My interview with Gabriel Weinberg was originally published Sep-8-2010. He was doing research for what became his fantastic book Traction. We talked for the better part of an hour and a half and I can remember he kept returning in different ways to what was needed to close your first dozen enterprise customers.
Any innovation effort is a painful struggle punctuated by false starts and dead ends. Your efforts are met with lack of interest even when a basic invention is working and active resistance when it starts to replace the tried and true. Like any childbirth the trick is managing the pain long enough to deliver.
Trust is built over repeated interactions between people. If your business requires long term relationships then you have to make sure that investments in automation are not deployed in a way that undercut your ability to have real conversations. Unfortunately, some uses of email automation tools are pushing sales conversations into the “Uncanny Valley” because they strive to simulate–but miss–a genuine personalized touch.
Cultivating mindfulness requires you to maintain situational awareness and realize when your reflexes may trigger a reaction that is not as thoughtful as the situation requires.
“Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”
Viktor E. Frankl
Bud Caddell has developed a nice diagram for Frankl’s insight:
Fight, flight, or freeze are reactions we see in both people and organizations. In short, reaction is action without meditation (cognition and awareness).
Bud Caddel in “The Mindful Org“
I think this definition of mindfulness, and Caddel’s diagram explaining it, are a very useful way to conceptualize how you start to engage in real learning. If you cannot interrupt your unconscious reaction you have no way to put new approaches into action. It’s inserting the “Orient and Decide” between Observe and Act in the OODA Loop.
Like a mindful person, a Responsive Organization is constantly sensing its environment and itself, yet relying on awareness of both to form a response rather than mindlessly react. In an organization, this is a process that involves both systems thinking and sensemaking – to understand the organization’s environment, to understand the forces behind those conditions, and to estimate the outcome of a response.
Bud Caddel in “The Mindful Org“
Extending this to an organization level is key to a startup’s ability to not only take effective action but learn at a team and business level, hopefully faster than competition that may be locked into “autopilot” responses. If you focus on the fastest action possible then you are relying on reflex and reaction, bypassing orientation and conscious deliberation. This does not lead to superior performance but “extinction by instinct.”
It’s not the fastest reaction, it’s the decision that leads to the first effective response.
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.
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?
“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. Both require building trust. 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.
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
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 to twelve 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
I had a conversation today with a good friend I had not seen in a while. Normally cheerful, he was feeling “stuck” in his startup
I have started several businesses, tried to start quite a few more, changed direction more often than I ever planned and shut down more than a few–sometimes even before they really got off the ground. I am familiar with a sense of getting stuck, of things not working. It’s hard to discern and harder to admit what is working and what is not. But at some point I had to acknowledge the need for change and tinker with my approach.
I gave him three suggestions that I have worked for me when I find myself stuck:
Thinking about this using an OODA loop model – — Observe -> Orient -> Decide -> Act
- Orient part is sensemaking — its own kind of fast learning
- Often takes a long time in a complex situation (e.g., all situations where learning is involved); subject to error because it’s “culture bound”
- What we do
- Asking what you see
- Asking what are interactions (including between people, process, platform, and practices)
- focused on asking good questions / suggesting questions to research; avoid giving advice
- Audience: other entrepreneurs
Presenter profiles (see extensive write up a “Semifore Execs Share Bootstrapping Lessons and 2014 Scaling Up Plans at Jan-17-2014 MVP Clinic)
- Robert Callahan, COO Semifore, Inc.
- Herb Winsted VP Business Development and Customer Care, Semifore, Inc.
- Semifore, Inc: niche software player in Electronic Design Automation founded in 2006 with a focus on tools for memory map management
- How do we scale and grow the business
- What strengths or accomplishments will you build on
- What existing or constructed vantage-points (data-collection opportunities) have been or will be most useful?
