A collection of quotes of interest and use to entrepreneurs: these quotes for entrepreneurs were identified in January 2011. You can follow @skmurphy to get them hot off the mojo wire or wait until the end of the month when these quotes for entrepreneurs are collected on the blog. Enter your E-mail if you would like Feedburner to deliver new blog posts to your inbox.
Archive for January, 2011
Here is the handout from this morning’s Bootstrapper Breakfast® in Walnut Creek.
Mapping the Path to Your First Dollar of Revenue
Sean Murphy, SKMurphy, Inc.
Bootstrapper Breakfast Walnut Creek Jan 25, 2011
Entrepreneurs tend to focus on having a good idea, or on the challenges of developing a new product, or on finding co-founders to form a company. While all of these are important the most significant early milestone for a bootstrapper is making the first dollar of revenue from a customer willing to act as a reference. SKMurphy has a five-stage model for startup evolution, this morning we are going to focus on the first three, and in detail on the early customer stage when money actually starts to flow into your firm.
Starting a business is a long hard path with many twist and turns, dead ends. You will try many things: some will work; many will fail; some it can be hard to tell whether they have succeeded or failed–do you need to give them time or not? We have found that understanding where you are and focusing on the next risk reducing milestones can help shorten the path you travel to revenue. We have mapped out the early stages of a startup to help you avoid worrying about the less important issues and challenges you should defer to a later stage.
Let’s look at the first couple stages with a particular focus on the early customer stage, where money starts to flow into your startup for the first time.
- The Idea / Formation stage starts with one or more ideas and may end with a team formed around a working consensus on how to evaluate the technical and market feasibility of the idea(s). Customer Development Risks:
- Make Your Assumptions Explicit & Testable
- Don’t Stop at “Anyone Will Want This Product.” Who Needs & Will Pay For It?
- Confuse The User With The Customer: Customer Pays You
- Believe That Your Product Will Sell Itself: Pre-Viral Customer Acquisition Cost (Hours/$)
- In the Open for Business stage you have a business ownership structure, and you have the necessary documents and tools in place to transact business: e.g. business license, Federal Tax ID, software license, etc. The Best is the Enemy of Good Enough:
- Spec the Full Product But Focus on Minimum Feature Set Needed to Sell
- Clearly Define and Focus on Break-even and Profit
- Don’t Expect Perfection or Too Much Too Soon
- Need Planning & “Target Practice”
- Iteration & Improvement: Nothing New Ever Works
- Early Customer stage is where you develop your first customers. First sales are generally to friends who know and trust you. These customers can act as a reference for future customers. Typical Sales Cycle:
- Suspect: Target of Messaging
- Prospect: Initial Conversation, Understand Their Problems and Needs
- Qualified Prospect: You Offer Clear Value & They Can Pay For It
- Demo/Presentation: show results based on representative data
- Champion: Who is your internal salesperson. May be different from ultimate decision maker.
- Champion can map the process that will be followed for the purchase decision.
- Champion has a track record of introducing innovation into the organization and getting it adopted.
- Proposal: May be verbal initially, but most firms won’t invest time in a detailed evaluation without budgetary pricing at least.
- Evaluation: show results based on their data and workflow
- Purchase: purchase order & relevant ancillary agreements (e.g. license agreements)
- Payment: note that this may be 60-90 days in today’s economy
- Reference/Testimonial: as important as payment for early sales, negotiate for this as hard or harder than price.
We are relocating the East Bay Bootstrappers Breakfast® to Walnut Creek tomorrow. Please join us for our inaugural breakfast at the Heavenly Cafe on 3116 Oak Road. Pete Tormey, the regular facilitator, has asked me to speak on “Mapping the Path to Your First Dollar of Revenue.”
Speakers at the Bootstrappers Breakfast normally only present for six minutes and I will be no exception,. Please join us if this new location is more convenient.
