These are excerpts from Episode 9 of Outlier on Air: Tristan Kromer, A Lean Approach to Business. They are in the same sequence the took place in the interview but a number of stories and asides have been omitted to focus on what I felt were some extremely valuable insights from Tristan Kromer on clarifying and testing customer and value hypotheses.
Map the customer buying process, needs, and situation before you invest time sending a detailed proposal. A quick request can mean you are column fodder.
Q: We are still trying to close our first paying customer. We have a website up and have talked to a number of people. More or less out of the blue we got a call from someone in a large firm who had looked at our website. They asked a few questions about our product and then said “Great! Send me a detailed proposal including pricing!”
At last a stranger recognizes the brilliance of your solution in just a few minutes of conversation! How often I tell myself that. How rarely it’s true, especially when you are just starting out with a new product or in a new market. You have to ask yourself:
- Do they really know enough about what we do to be able to start a purchase order?
- Do I know enough about their situation to be able to calculate our likely impact on their business and their return on investment?
- How can I justify the price to value in the proposal?
- Have I addressed the critical implementation and proliferation roadblocks we will face from pilot to production use?
You May Be Column Fodder
More often than not you are actually “column fodder” or a makeweight needed so that they can prove to their boss or the purchasing/finance team that they did a thorough job and solicited three bids. Especially if you don’t know much about their situation and they have not asked for a detailed demo you need to proceed a little more slowly.
Map The Customer Buying Process
Before you submit a proposal I would ask your contact these questions to get a better sense of the situation, in particular you need to learn as much as possible about who will make the decision and how they will make it (the customer buying process).
- Can you describe the process for making a decision after we submit this powerpoint proposal, who else is in involved, what questions are they likely to have?
- Who has to make the final decision to actually sign a contract?
- Can you provide an example of a standard contract so we can understand your typical deal structure and terms and conditions.
- Can you give some examples of other deals that your company has done in the last three years that might serve as a model for how our business relationship would work?
Understand Their Needs and Situation
You want to be easy to do business with but that requires that you have a thorough understanding of their needs. I would not send a powerpoint presentation, but ask for time to present it (if only via Webex/GoToMeeting) so that you can answer any questions that they have in the moment. I would also dry run this presentation with your contact if they are open to it. If they just default to “send me a detailed proposal” it’s probably not a real opportunity.
For customer interviews we have a rule of thumb that if an hour or research saves a minute early in the conversation it’s a good investment. When you look at the list of questions you have prepared to learn about the prospect’s business and their needs, it’s easy to say to yourself, “I am really busy I can just ask these at the start to ‘set the table.’” But there are significant risks with this approach.
Preparations Cuts Risk Of Customer Interviews Ending Prematurely
While the interview may be nominally scheduled for 15 minutes or a half-hour and may run an hour if it goes well the first six minute or so are critical to communicating that you have done your homework on their situation and their needs. If you start to ask questions that are already published on-line you can appear lazy or unprepared. If you can do research on a prospect in advance, it’s worth spending an hour to save a minute in the conversation. You can even start the conversation by saying “when I prepared for this conversation here is what I learned about your firm” and give a brief summary of what you know about their situation.
It’s OK to say “I see on your website that you have hired four people in the last three months, how has that impacted …” or “I read a profile of your firm in the San Jose Business Journal Book of Lists, have you grown beyond the 12 people listed in February?” This shows that you have done your homework and don’t want to waste their time but need to confirm some of the key facts that may bear on their needs.
Information Sources To Consult Prior To Customer Interviews
- Do a thorough review of the prospect’s website.
- Search for any articles in the last two years at least to see what kind of press coverage they have received.
- Review the Linkedin profiles for the firm, the person you are talking to, and anyone with similar titles or in the same department.
- Review on-line postings in relevant forums for the industry.
- See if they have a blog, a twitter account, a YouTube account, and similar social media sits that are often used for business purposes.
Six Questions That You Normally Have to Ask In The Conversation
- Prospect’s description of the problem in their own words. This is rarely more than a sentence or two and capturing the essence in their own words is key.
- High level description of current work process or work flow in their own words. This forms the basis for any delta comparison or differentiation of your solution.
- Any constraints they mention: if you hear the same ones multiple times you will more than likely have to satisfy them.
- How they will tell that a new solution will leave them better off: this is different from asking them to specify the solution, it’s asking for “future state” or the end result they would like to achieve.
- What else they have tried to do to solve the problem: probe for why they were not satisfactory.
- Key metrics or figures of merit they would use to evaluate a new outcome.
“A month in the laboratory can often save an hour in the library.”
F. H. Westheimer
Entrepreneurs seem to divide into two camps:
- those who want to have a conversation immediately, and
- those who are quite content to research for months as long as they don’t have to talk to strangers.
Striking a balance is the key to maximizing your learning from a customer interview. Effective research prior to the customer interview allows you to
- Ask better questions
- Provide evidence of your commitment to developing a mutually satisfactory business relationship
- Detect when your prospect is leaving something out or perhaps coloring the situation too much. You are not a stenographer there to capture whatever they say without reflection, but if your only source of information is what they tell you then you risk “garbage in, garbage out” in your product plans and MVP.
