Bug Reports vs. Business Plans

Written by Sean Murphy. Posted in 1 Idea Stage, 4 Finding your Niche

“Unhappy users in our industry don’t continue to file bug reports; they start writing business plans.”
Michael “Mac”  McNamara talking about the EDA Industry

I was reminded of this remark that Mac made at an SDForum event several years ago as I was reading the “Who Are User Entrepreneurs?” study which summarizes findings on innovation, founder characteristics, and firm characteristics released in February of 2012. I was alerted to it by a press release from Kauffman released yesterday “Nearly Half of Innovative U.S. Startups Are Founded by ‘User Entrepreneurs‘”

Here are some interesting passages from the study, with some further commentary mixed in.

What is User Entrepreneurship? User entrepreneurship is defined as the commercialization of a new product and/or service by an individual or group of individuals who are also innovative users of that product and/or service. A user entrepreneur tends to experience a need in her life and develop a product or service to address this need, often before founding a firm. As a result, user entrepreneurs are distinct from other types of entrepreneurs in that they have personal experience with a product or service that sparked innovative activity and in that they derive benefit through use in addition to financial benefit from commercialization.

I would suspect that these entrepreneurs bring domain knowledge and often an ability to offer differentiated services based on their own inventions allowing them to bootstrap.

We find key differences among users who founded firms around innovations meant for use in a previous job or business (professional-user entrepreneurs) and users who founded firms around innovations meant for personal use (end user entrepreneurs). [...]

The differences may have as much to do with education and socio-economic background and the causality may run in the other direction.

Professional-user entrepreneurs appear to have more experience along a number of dimensions than do other entrepreneurs in both the full sample of firms and the subset of firms conducting R&D in their first year of operations. Although the founders are, on average, the same age, they report higher educational attainment and more years of industry work experience, are more likely to have founded a firm before, and are more likely to have founded a firm in the same industry before. Their firms are less likely to be founded at home, less reliant on self-financing, more likely to receive venture capital financing, more likely to have revenues— and, among firms with revenues—generate higher revenues and are more likely to possess patents and trademarks than both the full sample and subset of firms conducting R&D. [...]

There are certainly many “change agents” who improve the robustness and viability of the firms they work at (but didn’t found). Also called intrapreneurs or bricoleurs. These folks may set out on their own to start a new company as well.

End-user entrepreneurs appear to have a demographic profile distinct from the full sample of firms and the subset of firms conducting R&D in their first year of operations. End-user entrepreneurs are more likely to be members of minority groups: they are more likely to be female; more likely to be American Indian, Alaskan Native, or Black; and less likely to be Asian. Their firms employ fewer workers, have lower revenues, are more likely to be founded at home and operate from home five years after founding, are more heavily self-financed five years after founding, are less likely to receive bank financing, and are more likely to possess patents than are entrepreneurs in the full sample and subset of firms conducting R&D.

What are the implications

  • In fast moving fields, especially when you are selling to businesses, good user relationships are essential for encouraging enhancement suggestions that are viable and , if ignored, will lead to new competitors springing up.
  • The harvest of insights from early users can be as important as the revenue and the testimonials a business relationship generates.
  • Delivering the initial version of your product as a service looks like it may be a marker for success. Other techniques for “selling the result”  instead of the product may be equally potent (e.g. selling the holes in the wall where the customer wants them instead of selling a drill).

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