1 comment September 1st, 2010
I did this with the DreamSimplicity folks last month. It’s a chart I have been drawing in various customer meetings for the last several years or so and they thought it would make for a good short video. The challenge was lighting the whiteboard appropriately. I think it came out well.
I welcome any feedback or suggestions for other topics. I will post a transcript next week.
Add comment August 26th, 2010
We put the interview I did with Floyd Tucker of DreamSimplicity about a month ago but in the last two days I have had two people comment to me directly and one tweet about my “three equations and three unknowns” answer:
@dorait Sean: Startups are trying to solve 3 equations with three unknowns – http://bit.ly/dq7Sqd
Here is the relevant excerpt from the transcript:
FLOYD TUCKER: [...] Can you tell me a little bit about the early customer stage?
SEAN MURPHY: We just spend a lot of time on this. It’s a very different sales style than you’ll see later on. It’s a conversational sales style. It’s much more about understanding the problem.
You’re trying to solve three equations, three unknowns:
- Are you talking to the right people?
- Do you have the right features?
- Do those features translate into benefits that are going to be useful to them?
Here are three strategies that founders often use to answer these three interrelated questions, the likely results that ensue, and how we help them make key adjustments to get early customers and early revenue.
Current Strategy: Demo the product to anyone who will sit still. And by demo I mean explain how the product works.
Current Strategy: Talk to a number of target customers, compile a large wish list of features, return to BatCave and start work on a one year roadmap.
Current Strategy: Talk to a number of target customers about a challenge they face (e.g. saving money, increasing productivity, reducing certain kinds of errors).
Add comment August 25th, 2010
Ed Weissman (edw519 on HN) had another great comment recently on Hacker News at http://news.ycombinator.com/item?id=1424446 that builds on “Ed Weissman on B2B Opportunities for Startups” (I have added some hyperlinks for context)
Enterprise software sucks.
We don’t talk about it much here at HN, but think about it. Every man-made object you encounter every day was manufactured somewhere. And moved, more than once. Now add in all the sales, marketing, customer service, operations, accounting, finance, human resources, etc., etc., etc. needed to support that manufacturing and distribution. Next, add financial markets, healthcare, energy, entertainment, etc., etc., etc. and you have tons of stuff. But you don’t see it and rarely think about it. Kinda like most of the iceberg being underwater.
And all of this needs software. And most of what they have sucks. I mean really sucks. Enterprise software is so bad that there are multi-billion dollar industries devoted to consulting on how to use it, how to share it, and how to store it in data warehouses and harvest it. It’s so bad that lots of people have to dump the data out of their enterprise systems and into Microsoft Excel just to get anything done.
When Willie Sutton was asked why he robbed banks, he said because that’s where the money is.
What banks were in the 1930’s, enterprise IT is in the 21st century.
I agree with Ed that there are enormous opportunities for startups in the B2B or Enterprise market. One of the reasons that Enterprise software is so poor is that the IT department often does not make usability a priority and has a lot of difficulty determining the productivity impact of a new application. They also strongly prefer their current vendors and for the most part are loathe to do business with startups. In 2007 I blogged about “Selling Around IT in Larger Firms” and suggested these rules of thumb:
Large firm IT departments are “gatekeepers”. Their job is to keep the enterprise network computing infrastructure safe and operational. New software from a new vendor is almost always viewed as a threat. Most of the time, they will say NO to any new software. Most of the time our clients have to sell around them. Here’s five tips for doing that:
- Provide a service (deliver the results of you running your software) instead of selling software.
- Package your offering as SaaS at a price that’s below the radar of IT.
- Leverage an existing partner: Who else is your prospect buying from?
- Find someone who is in a lot of pain whose needs have been ignored by IT.
- Find someone whose needs span more than one IT administrative boundary, so that no single IT group views satisfying the need as their obligation.
The other unfortunate aspect of a career in IT is that often turns software developers into anti-matter for customer development techniques and any marketing or sales approach that is designed to foster adoption. Most IT folks are handicapped by a tendency to dictate applications that can and cannot be used and have not mastered the skills of appreciative inquiry and conversational selling that are key to uncovering a prospect’s needs.
Alan Grinshtein was also impressed by Ed Weissman’s post and used it as a point of departure in “The Enterprise Software Opportunity” to lament that too many startups focus on advertising driven business models:
The Sirens of Social have seduced too many good minds to build and crash startups. There are too many brilliant problem solvers who aren’t developing brilliant solutions for business. Enterprise software is particularly awful. Imagine the progress that could be made and the money that’s being left on the table. They could be blowing competition out of the water. Sad.
