Local angels like to invest in seed-stage companies. A seed-stage company has a workable product or service in the marketplace and is beginning to generate some revenue. It needs to test the market and learn which customers will find the offering most attractive, how those customers can be reached and what product features are of most interest.
Often what happens is the entrepreneurs will learn that they need to make changes to the product, and/or discover their original market is not the most interesting market. Many years ago the company I co-founded, Learned-Mahn, brought a computer-based accounting system to the market. Our hypothesis was that most small businesses would find this attractive. At the time most did their books by hand.
Our market tests helped us learn that our product cost too much for small businesses, and there was no efficient way to reach the target market. But as we attempted to sell the system, we learned there was a niche with certain large companies that we could profitably reach and that needed what we had to offer. We went on to license the software to AT&T, Campbell Soup and the 1984 Olympics, to name a few.
Good entrepreneurs know that the customer will almost never pay for the first version of a product, and that frequently the initial target market will not be the most productive market. The most important step for them to take is to bring something to the market as quickly and inexpensively as possible so that they can start to get feedback from real customers.
We have learned that no matter how much you know about a market, you need to get out of the office and talk to that market. And the best way to talk to a market is to ask it to actually purchase something. When you do, you get real information about real consumer behavior.
Steve Jobs knew this better than most. Across his entire career, he brought out less-than-fully featured products and got instant market-based feedback. Think of the changes that have been made to the iPhone since the first one was released, or the iPad. Apple is superb at learning from the marketplace and then releasing a new version of a product that captures a much larger market.
An example of a local company that has brought an early service to the market and learned from its experience is Social Good Network. Both the Statesmans reporters and I have written about Social Good Network before.
The Boise Angel Alliance has invested in Social Good Network through its two angel funds. (Disclosure: I am an investor in those funds.) The purpose of our funding was to enable the company to test its services in the market.
The company provides an online fundraising community for charities. It offers several services:
Consumers can shop online merchants through the community. When they do, Social Good Network earns a commission. The consumer can then designate 50 percent of that commission to a charity of his or her choice.
The consumer can make a direct donation to the charity through the online community.
Charities can install unique patent-pending software directly on their websites that allows contributors to make donations without leaving the charities sites.
The November/December time frame was perfect to test these services, both for shopping and contributions.
With the feedback Social Good Network received, the company learned where to focus its valuable resources. It is changing its software road map and marketing to respond to the information it gained from taking the initial product to the marketplace.
Kevin Learned, special assignment with the Division of Research and Economic Development at Boise State. Past president of the Boise Angel Alliance and an investor in its funds, the Boise Angel Fund and the Treasure Valley Angel Fund. firstname.lastname@example.org, kevinlearned.blogspot.com, 426-3573