- What capabilities need to be developed
- What’s the primary barrier or key challenges you need to overcome
- talk about product and challenges – cross functional nature
- talk about what you have learned – making sense of current experience
- look ahead 2014 talk about plans
- complex sales environment
- education / learning involved
- many prospective clients have rolled their own
- side issues = standards, interaction with purchasing
- Usually find a pre-existing culture / product team / team
- more complex sales and adoption problem
- touches hardware team (e.g. system architect, RTL developers)
- software developers
- documentation specialists
- documentation consumers – e.g. verification and validation team
- plus “team in larger team or org issues”
This is a mid-course correction conversation. We have a viable product that’s now robust
How do you scale the business?
Competitors are “in-house” solutions – first generation build out. Semifore product replaces spreadsheets and in-house Perl scripts that represent a career path for internal tool developer
Questions from Audience
Q: How many employees does Semifore have?
A: five direct plus some other outsource teams we draw on for specialized resources
Q: Do you monitor feature usage and see which ones are used and which ones are not? Do you remove unused features?
A: it’s on-premises software, there is no monitoring except in conversation with customer. Will be deleting some obsolete standards but have to provide a lot of legacy support and backward compatibility
John observed: consider inserting learning & feedback loops here.
Q: Do you have any services revenue?
A: We have a hybrid license. basic level charge, tiers of users (groups of 10). we sell licenses in batches of 10 with a decreasing cost per incremental seat even as total site license fees go up. We have some project support service fees; there are also fees for “global license”
Q: Tips for growing from small groups to more users in the companies. How to encourage spread inside customer
A: We believe the following have been key to our success:
- spend face time with customers
- dealing with the internal script-writers “who can do stuff.”
- sales opportunity: when the script-writer leaves
Q: What percentage of customers did you have pre-existing relationships with (from Magma, as an ex-employee of that company, etc.)?
A: really only first customer, most of the rest were “cold starts”
Q: Also, is the tool compelling to any functional area as is, or is it compelling primarily because there’s a lack of resources for the previous internal approach?
A: a bit of both. solutions exist in organizations that are not visible to management.
Notes from Live Session
Walking around the issues —
Rob: in the Valley back when disk drives looked like washing machines. Finance roles, then managing channel and tech support. EDA for last 15 years. External advisor to Semifore, joined the firm a couple years ago. growing the business from boutique to a real business.
Herb: business development VP — customer facing activities. started in the electronics business back in the ’70s. Projects in Europe, Japan, US, involved with Semifore since 2008. Semifore is the “right size” for connecting directly to customers.
Have both survived and added customers. Tool crosses several different disciplines, enabled by high level
Some standards IPXACT and System RDL but for the most part replacing either custom scripts or Excel input based techniques.
Rich Weber drew on experience at SGI, Cisco, Stratum One to create cross-compiler
selling to sw, firmware, and documentation teams proliferating from early beach heads
Respond to customers quickly. agile response. Keeping customers.
Initial sell to a small team. from 10 users to 100 in the same company. tool goes viral. education challenges to begin using the tool. Support requests are often enhancements to connect with their local requirements.
How to proliferate. Getting information early in the design / development process. Measure speed. Perceiving the activity outside “my silo.” It’s a blazingly fast product once it’s in place.
Q: does tool help to measure design cycle impact?
A: It’s really a technology driven company working with engineers who focus primarily on technology, but our customers live in a business environment. more recently customers are coming in and asking for automation of the creation of these architectural descriptions. Once the tool is adopted there is a shift from create the “perfect document” to ‘good enough distributed widely’.
Semifore enables a start from a terse description that can be elaborated. EDA Process Workshop in Monterrey – need a good plan more than a good tool
Herbie: Making the transition from supporting a wide variety of design styles to a smaller subset that the industry as a whole seems to be converging on.
Sean: similar to what happened in networking where there was a convergence from “multi-protocol” to IP and Ethernet.
As an introduction strategy Semifore offers a sandbox model.
John: have you thought about a user conference where you can share lessons learned and foster “viral process”?
- Rob: good idea, we could do it in the Valley
- Herbie: one challenge is a lot of our customers are direct competitors and don’t allow us to talk a lot about what they are doing or even that they are using it.