In a candid discussion about the challenges of managing your own expectations for a minimum viable product (MVP), Tristan Kromer observed, “It’s psychologically hard to enthusiastically proceed with skepticism.” And that is the challenge, we have to be enthusiastic about our product ideas to persevere to complete them and tell others about them, but we have to be skeptical enough to accept criticism and open to prospect perspectives on needs and constraints on solutions.
Strong Opinions Weakly Held
Bob Sutton blogged about this in 2006 as “Strong Opinions Weakly Held” as one of the differentiators between smart people and wise people. Both have strong opinions, but the wise can more easily allow revisions to theirs:
Perhaps the best description I’ve ever seen of how wise people act comes from the amazing folks at the Institute for the Future. A couple years ago, I was talking the Institute’s Bob Johansen about wisdom, and he explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held.” They’ve been giving this advice for years, and I understand that it was first developed by Institute Director Paul Saffo. Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them. Bob explained that it was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.”
Early Adopters For Your MVP Are Often Very Normal
I think too many entrepreneurs conflate “early adopter” with “technically sophisticated’ or ‘geek hipster.’ Normal people are early adopters when they have a strong need for your product. The first two people to tell me about E-Bay, and who were genuinely excited about it, were two mothers who didn’t know each other but were collectors of different specialty handicraft items (teddy bears and glass angels) and they were shopping regularly there because they were not available in stores.
They were early adopters. I ignored their advice, of course, when I should have realized that neither used a computer for any other purpose than visiting E-Bay. They were early adopters. I should have realized that if E-Bay could create markets for these highly specialized products they could create and serve a lot of niche/specialty markets in a way that was winner take all.
Another example: I think Pinterest looks a lot like the way that someone who creates scrapbooks or manages a physical bulletin board would want to author a website.
Q: How can I go about calculating Customer Acquisition Cost (CAC), Customer Lifetime Value (LTV), and other business model parameters for a technology that I will use to attack an entirely new market with no historical data?
While there may be “new markets with no historical data” there are no new markets that cannot be benchmarked against existing markets by asking these two questions:
- What do people stop paying for to pay for you offering?
- What do people stop spending time on to spend time on your offering?
What do the Customer Acquisition Cost (CAC) Customer Lifetime Value (LTV) look like for these substitutes?
Elicit Symptoms From Prospects
Alternatively what symptoms will prospects admit to having? They won’t read articles or click on adwords or watch videos about problems that they don’t know they have or believe they may be affected by. An effective approach in the early market is to interview prospects to find unmet needs, persistent problems, and goals at risk.
We Measure the New By the Familiar
The reason why light bulbs were measured in candlepower and steam engines (and later internal combustion engines and then electric motors) were expressed as horsepower. Henry Ford observed in “My Life and Work“ that, “A horseless carriage was a common idea…ever since the steam engine was invented…” We call a horseless carriage a car.
Things that are genuinely new are mysteries and don’t become news until they can be expressed as part of a familiar context or by analogy to a familiar example. Alan Kay gave a great talk on this last point that was recently highlighted by Jim McGee, “Alan Kay on Invention vs. Innovation.”
What Job Will Your Prospect Hire Your Product For?
- Letter writing and all kinds of dictation without the aid of a stenographer.
- Phonographic books, which will speak to blind people without effort on their part.
- The teaching of elocution.
- Reproduction of music.
- The “Family Record”–a registry of sayings, reminiscences, etc., by members of a family in their own voices, and of the last words of dying persons.
- Music-boxes and toys.
- Clocks that should announce in articulate speech the time for going home, going to meals, etc.
- The preservation of languages by exact reproduction of the manner of pronouncing.
- Educational purposes; such as preserving the explanations made by a teacher, so that the pupil can refer to them at any moment, and spelling or other lessons placed upon the phonograph for convenience in committing to memory.
- Connection with the telephone, so as to make that instrument an auxiliary in the transmission of permanent and invaluable records, instead of being the recipient of momentary and fleeting communication.
Related Blog Posts
Over the years I have moderated several hundred Bootstrapper Breakfasts (since starting them in Silicon Valley in 2006). After doing a hundred or so and working with many clients who were bootstrapping I came up with a checklist for common mistakes bootstrappers and bootstrapping teams make in their first year or so.
- Leaving Your Assumptions Implicit: Not Writing a Customer Development Plan
- Believing that Anyone Will Want Your Product: Not Targeting a Specific Buyer
- Confusing the User (or the Audience) with the Buyer/Customer
- Believing Your Product Will Sell Itself (Looking for Smarter Prospects)
- Developing the Full Product: Not Selling the Smallest Piece Possible at First
- Not Focusing on Break-even and Profit
- Expecting Too Much Too Soon: Not Planning for “Target Practice”, Iteration, and Improvement
- Confusing VC with Customer: Going for (2% of) a Really Big Market
- Expecting the Same Control Over Prospects and Team Members as Your Code Base (Single Founder “No Compromise” Mindset)
- Treating the Business Like a Hobby (Thank God for Significant Others, Recently Deceased Relatives, and Crappy Day Jobs)
Five additional challenges that also need to be navigated
- Managing different aspects of your identity at personal, family, and business level.
- Understanding the emotional connection required for a successful business transaction: mission, brand promise, and logo.
- The networking etiquette in Silicon Valley: cards, introductions, how to get acquainted.