When: Tue-Jan-25 7:30am to 9AM
Where: Heavenly Cafe, 3116 Oak Road, Walnut Creek, CA
Cost: $5 plus the cost of your breakfast, tax, and tip.
Peter Cohan is giving a Great Demo webinar Tue-Jan-25-2011 at 9am PST.
- When: January 25, 2011 9:00am PST
- Where: Online Webinar: https://www2.gotomeeting.com/register/423669683
- Cost: Absolutely Free!
Who should attend: Anyone that sells or demos SaaS Apps via screen sharing and meeting collaboration software, sales managers, sales reps.
Objective: Introduce a framework to create and deliver improved demonstrations to increase success in the marketing, sales, and deployment of software and related products.
If you like this signup for our full day Great Demo workshop April 12 with Peter.
What’s your reaction when a previously unknown competitor pops out on the market?
Perhaps they are better funded or staffed with famous entrepreneurs or they announce one or more significant customer deals.
If your prospects are not bringing them up I would continue with Plan A. If you have selected an important problem to solve you will always have competition: no one ever has a market to themselves for very long. Don’t fall into the marketing echo chamber where you respond to their messaging instead of what your prospects and customers are asking for.
More startups are decoyed by competitive announcements and datasheets than you would care to believe.
Not everything your competitor says they can do is true (yet, to give them the benefit of the doubt). If there are no testimonials offered or customer case studies the probability you are looking at messaging instead of reality goes way up. If your prospects or customers are not asking about them then focus on what they are asking you.
Many teams are more undone by their fears and imagination than reality.
This is not to say you should not keep a close eye on competitors and what they are saying: you should always be trying to differentiate yourself in ways that make you more useful and more compelling to your target market.
How did Craigslist drive so many better funded competitors into oblivion? It was not by copying the features in their press releases and product announcements. Same thing for SalesForce displacing an earlier era of sales automation tools. RightNow technologies bootstrapped CRM solutions against better funded but ultimately less nimble competitors.
If the market is well established you cannot take an entrenched competitor head on. Most startups have to fight a “battle of maneuver” where the market is still emerging and you have to identify key opportunities to pursue, these will come as much from actually talking with prospects as reading your competitors announcements and giving up hope.
Here is a recent exchange from the LSC mailing list I had with an EDA startup founder
EDA Tools Founder: We are small EDA tools startup. We captured great value because we built a pretty neat product without investment that can match others who were built using >5M-25M investment. Trouble is the software is costly and it takes a long sales cycle to sell.
SKMurphy: Depending on which problem area you are addressing in EDA your customers are not likely to be bargain hunting. If they are spending $4M on a mask set and your software saves them $25K (or even $250K) but introduces an error in the design they will get a dent if their career if not get fired. Investment in EDA is down to a handful of specialized Angels and the ones that are public about their investment philosophy like Jim Hogan advocate bootstrapping to get your first few customers. The EDA market is very challenging for a startup because of the increasing risk aversion and consolidation on the customer side as well. Investment will be difficult to secure, it will not materially shorten your sales cycle, but Angel investors may be able to open some doors for you.
EDA Tools Founder: I believe we need outside investment for the following reasons:
- We have a clear engineering execution plan. Since the core product is ready, the strengthening and adding features is now a parallelizable task.
- We need sales/marketing momentum to start cash flow.
- Investors with networks in this market can also bring in additional momentum.
SKMurphy: Taking each of your points in turn:
- There is little risk reduction or differentiation in your engineering execution, given a clear specification by a customer willing to outsource development or go outside for a solution there are many firms that can implement a workable solution.
- You don’t mention distinctive design insights or design expertise that led you to develop the product but have stressed in a number of posts to this group over the last year that you are able to develop more cheaply. Chip design and now even high speed board design looks a lot like hiring a brain surgeon: customers hire the most experienced provider with the highest number of patients still above ground. It’s an area where promising a bargain does not move the needle.
