How do you know if your company is a business?

Summary:

A company is not a real business unless it has paying customers.

10/24/2011 — Finally, 15 years after Netscape opened the Internet to the masses via its free browser, few technology companies are giving away software and services.

“The purpose of business is to create a customer,” Peter F. Drucker.

Netscape Logo

Although it changed the way everyone handles information and launched a successful IPO, Netscape was never really a business.

Earlier this week I wrote an article, Monetization means you have nothing to sell, about how Web 2.0 companies are deluding themselves when they believe they can monetize a product that has always been given away free. John Cannon, president of Email Ideas posted a comment and asked me: “In the crazy Internet marketplace where so many people expect applications for free and so many well funded companies do give products away for free, what are some tips for the small business trying to make it out there?”

No matter what other companies are doing — how well funded they are or what they can afford to give away — unless they are creating customers, they are not real businesses. A small business owner needs to know that and never forget it. Nothing else matters. If 100 million people use your application, investors have thrown $1 billion at it, and the successful IPO has made everyone rich, the company is still destined to fail unless it has paying customers.

The web browser war of the 1990s is the best example. Netscape enabled Internet for the masses by developing an easy-to-use technology to put people online. The world-wide-web exploded overnight because Netscape gave the product away. Microsoft came along afterword with a similar product and gave it away. Why did Netscape fail and Microsoft succeed when they both gave away the browser? Because Microsoft enhanced its value to existing customers (who were already paying dearly for Microsoft products) while Netscape never had any customers in the first place. Therefore, Netscape was never a real business. This is why Google can successfully give away applications. Just because Google does it, does not mean you can.

When an entrepreneur develops an idea for a product or a service, no matter what it is or how cool it is, he or she has to immediately figure out who will value it enough to pay for it. Next, how many of those people are out there? How much will they pay for it? How much will it cost to produce it? How long will it take to sell? And, answer hundreds more who, what, why, where, and how questions. It is not easy. But, it is simple and basic.

Companies and their employees — no matter how big or small — have to believe that their products or services have value. Most people who have done any sales know the fear of asking customers for money, or the worry that the price is too high. Most of the time, customers are less concerned about the price than what it does for them.

The “crazy Internet marketplace” has endorsed the notion that getting mass distribution as quickly as possible is the most important thing. Getting cash flow early on is the most important thing. There is no other way to find the type of person who would buy your product – and why. Once you have real customers (even if its only 10 or 20) you can find out what makes them tick so you can find more people like them. It takes time and it takes patience, but that is what it takes to succeed in business.

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