- Making the transition from selling to friends to selling to a strange
- Making the commitment to a business footing: licenses, structure, tracking expenses (and acknowledging that now you can fail).
Adapted from a talk I gave in August 2009 at the San Francisco Bootstrapper Breakfast.
Q: We have already implemented the first prototype of our product, but we need to know that we are either on a good course or need to change.
A: If you long for certainty you should not be doing a startup, pick a regulated utility or government bureaucracy as a career. Lean Startup and Customer Development techniques can help you to reduce risks by identifying them and developing mitigation strategies but it’s not a guarantee. Any real market attracts competitors and you don’t get to write their plans so it’s not just a question of understanding the prospect’s status quo but being able to identify and react to competitive threats. The view that product-market fit is a ratchet that you cannot fall back from neglects the impact of competitive response, new entrants, and continued changes in technology and customer preference.
Q: Perhaps I overemphasized our desire for certainty; we understand a startup is uncertain. Should we use our current prototype as an MVP?
Yes. I would start with what you have and use it as a probe to refine your understanding of the market and customer needs.
Make a distinction between the product, your message, and your target customer. You can talk about your product in different ways, adjusting your message to highlight and test key hypotheses. You do not have to make any changes to your product to this. Any product by definition–or at least any short enough for a prospect for prospect to listen to willingly–of necessity highlights some aspects omits others. You can also use different messages on different target customers or present different message to different prospects of the same type as a way of refining your understanding of what they view as important.
It’s critical that you have conversations with prospects and not simply present messages and see what they react to. It’s only in conversation that you can truly be surprised (you have to be listening, it’s not a monolog) and often the most surprising and useful thing a prospect can do in a conversation is to ask you a question you have not considered before (that’s why it’s called a conversation not an interrogation). When you are looking for early customers the value hypothesis is critical. You may reach them using non-scalable methods that don’t address your first real growth hypothesis.
My take on the distinction between hypothesis and assumption, your mileage may vary: A hypothesis is what is being tested explicitly by an experiment. An assumption is tested implicitly. By making your assumptions as well as your hypotheses explicit you increase the clarity of your approach and the chance for learning. The two things that can trip you up most often is an unconscious assumption that masks a problem with your hypothesis or an unconscious bias in whom you are testing the value hypothesis on. In particular you may have defined your target customer by certain selection criteria but your actual choices for whom to speak to (or who will speak with you) are not sampling from the full spectrum of possibilities.
Q: Or should we build another or several other smaller MVPs to test only the most important assumptions? Should we build various tests in parallel to test the needs of different types of customers?
I have come around to the approach of testing several hypotheses in parallel, I think you learn faster and are more likely to identify a good opportunity more quickly. After you take your current prototype and use it to have conversations, I would explore a few different potential customer types in parallel. One good article on this is by David Aycan, “Don’t Let the Minimum Win Over the Viable,” where he offers a comparison between three approaches:
Traditional linear approach:
I am also a huge fan of Discovery Kanban as a way to manage a set of options and experiments in parallel with managing commitments to customers and other execution targets. It actually gets harder as you start to gain some early customers and need to continue to explore the market and refine your understanding in parallel with keeping your current customers satisfied.
We work with several teams who have launched or are launching an application that makes a team or group more productive. Here are a couple of suggestions for things to consider.
Be compatible with the status quo if at all possible
- Collaboration or workflow applications that require at least two people to adopt in order to realize productivity benefits are very challenging to introduce.
- It’s certainly been done: fax, email, CRM systems. But the list of failures is much longer.
- Find a way to provide a single individual with a productivity bonus that is backward compatible with existing workflow (e.g. email, CRM, wiki, website, …).
Use your team as a case study
- Is your startup using the tool for collaboration? If not, why not?
- What no longer happens that used to happen before you started relying on the application?
- What can you now do using your application that you could not do (or only do with great difficulty) before?
Have conversations before putting up a landing page
- What have you learned from your conversations with prospects?
- What problems or needs do you probe for?
Use your team as an earlyvangelist
- What problems or need or recurring situation led your team to develop your application?
- What alternatives did you try to do before you developed your application?
- Why were they unsatisfactory? What was missing or still too difficult?
Listen carefully to your early adopters
- What do your early adopters tell you that they like about using the service?
- What benefits does it provide them?
- What do they still see as missing?
- Ask what three features they would demo either to other similar teams or to others in their company.
Understand why some teams failed to adopt your application
- Teams that don’t try it may give you reasons, and these are worth listening to.
- Pay close attention to teams that gave it a fair trial and decided not to go forward. Their rationale is absolutely worth addressing.
If you are working on a collaboration application for business and are having difficulty getting traction, please free to schedule office hours and we can design some experiments to explore your situation, see “We help you design experiments that move your business forward.”
Q: I run a SaaS B2B startup that boosts employee engagement by bringing co-workers together for peer-to-peer knowledge sharing. We have an MVP. We have done some customer development interviews and have half a dozen potential early adopter customers. The next step would be to do a free pilot of our product on a subset of about hundred employees at an early adopter company. Our contacts are enthusiastic about what we do, we have had a couple meetings with each, we are offering discounted pricing, but it’s now been more than four months and none have them have decided to move forward to a pilot and we don’t have a path to a decision.
How can we speed this up?