- There are many folks who can help you reach customers but you have to have a story that promises outstanding results, not a bargain on a piece of software driving a multi-million dollar decision.
EDA Tools Founder: What would you do? I believe investment can speed up both engineering execution and sales. Would you think of another strategy that would work without investment? Are we being cheap or lean here?
My current alternative solution to the above is to focus on other markets where sales cycle is shorter to start cash flow early. However time is precious and we could still execute engineering faster.
SKMurphy: You really need to work on your story:
- The Past: where you have come from, what led you to start your company and what about your background prepared you to be effective at solving this particular problem for your customers.
- The Present: what have you accomplished to date and more importantly, what have you learned from your journey so far.
- The Near Future: what you are actively working on, what you plan to accomplish in the near term, how you will demonstrate traction if your audience asks you “how is it going” in three to six months.
- Who You Are: why do you have an interest in the problem or field that you are focused on, what are the values and the passions that you bring to working on it.
- The Future: what you ultimately hope to accomplish, a vision of a better world you are working to bring about.
Continually stressing how cost effective you are is just not compelling to customers solving high stakes engineering problems. They are willing to spend a lot of money but they must get results that help to differentiate their products. You can still use lean techniques but you have to be targeting emerging problem areas or offer a disruptive tool that allows a new category of customer to get a result that was not available to them before. Also, when approaching VC’s or Angels the “near future” part of the pitch is key. Your current message is that we cannot get started without your money, you want to be able to stay we are started and will make good progress without you but can go faster with funding.
Isaac Garcia, co-founder and CEO of Central Desktop, will share “Lessons Learned Bootstrapping Central Desktop” at the Milpitas Bootstrappers Breakfast® on February 11, 2011 at 7:30am. Central Desktop delivers a SaaS collaboration platform that helps businesses manage projects and documents in the cloud with colleagues, customers and partners.
Isaac Garcia (@isaacgarcia) oversees business strategy and sales for the company. Isaac’s talk will draw on his experience at both early-stage technology companies and in enterprise sales & marketing. He was a founding partner at Upgradebase, where he oversaw all business development and sales for the company. Isaac served as a Director of North America Enterprise Sales for CNET Channel. He was responsible for the acquisition, sales and management of global partnerships with Microsoft, Google, eBay, Yahoo and Best Buy. Isaac led and managed CNET’s global partnership with Microsoft to launch the Windows Marketplace campaign in 14 countries. He received a BA in English from Ambassador University and a Masters degree in English Literature from the University of Northern Colorado.
Isaac and Arnold Hsu, CTO of Central Desktop, were interviewed by the Techzing in February of 2010 on the need for relentless execution, see 34: TZ Interview – Central Desktop / Relentless Execution by techzing
Isaac noted the following in an E-mail exchange with Phil Wainwright in 2007 in answer to the question “Do SaaS Ventures Need VCs?”
“In many ways, SaaS companies are not VC plays — at least, not in the traditional sense. Once established with a product to market, a properly run SaaS company can accurately predict its revenues and growth — which means that it can also predict, with relative accuracy, exactly how much cash it needs for expansion and when and how much of an ROI the lender/investor will receive. This time frame is usually much shorter than traditional VC horizons and less risky. This also means that the terms are different than most deals.”
When: Feb-11-2011 7:30am to 9:00am
Cost: $5 in advance / $10 at the door (plus breakfast, tax, and tip).
Where: Omega Restaurant, 90 S. Park Victoria Milpitas, CA, 95035
The essence of entrepreneurship is a free exchange of value or what the Romans called quid pro quo (literally this for that). An exchange of value with a customer or a partner can leave both of you better off: both winners, neither a loser. In a zero sum game like tic-tac-toe or chess one sides’ gain is the other’s loss.
Too often I see entrepreneurs who focus on “beating the competition” and ignoring the opportunities that they have to learn from their customers, prospects, competitors, non-customers, and competitors customers.
