“Dave” (not his real name) sat across from me at a cafe in Kiev, nearly falling out of his chair with excitement. He was a very fit, middle-aged London banker who had an idea for an iOS app and so had hired an outsourcing firm in Kiev.
$150,000 into his yet-to-be-launched app, he kept saying “It’s going to be a hit for certain.”
It doesn’t occur to many first-time product founders that the outsourcer’s entire business model is to code to spec, get paid the second half of the deposit (before releasing the code to the client) and moving on to the next client.
Or that code is only 40% of what makes a project successful.
The truth is, outsourcing is a grueling business with 10% to 20% margins at best, and that doesn’t account for all the dead time your engineers are not working, the constant churn as engineers leave you for better-paying positions, nevermind the sales and marketing costs.
If outsourcers could build successful products, they wouldn’t be outsourcers. That’s why 99.9% (likely more) of outsourced apps fail to be successful.
Yes, there are many outsourcer app projects that are promising and “about to be” successful, but in 22 years of being in the software business, I can count on one hand the successes (and they all had strong in-house CTOs overseeing the outsourced work).
Dave became upset when, instead of joining in his excitement, I told him “Dave, you’re a great guy but if I could short startups, you’d be first.”
I know, I really got to work on my over-bluntness.
However, a few months later Dave sent me a Facebook message with the all too common, “John, I should’ve listened to you… hey can you meet up for coffee?”
Call it luck or psychotic determination, but both of my startups have had profitable exits and nearly all of my clients who I’ve been a growth advisor to have had: an IPO, a Series A investment, or been acquired.
When I think of why luck has been on my side, my belief is that it has to do with one core habit I’ve developed with my colleagues over two decades of building, advising and investing in new software projects:
Every successful project is a product of consistent mini-pivots based on a relentless collection of every data point. This is antithetical to the very essence of the outsourcer model.
Too often I hear younger founders say something like, “We failed because of _______ but we learned a lot!”
I don’t believe failure is anything to celebrate, and my belief is that many project failures could have been averted through a concept I call “Consistent Mini-Pivoting (CMP).”
When I think of my first company Five9 (where we competed against startups who had collectively raised over $200 Million dollars) I’m reminded of one thing – the art & science of the CMP model.
At Five9 we were the David versus the Goliath, so we had to come up with a 10x better product with a 3x better marketing strategy.
By continually and relentlessly taking data from each version of the product, we eventually figured out a way to replicate our competitors’ product but have all the calls go through our own Voice-over-IP network, something our competitors hadn’t thought of yet.
And once we were able to do that 10x improvement over competing products, we were able to run ad campaigns on search and social media that read, “Call Center Software That Reduces Long Distance Bills by 67%.” That was our 3x better marketing campaign, and the combination of the two was potent.
Based on this 10x product + 3x marketing combination we grew from $0 to $10 Million in annual recurring revenues within 24 months. Quite frankly, it felt easy. It was fun (while our competitors used words like “grinding,” to describe their lives).
Had we not collected data relentlessly we would never have had the math to guess our next mini-pivot for the product. I mean, we went from software we wrote on an Intel Dialogic telephony card (handling 4 phone lines) to being the global standard for cloud-based call center technology through the CMP model. We’ve even given birth to copycats who have become unicorns!
It was a classic example of winning against bigger competitors by having an undeniably engaging growth marketing campaign that leveraged a 10x better idea in combination with a 3x better marketing tactic. A result that was made two orders of magnitude more probable through the CMP model.
Our belief is that, while this model requires daily management and regiment (data doesn’t collect and analyze itself into actionable decisions just yet), the right managers can manage moderately skilled teams to achieve impressive results.
My two technical partners and I set up a dev shop in Ukraine because at my time consulting to Odesk (now Upwork), on average (IMHO) the Ukrainian, Belarusian and Russian engineers were slightly but noticeably faster.
There are no guarantees with any project, but I believe the CMP model gives a project multiples more chances of success, and in this gambler’s game – it’s all about playing the odds by reaching for the best hand.
Contact us at JetBridge if you have a project in mind and I’ll tell you how we used CMP at our second startup DoctorBase to compete against a company that raised 30x more money. And won.