No More Than Four Items on Your To Do List

Written by Theresa Shafer. Posted in Rules of Thumb

From Tom Peters Blog “The Single Most Important Thing

Consider these Four Cardinal Principals:

  1. Time is more important than money. (It is the only truly constrained resource.)
  2. You = Your Calendar. (You are What You Spend Your Time On as much as … you are what you eat.)
  3. “To-Don’ts” are as important, or more important, than “To-Dos.” (What’s not on the list is perhaps more important than what is.)
  4. Your To-Do List must never be more than 4 items long. (You can have an “errands list” but the real To-Do List must never run beyond four.)

 What I really think he means here is that you should never have more than four top priorities. The Marine’s “Rule of 3” (never give a squad more than three objectives) is even more conservative, and perhaps more appropriate to startups. Finally, a successful project manager never gives a meeting more than three objectives.

Crossing the Chasm – Look for a Niche in a Lot of Pain

Written by Theresa Shafer. Posted in Books, Rules of Thumb

Ev Rogers’ seminal book, “Diffusion of Innovation” describes how people adopt innovations, e.g. new technology. He assumed a normal distribution of risk aversion. Geoffrey Moore’s insight was the chasm:  the early majority is not influenced by early adopters, they want the comforts of an established market.

Human nature is risk averse: most of us don’t like change. We would rather struggle with the beast we know than risk our jobs on a new technology that may not deliver it’s promises. But if the current situation is painful enough, we will adopt something new and risk changing the way we have always done it.

So how do you cross the chasm between the risk tolerant early adopters and risk averse early majority when introducing new technologies?

Look niche markets of early majority prospects who are in a lot of pain. If people are in enough pain they will change their behavior and risk adopting something new.

Bowling AlleyAfter entering niche markets, we can move technology up and out by using the ones in the most pain as reference case studies to the others. Also notice you start with the smallest niche market. This will allow you to make your early mistakes on a smaller market. It also buys you time and expertise to develop a whole product. Early majority prospects will not invest very much time or effort (very little compared to early adopters) to get your solution to work in their environment.

One you are across the chasm into your first niche, you want to continue to evaluate adjacent niches (those that would have some members who would be influenced by your current customers) that still have a lot of pain. Moore refers to this as the Bowling Alley, we show a representation slightly different from his where we sort going from smallest to largest in the most pain to less pain.

3 Things I Learned at WIC Tech Talk

Written by Theresa Shafer. Posted in Events, Rules of Thumb, Tools for Startups

I enjoyed the latest WIC (Women In Consulting) South Bay lunch today. Denise Brosseau from Brosseau & Associates talked about tools that she or clients use to run their business. Her talk, “Play Like the Big Guys: How To Use New Web Tools To Easily Build Your Company” was full of ideas and useful tools. Here’s three that I think are worth sharing:

1. Denise used Yahoo Small Business to create her website. It was easily to use and flexible. Her 20 page website took about 2 weekends to create.

2. She loves AVG for virus software.

3. She uses Meeting Wizard to schedule meetings with multiple people.

Applying the “Agile Manifesto” to Software Startups

Written by Sean Murphy. Posted in Rules of Thumb, TwoWeekSaaS

What follows are some quick thoughts on how to apply insights from the “Agile Manifesto” (see also Martin Fowler’s excellent essay on “The New Methodology” for a nice overview of what agile development entails) to early stage software startups.

Value This More In Preference To
Individuals And Interactions Processes And Tools
Working Software Comprehensive Documentation
Customer Collaboration Contract Negotiation
Responding to Change Following a Plan

