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What you needs to know before starting an app-based business – BusinessCloud – BusinessCloud

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Rico Rauch, founder of Fortnight Studio, gives his do’s and don’ts of creating an app-based business
Founder, Fortnight Studio
Mobile apps are big business. Amongst the top three most profitable startup types, alongside ecommerce and Chrome extensions, they have made billionaires of founders like Bumble’s Whitney Wolfe Herd (pictured).
Like any startup, however, the chances of failure are quite high. While no-one really knows exactly how many apps succeed or fail (many quote Gartner’s 2014 wild guesstimate of just 1% succeeding), app use is soaring as society and technology evolves.
The pandemic, for instance, surely helped mint Manchester billionaire, Johnny Boufarhat, thanks to his meeting app Hopin’s value achieving unicorn status mid-lockdown in 2021.
Indeed, the evolution of mobile means that apps are expected to generate more than a whopping £780bn in revenue by 2023, and apps dominate a huge 88% of our mobile usage. So there is gold in ‘them thar (digital) hills’, even if not for everyone who launches an app. 
In Britain, the number one reason (42%) startups fail is because there’s no market need for their services or products. So-called ‘product-market fit’ is absolutely crucial for any business, regardless of it being digital or physical. Around 29% failed because they ran out of cash and 23% because they didn’t have the right team running the business.
Those are also causes of some app misfires, too. 2018’s Quibi is one of the highest profile app failures of our time. Its disruptive vision was to be ‘Netflix for your phone’, even though Netflix worked on phones, along with BBC iPlayer, Amazon Video, and a little app you might have heard of called YouTube.
A team of tech and entertainment industry veterans armed with close to £1.2bn in investment just weren’t enough to ensure success. It had the right team and enough financial runway, but it lacked a unique insight about the problem and market, and product-market fit.
Thousands of new apps go live every day, driven by the high market demand for new content and functionality. But that high volume means lots of competition, which makes it harder for even ‘good’ apps to make an impact. Quibi showed us that when it comes to apps, it’s actually hard to be right, so how can you be less wrong?
Designing highly successful apps for pure play businesses like Bumble, as well for those whose apps complement a core business, such as Simba, the mattress innovator, has given me a useful insight on how to make your app business work from the get-go.
Here are my top three tips.
The pace of change in apps is intense, but you should still start with a long-term project in mind. Many projects abort when the founders or initial stakeholders lose interest or get distracted by other product development.
The relative ease of starting an app project these days comes with an unwanted side effect of making projects easy to drop, cease maintenance or just stop marketing to grow the user base.
Apple and other platforms don’t like this and even remove apps that have not been updated within the last three years and fail to meet a minimal download threshold.
Commitment on the other hand, can pay dividends. Simba wanted to go beyond their amazing sleep products to become their customers’ (and prospects’) own personal sleep coach, so developed their sleep coaching app.
In just six weeks, it made it into the top 20 in the health & fitness category with a 4.8/5 score and over 10,000 downloads. Rather than say, ‘job done’ my team at Fortnight Studio and I continually improve it. This helps to drive around 15,000 monthly downloads, and keep users engaged, measured by monthly active sessions. 46% track their sleep every night using the app, and its daily retention rate is a large 52%.
Given that more sleep software has – and continues to – come onto the market, like any app you can’t take a straight line from start to success; you have to take a long-term view and adapt in order to keep winning over a long period of time.
I think this is my number one piece of advice. As the old Mike Tyson saying goes, everyone has a plan until they get punched in the face. Startup ideas change frequently, particularly digital ones.
Starting with a huge and costly fully-realised product that embodies the original vision might sound good, but can be deadly. It was for Quibi. Sure you can argue that to compete against Netflix and YouTube you need a finished, highly polished version rather than a minimum viable product (MVP). Alternatively, you could argue that it’s a great way to lose £1.2bn if consumers don’t like it.
To be successful, it’s better to start small and understand the market response, then adapt based on that response for the next step.
Thinking about the Simba example again, our insight revealed the sleep problems to solve with an app. It was clear that the core functionality of the app would need to be tracking sleep.
Once we’d established the concept, we quickly moved into creating wireframes, user journeys and app flows. We tested these at every stage to make sure we were solving real sleep problems identified by real people. We didn’t want to work on something for months without ever testing it, only to find we’ve solved a problem no-one had and built something no-one actually wanted. It was the same with Bumble.
I’m not saying Quibi wasted £1.2bn on a hunch and inspiration, but they could have tested product-market fit and iteratively solved a series of small problems through so many development stages rather than attempt to solve one monster, unsolvable issue that resulted in a quick, spectacular demise.
Don’t worry, I’m not suggesting you don’t make money. I’m saying that without user value, you won’t have revenue.
I’d go as far as to say never build products with monetisation in mind…at first. Instead, focus on building a product that people love and then figure out how to monetise it.
Personally I like freemium models, as they allow users to experience the product whilst making an upgrade to premium features allows you to maximise engagement.
An obvious example of this of course is Spotify, which allows you to use it for free but offers you fantastic premium features like ad-free listening, the listen offline feature and so on.
Interestingly, Netflix is accelerating plans to reverse its premium model to an ad-supported option in order to shore up its shrinking user base. So even the biggest of the big are open to those sorts of models.
So before you think about turning your users into cash cows, first grow your herd by optimising for a good user experience, high retention rate, and good engagement. Monetising will then be easier.
 
Paul Reeves
Managing director, Kroll
Andy Nicol
Founder and MD, Sputnik Digital
Scarlett McDermott
CTO, WithYouWithMe
Neil Purcell
Founder and CEO, Talent Works
275 Deansgate, Office 63, Manchester M3 4EL
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