A: You can adjust your message (description of benefits for a particular target customer), your criteria for selecting a target customer, or feature set. Normally the cheapest thing to fix is to change the message, second is to pick a new target, and the most expensive is to add features.
A benefit will normally be one of these if you are selling to a business decision maker:
- reducing an existing cost stream
- adding new revenue that’s incremental to their current plan
- managing or reducing a risk that they are concerned about
- reducing the cycle time for a business critical task or process
- reducing the error rate for a business critical task or process
You need to pay particular attention to:
- How will you measure the before and after?
- Who signs the check and how do they benefit?
- There is no such thing as a free trial, there is always opportunity cost for everyone involved.
I am a huge fan of “peer to peer knowledge sharing” but it sounds more like a method or management practice than an application. I suspect you need to connect the dots more directly to a business payoff or the specific business problem you believe that this will help them address. Can you give them a better diagnostic–offer more proof based on data from their operation–on the scope of the problem you are offering to solve for them?
A hundred people is a large number to involve in an early pilot. Can you show results with a small group of four to six? You don’t have to stop there, you can make that the first phase of the pilot, but you can use the small core group to encourage others to adopt within the organization and ultimately get to your target group of a hundred in three or four steps.
There is a temptation to increase the size of the promised benefit if the prospect is wavering, it’s often better to focus on a faster benefit even if it’s smaller. Time to positive impact is a good proxy for a prospect’s estimate of the amount of risk involved in a new tool, process, or methodology. I did a video chalk talk on this at you may find useful.
Several meetings and no decision to go forward is a polite no.
Q: What if we played hard to get and told our prospects that we have limited resources and with other firms asking to get in we have to decide who to start this month?
I see several problems with this. You reinforce that you have limited resources which may make them question you ability to support them if they decide to go forward. Also, if you are talking to bona fide early adopters this is can backfire very badly. While this “velvet rope marketing” model seems to employed by some B2C marketing folks, in my experience it does not work well and will turn off the change agents you are trying to reach. They want to be sure that you understand the risk you are asking them to take and will be there to support them to a successful conclusion. A message that you are unable to provide support when you are just getting started will make them very leery of placing a bet on you.
A better message would be based on the impact adopting you offering will have on their business. Make that your forcing function. For example, every month you delay you spend this much on workarounds or errors or forego this much revenue because you are not capitalizing on this capability. What is the cost of leaving things the way they are for another month? Make that a reason to change, not your impending inability to support them.
Related blog posts
- Sean Murphy on the first six to twelve enterprise customers an interview with Gabriel Weinberg
- Early Revenue for Enterprise Web Apps a one hour video on finding early revenue for enterprise web apps
Update July 16: This post was highlighted in Foundora Issue 333
I have come to believe that morale or esprit de corps is the critical resource for a bootstrapping team. With it they can persist, blending freelancing, consulting work, customer discovery, product development, sales, and customer support.
The simple view is that you can just focus on one thing at a time–develop a product, market it, refine it, scale up–and that a few iterations will get you there. The reality for most is that it’s much harder and requires perseverance as a team.
The teams that persevere bring complementary skills and shared values to a common effort sustained by trust, shared vision and joint accountability. The first ten principles from Adventures in Missions focus on trust and integrity, offering some useful guidelines for building and maintaining trust:
- Integrity in an organization is built by developing trust.
- Trust is the glue that enables a team to function well.
- Trust is built over time through competence, commitment, and care.
- Trust is built as we preserve and build the significance of others.
- Trust is built through bearing each others’ burdens.
- Trust is built through a rapid response to communication.
- Trust is built through humility.
- Trust is built through personal contact.
- Trust is diminished by sarcasm and criticism.
- Integrity means making and living up to commitments.
See also “Entrepreneurship is the Launching of Surprises” which explores George Gilder’s essay “Unleash the Mind” and contains this insight that I think I am building on in my focus on morale as the key resource in a startup:
“America’s wealth is not an inventory of goods; it is an organic entity, a fragile pulsing fabric of ideas, expectations, loyalties, moral commitments, visions.”
I am a huge fan of Neil Perkin’s blog “Only Dead Fish” and his two newsletters: “Your Weekly Dead Fish” (archive) and “Fraggl.” I followed a link from his post on “Complexity and Simplicity” to a thought provoking presentation by Possible Health on “Our For Impact Culture Code.”
Here is my take on some key concepts from the deck (emphasis in original) that would benefit bootstrappers –as well as “non-profits.” I have added my observations in italic:
- “Non-profit” is a legal structure, not a way of doing things. And we don’t believe that we should define ourselves in the negative. Instead, we exist to create impact.
Observation: bootstrappers are often motivated by a desire to make an impact (in addition to a desire for autonomy) and have to focus on impact as a way to prove credibility and establish their firm as a viable alternative worthy of consideration.
- We treat efficiency as a moral must.
Observation: in the non-profit world this avoids the trap of excusing poor and/or inefficient execution because you are working on a “good cause.” For bootstrappers it’s second only to impact for viability.
- If building effective healthcare systems for the poor were easy, everyone would do it. We do this work precisely because it is labeled as “impossible” by many.
Observation: you can substitute “effective healthcare system” for whatever you own Big Hairy Audacious Goal (see “Building Companies to Last” by Jim Collins for more on this term). Bootstrappers have to work in riskier and more challenge environments because established firms are less willing to invest effort when markets with a clearer return are accessible.