- John: breakfast at Coco’s might actually kick this off; talk about failure as much as glossy success. provides access to design ideas and source of marketing insights.
- Sean: first Verilog user group was very low key. It was at Denny’s.
Rob: engineer to engineer conversations have been of great benefit, but we have trouble translating that into business impact.
- Sean: boiled frog problem- registers grow incrementally. complexity …. how to trigger the epiphany that “it’s getting hot”. how describe the environmental question about increasing complexity.
- Rob: we see people saying “we can’t manage any more. please help”
- Sean: need to crystallize this customer’s business insight into tools for engineer customers at other firms (including prospects) into a compelling business proposition. Problem has scaled from hundreds to tens of thousands of registers
Sean: What is one thing that would change the equation:
- Herbie: go to next level in revenues. A potential contract on the horizon would generate more human resource.
- Rob: finalize and accurately describe tool functions, so can present / educate people at higher levels of the organization..
Q: What is your licensing model?
A:business predicated on one year licensing deals, renewals are based on internal uptake not multi-year contractual obligations. Avoids some issues where customers wait for end of quarter/year asking for large discounts
John: your great strength is your engineering view, but is this in some ways a weakness? Could you do more to see into the customer organization w/o more revenue?
Rob: A senior VP engineering has a P&L and a business view. We are a small tool in price, it’s hard to get their attention.
- Herbie: this session was out of our normal activity. appreciate opportunity. learned working inside orgs & managing projects: the reality of business situation, putting together the fifth team.
- Rob: better mousetrap doesn’t always sell. Semifore has good technology. challenge is to refine the messaging. describe “breakage is around the corner.”
- Sean: need to explain to prospects that they have gotten used to dealing with “broken”. I think Semifore’s challenge less in engineering more making business case to pragmatic buyers.
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.
Entrepreneurship Requires Perseverance
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“
Semifore , Inc. was founded in 2006 by Richard Weber based on his system design experience at several startups and some larger systems firms. All of them struggled with the need for tools and methods to keep the hardware architecture in sync with software architecture and to ensure that the development and customer documentation was up to date. He developed an application that worked from a common specification to generate high level hardware description language specifications, software source code, and human readable documentation for the memory maps and configuration/control register behavior. Semifore has bootstrapped growth since 2006 and has seen their offering adopted at a number of major semiconductor firms. and system houses.
We have two members of the Semifore executive team joining us 10AM PST on Fri-Jan-17-2014 for a discussion of what they have learned about their success so far as a niche player in the Electronic Design Automation space and their plans to scale up in 2014. You can register to take part in the conversation at
- Rob Callaghan, COO of Semifore Inc.
Rob was previously Vice President of Operations for sales and technical support at Magma Design Automation. Prior to Magma, he was Group Director of Business Development as well as Director of Sales Operations at Cadence Design Systems. He has worked with other large electronics firms such as L.M. Ericsson, Amdahl Corporation, and Memorex Corporation in the functions of Product Marketing, Field Operations, Finance and Accounting. His expertise includes strategic and operational planning, operations management, market research, and financial operations for organizations such as direct sales channels, product marketing, R&D operations, corporate business development, corporate mergers and acquisitions and strategic investments. He has a BS in Finance from the Menlo School of Business and a MBA from Golden Gate University.
- Herbie Winsted, Vice President of Business Development and Customer Care
Herb is a veteran of over 26 years in the EDA and Semiconductor industries. He has held positions of Director Business Development and Director IC Implementation and various individual contributor assignments at Cadence Design Systems. He has also assumed management responsibilities for CAD teams and IC layout groups at National Semi, GEC Plessey, and AMD. Herbie has also lead hundreds of multi-discipline automated layout projects in different roles at Silicon Valley Research (Silvar-Lisco) working with major Semiconductor companies worldwide. He has excelled at team building and establishing both business and personal relationships at every level of the organizations he has serviced. He has wide experience in creating marketing messaging, training, and sales collateral. He has always put customer requirements as his highest priority and excels at finding practical solutions that satisfy all parties concerned.