Principles behind the Agile Manifesto

Agile Principle from Manifesto My Comments for Startups
Our highest priority is to satisfy the customer through early and continuous delivery of valuable software. “early and continuous” are the two key adjectives here. Startup needs to move fast and be able to continue to adapt, refine, and improve subsequent releases.
Welcome changing requirements, even late in development. Agile processes harness change for the customer’s competitive advantage. Ultimately your value is to contribute to your customer’s competitive advantage.
Deliver working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale. I think for Saas this is going to work out to be one to two weeks between releases. 
Business people and developers must work together daily throughout the project. Co-Evolution of Business and Technical Plans
Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done. Essential in a startup.
The most efficient and effective method of conveying information to and within a development team is face-to-face conversation. Certainly where there is  a need to get emotional calibration you need at least voice (telephone, VoIP) but face to face is the highest bandwidth.
Working software is the primary measure of progress. If only because it’s the easiest thing for customer’s to judge. But a sales pitch that accurately represents what will be delivered is as necessary, and should in fact precede working code in the early days of a startup. Sell, then Build.
Agile processes promote sustainable development. The sponsors, developers, and users should be able to maintain a constant pace indefinitely. This is a “no finish line” model that assumes you will need to continue to tune and evolve your offering rapidly after it’s introduction.
Continuous attention to technical excellence and good design enhances agility. Especially if you can measure what you mean by excellence and keep score transparently for the whole team.
Simplicity–the art of maximizing the amount of work not done–is essential. Simplicity forces you to focus on customer’s key needs and minimizes the work needed for the next release. Giving the customer software to work with speeds their understanding of their true needs faster than almost anything else (if you start by observing their actual behavior in their environment).
The best architectures, requirements, and designs emerge from self-organizing teams. This to me seems a little to IT or development centric. Many times visionary customers will supply critical insights on architecture and requirements.
At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly. Wynton Marsalis advises that “the humble improve.” You need to balance regular celebrations with an appropriate amount of both internally driven and customer solicited evaluation of quality and productivity (yes your customers are making an assessment of how productive the team is and how quickly you can understand, master, and deliver on emerging needs).

More to come on this, in particular what one to two week release cycles mean for how you organize and execute as a software startup.

Getting Early Feedback

Written by Sean Murphy. Posted in 3 Early Customer Stage, Customer Development, Rules of Thumb, skmurphy

The temptation is to use a on-line survey tool to save your time, but I think for your early customers a questionnaire may only give you the answers that you are looking for, not the information that you need.

Conversation Works Best With Early Customers

One on one conversation works best in my experience.

It’s important early on to ask open ended questions and to consider your product more of a hypothesis (See Steve Blank’s “Four Steps to the Epiphany” for more on this framework) than an accomplished fact. Even though it’s been debugged and ready for rollout it doesn’t mean you understand the benefits that customers (much less prospects) perceive that it offers.

You should also consider instrumenting your product if it’s SaaS (or adding a “flight recorder” if it’s on-premises software or delivered as an appliance) that with the user’s permission can “phone home” some usage patterns. In particular you want to be able to assess how much use (and what commands, command options, service areas, etc.. are being accessed) they are making. It’s not uncommon to start removing commands, options that are little used.

You should pay as much attention to your “dropouts” as much as your “frequent flyers.” With the kind of customer counts you are talking about you should be trying to e-mail/IM/Skype/call as much as construct a survey. Even up to a 100 or so early users you want to be as open ended in your data collection as possible.

Don’t Wish For Smarter Customers Or React When They Call “Your Baby” Ugly

It’s easy to become frustrated or wish for “smarter users” when your customers look at the value of your offering differently than you do, or don’t adopt certain features or commands that you thought would be compelling. Sometimes it can help to have a third party interview customers and non-customers as they will have less of a “you are calling my baby ugly” reaction.

One thing to focus on as you scale up and add more prospects is how your existing customers invite new folks to evaluate your offering. What is the value they promise if someone new adopts: this “language of referral” is extremely important. You should probe for it in your conversations and incorporate it into your messaging. It can help you to identify distinct types or segments of users who get different kinds of value from your offering.

Maximize Learning by Being Efficient With Customer’s Time

The temptation as engineers is to look for a technology solution that’s efficient with your time, but surveys and the like to channel answers along pre-determined paths. This can cause you to overlook real benefits, and real problems, with your product–especially on the part of your early customers.

See also

Julian Fellowes on Persistence, Getting Started, and Logical Consequences

Written by Sean Murphy. Posted in Quotes, Rules of Thumb

I was doing some background research on Julian Fellowes after listening to his screenwriter’s commentary on the Gosford Park DVD and came across three quotes that you may find useful as an entrepreneur.

The first two are in response to Leilah Farrah’s questions in an interview in the Wednesday June 25, 2003 edition of the Scotsman.

Q: What do you wish you had learned at school but were not taught?

A: […] the real gap in my education was not a failing of my school, but of my period. The 1960s pretended that everyone had years and years to decide what to do with their lives and they should go off round the world and find themselves and all that. As a result, an enormous number came to their chosen professions too late to make a mark in them. You still see them wandering around Chelsea in leather jackets with long, thinning hair, casualties of the lie that there was plenty of time.

This echoes Thomas Szasz’s observation that “People often say that this or that person has not yet found himself. But the self is not something one finds, it is something one creates.” I think the best way to prepare for an entrepreneurial career is to start or take part in a new business.

Q: What is the single most important lesson you have learned outside of formal education?