- When your outcome is impact, time is a terrible thing to waste.
Observation: as I have outlined in the Chalk Talk on Technology Introduction, prospects use their estimate of your “time to impact” as the single best indicator of the amount of risk in your solution. Days to weeks beats months to quarters.
- When you’re working in the world’s most challenging environments under constant uncertainty, the way to maximize learning is to minimize the time to try things.
Observation: any environment with high uncertainty is challenging, running smaller experiments minimizes the cost of failure and speeds learning.
- It’s everyone’s job to turn time into resources and possibility for our patients.
Observation: all that bootstrappers have in the beginning is their time; if they cannot create an impact and a sense of possibility in prospects they won’t prosper.
Related Startup Culture posts:
- Four Excerpts from Valve’s Employee Handbook That Belong In Yours
- Yanis Varoufakis: “Valve is an Enlightened Oligarchy”
- Netflix Culture: Freedom and Responsibility by Reed Hastings
Update June-28-2014: Guillermo Marqueta-Silbert (@guillemarqueta) tweeted a comment to the effect that the exchange rate for entrepreneur hours to impact was a function of entrepreneurial skill. I think this is a great insight and suggests a more nuanced understanding that it’s not just trying anything but trying things that flow from a deep understanding of customer situation and needs, competitive landscape, relevant technology alternatives, and market evolution. In an OODA Loop formulation–Observe-Orient-Decide-Act–the key differentiator that expertise brings is a richer and faster Orientation to the situation.
Q: When I introduce the idea for my business a lot of my friends are quick to ask: “are you sure there is no one else doing this?” In today’s fast and disruptive business world, I think it is very hard to come up with a business idea that is 100% unique, and utilizes a completely new set of technology features. I constantly find myself arguing that it doesn’t matter if someone else also has the same startup or business idea, it’s how you go about executing your business idea that matters.
What are your thoughts on competitors and how put off should I be when I find out another company has a similar product and mission to my startup?
Your friends are trying to help you but you may be asking them to comment on a problem where they have little expertise. Evaluating a new business idea is challenging even for professional investors and firms already in the target market–how many times have new entrants been underestimated or new technologies view as far more promising than they turned out to be. It’s a hard problem.
You are being encouraged to look left and right at potential competition, I would try and walk around the table and look at the situation from your prospect’s perspective.
Perhaps a more important set of of question for B2B are:
- What is your prospect doing now to solve the problem?
- Are they satisfied with their current solution or do they still view this a critical business issue?
- What other solution options are available to them?
- Which of these other options have they also evaluated and rejected and why have they done so?
- Are you providing a capability or solution for what they consider a critical need.
Execution only matters in the context of a particular category of customer with a distinct and identifiable problem or need.
Working to develop new capabilities when it’s not clear who will pay for them may give you the illusion of progress for a while but ultimately won’t let you build a business.
My suggestion is to pay close attention when prospects ask you to explain why your product is superior or at least different in some useful ways from what they are currently using or have available to them.
My question is why are you talking to your friends instead of having serious conversations with prospects? What are your prospects asking for or telling you?
“Don’t take business advice from people with bad personal lives.”
Frank Chimero “Some Lessons I Learned in 2013“
One of the hallmarks for success in a business-to-business market is the ability to form personal relationships as well as professional business relationships. I am always dismayed when I read advice that advocates bait and switch or other forms of con games that erode trust and make it difficult for any startup to build relationships.
Anyone who always puts themselves first ends up with bad personal life. Startups that are only clear on their own needs rarely outrun the same fate. It’s the difference between a focus on funding or an “exit” and a focus on building a business.
Working with bootstrappers sometimes puts us on teams that are in desperate circumstances. Where they are able to translate time pressure and resource starvation into a bias for action from a change in perspective they often succeed–or at least move beyond the current crisis: success, like the horizon, is an imaginary line you can approach but never seen to cross. But where they use it as an excuse to take shortcuts that abuse prospects trust we sometimes have to part company. It does not happen very often, and it hasn’t happened in more than a year, but perhaps three or four times in the last decade we have had to walk away from a sales or marketing strategy we didn’t feel was in the long term best interest of the startup or their prospects.
“Fame is something that must be won.
Honor is something that must not be lost.”
- Treat Social Capital With The Same Care as Cash
- De Tocqueville on Concept of “Self Interest Rightly Understood”
You meet people who have a clear understanding of their own needs and seem to spend no time on anything else. But the deals that they make seem to based only on fear and threat. To create real opportunities in your own business requires that you explore and understand the needs and aspirations of your current and potential customers. To bring them ideas that will improve their lives and businesses requires that they trust you have their interests at heart when they talk about current problems that may expose their weaknesses and shortcomings
- Keeping Your Customers’ Trust [Includes a Recap of Weinberg's 11 Laws of Trust]
I think B2B software is often purchased by firms hoping to achieve–or avoid–some sort of change. Like consulting, software is the promise of an ongoing business relationship. The two essentials in a mutually satisfactory business relationship are trust and an exchange of value.