Background for discussion
Semifore Inc. is a software startup in Palo Alto Ca. The company provides a software product platform that automates and manages the register information for the Hardware / Software interface during the definition, specification, implementation and verification phases of the ASIC and/or FPGA design process. The company is privately held and has no external investors. It was founded in 2006 by Richard Weber who is currently the CEO of the company.
Currently the company has over a dozen paying customers which are using the platform to deliver their chip sets to customers. Logo’s such as Altera, AMCC, Microsoft, and other large firms have embraced the tool and associated design methodology to reduce their design cycle time and improve their product functionality.
Semifore’s products are used by Systems Architects and designers, Verification Engineers, Software Development Engineers, and Technical Publications teams inside of Semiconductor companies.
The company has been funded via “bootstrapping” and is operated solely from operating cash flow. This has provided sufficient funds to get through the product development and early customer engagements that allowed Semifore to market, test, and refine the technology to a state of high reliability and functionality with low post-sales support requirements. The product does what we say it does and once it’s installed the product often goes viral.
The company has relied on trade show attendance and word of mouth to secure additional sales leads to qualify and move to a product demonstration. The customers for this product, are for the most part, currently internally developing their own solutions in this space.
Market / Customer Challenges (Lessons Learned 2006-2013)
- Internal solutions are viewed as “free” and they get the job done today. The cost is buried across many functions within the customer and the time hits they take are part and parcel of the “design silos” in most organizations.
- The teams that have “created” the internal solution often have a vested interest in keeping them alive.
- The currently employed internal “methodology” touches many organizations that may not be the purchasing entity or the driver for the decision or have the ability to overrule and drive a central technical solution throughout the organization. Many large customers have several different of internal solutions in this design space.
- This design problem is very niche and eclectic and often is not highly visible to upper engineering management. It’s noise to them. Education at all levels is required for buy in on this kind of tool.
- Internal solutions tend to be limited to file transforms and depend on rigid input formats to produce useful results. Very little true design intelligence for detecting correct semantics and interface capability to other tools or standards.
- There is considerable confusion regarding the status and capabilities of the “standards” that support this particular design methodology that adds to the tendency to “wait and see “ before making buy decisions.
Key Goals for 2014
- Expand the adoption by existing customers who have embraced the tools and succeeded using them in production.
- Build on current success to add new customers, large and small.
- Determine level of participation in existing standards committees and explore offering our proprietary language as a standard with endorsement from existing customers.
Update Fri-Jan-17: here is the audio for the event.
Q: We have a SaaS offering that has been on the market for three years now and we have several dozen paying customers. Our offering is useful for firms with more than a hundred employees up to several thousand and is licensed at a corporate level. We have only lost two customers, one was acquired by a much larger firm and the other went out of business. We now have a third customer that is leaving and I want to give them a call and get some feedback. Can you suggest some questions for the exit interview?
Here are some questions that I have found useful in uncovering issues you can act on and sometimes recover the account:
- What were the most useful or valuable aspects of our service?
- What were the last useful?
- Did an event or incident or failure on our part trigger your decision to look for alternatives?
- What new benefits or other value do you see the new vendor providing?
- Is there a change we can make that would encourage your to revisit or alter your decision?
- Any other comments, suggestions, or observations.
Trick is to understand reason for change and then determine if you can do anything to change the decision while being respectful of their decision. They may come back in a few months or even a year if you treat them with respect now. You should have the CEO or a founder call and email so that you communicate you are interested in understanding the situation and their needs.
This is a laundry list (not prioritized) for a set of challenges we currently wrestle with in helping clients monitor their external environment and craft strategies for new market creation and new product introduction into an existing market. I welcome any suggestions for resources or tools.
