Sell Ice Cream, Not Cream and Ice

Doing a startup? Think carefully about the differences between technology , product and business.

The startup world is full of incredibly smart people who design new applications that “change the world” but lack a clear business model (product, but no business). It’s also common to see highly educated people create beautiful code that few users actually care about (technology, but no product).

Two weeks ago at LeadsCon (the premier lead generation conference organized by Jay Weintraub @jayweintraub) I saw scrappy, analytical sales-oriented entrepreneurs without much technology or product – but they had businesses that generate millions of dollars annually. These businesses roughly work like this:

• acquire traffic (buying ads, traffic through SEO, etc)
• filter it to determine the intent (a simple web form)
• sell the resulting “leads” to people who have products or services to sell to those people

Some say that the lead gen business for the education vertical alone is a billion dollars. I spoke to a company in the home improvement market who got their start by walking door to door asking homeowners what repairs they needed and writing down names on a piece of paper. On their first day alone they collected over $500 in profit by cold calling contractors with those leads. Three years later they and making over $10mm annually.

Product and technology minded people ask “why don’t those contractors or schools just build the web forms and buy traffic themselves, directly?” The answer is that contractors and schools aren’t in the online business – and they value the convenience of ready-to-transact leads. By analogy, just remember that kids don’t buy eggs, milk, cream and sugar when they want ice cream – they pay $6 for a single scoop, because it’s ready to eat.

Photo by Flare on Flickr