As a startup you don’t have to beat your competition everywhere, you just have to carve out enough space to live by offering more value than the status quo. One useful way of defining what constitutes a “better mousetrap” is to look for people with a mouse problem who are unsatisfied by current solutions, these are “non-customers.” They could be your customers with some effort.
I think more business challenges revolve around reaching a negotiated solution with employees, partners, and customers. When we say we “won” the business it means that we have reached an agreement with a customer as much as “winning a victory” over competitors.
Business competition looks more like a relay race, where teams need to pass the baton among all of the members to get across the finish line. This looks like the challenge of taking part in a supply chain or software stack.
Join other entrepreneurs who eat problems for breakfast® 7:30am to 9am at Coco’s in Sunnyvale tomorrow. Ogden Lily from Boitano, Sargent and Lily, LLP is attending tomorrow’s Bootstrapper Breakfast® to answer questions on accounting and tax issues for startups. Boitano, Sargent, and Lily has been serving Silicon Valley businesses for six decades, Ogden is a CPA with the firm.
Issues that he will address include:
- moving your accounting into the cloud with Quickbooks on-line
- understanding the accounting implications of different corporate forms: LLC vs. C vs. Sub-S; CA vs. DE
- deductibility of business expenses
- 401K options for bootstrappers
- when to incorporate
Bring your questions and remember if this is your first year to file business taxes the deadline is March 15 not April 15.
7:30am to 9am at Coco’s on 1206 Oakmead Parkway, Sunnyvale, CA 94086
Register: $5 in advance or $10 at door, each attendees pays for their own breakfast.
I mentioned in “Uncertain Times” that we are in the midst of economic and technology transitions that have vastly increased the turbulence of our environment. I have found two rules of thumb useful guides:
- “It may looks like a crisis but it’s only the end of an illusion.” Gerald Weinberg in Secrets of Consulting
- “Innovation requires us to systematically identify changes that have already occurred but whose full effects have not yet been felt, and then to look at them as opportunities. It also requires existing companies to abandon rather than defend yesterday.” Peter Drucker in Innovation and Entrepreneurship
What illusions have ended recently for you?
What changes have already occurred that you need to incorporate into your plans?
Lan Liu opens his “Conversations on Leadership: Wisdom from Global Management Gurus” with an interesting anecdote.
The King of Wei asked Bian Que, “You have two brothers who are doctors too. Which one of you three is the best?”
Bian Que answered, “My big brother is the best. The other brother is also better than me. I am the worst but the most famous.”
The king was puzzled and inquired why.
Bian Que explained, “My big brother is the the best doctor because he sees disease and cures it even before the patient feels any symptoms. Yet this makes it hard for his greatness to be recognized this way. So he is only admired within my family.”
“The other brother, the second best, cures disease when it develops early symptoms that at most cause little pain. There he is regarded as only good at treating minor ailments and thus enjoys a small reputation in my hometown.”
“In my case, patients always come to me when their disease is at an advanced stage. They and their desperate families are so pleased when I perform dramatic measures such as puncturing, bloodletting, poisoning, and surgery, to cure or relieve the disease. That is why I am famous across borders.”
Which CEO are you:
- monitoring early indicators to prevent deterioration,
- managing symptoms and small pains to speed recovery,
- waiting to see if it’s a real problem to react?
And would some Power the small gift give us
To see ourselves as others see us!
It would from many a blunder free us,
Robert Burns “To a Louse“
It can be very difficult to understand how we appear to others.
When I was rehearsing the “2011 New Years Greeting” there as a monitor next to the camera that offered instant replay of a take. I was surprised at how serious, almost fierce, that I looked in some of the early takes. Those of you who have worked with me may be less surprised than I was. It’s a challenge to look into a camera and make a short statement, and my concentration made me look much more serious than I realized.
