To sum up, by selling before you build it, you will learn a tremendous amount about how to market your products or services, what the final design should be, who will buy it, and whether you can actually be successful selling it.

http://www.nextupasia.com/sell-your-product-before-building-it/