I think three reasons for this are:
are all hard problems.
As a result, many software entrepreneurs succumb to one of two temptations: either they treat themselves as the first customer (“scratch your own itch”) and build what they would like to use–making the critical assumption that they are an accurate proxy for other prospects without validating their hypotheses–or they “give the software way” to build up a large audience that they will figure out how to monetize later.
If you are hard at work on a B2B software product but are having trouble determining how to price it, or negotiating for the value that it offers, or locating a good niche to target for early adopters, please contact us. We would be happy to explore how we can help.
Add comment August 23rd, 2010
Ed Weissman (edw519 on HN) had a great comment a while back on Hacker News at http://news.ycombinator.com/item?id=83561 that I got his permission to re-publish here:
My target market is small business. 3 Reasons They Prefer Pay Over Free:
- They don’t want their employees looking at ads.
- They need leverage when they have complaints. (Why would they listen to me if I’m not paying anything?)
- They want you to stick around.
Provide them with something they want and charging them will not be an issue.
His answer was in response to the question “Who is building a startup/product and making money by charging customers?” and he offers a great list of reasons why business buyers prefer to pay.
I think an alternative to #1 is that ad driven sites tend to promote more page views and page refreshes, which tend to lower productivity compared to a well designed subscription driven site (so they value their employees time, and the work that they deliver, more than they want to get a “free app”). Also, some amount of screen real estate has to be lost to ads that could instead be applied to improving the information content on the page directly relevant to the task the employee is performing.
#2 is very under-appreciated by the advertising driven sites. I think that startups stay in “free beta” too long in particular. I only want to use an application in support of my business, especially if it impacts prospects or customers, if I know the developers will respond, and the default terms of service typically say that they can disappear without warning (along with my data). Even a 15-30 day grace period with a warning for shutdown would be a huge improvement.
#3 points out a misunderstanding between how technologists or solo consultants may view a new tool and the total cost of adoption that a small business faces. A small business has to bear a lot of cost in workflow and process changeover. They do want you to stick around because their true cost of adoption is much higher than what they are paying you.
Andrew Warner has a great interview with Ed Weissman on “Why Do People Join On-Line Communities” where Ed describes in detail the benefits he gets from taking part in the Hacker News community.
1 comment July 7th, 2010
I was recently interviewed by Floyd Tucker of DreamSimplicity Marketplace and the interview can be seen below and on DreamSimplicity.com. We talk about how even though each startup team is unique, they have a common set of milestones they have to achieve to move from idea to revenue. We also chat briefly about the Bootstrapper Breakfast.
Headquartered in San Francisco, DreamSimplicity has been conducting video interviews for public and private companies since 2008, producing high-quality executive interviews, customer testimonials and conference coverage videos. DreamSimplicity interviews offer SaaS and Sales 2.0 clients a platform to discuss their recent news announcements, and gather greater social buzz for their corporate story through a number of innovative web video outlets.
DreamSimplicity is an innovative producer of High Definition Web Video for emerging web-based technology organizations: they write, coach, direct and produce as needed.
Update July 22: A transcript for this interview is now available.
Add comment July 1st, 2010
I worked with Ken Imboden at MMC Networks (acquired by AMCC in 2000). He managed a key group of microcode and embedded software developers whose efforts drove the successful adoption of MMC’s network processor chips. His role required him to manage both development and key customer issues and his judgment was sound across the board. He hired, developed, and motivated a very talented team and successfully buffered them from most of the chaos you would expect to find in a startup.
Ken went on to work at Candlestick Networks (acquired by Nortel in 2001) and co-found the now defunct NuSym Technology with Chris Wilson and Dave Gold. I reached out to him this week to get his perspective on lessons learned from working in software startups and he was kind enough to reply with this list of what he has learned from several startups over the years:
Ken noted in closing:
I don’t think I’ve given you anything most folks did not already know. The challenge is, of course, in the execution, especially reorienting the mindsets of egocentric and introverted software developers (pardon the redundancy), driving home the fact that the customer does not give a damn about their cleverness, the algorithms they implement, or their credentials. The customer cares only about satisfying their own need.
1 comment June 12th, 2010
I check out a few new products every month that I think may be of use in our practice. The following is a true story of a recent experience I had experimenting with a new B2B oriented one that I will call Hotel California. I have changed the name because I signed a license agreement which said that I would not disclose anything about my evaluation experience.
I E-Mailed the support alias the following note because I was in the “free beta” and wanted to know the full price.