A lot of the work we do is improvisation: it’s live in front clients, working with them in negotiations and sales calls with their customers, or preparing for presentations that are part of negotiations and sales calls. We work in a private wiki where they see every draft of what we are working on with them (and vice versa) with typos and awkward phrasing and all. We almost always work in at least a pair, so there is someone else from the team who can point out how we are coming across. Often a partner who is not directly involved, or who was the least involved will do a quick after action call on a project to get candid feedback on how we can improve.
I record most of my talks and listen to them again at least once. Many are now on video now as well. It can be uncomfortable to listen to yourself, and worse to look at yourself, but if you can maintain enough emotional distance you can actually improve.
I have come to realize that nothing works the first time, I have to rehearse, review, and refine so that I can hit the goals I have set for myself. I don’t always like what I see but I don’t know another way to achieve high performance.
In my “Maiden Voyage” post on Jul-30-2010 for my Entrepreneurial Engineer blog on EE Times I said that I would focus on innovation and entrepreneurship in the broader electronic systems design ecosystem. I hoped to provide insights in the following areas:
- Perspective on technology innovation.
- Analysis of business strategy for emerging markets.
- New models for global teams and multi-firm collaboration that are predicated on incessant collaboration among experts.
- Perspective on the impact of communication and pervasive connectivity in creating new business models.
- Insights from pioneering engineers on how new computing paradigms are enabling new models for how they invent.
- Interviews with entrepreneurs sharing lessons learned from their successes and their setbacks.
I am going to continue to focus on these areas for 2011 as well.
I have another ten posts in various stages of completion and plan to post one a week at least for the first quarter of 2011. If you would like to be interviewed or have some insights you would like to share about areas 3 and 4 in particular please contact me.
Federated entrepreneurship groups in different cities should following their own paths that leverage unique local strengths and advantages.
Jeroen Bakker sent in a great list of suggestions as a follow up to last week’s “Drifting” post.
David L. Akin is the Director, SpaceSystems Laboratory at the University of Maryland. He is also the author of “Akin’s Laws of Spacecraft Design.” He lists more than 40 laws, here are ten that I thought were directly applicable to software entrepreneurship, but the whole list is very funny and worth reading.
To ensure that conversations and requests for help were productive, Anthony Scampavia kept a question at the top of his whiteboard in his various offices at Cisco for more than a dozen years:
What is the problem you are trying to solve?
Here are three problems we have identified and capabilities we plan to develop this year to manage them:
Problem: Rich audio, video, and other multi-media are clearly emerging as a requirement for effective business communication. We will need to learn and deploy new systems to specify, create, edit, and manage a richer set of content than our current text oriented systems can support. It also means we need to develop a much deeper understanding of how to leverage media for effective business communication.
Solution: We need to develop a complex set of new capabilities, but will attack different aspects with different methods:
- Partner for technical creation and editing capabilities. Already active–and delighted–with DreamSimplicity and LectureMaker, we will likely add one or two more partners that have audio and animation capabilities.
- Systems for managing both finished audio and video pieces but also building blocks that are reusable assets.
- Develop internal expertise in specifying content requirements.
Problem: As a consulting organization we are delivering our value primarily as a direct service, whether it’s scripted or improvisation. This puts a lower bound on what we can charge to help our clients and makes it difficult to impact the many bootstrapping startups who might benefit from our tools and methods.
Solution: Develop knowledge products such as e-books, simulation models, interactive planning tools, and other simple applications to assist startups in customer development and scaling their business. Near term objective is half a dozen e-books that collect content from blog and workshops with checklists and other material to make them useful stand-alone. We continue to evaluate other customer development applications and would be happy to leverage those that are appropriate for B2B markets. Please contact us if you have something you feel we could incorporate into our practice.
Problem: the Bootstrapper Breakfasts® work very well as platform for early stage entrepreneurs to compare notes–to “eat problems for breakfast®” to coin a phrase–on their technology businesses as they wrestle with the challenges of organic growth. The breakfasts’ unconference format allows for anyone to drop in as they need and has fostered a number of business partnerships and co-founder relationships. But they don’t work well to support focused execution and provide ongoing support from a small group of trusted peers.