- Sustaining Is More Important Than Starting
- David Foster Wallace: The Only Choice We Get is What to Worship especially this section from Wallace’s talk:
But of course there are all different kinds of freedom, and the kind that is most precious you will not hear much talked about in the great outside world of winning and achieving and displaying. The really important kind of freedom involves attention, and awareness, and discipline, and effort, and being able truly to care about other people and to sacrifice for them, over and over, in myriad petty little unsexy ways, every day. That is real freedom. The alternative is unconsciousness, the default-setting, the “rat race” — the constant gnawing sense of having had and lost some infinite thing.
- Honesty in Negotiations
One of the key tasks we help early stage teams with preparing for and executing successful negotiations. There is a belief among some engineers that the best marketing and sales people are the most accomplished liars. In my experience nothing could be further from the truth. Most negotiations have long term consequences and involve interacting with people that you will encounter again and who know others you will encounter in the future. I always assume that at some point in the future the folks I am negotiating will know the full truth of the situation and that very few secrets remain that way for long. In George Higgins‘ novel “Dreamland” a character remarks “I never forget and I always find out. ” I assume that about anyone that I am negotiating with.
“Luck cannot be duplicated.” Richard Kostelanetz
Riffing on a Nov-2-2013 TechCrunch post by Cowboy Ventures‘ Aileen Lee (@aileenlee) “Welcome To The Unicorn Club: Learning From Billion-Dollar Startups” Ryan Hoover suggests that you should “Forget What You Know: There is No Right Way to Start Up”
“They didn’t talk to people. They didn’t do market research. They didn’t create a landing page to see if people would enter their email. They just built it. For the past year, they invested in the team and technology to prioritize speed of iteration with disregard to traditional methods of customer development and company building.”
Ryan Hoover in “Forget What You Know: There is No Right Way to Start Up”
This is not a methodology, it’s hoping to get lucky. The article cites several startups that may have gotten lucky as proof of…I am not sure, I guess that it’s possible to get lucky.
“Lean methodology and the startup community at large, espouses customer interviews, landing page tests, concierge experiments, and other tactics for testing hypotheses and measuring demand before building a product. In many cases, this is good advice but sometimes it’s a waste of time or worse, directs entrepreneurs away from something truly great.”
Ryan Hoover in “Forget What You Know: There is No Right Way to Start Up”
For every team that gets lucky I wonder how many thousands run through their savings in search of the truly great without talking to customers or testing their hypotheses. Perhaps a more careful and detailed analysis will uncover ways to duplicate the success of some of these startups but I worry that it may be like trying to select the winning lottery ticket: the fact that some people do it does not change the fact that on average it’s a terrible investment strategy.
“Diligence is the mother of good luck.” Benjamin Franklin
Ryan’s essay also appeared on LinkedIn and TheNextWeb:
-  http://www.linkedin.com/today/post/article/20140313200244-12962603-there-s-no-right-way-to-start-up
-  http://thenextweb.com/entrepreneur/2014/03/11/forget-know-theres-right-way-start/
I don’t think this “Forget What You Know” post is representative of the quality of Ryan’s insights. Here are three blog posts by him that I have found very useful and recommend reading:
The video from my “What is Lean–Lean Innovation 101” talk is up:
Here is the description for the talk
“Lean” provides a scientific approach for creating a product and developing new businesses. Teams can iteratively building products or services to meet the needs of early customers by adopting a combination of customer development, business-hypothesis-driven experimentation and iterative product releases. This talk covers:
- Why more and more companies are using Lean
- What is Lean, what it is not
- Key concepts
- Get Out Of Your BatCave
- Use an initial product (MVP) as a probe to explore the market
- When and how to pivot
- Rules of thumb for successful lean innovation
Five serious but avoidable financial mistakes we hear from time to time at a Bootstrapper Breakfast:
- Mistake: using credit cards to finance your startup.
Fix: Pay cash, trade favors, barter, go without, but don’t let your monthly balance roll over and accumulate.
- Mistake: not having a stopping rule for when you need to stop bootstrapping and look for work. This can lead to bankruptcy.
Fix: set a time limit and an expense limit for getting your new business off the ground. Work part time and work on your business part time to maintain break even cash flow.
- Mistake: not keeping your spouse in the loop if they are working and keeping the lights on while you bootstrap.
Fix: treat your spouse as an investor or a board member: provide ongoing detailed accounting of plans and spending.
- Mistake: hiring a full time employee too soon.
Fix: start with contractors, make sure you can at least break-even on a regular basis with the contribution the employee will make vs. the additional expenses incurred–understand all of the expenses you first full time employee will trigger (e.g. workers compensation, payroll service, fixed salary expense (vs. contractor)).
- Mistake: signing a lease on an office too soon
Fix: use co-working space, look for an informal sublet, be clear on why you need an office (e.g. just pay for meeting rooms as needed, barter for lab or working space as needed, look at hourly/day rate offices for conference calls or meetings).
#3 got picked up by Entrepreneur Magazine in a roundup of 7 tips: “Funding Your Business on Your Own? Learn From These 7 Entrepreneurs.” I thought these three from the list were also common and avoidable:
- “Branding too soon” by Rebecca Tracey of The Uncaged Life
This is really investing too much in messaging before you know what works. I have made this mistake and I see others do it as a way to make the business seem “more real” or “like an established company.” Trying things out in conversation gives you the fastest feedback and is the easiest way to iterate if you are deliberate about it.
