Beating The Odds: What Success Takes In The Modern Mobile App Industry

Ben Lee

Ben Lee

CEO and Co-founder of Neon Roots

Ben Lee is the co-founder and CEO of Neon Roots, a digital development agency with a mission to destroy the development model and rebuild it from the ground up. After a brief correspondence with Fidel Castro at age nine, Ben decided to start doing things his own way, going from busboy to club manager at a world-class nightclub before he turned 18. Since then, Ben has founded or taken a leading role in 5 businesses in everything from software development to food and entertainment.

At Neon Roots, we’ve done a lot of mobile app development projects that we’re really proud of. We’ve made digital products for media moguls like Snoop Dogg and Tony Robbins as well as tech giants like Spotify and Epson. Through our working history, we’ve seen a lot of our projects go on to reach astounding success, and based on the stories of companies like Facebook, Instagram, and even Pinterest, it can be easy to believe that wild success is the norm in the mobile app industry.

Unfortunately, that isn’t the case.

The success rate for mobile apps is often quoted at around 10%, which means roughly 90% of apps fail. But even that may be a conservative estimate: Gartner estimates that only .01% – roughly 1 in 10,000 – mobile apps will be considered a financial success by their developers through 2018. One in ten thousand.

That said, the rewards for success are huge. The beauty of the App Store is its ubiquity and its virtually unlimited possibility for scale: uploading to the App Store allows you to reach millions of potential customers all over the world. It’s an unparalleled opportunity to build a business – so why is the fail rate so high? And, more importantly, what can you do to beat the odds?

A Flawed Model

To understand how to succeed as a mobile app-based company, we first need to understand why they fail. And, for better or worse, that isn’t very hard to do. To us, the reasoning is pretty straightforward: the problems in today’s mobile app industry are caused by the model through which they’re created and launched.

If an entrepreneur wants to create a startup and launch a mobile app, the first thing they need to do – or so the current model goes – is build it. For a custom-branded, beautifully developed app with a well-built code architecture, that takes a lot of money. An app built by a professional agency with a fairly robust feature set can easily cost upwards of $400,000, and adding back-end servers and services can drive that number even higher.Most entrepreneurs don’t have that kind of money lying around, so building an app like that means raising capital. For a brand-new startup with an unproven app concept, bringing on capital investment also means giving away a massive – and often majority – stake of equity in the business. Down the line, giving up that much control can have big repercussions – even leading to the entrepreneur who started the company getting fired.

If they can raise the necessary capital, they have to find an app development company to build out their mobile app. Here we run into two more serious flaws in the model: getting into bed with a company they’ve never worked with before and participating in a working relationship where the incentives don’t line up.

The Problem with Partnering on the First Date

With the pressure of investors breathing down their neck, the reality is that most app entrepreneurs don’t have time to be too choosy about who they hire to build their app. Unfortunately, that can cause big problems in the development process.

Jumping into development without an initial get-to-know-you phase means that the startup and the dev shop have no real sense for each other’s working styles. There’s no real way to know if the teams, cultures, and philosophies mesh well. This means that miscommunications, mismatched expectations, and frustrations are almost bound to come up along the way.

It’s almost like starting a marriage on the first date: the two companies have virtually no experience working with each other besides the brief interchange of an RFP (which, by the way, we think are bullshit). Even so, they commit to spending months of time working together on a project that’ll cost tens of thousands of dollars each month. This is guaranteed to cause problems.

mobile appUnintelligent Incentives

But there’s a deeper, more systemic problem with hiring a mobile app development company on a fee-based development schedule: the development shop is inherently incentivized to create something built for failure.

We’ve spoken on this point before, but the incentives in most app-building relationships are inherently misaligned. In most engagements, a mobile app development agency bills for time: for every human-hour that their coders work, they charge some finite amount of money. The more time the agency spends on the app, the more money they make.

So what does this mean? It means that the app agency is incentivized to build the biggest, most feature-heavy app that it possibly can. The agency’s incentive is to keep the startup in the development cycle for as many months as humanly possible, to encourage the entrepreneur to add more and more features to the app – features which may not even be relevant to the end user – and to build the biggest, most bloated app possible. That’s what generates the most billable hours, and that’s how the app agency makes the most money.