Solution: offer one or more Mastermind Groups aimed at early stage technology businesses. There are a number of models that work well for CEO’s of larger firms, typically involving one four hour meeting a month with a dozen other members, where each members is the focus once per year. But smaller firms are operating with less structure and in comparatively more dynamic situations. So shorter, more frequent, interactions that leverage a mix of face to face and on-line environments are probably more appropriate for their needs. We will continue to support and expand the Bootstrapper Breakfast program as it’s meeting the needs of very early stage entrepreneurs, but will explore adding Mastermind Groups to complement it.
Please contact us if you have any suggestions or questions on any of this. Details as they unfold.
I mentioned Scampavia’s whiteboard in “Ben Yoskovitz: Start With Passion For Solving a Problem.”
“Little by little, one travels far”
Theresa Shafer, one of my partners in SKMurphy, advised me recently that “most powerful insights are simple.” It was by way of encouragement to simplify and focus my blog posts.
She continued her critique: “If you can’t get your point across in a hundred or two hundred words why do you think another thousand and a half dozen hyperlinks is going to make it any clearer?”
You have to take your inspiration where you can find it. I plan to keep my blog posts more succinct in 2011 than years past.
“We didn’t know what “the new” was. It’s kind of a hard concept because when most people talk about “the new,” they’re actually talking about it after the fact. They look back and say how brilliant you were at seeing all this, and so forth. Well, it’s all nonsense. When it is new, you don’t know it. You’re creating something for the future, and you don’t know exactly what it is.”
Ed Catmull in “A Conversation with Ed Catmull” ACM Queue Nov-2010
Early adopters, also known as visionary customers, are able to let go of the past and embrace the new in spite of the fact that “nothing new ever works.” Pragmatists know that “nothing new ever works” and wait for someone else to debug a new offering. Conservatives wait for new technology to get cheap enough and laggards never adopt.
Early adopters are relatively rare. Taken together, pragmatists, conservatives, and laggards outnumber early adopters by 20 to 40 to 1.
Early adopters are rarely happy with the status quo, it’s one of the reasons that they are more willing to let it go. One of the hallmarks of an early adopter is a demonstrated ability to incorporate innovation into their personal practice or business in a way that enlarges the scope of their capabilities, enabling them to respond more robustly to challenges.
Early adopters often find a startup before the startup can find them. This can lull a startup into a false sense of optimism that the majority of the market has recognized the value of their solution.
Early adopters focus on useful intermediate results they can use as building blocks or viable interim solutions. They exist in state of ongoing active evolution. Pragmatists focus on end states and end results: they don’t like change and want to get to an outcome without spending a lot of time on the transition. If an early prospect for your new product is focused more on the outcome than on managing the transition your team had better be good at managing the introduction and bringup of your offering or the prospect may lose heart.
If an early adopter is a member of a larger organization they may also be change agents: they can not only adopt a new technology themselves but actively foster adoption. Two indicators that you are dealing with a change agent:
- They can point to earlier innovations they helped to effect within the organization.
- They can map the decision making process that your startup will have to navigate to secure their firm as an early customer.
Having a bona fide early adopter on your customer advisory board acts like a force multiplier on your startup.
- “Always trust your client—and cut the cards.” Weinberg’s Sixth Rule of Trust
- Always be collecting data.
- Always be collecting multiple perspectives.
- “Always Be Collecting Data” The rule of ABCD
- “In God We Trust, All Others Bring Data” attributed to W. Edwards Deming
- Possibly a riff on “In God We Trust, All Others Pay Cash”
- In closing… “‘A,’ ‘B,’ ‘C.’ ‘A,’ always, ‘B,’ be, ‘C,’ closing. Always be closing.”
- from Blake’s speech in Glengarry Glen Ross (screenplay by David Mamet)