- maintaining shared situational awareness at at team level on the external environment
- understanding who prospective customers view as status quo / alternatives / competitive offerings to your product or service
- monitoring emerging technology spaces for new entrants that may come into your space
- monitoring your target market space for new entrants: especially discerning weak signals of a new competitor
- counter-surveillance – staying off of competitor’s radar as long as possible (stealth is just one strategy here)
- finding and monitoring forums where prospects are talking about current challenges and shortcomings of existing alternatives
- identifying early adopters / earlyvangelists who are unsatisfied with an existing partner
- understanding customer’s perception of the value proposition for competitive alternatives
- using analysis of competitive hypotheses to discern competitor’s strategy from deceptive and ambiguous moves (by definition stealth or camouflaged moves are not detected, if they are they represent revealed strategy)
- designing business wargames to explore complex ambiguous competitive situations and foster team alignment on strategy
Market Structure Analysis
- modeling markets that don’t exist (yet)
- creating markets where you have the potential to remain viable
- developing segmentation strategies for existing markets
- anticipating when a niche market may dissolve a larger category (either to your detriment or advantage)
- cataloging all of the different descriptions and keywords for the same problem from different perspective in an early market
- crafting and negotiating partnerships with incumbent players in an existing market
- defining value chain and minimum viable footprint for a new offering (for more on these concepts see “The Wide Lens” by Ron Adner
Update Nov-26-2013: We continue to use and refine this list. One challenge that startups face (and established firms entering markets that are new to them) is that an existing firm has customer insights that they can more easily access and a value chain that has stake in their success which can provide peripheral vision and insights. Startups lack these assets and as competitors are much harder to spot.
The initial challenges are less about generating insights about new market opportunities and potential competitors and much more about curating the evidence and crafting a narrative that gets a team on board for common action. It’s also possible to fool yourself so looking for disconfirming evidence (e.g. analysis of competing hypotheses) helps to avoid self-deception and/or groupthink.
This is based on a real engagement that started with the conversation in “Living In Anticipation With Schrodinger’s Leads.”
The CEO placed a stack of about 30 business cards on the conference table: “See, here are all of the leads from the trade show.”
“Would you like us to put together a simple campaign where we e-mail them an update of what’s happened since the show and call them once or twice to see if they are interested in a longer demo or an evaluation?” I asked.
“No, that’s not why we asked you to come in, these guys will call when they are ready,” he answered, “We had a visit from someone in sales at BigCo [a large firm in Silicon Valley], he came by our office last week because they are interested in our product and we need your advice on the deal.”
I knew that the two founders had worked together at BigCo before striking out on their own two years earlier when a downturn had triggered layoffs that they used it as an opportunity to launch their startup.
“I cannot figure out how to price the configuration,” the CTO spoke up for the first time, “I can’t figure out if I should charge $7,500 or $15,000. They could technically get by with one license but they should probably pay for two because they have come back and asked for some consulting to be bundled in to close the deal. We quoted had quoted them $7,500 but it seems like it may be a lot of work.”
For a brief moment I was reminded of an early morning ride to the airport on 280, the sun was barely up and the fog was very thick; we had left a little later than planned and were driving a little faster than visibility might have warranted. I really wanted to have the sun come up and burn off the fog.
“Can we just back up a minute and walk around the situation a little more? The guy from BigCo came to your offices? He didn’t ask you to come to his?” I asked. BigCo offices were only a few miles away but it would unusual for them to visit a small vendor unless they were serious about a deal and wanted to get a real sense of company size and activity level.
“Yes, Mike and I worked with him back at BigCo and he wanted to talk to us about deal for a license to help them with a contract they are working on with a Japanese company. He had called me earlier for a budgetary quote for a single license but now he wanted to negotiate a discount and get us to throw in some consulting to close the deal” the CTO elaborated.
“How much consulting?” I asked.
“They need us to convert the work in progress and library elements for a business unit of [a major Japanese company]. They are putting together a deal to sell software to about 120 engineers. If the Japanese engineers have to re-enter the work in the new system the deal won’t go through, if BigCo pays for outsource engineering time to do the translation by hand it’s probably a team of ten to twenty for three to six months. But they would do it by hand; if we use our tools it’s a week or two. The Japanese don’t like the idea of manual translation since the errors are unpredictable: if we do it automatically we also automatically verify, and if they find an error then we can fix our code and re-run. It’s cleaner,” the CTO concluded.