So far it’s interesting but not compelling and I am trying to determine whether it’s investing more time. Depending upon your price point it may not be a fit with my needs. Currently I would rate it between $60 and $180 per year. If the cheapest option contemplated is more than the top of my range please let me know now and save my time.
I thought it was an accurate assessment of the likely value of the service if it was deployed in production. I assumed that I would have to pay that per seat for each additional person I extended access to. I got the following answer back from the “Director of Product.” The only thing I have changed is the name of the product.
“We’re glad you’re finding Hotel California interesting. This is just the tip of the iceberg. We have many more features coming soon. You’ll definitely want to stay tuned.
As for cost, our promise to our users is that the functionality you experience today will remain free. Our beta users are an integral part of our development, direction and success. As we collectively grow our product, our intention is to release a premium version at some point in the future – a premium product that will be worth the wait.”
An answer which I did not find particularly illuminating. It’s always a warning sign when a company can’t name a price. So I suggested as much in my reply
We don’t use free tools in our practice that clients may come to rely on. There are a number of startups developing similar applications that we think may be usefully incorporated into our practice. But I have learned through hard experience that an answer like yours means one of three things, none of them indicating that I should continue to invest my time in moving down the learning curve on your application.
- It’s going to be expensive and once you get critical mass of enterprise users you will perhaps leave a free trial period but drop the free and just go premium.
- If you can’t figure out how to take my money today you will run out of money, become fixated on raising another round based on eyeballs or beta users and likely fail.
- If you don’t take my money then I don’t have a service level agreement with you which means that if I use your offering with my clients it puts my brand at risk. The marginal benefits of what you have shown are dwarfed by the risk of introducing a client to your application, asking them to sign your current agreement, and then having you fail to perform. Under your current agreement I have no recourse or expectation of performance. But my clients have an expectation that I won’t waste their time or use “flaky but free” apps that may inadvertently disclose their strategic intent.
Happy to schedule a call if you are serious otherwise I probably need to wait to understand your business model before I spend much more time.
No reply from the Product Director but about five days later I got a form letter from the Marketing Director asking me to take a survey and invite two co-workers into the application, when two of my invites have signed up I would win a $20 gift card. It seemed to me that they had missed an opportunity to ask what led to my valuation. I wrote back:
I have asked for pricing information. I am not willing to encourage anyone to use your service until the pricing plans are clear.
And I included a copy of my E-Mail to the Product Director. The Marketing Director was polite enough to write back (I have only changed the name of the product):
Hotel California is FREE and always will be. In 2011 we will introduce a premium version that will be priced at $25 – $50 per month. Through surveys like this our users are helping us build our product as well as helping us determine what to include in a premium version. We will continue to maintain and update the FREE version with new content and new features as well.
This at least answered the question I had asked the Product Director. I wrote back:
Thanks for clarifying your pricing, you and the Product Director should compare notes, he never answered my E-Mail below. It sounds like the cheapest option contemplated is $25/month or $300/year which was above the top of my value range of $120-180 a year. Please delete my account.
Which led the Product Director to respond.
Thanks for the email and I’m sorry you’re not comfortable using our free software.
I can understand where you’re coming from and hope you reconsider once we release our premium addition, it’s going to be a real game changer.
Thanks again so much for your support, your account has been deactivated.
The software was not compelling and their target price range was above my valuation. And I am not comfortable using free software with clients. And then I thought “de-activate” not delete, where have I heard of that before? So I wrote back.
Your price point is above my value range. Nothing you have demonstrated to date looks like a game changer. Unlike the Marketing Director you didn’t even have the courtesy to answer my question. Please delete all of the information you have collected on me, don’t Zuck with me by pulling a Facebook and “deactivate” my account. Please delete it.
Two days later I got another E-Mail from the Marketing Director suggesting that I take a survey and invite two co-workers that I could win a $20 gift certificate.
Update Mon-Jun-14: I got another e-mail today that indicated my original profile was still active and used to generate a report. I E-Mailed the Marketing and Product Directors:
I have asked you to delete my account but I continue to get e-mail from you and it does not appear that my account has been deleted because you are updating me on a profile I had entered.
I would appreciate your prompt attention to this matter.
I got the following answer back about six minutes later from the Product Director:
Your account has been physically removed from our database.
You will now longer receive information from us.
Have a fantastic week.
One suggestion if you are developing a new service: implement the “delete account” function sooner rather than later. I will have some other suggestions in a future post.
