Archive for May, 2010

Memorial Day 2010

Written by Sean Murphy. Posted in skmurphy

Memorial Day is when we commemorate those who died in the service of our country.  Richard Fernandez has an outstanding post “Memory and Survival” that highlights the importance of remembering the altruistic sacrifices that not only make our society possible but better than it would be otherwise.

Three quotes about heroes

“Firemen are going to get killed. When they join the department they face that fact. When a man becomes a fireman his greatest act of bravery has been accomplished. What he does after that is all in the line of work. They were not thinking of getting killed when they went where death lurked. They went there to put the fire out, and got killed. Firefighters do not regard themselves as heroes because they do what the business requires.”
Edward F. Croker Chief of Department, FDNY (1899-1911), 1865-1951)

“A hero is someone who has given his or her life to something bigger than oneself.”
Joseph Campbell

“Time makes heroes but dissolves celebrities.”
Daniel J. Boorstin

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Quotes for Entrepreneurs — May 2010

Written by Sean Murphy. Posted in Quotes, skmurphy

You can follow @skmurphy to get these quotes for entrepreneurs hot off the mojo wire or wait until the end of the month when they are collected on the blog. Enter your E-mail if you would like Feedburner to deliver new blog posts to your inbox.

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“Steve Blank has famously (at least within this community) referred to the conference as a “Woodstock for entrepreneurs.” In its wake, I’m going to respectfully disagree. The Westin wasn’t Max Yasgur’s farm; it was The High School of Performing Arts, the magnet school featured in the movie Fame. We weren’t there because we wanted to watch the performers on the stage…We were there because we wanted to be the performers. We needed to learn how they did it.”
Kurt Carr @kurtbcarr in “My Lessons Learned Introduction

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“Sometimes lack of income is the mother of tenacity.”
Stefan Reitshamer @reitshamer in Hacker News Item 1322377
in reference to “How To Bootstrap Your Company to Profitability

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“it’s not the answer that enlightens but the question.”
Eugene Ionesco

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“Entrepreneurship is the last refuge of the troublemaker.”
Natalie Clifford Barney

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“If you think 3 months spent hacking something together for demo day is the best way to start up, you’re wrong.” Sean Fioritto in “Steve Blank Is My Hero

More context:

Steve has taken what used to be considered the ‘innate talent’ of an entrepreneur and put it in book form. It turns out you  can teach this stuff.  Customer Development is the biggest nugget of gold behind the Lean Startup…I sometimes worry that the Hacker News crowd has their marketing bullshit filters turned up a little bit too high and they’re missing what I think is the beginning of a new wave of entrepreneurship. If you think spending three months hacking together something for demo day represents the very best way to start up, you’re wrong…You can be faster and smarter.

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“It’s no trick to play upon an entrepreneur’s fears. It’s not a useful trait in an advisor.”
Sean Murphy in Hacker News Item 1379458

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“If you answer that corporations have no souls, I’ll say: ‘Friend, you were never more mistaken in your life. The business that has no soul soon ceases to exist; and the success of a company or corporation turns on the kind of soul it possesses. Soul is necessary to service. Courtesy, kindness, honesty and efficiency are tangible soul-assets; and all good railroad men know it.’”
Elbert Hubbard

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“Intellectual brilliance is no guarantee against being dead wrong.”
David Fasold

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“Arrange whatever pieces come your way.”
Virginia Woolf

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“Budget: a mathematical confirmation of your suspicions.”
A. A. Latimer

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“A/B tests do not substitute for talking to users, usability tests, acceptance tests, unit tests, or thinking.” Ben Tilly in “Effective A/B Testing

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“When your most creative thoughts in the middle of a disaster revolve around protecting your position, you are summoning trouble. When you try to dodge ownership of a problem, when you try to hide from responsibility, life will give you ownership and responsibility the hard way.”
Peggy Noonan in “He Was Supposed To Be Competent

A good reminder for founders to focus on solving problems.

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When the cost to play the startup game is next to nothing, the cost of making mistakes is tiny, too, as is the cost to pivot. Therefore, there is little pressure to be correct or even to have a good idea. You can just keep having and trying ideas at little or no cost, and eventually one of them will be good enough for you to build a business. You can pivot your way to success instead of tediously crafting your way there.

The interesting point to ponder is whether this current web-based startup environment will be around more than a couple of years. Is it a brief anomaly, or is it the new business-as-usual? And should you be pivoting towards it? Should I?

Alan Cooper in “To Pivot or Not to Pivot

Richard Kadet on “Effective Cash Planning for Bootstrappers” Jun-15 @ Coco’s in Sunnyvale

Written by Theresa Shafer. Posted in Events

Cash Flow management and taking into account  assets and resources is challenge for all businesses.  Rick Kadet of The Brenner Group, Inc will be our guest at the Bootstrapppers Breakfast®, Tuesday, June 15 to discuss “Effective Cash Flow Financial Strategies” for early stage entrepreneurs.  Rick will present a short 5-10 introduction to set the stage for our roundtable discussion.