” OK, so aside from doing it with this outsource team do they have anybody else that can do the translation?” I asked.
“No one else has software that has already been used in production. We have two other customers using our tools to allow different teams to move this same kind of data back and forth between different systems,” the CEO explained.
We calculated that the deal was worth on the order of 2-3 million dollars in license revenue to BigCo and the outsourcer was probably going to charge between $60,000 and $240,000 depending upon the real scope and where engineering labor was located. So there was something like $1.5M to $2M in margin after cost of sales and support for the deal.
I suggested, “I think we should quote them between $400,000 and $600,000 for the translation, verification and support of the translation, and a license to access the translation technology on-site in Japan. You are going to be saving them direct cost of probably $120,000 or more, your approach is an order of magnitude faster, repeatable, scalable, and probably two to three orders of magnitude more accurate. You are enabling a $2M deal plus if they win this deal it means that they can flip other Japanese firms to their software. We will probably end up at half to two-thirds of the opening but we should start a the high end of a defensible value range.”
“But we have already quoted them $7,500 for a license. How do I get to $400 grand?” the CEO protested.
I thought for a minute and then asked,”When does the quote expire?”
“I didn’t put an expiration on it,” the CTO said.
I said, “OK, we have to call your contact and send him an e-mail advising him that we will honor the quote for another 30 days but after further analysis of their requirements we think that they need a different product and some related consulting. We are happy to furnish them the license we quoted but we are not discounting it further and we are not throwing in any consulting to get the deal. We would like to request a meeting to fully scope the project but we anticipate that it will cost between $400,000 and $600,000 to meet the quality and delivery expectations of his end customer.”
There was more back and forth but after we walked around it a few more times it was clear that they were bringing considerable value to BigCo to close this opportunity. We drafted and sent an e-mail to their contact and then read it aloud to his voicemail since it was now dark out and he had gone home.
We ended up in a meeting with at the BigCo site with folks from corporate and the lead salesperson from their Japanese distributor. This led to a month of serious conversations that uncovered some additional requirements that neither side had considered, allowed us to run some test cases that increased both sides confidence, and allowed us to develop a detailed multi-phase project plan that included not only our work but key tasks from their team and the Japanese customer.
It took another two months beyond that for BigCo to give us a purchase order–probably because the Japanese customer waited for the end of the year to squeeze the best deal out of them and they didn’t want to give us an order until then–for about $320,000 for a mix of licenses, a month of on-site work in Japan, and a year of support and follow up.
Especially when you are selling to enterprise you need to calculate the real value you are creating, this normally requires you to thoroughly understand their needs and constraints and develop what is typically a multi-phase project plan detailing commitments from both sides to make it happen.
This is the same workshop that Scott Sambucci and Sean Murphy offered at the Lean Startup Conference in December 2012 but we are limiting the attendance to 12 entrepreneurs to allow it to be even more interactive and in depth. Our focus is on entrepreneurs who are selling complex new products to businesses and face these challenges among others:
- You can’t get potential customers to call back.
- Prospects won’t make a decision.
- Prospects like what they see in beta and ask for extensions but will not buy (yet).
- Your deals stall.
- Prospect stays with the status quo.
This interactive workshop will help you learn from these problems by using conscious planning and experimentation. Traditional sales training stresses “every no moves you closer to a yes.” Our approach to engineering your sales process says instead, “What looks like noise is often actually data.” Designing and debugging a repeatable sales process is key to a sustainable business, and we’ll address how to diagnose common problems to determine likely root causes. You will leave with a scientific approach to understanding your customers’ needs and their buying process so that you can scale your business in harmony with it.
