Please Note: all figures mentioned were accurate at the time of writing.
Every entrepreneur has heard of the Lean Startup methodology; it’s a great way to prove demand with less time and money and to prevent building a product that no one will want.
In practice though, the Lean Startup methodology is hard to figure out. How do you develop, and what is the minimum viable product? How can you iterate while absorbing a user’s real-time input? How do you get people to even give you input?
As a New-York-City-based startup founder, I’ve been asked these questions many times. And thus, what follows is a simple step-by-step guide on how to validate your web business with as little capital at risk as possible—in this case, one month of rent. You’ll get real guidelines on getting something off the ground, driving traffic, and evaluating whether you have a business or a hobby.
First, let’s define how much money we want to risk to validate our idea. I picked one month of rent because it’s a number that you can save to and a figure that hopefully won’t break the bank. While the average American rent is $950, rental rates in major urban areas like New York City ($3,836) or San Francisco ($3,469) may be more helpful figures to go by so that you have enough money to give your startup business a real run for its money.
For this reason, I’ve arbitrarily picked our budget to be one month of New York City rent: $3,836. With only one month of rent in our budget, we need to remember to spend wisely.
We can only spend money on things that are related to these areas: building or selling product. That’s it. If an expense is not clearly obvious, ask whether it helps to build a better product or if it help to sell the product. If the answer is no, perhaps you can spare that expense.
In Lean Startup terminology, you need to have a minimum viable product to prove whether or not your concept has any market validity. You don’t want to build the whole product, since that will take a lot of time and money.
In physical terms, you don’t want to remodel the basement of your store before you open because you aren’t sure if anyone is even coming in the front door. Once they come in the front door, have a look around, and perhaps buy something, is it then time to think about the basement. Thus, your minimum viable product right now is simply a shingle announcing your new business venture.
The business shingle
To do this, you’ll need a unique web address or domain name. A few years back dot com domain names commanded a premium, but now, given the heavy dominance of search and social, dot com domains are not as necessary. Pick something that is easy to remember; sometimes this does not need to necessarily describe the business.
With the domain that you choose, make sure you get your social handles—Twitter, Facebook, Pinterest—or those that are similar. Many of today’s popular apps started with a variation of their current name, like TheFacebook, PlayFourSquare, SquareUp, and so on.
GoDaddy is an easy and inexpensive source for a domain name. Pick the entry level of $3.99 a month with WordPress hosting and a free domain name.
But, a domain name is simply a name. You’ll need a landing page. There are many “landing page” companies, like LaunchRock, where you can point your domain to a simple landing page that describes what your not yet launched site intends to do, allows you to collect email addresses, and finally allows those email addresses to be shared via social media.
Finally, a free Mailchimp account allows you to manage all of the emails that you collect in this step. Depending on your product, people might be interested in receiving updates from you, and Mailchimp is the perfect way to stay in touch.
Total spent $3.99
WordPress is the easiest way to put up a site that can do a lot of different things. There are plenty of plugins that are free—and some that are paid—that can most likely do what you want them to do. We’ll allocate $100 to play with various plugins, given that the average plugin is $200/ year; this number is more than enough.
One plugin that is recommended is a payment plugin; perhaps this one from Convergine which is a one-time payment of $35. You’ll need a PayPal Pro account to hook up to it, which is $30 a month. You’ll also want to customize your look through Wordpress themes or graphic design. The site 99 Designs has a logo and website starter package that lets you get a full package for $499.
Total spent: $667.99
You don’t need to wait for your Wordpress customization or designer to be finished before testing your basic premise by seeing how well your landing page converts into email signups. Traffic is the currency of the internet and while it’s hard to drive traffic consistently, it’s not impossible.
Get customers online
Google’s AdWord product is the simplest and most effective way to drive intent based traffic. You can figure out what specific searches someone might conduct to get to your product. Keep in mind, intent is a powerful thing. A search for “Yankees” might be for a schedule or statistics, where “Yankees Tickets” is more likely to lead to some form of eCommerce. We’ll set the budget here at $50 a day, or $1,500 for the month.
Facebook also allows us to target our advertising based on interests. Getting in front of your fans through status updates is a way to drive traffic. We’ll start with $20 a day or $600 a month. Sponsored content is also a great way to redirect traffic off of both Facebook and Google. Sponsored content shows up in Google search, Facebook news feeds, and other non-traceable means like email, chat, and text messaging. Our company, Cooperatize, allows for the purchase of as little as one story from the network. To give your concept a fair shot, the recommendation is $1,050, providing a minimum of 10,000 impressions. Each of the above platforms has a “get started” coupon which averages around $50.
Finally, Twitter is another great place to get traffic. There are some third party tools that use Twitter to find your customers that are tweeting the keywords you are looking for. These marketing automation platforms cost around $40 a month.
Get customers in real life
In New York City, you can purchase an unlimited metro card for $112, which gives you unlimited rides around town. Transit in your town may be more or less than this, but public transportation while you are bootstrapping is the way to go.
As you meet people along the way, give them business cards so they can remember and tell others about your business. Vistaprint provides starter package of cards for $4.99 + $5.35 shipping.
Total spent: $3,830.33
What have I done?
A month later, you’ll have driven some traffic to your site, captured some emails, and maybe even sold something. Now comes the burning question for all startups—what do I have? Should I quit my day job? Businesses need to make money to survive. If people have purchased your product, did you make enough money to cover your variable unit cost? If you are selling a product for $100 and it costs you $90 to make your gross margin is $10 or 10% (10/100).
Depending on your business, you want to make a gross margin that also allows you to cover your fixed costs. For example, PayPal Pro’s monthly fee of $30 is paid, your rent is paid, and your advertising is paid for whether or not you make a sale. You can create a spreadsheet to calculate your break even point.
Breakeven = Revenues – Variable Costs – Fixed Costs = 0
What’s your break even point? Is it an attainable number given what you experienced this first month? Perhaps, before you quit your day job, see if you can get there first! Good luck!