Rick is Vice President and Senior CFO Management Consultant with The Brenner Group, Inc., where, since 1998, he has engaged with over 60 valley firms as part-time CFO or financial advisor. Rick works with client firms on executive staff level financial management, financial reporting to boards of directors, financial and business planning, raising venture and debt capital, facilities, business infrastructure, business systems and risk management.

Prior experience to The Brenner Group includes CFO and operational positions at Versant Corporation, a data base software firm for whom Rick managed its 1996 IPO; InfoSpan Corporation, an information management software firm where he was acting CEO for one year, Cadre Technologies, Inc. a software tools company and Sarama Industries, an electrical products manufacturer. Rick began his career with General Electric Company, and graduated from GE’s three-year Financial Management Training Program. Rick is a graduate of Arizona State University.

Bootstrappers Breakfast brings together leading edge entrepreneurs who eat problems for breakfast and are serious about growing their business. Have some questions ready and join us for the lively discussion.

Focus On a Niche Increases Your Chances For Success

Written by Sean Murphy. Posted in 4 Finding your Niche, skmurphy

Steve Sammartino had a thought provoking post on “Niche Marketing & Startups” that opened with this:

The niche market is great for well resourced companies doing innovative stuff. Not so for startups.

Gaining traction with any new product or company is inherently difficult. We ought sell to anyone who’ll buy our stuff. Get the message out to as many people as possible. Take all the revenue we can get and what will transpire is a niche strategy anyway due to natural startup dynamics. We’ll get rejected 9 out of 10 times on average. We’ll end up in a market niche, from which we’ll have to grow and expand from anyway. Starting with a niche in mind, really just limits our probability of success.

The strength of a testimonial is highest with others who can directly identify with the firm or person offering it. A market niche is defined by a set of firms who will be guided by a purchase decision.

The challenge in “targeting everyone” is that different niches may find  different uses for your product that have different benefits and therefore need very different messaging. Look at the way aspirin is marketed for headaches, for arthritis, for children/infant pain, and to prevent heart attacks. It’s four different messages.

If you can resist the temptation to tell unanticipated customers “this is not meant for you” or customers finding novel uses “you are doing it wrong” you may very well discover another market.

But I believe that startups have to have a clear theory of value and target customer that informs their product design, messaging, and sales strategy. This way they can create explicit and testable hypotheses (and replace them when they fail). If you are going after everyone what do you change? How do you message? How do you decide to change sales strategy or re-design the product.

Customer Development and Its Discontents

Written by Sean Murphy. Posted in Customer Development, skmurphy

One recurring question is “Why can’t we do more to test ‘Customer Development’ theories?”

Where Steve Blank identifies three kinds of markets–existing, resegmented, new–there are probably thousands, or at least fine gradations if his three. So your “lab equipment” is complex. I think in the same way that Heraclitus observed that “you cannot step into the same river twice” you cannot step into the same market twice.

I think the more important thing Steve has done is to caution against three common failure modes of engineering driven companies as they approach the challenge of marketing and selling their product:

  • Get out of the BatCave: don’t try and figure it out without talking to prospects and your current customers
  • test and measure: don’t rely just on your intuition, form falsifiable hypotheses
  • iterate frequently: update your plans based on results to date, don’t be guided by the “Little Engine That Could” and keep trying the same thing hoping for a different result.

In that sense it’s a useful antidote to

I always wonder what “Plan B” is if you decide the customer development model is not for your team. What are we comparing it against. Brant Cooper has identified “4 Anti-Lean Startup Archetypes” that might serve as candidates:

  • Hire a super salesmen who can overcome all prospect objections.
  • Develop a powerful enough product that will be so compelling you won’t need to go through customer discovery and customer validation.
  • Spend enough money on advertising and PR to drown out the competition.
  • Ignore any evidence to the contrary and persist in executing your vision.

Steve Blank Plans to Crowdsource E-Schools

Written by Sean Murphy. Posted in 3 Early Customer Stage, Customer Development, skmurphy

Steve Blank gave a thought provoking talk at the Startup Lessons Learned Conference on “Customer Development 2.0: Why Accountants Don’t Run Startups” (slides here and related blog post “Why Accountants Don’t Run Startups” which is part of a category of blog posts on “Durant vs. Sloan“).  He also referenced Robert Shedd‘s list of startup accelerators “Help for Startups! – A semi-complete list of startup accelerator programs” and noted that many of them were now offering entrepreneurial education: “most startup accelerators have great coaching but minimal methodology.”

Blank then noted the disconnect between what entrepreneurs need to know for an early stage firm and the skills they need for a mature business.

  • The skills needed to run an early stage startup which is still looking to settle on a first product in a target market with a viable business model:  hypothesis testing, business model testing, customer development, agile development, metrics, venture finance, and hands on leadership.
  • What business schools offer are the skills needed by a mature business:  managerial finance, managing groups and teams, financial accounting, modeling for optimization, and global value chain strategy.

Steve predicted that E-Schools for entrepreneurs would emerge, the counterpart of B-Schools for managers in established firms, and asked the attendees to help build them:  “E-School–Let’s Help Build It.”

