Entrepreneurs Solve Chicken and Egg Problems

I was blogging for SeeClickFix earlier this morning about chickens and eggs.  You know, which comes first citizen participation or government involvement in using the transparent social technology.

It reminded me of how entrepreneurs solve chicken and egg problems.  I believe that any business worth doing has at least one significant chicken and egg problem.  Sometimes multiple or more complicated ones.

A typical example is that you feel that:

  • Investors Depend on Product
  • Product Depends on Investors

Or another one:

  • Investors Depend on Customers
  • Customers Depend on Product
  • Product Depends on Investors

I’ve seen many would-be entrepreneurs get stuck in this viscous cycle of thinking that they can’t achieve anything because everything depends on everything else.  They say “I can’t build a product, because I have no money to hire people or quit my job.  I could get money if I had customers because investors believe I can build a product but aren’t sure customers will pay for it.  I can’t get customers because they keep telling me that they’ll sign up once they know the product is working for someone else.  Or customers won’t sign-up because they can’t see the product or test drive it.”

There are many ways to solve these problems and create a virtuous cycle of steps forward in each of the key areas.  As I have posted recently, I have an instinct to focus on customers first.  If you’re in a market with enough customers, this is often the easiest place to make progress or at least learn that you need to make changes.  You may be able get a letter of intent to formalize the statement that customers will use the product once built.  This is enough for some investors if they otherwise believe in you.  Or if you’re lucky and good, you can get customers to pay for the product upfront before it is built.  Then you may not need investors or may not need them until you have a prototype and a first customer.

Another common pattern is to pour your own resources into building a first version of the product, prototype or in someway to reduce the risk that the product will never be a reality.  Work nights and weekends.  Use savings or personal credit to hire someone on Odesk to program or to pay for someone to machine a mock-up of your design.  If you don’t have the skills to build the product yourself, you may be best off recruiting a co-founder who can do so.

And at this point in the conversation, I sometimes hear about a more complicated version of thechicken and egg problem.  They tell me:

  • I can’t build the product because I don’t have the right team.
  • I can’t get the team because I can’t pay them.
  • I can’t pay them because I don’t have a investors.
  • I can’t get investors because investors want to show customers will buy the product.
  • Customers won’t buy until I have a product.

I’ll leave this one as an exercise for the reader.  I agree, these problems are tough.  That’s why it’s rewarding to be an entrepreneur.   If it was easy, everyone would do it 🙂

So maybe it’s time for a new definition: an entrepreneur is a person who solves chicken and egg problems to create financial sustainable organizations?  (You could say companies?)

(BTW, did you see that SeeClickFix put out version 1.0 of the iPhone app?  Pretty neat way to report quality of life issues while you’re on the go.  I hear that more features are in the works, too.)

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