- “Idealism about costs” by Tom Alexander of PK4 Media
This comes in many forms, but the most serious that he touches on is not understanding how long it can take to get paid, especially by a larger firm. 90 to 120 days from invoice has not been uncommon for many of our clients. Small firms tend to pay faster, and getting paid the first time by a large firm can take much longer than subsequently.
- “Failing to calculate burn rates” by Steve Spalding of Project MONA
This takes several forms, but one mistake is to pay yourself a salary (incurring State and Federal taxes on the “round trip” from your savings back to your bills instead of putting less money into the business and living off of your savings. It’s also better to provide the bulk of your starting capital as a loan instead of equity, so that early profits can be distributed as loan repayments instead of salary or dividends.
Update Thu-Feb-27 (morning): Elia Freedman offered a common critique of this post, In Getting Good At Making Money by Justin Williams and “How to Get Good at Making Money” by Jason Fried. Writing “The Art of Bootstrapping” he observes
The only thing a bootstrapper needs to know: CASH IS KING. Nothing else matters and every decision needs to be made to maximize cash. The articles refer to revenues, but revenue is not cash. Here’s an example: I do a contract development job today for $10,000. When done I submit an invoice and the company takes 60 days to pay. Yes, I have $10,000 in revenues today but I don’t get the cash for 60 days. How do I pay my bills in the meantime?
I am relentless when it comes to managing cash. I have a spreadsheet that gets duplicated and updated with actuals and projections every month. This allows me to make cash flow decisions months before the negative shortfall actually happens, allowing me at various times in the history of the company to ratchet up spending, lay people off, cut payroll or minimize other expenses. Because of this work, I see the company very very clearly on a month to month basis and can make appropriate choices.
I think it’s a fair criticism. An accrual accounting perspective has too much parallax from bootstrapper’s actual cash position and offers a false sense of security. I tried to sharpen the advice from the Entrepreneur round up on “Idealism about costs” toward this but I would add a sixth mistake to make it clear:
Mistake: Using accrual accounting (ignoring the timing–the real cash impact–of cost and revenue items) will kill you.
Fix: Forecast and manage the explicit timing of cash in and cash out for your business. Understand that people will cash your checks immediately but be slow to pay your invoices. Some won’t pay the full amount or even pay at all. Rely on clear understanding and simple plain English agreements, don’t hope that “legal language” in a contract will make a difference to your getting paid (assume any contracts you sign will be enforced against you by larger firms.
I think trust is as important, if not more important than cash. Bootstrappers who focus exclusively on cash without also managing trust and social capital will often fail to prosper as well. Related blog posts:
- “Treat Social Capital With the Same Care as Cash“
- “Keeping Your Customers’ Trust“
- “Conserving Trust In a Downturn“
- “Three Tips For Minimizing Misunderstandings Among Co-Founders“
- “The Business is Everyone’s Business”
- “Experiments Vs. Commitments“
Update Mar 8: this post was included in the Founder Institute’s “Mar 2 2014: This Week’s Must Read Articles For Entrepreneurs.“
Q: We have started selling and are looking for resources for a lean approach to sales, in particular for new product introduction.
Lean Approach To Sales at Lean Startup Conference 2012
Scott Sambucci and I presented a workshop at Lean Startup 2012 on “Engineering Your Sales Process.”
The deck is posted at http://www.slideshare.net/SalesQualia/engineering-your-sales-process
About 70% of the workshop is interaction with attendee on their specific early sales challenges so it’s not something that we video record.
Scott Sambucci has two books out that address early sales issues:
- “Startup Selling: How to sell if you really, really have to and don’t know how”
- “52 Sales Questions Answered: A Q&A Guide to Customer Development & Sales”
Two articles that offer useful overviews for defining a sales process:
- The Entrepreneur’s Guide to Sales by Mark Duncan and Sean Murphy
- The Sales Learning Curve by Mark Leslie and Charles Holloway (2006)
Revised in 2011 at “Sales Learning Cycle“
Other books you may find helpful:
- SPIN Selling by Neil Rackham
- Solution Selling by Michael Bosworth
- You’ll Never Get No for an Answer by Jack Carew
- Secrets of Consulting by Gerald Weinberg
- Getting it Right the First Time: How Innovative Companies Anticipate Demand by Christy and Katsaros
Here is a long interview I gave to Gabriel Weinberg on early stage B2B sales that many entrepreneurs have found useful: Sean Murphy on the first six enterprise customers
All of these resources talk about a systematic approach to selling for new products. I continue to offer “Engineering Your Sales Process”® as a workshop for early stage teams. Please contact me if you would like to arrange for a workshop.
Let’s face it, finding customers can be quite a challenge. In this interactive workshop, we will cover a variety of proven marketing techniques for growing your business: attendees will select one or two that fit their style and develop a plan to implement them in their business in the next 90 days.
- Speaking – small groups, large groups, conferences, …
- Writing – blogging, newsletters, articles, …
- What Other People Say About You – referrals, testimonials, case studies, …
- Getting Found When and Where Prospects are Looking: adwords, Craigslist, trade shows, SEO/SEM, …
March 25, 2014 9am-12:30pm
$90 includes lunch
“This workshop provided great material to bounce off of. SKMurphy created a fertile space for me to think about my business and plan a concrete step forward. Thank you.” Paul Konasewich, President at Connect Leadership
Q: What are the key hypotheses you need to address first getting your startup off the ground? What is the difference between an assumption and hypothesis?