I think that there may not be good reasons why things are the way that they are, but there are strong reasons. There have been a number of critiques of the VC funding (and seed funding) process which are relevant to the  E-School concept:

A number of organizations have also identified and attempted to address this issue. Earlier efforts have tended to focus on providing office space, small business management skills, and introductions to potential funding sources. Blank’s E-School model, with it’s customer development, focus represents a welcome innovation. Here is a representative set of older and  emerging E-Schools:

Part of the challenge with a new methodology is that funded firms are very risk averse to adopting a new methodology  once they have raised venture financing. For the most part funding convinces them of the correctness of their plan and, given that they were able to raise a round, their default strategy is more fund raising instead of focusing on customer revenue if they hit a speed bump. I think it may be difficult to trigger much of a change, at least initially, in venture backed firms.

There is probably an opportunity for Angel education (and aggregation) in that requiring customer development techniques will act as a multiplier on most investments (or at least  in many markets). This seems to be what the Venture Hacks Angel List and Floodgate are already executing.

In his talk Blank was clear that early stage firms need a different dashboard than the standard revenue pipeline, balance sheet, and income statement. Providing instrumentation and operational guidance for what board level review should look like in an early stage firm that’s been Angel funded might be a good insertion point for an E-School methodology.

Why Angels? They are investing their own money and don’t have recourse to management fees from Limited Partners  for compensation, so they are more likely to adopt techniques that increase the chance of success and wring more value out of their seed investment. E-Schools probably stand the best chance of disrupting the VC ecosystem “from the bottom” and that would be the Angels and seed funds. One measure of success would be to specify a “lessons learned” format to substitute for the “demo day” that incubators run to help startups generate follow on investment.

Related Blog Posts:

Vivek Wadhwa’s Pointers for Bootstrappers

Written by Sean Murphy. Posted in Customer Development, skmurphy

Vivek Wadhwa wrote a great post recently called “Ditch the Biz Plan and Buy a Lottery Ticket” which oddly enough contains a number of good pointers on bootstrapping. His opening paragraph explains the title (emphasis added)

Hardly a day goes by when I don’t have a rookie entrepreneur ask for advice on raising money from VCs. They usually have a fancy-looking business plan with detailed spreadsheets showing how their company will be worth billions by capturing just 1% of a market. All they need is some financing, and they’ll take the world by storm. My advice is always the same: ditch the business plan, and buy a lottery ticket. Your odds are better, and you’ll suffer less stress.

He goes on to acknowledge that there isn’t a single recipe for bootstrapping, but offers some useful pointers, here were my top five:

  • Share your ideas with those who have done it before.

This is where events like the Bootstrappers Breakfast® meetings or the Lean Startup Circle Meetups give you a chance to compare notes with other entrepreneurs. Focus on the areas where you have the most risk, typically these will be customer and market issues not technology.

  • Start small

Sell what you have. If you can start by consulting and add software or other technology to your offering this will allow you to get into immediate contact with prospects. The Aardvark team has been public about the fact that most of their offering was implemented “Wizard of Oz” style by the man behind the curtain and was not software but manually generated e-mail and IM messages designed to mimic final system operation in a working prototype.  Your product may admit of the same approach.

  • Focus on revenue and profitability from the start.

If someone is not only willing to pay but actually writes a check or runs a credit card you will learn more about what features are needed than any amount of discussion of what a prospect would like.

  • Remember the importance of cash flow.

Vivek’s context was that you had to live through the short run to make it to the long run. Chasing large deals, “elephant hunting” exclusively may mean that you will starve to death. Appreciate squirrels and rabbits, you can still add them to the elephant stew and you are less likely to go broke waiting for a few big deals to close. Also, small deals give you references and testimonials that make the medium and larger deals more likely.

  • Learn to sell.

Selling in the early market is much more of a conversation that focuses on the prospect’s perception of their problem and any constraints on a solution.  One common myth is that introverts are poor at selling. Shy people may be poor at selling but shy is not the same as introverted. Introverts are normally more willing to listen than extroverts and in the early market you “sell with your ears.” In fact, introverts may very well be more effective than an extrovert who cannot shut up and let the customer explain their perspective on their needs–I write this as an extrovert who has managed to talk my way out of opportunities from time to time when I should have asked a few more questions and listened more carefully.

Another trap the technical folks can fall into when selling is to believe that you are “bringing fire to the savages.” You see the benefits of your offering very clearly, but you assume that your prospects are lost or clueless unless they adopt your approach. Most of the time there is a working status quo that you have to significantly outperform to foster adoption, and very few new technologies are fully form fit and function compatible.

On mindset you can adopt to guard against technical arrogance is appreciative inquiry, which assumes that there are a lot of things are that are good about the current situation and you should understand and appreciate them before suggesting any changes.  Focus on clearly understanding the customer’s perception of the problem and the constraints that any improved solution must respect, some of these will be technical, many will be cultural.

I have blogged about Appreciative Inquiry and related ethnographic methods in:

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