A: That the key ingredient of success is persistence. And luck, of course. I am happy to help people these days, if I can, but I try to help only those who are persistent and determined. I know the others will not make it no matter how much help they are given.

The ability to persist and maintain your focus is one of the key ingredients of a successful entrepreneur’s approach to a new business. The ability to understand, anticipate, and accept the consequences (and the risks) of a decision are the key to prudent risk taking, another requirement for success in a startup. Bella Stander interviewed Fellowes in the Book Reporter on February 18, 2005 and asked him

Q: Americans believe in second chances, in starting over. Miss Manners recently wrote, “This country was founded by people who weren’t doing well at home.”

A: The notion that you can get a facelift and be 33 again is a false one. You have to take the consequences of your choices: That’s the one you married; that’s the mother or father of your children; this is the career you chose; you have to make this career work for you. You can’t spend the rest of your life regretting that you didn’t go to med school. You have to have the strength to realize and accept when there isn’t still time. I’m all for doing something for yourself and not allowing other people’s expectations to steamroll you, but you should choose something where you have a reasonable expectation of fulfillment.

The concept of accepting the consequences of your decisions is echoed by Thomas Huxley and Robert Ingersoll:

“Logical consequences are the scarecrows of fools and the beacons of wise men.” Thomas Huxley

“In nature there are neither rewards nor punishments; there are consequences.” Robert Ingersoll

Kierkegaard on the Art of Helping Others to Understand

Written by Sean Murphy. Posted in Books, Quotes, Rules of Thumb

Soren Kierkegaard (1813-1855) was a prolific and seminal Danish religious author who wrote using pseudonyms across a range of subjects. After his death “The Point of View for My Work as an Author” was published. Chapter A2 opens with a very useful prescription for effective sales. You need to start from what Jack Carew in “You’ll Never Get No For an Answer” calls the operating reality of the person you are trying to convince.

Abraham Lincoln, an American president contemporary (1809-1865) with Kierkegaard, expressed a similar sentiment when he said

“When I’m getting ready to reason with a man, I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say.”

Here is the opening paragraph to Chapter A2 from Kierkegaard’s Writings, Volume 22 translated by Howard V. Hong and Edna H. Hong, reformatted so that the opening paragraph has added line breaks to make some key thoughts stand out.

If One Is Truly to Succeed in Leading a Person to a Specific Place, One Must First and Foremost Take Care to Find Him Where He is and Begin There.

This is the secret in the entire art of helping. 

Anyone who cannot do this is himself under a delusion if he thinks he is able to help someone else. In order truly to help someone else, I must understand more than he–but certainly first and foremost understand what he understands.

If I do not do that, then my greater understanding does not help him at all. If I nevertheless want to assert my greater understanding, then it is because I am vain or proud, then basically instead of benefiting him I really want to be admired by him.

But all true helping begins with a humbling.

The helper must first humble himself under the person he wants to help and thereby understand that to help is not to dominate but to serve, that to help is a not to be the most dominating but the most patient, that to help is a willingness for the time being to put up with being in the wrong and not understanding what the other understands.

Whenever a client says “I need smarter prospects” I am reminded by Kierkegaard’s “But all true helping begins with a humbling” that the real problem is probably with a lack of understanding of the prospect’s operating reality. Stephen Covey also captured this in the fifth of his Seven Habits

“Seek first to understand, then to be understood.”

Two of my favorite short quotes by Kierkegaard are

“Life can only be understood backwards; but it must be lived forwards.”

“Our life always expresses the result of our dominant thoughts.”

Pixar’s Ed Catmull Highlights Value of Post Mortems

Written by Francis Adanza. Posted in Events, Rules of Thumb

The Annual Stanford Entrepreneurship Conference featured Ed Catmull, co-founder of Pixar Animation Studios, as its keynote speaker. Ed gave a great presentation on lessons learned from structurally organizing a company for effective communication across its departments.

In the beginning, Ed believed they had created a very strong culture at Pixar. They had paired up programmers and animators as peers. Other companies had one group clearly dominant: either a technical culture or an animation culture. He believed that the artists, the technical people, and the production managers were all interacting well. He felt that it was a fun, energetic, and social work environment. Pixar’s open door policy of “necessary honesty” meant anyone could talk to anyone at anytime.

In actuality, this was far from the truth. After Toy Story’s great success, Ed called for a company post mortem. He discovered that there were major disconnects among different staff members. The artists and the technical people felt like the production managers got in the way and slowed down production. The production managers felt like they were treated as second class citizens.

