In a recent conversation with a Canadian venture fund about bootstrapping one’s startup, I was asked whether I preferred a ‘push’ or ‘pull’ model when vetting or building new businesses. Although I had heard these terms before, this was the first time I actually considered my own partiality for a particular genre of business model. Let’s begin with some definitions. A ‘push’ model relates to entrepreneurs who launch their startup because they believe that they can develop a product or service that combines market appeal with a competitive advantage over competition; as such it is eventually pushed to the customer via sales. Alternatively, the ‘pull’ model is based on some certain knowledge that a customer, whether current or potential, is interested in buying a particular ‘widget,’ and the entrepreneur develops it with that specific buyer in mind, and essentially the product is ‘pulled to market’ by the customer.
The advantages of the ‘pull’ model are fairly obvious, because as soon as the development or beta phase is complete, sales by the client who ‘pulled it’ are inevitable and forthcoming. However the drawback of this style is that the initial interested ‘puller’ may be the only client who needs such a product/service or is willing to pay for it. Conversely, by developing a business using the ‘push’ model, the startup has the opportunity to sell their widget to as wide a market as they wish, and products can be produced with extensive potential applications. Although the push startup may not have a concrete buyer in place prior to launch, as in the case of the pull model, the push-type startup does not encounter the same risks associated with exclusively having only one client.
My revelation in contemplating my own predilection for one model over the other got me thinking about which is most optimal given differing environments. The aforementioned VC tended to fund businesses in the telecommunications sector, and the reason for this was that the fund was backed by a leading phone company. Their methodology was simple: ask their current clients what they were in need of, or what was lacking in the market, and then invest in businesses which produce that exact need. This allowed the fund to enjoy a tangible payback period, which could be easily predicted, as they had the benefit of knowing precise future cash flows and margins before even investing in the pulled product or company. Imagine that you could invest a certain amount in a business today and know with certainty (often backed by quasi-binding letters of interest to purchase) to whom and how much of those products would be sold next month—not a bad way to invest.
The flip side of this is the push method, and what I now understand to be my own modus operandi, whereby the product comes first and the customer base is then filled subsequent to going to market. This model allows an entrepreneur to build a product or service in almost any sector, assuming a certain propensity to operate in an industry where the founder has some experience, and sell to a variety of customers. The snag here is that from an investment perspective there is a higher risk associated with backing or launching a business that doesn’t secure customers in advance of its launch.
While a pull method uses supply as the initial impetus for growth, and a push strategy uses demand as its catalyst, in contemplating your own strategies for launch consider not only your own risk tolerance, competitive strengths or experiences, but also deliberate whether you have the network to create a pull model and build your startup around a particular need from a particular customer. If you are like me when I got my start, chances are your network is still in its preliminary stages, and as such you may want to consider buying or developing a product or service that fills a void that is felt by a multitude of customers, not just one, through a push model. For me, that was the printed T-shirt business.
This is a guest post by Harley Finkelstein, LL.B. (JD), MBA (cand.). Harley is a serial entrepreneur who has launched a number of successful tech startups, and he is the founder of one of Canada’s leading apparel companies, Fink, Inc. Additionally, Harley serves as a mentor to the Ottawa Centre for Research and Innovation (OCRI), and sits on the financing committee for the Canadian Youth Business Foundation (CYBF). In 2007, Harley founded Innoventure Capital, a unique seed financing firm that provides funding and strong mentorship to early-stage startups. Innoventure’s latest startup is Smoofer.com, which purports to be Canada’s leading online T-shirt shop. Harley recently received his law degree from the University of Ottawa, and will be completing his MBA at the school’s management faculty in summer 2009. In 2005, he graduated with distinction from Concordia University, where he received his degree in Economics. Harley may be reached at Harley@Finkinc.ca.
In the software industry books, blogs and consultants invariably advocate the fractional improvement approach; find an existing product and add unique features to capture an underserved market. In fact, many go so far as to state that if you are not doing this then you have no product.
Like you, we have chosen the push strategy. We have developed an entirely new way of automating activities; and yes, as the experts predict, it is very hard getting people’s attention. It seems that ‘pull’ could be equated with what people are looking for; preconceived notion. And ‘push’ is what people stumble upon; new opportunity.
‘Push’ is where you find innovation.
Echo. Well put.
I like to use a combination of both approaches. If you find customers or anyone talking about a need that you think you can fill, take a step back and see the bigger picture. Ask questions like, Is this an isolated need or might others benefit from it? Do I know others who might benefit from it or some form of it? Who are the thought-leaders in this industry whom I might consult for advice? Once you answer those questions, you can develop something with more than one person in mind. When it’s ready, that 1 person will buy, but you’ve developed in a way that you can now push it to others.
Best,
Ryan Taft
Catalyst Marketers
I would agree with Ryan.
There is an ability to use the best from both of these approaches so that you do not have to choose one over the other. There is a movement which is long overdue and gaining quite a bit of steam which is the concept of a “Customer Development” process that goes hand in hand with the product development process.
I agree with your point about the there being a risk of only having a solution that meets the needs of that one customer….so the solution is to go out and engage with multiple customers and build solutions around the needs and requirements that “bubble up” and are common with all of these customers.
In my opinion it does not matter if you are developing solutions that are “ahead of the curve” or developing solutions that have a well defined market, there is nothing more valuable than having a set of real-world customers to be validation points and “sponsors” throughout your development process. I agree that the challenge is really that people do not always have an established network to go to…but the reality is that you do not need to have one. You would be surprised how people are actually very open to help a company and product succeed if approached and engaged properly. It is about picking up the phone and calling people and finding ways to leverage what network you do have to find, meet, and collaborate with people and companies within your target market.
This is a great topic Harley. I just believe that the answer may not be about choosing a model, but rather finding and using the right combination of them both.
[...] Young Entrepreneur examined two contrasting startup models recently. If you have thought much about the difference between a “push” model and a “pull” model for your startup, you should. [...]