- When: Feb-8-2013 Noon to 3:30 PM (lunch included)
- Where: Pacific Business Center Sunnyvale,
1250 Oakmead Parkway, Suite 210, Sunnyvale CA, 94085
- Cost: Early Bird $99 before Jan 28, Regular $149
- Register: http://skmsales130208.eventbrite.com/
ABOUT THE SPEAKERS:
Sean Murphy, CEO of SKMurphy, Inc. has taken an entrepreneurial approach to life since he could drive. He has served as an advisor to dozens of startups, helping them explore risk-reducing business options and build a scalable, repeatable sales process. SKMurphy, Inc. focuses on early customers and early revenue for software startups, helping engineers to understand business development. Their clients have offerings in electronic design automation, artificial intelligence, web-enabled collaboration, proteomics, text analytics, legal services automation, and medical services workflow.
Scott Sambucci is the Chief Sales Geek at SalesQualia, a company dedicated to improving sales performance. With more than 10 years in Silicon Valley and 15 years in sales, management, and entrepreneurial roles in the software and data industries, Scott merges the attributes of a successful salesperson and entrepreneur, putting his experience to work for SalesQualia clients every day. He’s lectured at numerous universities across the world, presented at TEDxHultBusinessSchool in San Francisco, and recently published “Startup Selling: How To Sell If You Really Really Have To And Don’t Know How.”
Q: We’ve sculpted our product in a niche that was a subset of the larger target audience. But it is not a niche product–and our investors agree–it’s aimed at the the middle of the bell curve. We feel impatient with our progress and are considering a significant investment in a traditional PR firm; we hope this will dynamite our whole effort with a big splash.
Most successful products start out in a niche and move to a sequence of larger/adjacent niches. Some examples:
- Facebook started at Harvard and moved to the Ivys before conquering the world.
- Google is rolling out their high bandwidth fiber solution in Kansas City not nationwide.
- Proctor and Gamble launches most new consumer products in a test market to learn more before scaling up.
This is normally because
- your offering will provides more value to a small subset of the total population it may ultimately appeal to.
- there may be to be ecosystem or supporting vendors/applications in place to really be useful
- social proof and word of mouth are easier to establish in a niche and a new product lacks both, which retards its acceptance among pragmatics, early majority, late majority, and laggards.
I would be careful not confuse the demand curve you seem to be promising your investors with the current market you can readily access, and the subset of prospects who are willing to abandon their current solution to embrace yours.
Traditional PR involved actual relationships between the PR agency and journalists, analysts, and other opinion makers. The traditional PR professional would ask a number of tough questions of the client as a proxy for the journalists et al to improve the story before the client told it to anyone else. The PR professional had a reputation to maintain with the writers (who were few because they were associated with an expensive printing press or radio/TV station) and was careful to vet the story for “newsworthiness.”
With the rise of new media and dramatically lower costs of publication/distribution for text, audio, and video these relationships have changed. But it’s still important to cultivate relationships with writers, analysts, and other opinion makers whether you do so directly or with the help of an agency.
One of the better books on the changes that the Internet brought to media and marketing is The Cluetrain Manifesto which is available on-line at http://www.cluetrain.com/book/index.html
Most of the teams we work with are targeting niche markets (at least initially) where it’s more effective to take part in ongoing conversations in a few communities focused on the need, problem, or technology. There are very few true overnight successes and banking on a big bang launch over the steady accumulation of customer case studies and endorsements (both formally in your own messaging and informally through “word of mouth” in communities with a natural interest in your offering) seems shortsighted. At a minimum you should have a Plan B for what you will do if the “launch” fails in third party media–it should not be to go out of business.
If you cannot think of two of three alternatives to a “big bang” launch that spread the same budget and effort over a longer period of time that allows for experimentation and iteration–and therefore more learning–you should probably think harder.
As the Kamikaze pilot instructor said to his class, “I want you to watch carefully because I am only going to do this once.” It’s hard to learn from a big bang launch.
The goal of a marketing interaction isn’t to close the sale, any more than the goal of a first date is to get married. No, the opportunity is to move forward, to earn attention and trust and curiosity and conversation.
Seth Godin in “Free Coffee, Next Exit“