When you are looking for early customers the value hypothesis is critical. You may reach them using non-scalable methods that don’t address your first real growth hypothesis.
My take on the distinction between hypothesis and assumption, your mileage may vary:
A hypothesis is what is being tested explicitly by an experiment. An assumption is tested implicitly. By making your assumptions as well as your hypotheses explicit you increase the clarity of your approach and the chance for learning.
The two things that can trip you up most often is an unconscious assumption that masks a problem with your hypothesis or an unconscious bias in who you are testing the value hypothesis on. In particular you may have defined your target customer by certain selection criteria but your actual choices for who to speak to (or who will speak with you) are not sampling from the full spectrum of possibilities.
- Hypothesis Not Hype
- Early Markets Offer Fluid Opportunities
- Spend Some Time On How To Disprove Your Hypotheses
Update Wed-Jan-29-2014: Tim Allen left a great comment that elaborated on the need to focus on value first even if your methods don’t scale:
There was a bit of a light-bulb moment for me what I read the line:
“When you are looking for early customers the value hypothesis is critical. You may reach them using non-scalable methods that don’t address your first real growth hypothesis.”
I feel this is so often forgotten, especially in the situation of legacy systems and trying to execute lean product design within larger organizations. One example that I have been involved in, and which I regret not pushing back harder, was a requirement to use some legacy data services.
This meant that we couldn’t initially execute a hand-cranked, non-scalable solution to data storage and retrieval that our product required, which would have been better as it would have enabled us to get to customer quicker and get real learnings about how they are using our product.
At the time it didn’t seem like a big deal, but in the end it was, and continues to be an issue and an impediment in getting to the customer quicker. Likewise, any real growth hypothesis, results will most likely be skewed by the performance of systems that are not in your control.
I want to thank Tim for offering a practical story that elaborates on the principle of confirm the value before worrying about scaling. When I was at Cisco the focus was always on “will it scale,” as in we shouldn’t do something because “it won’t scale.” This sometimes led to us releasing a product that could have been more valuable if we had proceeded a little more thoughtfully and incorporated early feedback before rushing to launch. Techniques that work “in the small” to gather insight have their place even inside of large firms.
Justin Kan (@JustinKan) wrote “Startups Don’t Die They Commit Suicide” in 2011″ (mirrored on his blog here) reflecting on what he had observed and learned as a serial entrepreneur. It was reposted on the Philly Startup Leaders list earlier this week which led me to write the following comments mixed with excerpts from Kan’s post.
Startups die in many ways, but in the past couple of years I’ve noticed that the most common cause of death is [when] founders/management kill the company while it’s still very much breathing.
I think this is right, two key requirements for building a business are team morale–shared vision, enjoyment of working together, hope for the future–and cash flow. And morale can get you through periods of poor cash flow more than cash flow can compensate for poor morale and team dynamics. I think a lot of teams lose their “gumption” and give up.
Long before startups get to the point of delinquent electricity bills or serious payroll cuts, they implode. The people in them give up and move on to do other things, or they realize that startups are hard and can cause a massive amount of mental and physical exhaustion — or the founders get jobs at other companies, go back to school, or simply move out of the valley and disappear.
I think bootstrappers are in some way at less risk for this because they know it’s going to be hard, although perhaps not how hard.
A lot of times the founders don’t maintain their health and energy and cannot weather a setback or analyze their situation with enough emotional distance: debugging your startup requires peace of mind
Often the root problem can be traced back to a lack of product traction — it’s rare to find people willingly quitting companies with exploding metrics. But one thing that many entrepreneurs don’t realize is that patience and iteration are critical in achieving product market fit.
Keeping a ‘captain’s log’ or other journal can give you a place to vent your frustrations–and let them cool for later analysis–jot down your fragmentary insights for later revision and recombination, and allow you to look back at earlier crises you have managed and problems solved: record to remember, pause to reflect. We have worked with a couple of Finnish teams and they have a great word “sisu” that is the Arctic version of gumption.
Overnight successes might happen fast, but they never actually happen overnight.
I think a lot of the desire for overnight success is driven by trade press accounts of young millionaires who clean up the real story to make it seem simple and inevitable. I have met a number of entrepreneurs who think that one deal or one relationship will be the point of departure for a rocket trip to the stars. That’s always the way the success narrative is cleaned up and presented, but the reality almost always–barring a few lottery ticket winners–involved a lot more hard work and the slow accumulation of many small insights, decisions, and advantages.
On the other hand, happy people don’t normally start new companies: as Sramana Mitra has observed, startups are founded by mavericks, iconoclasts, dropouts, and misfits. In fact, I think Barry Moltz is right: you need to be a little crazy.
Still, I think morale at an individual and team level is a key resource, and the teams that persevere seem to be more driven by the thought of proving a new idea right than proving former co-workers, bosses, or relatives wrong. While 0roving folks wrong can be the start–bold action coupled with frank expression has inadvertently launched many a deeply felt entrepreneurial career–it’s rarely what sustains an individual much less a team.
“It’s only after you fail once or twice and learn to rely equally on thought, analysis, and anticipation–in addition to speed, talent, and execution–that you can really call yourself an entrepreneur. ”
Barry Moltz in “You Need to Be a Little Crazy“