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“…to travel hopefully is a better thing than to arrive, and the true success is to labour.”
Robert Louis Stevenson in “El Dorado” (collected in Virginibus Puerisque)
“Work expands so as to fill the time available for its completion.”
C. Northcote Parkinson “Parkinson’s Law“
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“We act as though comfort and luxury were the chief requirements of life,
when all that we need to make us really happy is something to be enthusiastic about” Charles Kingsley
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“Little by little, one travels far”
J.R.R. Tolkien
“Your conversion strategy should go beyond the prospect becoming a paying customer to include keeping customers & leveraging them into more.” Chris Hopf
My take is “the most significant early milestone for a bootstrapper is making the first dollar of revenue from a customer willing to act as a reference.” See “Mapping the Path To Your First Dollar — Handout”
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“Conferences should be all about conversations. Most of the events are not well structured for conversations at present.” Dorai Thodla
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“I wouldn’t give a fig for the simplicity on this side of complexity;
I would give my right arm for the simplicity on the far side of complexity.” Oliver Wendell Holmes, Sr.
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 Breakeven and Profit
Don’t Expect Perfection or Too Much Too Soon
Need Planning & “Target Practice”
Iteration & Improvement: Nothing New Ever Works
Early Customerstage 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.
Join other entrepreneurs who eat problems for breakfast® on January 25 in Walnut Creek.
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.
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. That’s good advice you are getting from a two other serial entrepreneurs on the list as well.
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.
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 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
Join other entrepreneurs who eat problems for breakfast® on February 11 in Milpitas.
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:
“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?
