Gate 4: How Much Will They Pay to Solve the Problem?

It took me 35 years to discover these five simple principles, or gates, to becoming a successful entrepreneur. If you enjoy this series, share it with a friend. To catch up, go to paparelli.com.

"We seem to be getting an awful lot of interest from service bureaus who provide business voicemail services," said Jamal, my salesman.

"Really?"

"When I talk to these people, they think it is a really cool product. They want to meet with me," he said.

Back in the early 1990s, business voicemail was offered by service bureaus and not the telephone company. Then the telephone company got into the business and crushed all the independent businesses. The telephone company knew everybody who had a phone, including every business. Everybody was their customer. And it was cheap and easy to reach them.

To get started, they made a big announcement about offering voicemail to customers. Then they included a special flyer on the service in every billing statement. Over time, consumers eventually got rid of any third party voicemail and every specialty voicemail machine they had at home or in the office. The telephone company's voicemail was fully integrated and seamless for the customer.

Most importantly, it was priced right.

The companies we were trying to sell our "store and forward" fax solution to were not buying. They didn't see fax as having any problems. But there were individuals in specific departments who used fax as a strategic part of their business process. These included the sales people and the lawyers to name just a couple. They saw the problems with fax.

But the businesses they worked for were not willing to pay a lot of money for our solution. We offered a fax server and associated voice and phone control software. The price for our business solution was simply too high. The problem wasn't big enough for them to spend the money to solve it. But it was for the select few.

The service bureaus could price it right, however.

They were selling voicemail boxes for $20/month/user. They had the economics right for business voicemail. They believed they could get the economics right for store and forward fax. And they were correct. The service bureau who bought our product embedded it as FaxMail in their solution as an up-charge. For an additional $10/month, their customers could have complete control over when and where they received and sent their faxes.

This was a breakthrough.

We found the person with the problem who was willing to pay to solve it. When we got there, we discovered he was good for $10/month.

Our business model was not designed to sell to the end user. It was a business to business model. We sold manufactured hardware and wrote the software to drive it. This was an expensive solution which we believed every business would buy. No so. In fact, not at all.

When the telephone company put the service bureaus out of business, we were done. It was over. Our market had dried up and gone away. But what about the telephone companies? They designed their own hardware and software and provided the FaxMail solution to their business customers. And they were making a lot of money. They had an inexpensive way to reach individuals and businesses with our patented solution. They sold it. They delivered it. Good bye, AudioFax.

Hello, AudioFax I.P.

Mark Bloomfield, the founder of AudioFax, was a gifted inventor and smart businessman. He told the investors, "We tried everything and spent millions trying to build a company from our patented store and forward fax process. We failed to do it because the market is individuals. We don't have enough money to compete with the telephone company. I'm recommending we shutter AudioFax and create a new company with the intellectual property: AudioFax I.P."

And that's what he did. All the shareholders in AudioFax had their same share in the new company. The new company owned the patents and had one employee, Mark Bloomfield. He joined forces with one of the top law firms in the city. He told them, "I'll tell you who is violating our patent, and I will help you go after them for financial damages."

Mark made millions from these lawsuits. The patent was challenged in the courts by the telephone companies and defended successfully by AudioFax I.P. AudioFax I.P. now had a perfected patent. Boy, did Mark make money, but it sure was a long road to get there.

Find the person who will pay to solve the problem.

Hopefully, this person will pay enough for you to build an economically viable business. A business which will be self-sustaining. Mark used his patented idea to start and build a business which would create and sell a complex telecommunication solution. In the end, the right model was a licensing company. He got there, and he made good for his family, employees, and investors.

Thanks, Mark!

Getting to an economically sound business model is crucial in building value. That's Gate #5 and is the next article in the series.