The problem is that in the mobile app world, bigger is not always better. Apps with too many features often just confuse users, leading them to look for other solutions to whatever problem the app is solving. Apps that focus on their core benefits and functionalities are usually the ones that do the best: Instagram is an app for posting filtered photos, not one that tries to do your laundry and schedule your meetings as well. Not too mention, adding all those extra features drives the budget for development through the roof, making recouping and seeing any positive ROI more and more difficult.

Making It Through the Development Process… For What?

Assuming the startup has successfully raised the money, hired the right partner, and emerged from the development process without going bankrupt, they finally launch a v1.0. But here’s where the real, core problem in the mobile app development model rears its ugly head.

This is the first point in this entire process when the startup gets to find out if their idea was even worth building in the first place.

Ultimately, only the users can decide if an app will succeed or fail. And in the traditional model of app development, a startup won’t find this out until after launching a v1 and investing hundreds of thousands of dollars. If it succeeds, it can be great – but if it fails, they’re dead in the water. By this point, so much time, energy, and money has been sunk into the business that there’s no room left for a pivot. If it fails at launch, the game is over and the business is dead.

If failure was a rarity, this might not be a problem. But it’s not. As we stated earlier, only 1 in 10,000 apps ever achieve long-term, sustainable financial success. This means that launching a successful app – even discounting the trials and tribulations of securing funding and developing on schedule and on budget – is about as probable as getting struck by lightning. But with all the problems in this model, that figure is hardly a surprise.

Defining a New Model

So what does it take to succeed in today’s mobile app industry? We think the answer is a new model – and Rootstrap, our product development workshop, is our way of creating it.

Rootstrap is a two-week bootcamp where we refine the core concept and benefit of the app, test it against market and user data, then create a prototype and a pitch deck to help the entrepreneur turn their idea into a reality. It’s a small-scale engagement, but it solves the big problems of the mobile app development model.

First of all, it’s been incredibly successful at solving the problem of funding. On average, about 1 in every 2,000 startups actually secure funding. That means the probability of an individual startup to get funded is about .05%. Those are some pretty ugly odds.

Rootstrap alumni, however, fare far better. By the numbers, roughly 13% of Rootstrap alumni receive funding in excess of $250,000. Half of that subset – 7% of Rootstrap alums in total – receive more than $1,000,000. That means Rootstrap alumni have a 2,600% better chance of getting funded than startups in general. That’s like comparing the size of Jupiter to our own moon.

mobile app

Second, Rootstrap makes the problem of creating a successful working relationship easy. Rootstrap is a two-week, high contact engagement. That means that while the startup will get to know us as a company quite well, there’s relatively little commitment: they can take their Rootstrap materials to any development shop they like at the end. The small, early engagement lets us get to know each other before signing for the main engagement.

Additionally, Rootstrap aligns incentives perfectly. Rootstrap is designed on a single-fee basis and doesn’t bill hourly, so there’s no incentive to keep the project going as long as possible. Additionally, the goal isn’t – at first – to build a complete app, it’s to create an MVP. This means that both the startup and the agency are working towards the same goal: find out if the concept will work in the marketplace. There’s no chance for misalignment.

But ultimately, the biggest problem Rootstrap solves is the guess-and-check model of mobile app development. Instead of building out a complete app, launching it, and only then finding out if it’s destined for success, Rootstrap does the opposite: first find out if the concept is going to succeed, then build the full version of the app. By involving users and market data into the process right from inception, Rootstrap eliminates the often ugly surprise that no one wants to use the app in the first place and ensures that the startup is building something that people actually want to use.

Redefining Mobile App Development

To us, the writing’s on the wall: this is the new normal for mobile app development. As an industry, we can’t continue to create products that cost hundreds of thousands of dollars to develop but have an almost negligible chance at real success. There needs to be a new model, and we think we’ve found it with Rootstrap.

So what do you say – are you with us?

Thanks to JamieZarate 1Alan O’Rourke, Pics About Space for the photos.