3 comments May 4th, 2010
Steve Blank gave a thought provoking talk at the Startup Lesssons Learned Conference on “Customer Development 2.0: Why Accountants Don’t Run Startups” (slides here and related blog post “Why Accountants Don’t Run Startups” which is part of a category of blog posts on “Durant vs. Sloan“). He also referenced Robert Shedd’s list of startup accelerators “Help for Startups! – A semi-complete list of startup accelerator programs” and noted that many of them were now offering entrepreneurial education: “most startup accelerators have great coaching but minimal methodology.”
Blank then noted the disconnect between what entrepreneurs need to know for an early stage firm and the skills they need for a mature business.
Steve predicted that E-Schools for entrepreneurs would emerge, the counterpart of B-Schools for managers in established firms, and asked the attendees to help build them: “E-School–Let’s Help Build It.”
I think that there may not be good reasons why things are the way that they are, but there are strong reasons. There have been a number of critiques of the VC funding (and seed funding) process which are relevant to the E-School concept:
A number of organizations have also identified and attempted to address this issue. Earlier efforts have tended to focus on providing office space, small business management skills, and introductions to potential funding sources. Blank’s E-School model, with it’s customer development, focus represents a welcome innovation. Here is a representative set of older and emerging E-Schools:
Part of the challenge with a new methodology is that funded firms are very risk averse to adopting a new methodology once they have raised venture financing. For the most part funding convinces them of the correctness of their plan and, given that they were able to raise a round, their default strategy is more fund raising instead of focusing on customer revenue if they hit a speed bump. I think it may be difficult to trigger much of a change, at least initially, in venture backed firms.
There is probably an opportunity for Angel education (and aggregation) in that requiring customer development techniques will act as a multiplier on most investments (or at least in many markets). This seems to be what the Venture Hacks Angel List and Floodgate are already executing.
In his talk Blank was clear that early stage firms need a different dashboard than the standard revenue pipeline, balance sheet, and income statement. Providing instrumentation and operational guidance for what board level review should look like in an early stage firm that’s been Angel funded might be a good insertion point for an E-School methodology.
Why Angels? They are investing their own money and don’t have recourse to management fees from Limited Partners for compensation, so they are more likely to adopt techniques that increase the chance of success and wring more value out of their seed investment. E-Schools probably stand the best chance of disrupting the VC ecosystem “from the bottom” and that would be the Angels and seed funds. One measure of success would be to specify a “lessons learned” format to substitute for the “demo day” that incubators run to help startups generate follow on investment.
Related Blog Posts:
Add comment April 13th, 2010
A baker’s dozen of common mistakes that I have seen founders make in preparing, delivering, and evaluating a new product presentation/demo.
3 comments March 19th, 2010
“A business should be run like an aquarium, where everybody can see what’s going on–what’s going in, what’s moving around, what’s coming out. That’s the only way to make sure people understand what you’re doing, and why, and have some input into deciding where you are going. Then, when the unexpected happens, they know how to react and react quickly. ”
Jack Stack “The Great Game of Business” (page 72) see also http://www.greatgame.com/
Edward Carrel left a great comment on Hacker News in response to “Project Manager’s vs. Developer’s View” this quote (the thread is here)
I’ve never understood this bright line boundary between the patchwork of people that make up a technical group, and the patchwork of people that make up a business group. Presumably, the technology being developed is part of what makes the business viable; it isn’t just a bunch of people playing with text editors on company time, while the grown ups — the business folks — do everything that earns money.
It serious just seems like an artificial division to excuse the two groups for not listening to each other.
This becomes even more painful when you are one of the people who wants to be involved in whatever makes up this nebulous “business side”, and are told to go back to writing code.
My view: the business is everyone’s business, and any time you start developing bright line boundaries to either protect turf, enforce a hierarchy for its own sake, or excuse non-involvement, the least of your problems is one of your techies wanting to play with technology that seems superfluous to the untrained eye.
It reminded me a few paragraphs from an E-mail I sent to a client recently.
You have created a significant business opportunity with your accomplishments: you have happy customers, strong technology, and the demonstrated ability to close new business.
But I see the need for closer cross-functional coordination between sales, marketing, development, and customer service with clear agreement on both near term and long term strategy.
These four teams need to work together more closely to leverage your significant strengths and accomplishments. Closing new business opportunities and increasing penetration at existing customers is going to take more communication and continuous collaboration.
I think there are several things that work against effective cross-functional collaboration:
Figuring out the right team and company scorekeeping mechanisms and building trust and shared improvisational skills all take time. But I agree with Ed Carrel that the business is everyone’s business.
See also “The Business is Everyone’s Business (Part 2)” and these related blog posts:
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