Ed asked himself how he had missed these problems and came to the conclusion that Pixar’s success had masked them. Ed found out that the production managers put up with the situation because overall they loved working on a ground breaking project with a great leader. Ultimately if the project was not so productive and rewarding, he would have lost some valuable employees along the way. Ed key insight was that

Often, companies tend to focus on “what’s working” vs. trying to figure out “why is this not working?”

This is why the post mortem is so important. Pixar has incorporated the post mortem process at the end of every project. The challenge is getting each person to be completely honest and share intimate details about their experience. The post mortem is a grueling process that everyone hates. For the most part everyone is tired, burned out, and has no patience to reflect on everything that has gone wrong. The things that went well are usually obvious so they spend a majority of the time trying to figure out what needs improvement

Beyond Google: A9, Citeseer, and Krugle

Written by Sean Murphy. Posted in Rules of Thumb

I had lamented that I always Google too late, but lately I’ve been getting better. Here are some tools to use beyond Google and LinkedIn for searching for different kinds of specialized information.

A9 let’s you search the contents of any books that Amazon carries, all of Amazon, and another 500+ specialized information sources.

Citeseer, which seems to me to be more useful than Google Scholar, searches scientific and academic papers.

Krugle searches code examples and some related technical references.

3 Ways to Build Credibility with Prospects

Written by Theresa Shafer. Posted in Consulting Business, Rules of Thumb, Startups

Here are three ways for building credibility.

  1. Referrals
    A referral is an introduction to a prospect with an endorsement. A referral allows you to borrow credibility from a trusted third party. They spring from shared success with your customers or former co-workers, someone who knows your potential and can vouch for you or your team’s ability to deliver. Meaningful referrals do not originate from a casual contact, someone you have met and spoken with only a few times: without a history of shared success they cannot substantiate your ability to deliver value.
  2. Speaking Engagements
    As soon as you are in the front of the room doing the talking, most people in the audience will give you the benefit of the doubt as a credible expert. Obviously once you open your mouth you can rapidly undo that perception. A successful speaking engagement combines a clear presentation of your thoughts not only in a strong narrative on a topic that’s of use to potential customers, but also in your answers to real questions from the audience.
  3. Writing Articles
    It may be easier to communicate your knowledge of your prospect’s issues in writing. Especially if you are someone like me who doesn’t enjoy public speaking you should work at the craft of clear business and technical writing. Most articles these days are presented on a website (e.g. blog entries like this one) or in an email newsletter. In either case you should consider writing in HTML and adding links to provide substantiation of your key citations.

People Manage People, Tools Manage Data

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

This was a principle for systems design suggested in a talk I heard 15-20 years ago. I can no longer remember the speaker’s name but I remember that he was in the disk drive business. Google has proven unavailing in sourcing it so it was probably an original insight with this engineer that hasn’t gained wider currency.

It should. People Manage People, Tools Manage Data

When I went back to Cisco for my second tour of duty in 1998 (I had been there from 1990 to 1994; the second time I was able to last until mid-2003 before I went back to being an entrepreneur) I was surprised at the number of workflow systems that were being designed and deployed to limit input and decrease options that could be requested. People were instructing IT to design interfaces that would do things they would never be so rude to do face to face, in e-mail, or over the phone. The designers were always surprised when they (or their management chain) continued to get e-mail and phone calls because people wouldn’t limit themselves to the options on the web form.

These were workflow systems and request tracking systems for what had been negotiations. So what’s my point? Anytime you set out to manage employees, partners, or customers with inflexible systems to channel their activities don’t be surprised when it doesn’t quite work out like you planned.

I am a huge fan of defect tracking systems, source code management systems, and any tool that allows you to get a better handle on the data thrown off by your actions. But be careful of trying to use software to “manage people.”

Winston Churchill observed that “We shape our buildings, and forever afterwards our buildings shape us.” So it is with our internal control and scorekeeping mechanisms. Be careful not to abdicate your responsibilities here.

Tips for Hiring (and Firing) a Sales Person

Written by Sean Murphy. Posted in Events, Rules of Thumb, skmurphy

I had the good fortune to attend the SVASE CXO Forum Dec-6-06 where Peter Bakonyvari, Vice President of Sales at JPMorgan SymPro, explored some of the practical realities in building a sales team. In particular what is involved in hiring and firing a sales person.

First 90 days Is Critical

Bakonyvari’s made the point that the first 90 days were critical for determining whether a new sales hire was successful. It is important to set realistic  expectations, put them in writing, and focus on shared success metrics that are easy to measure and agreed to by the salesperson. He offered the following timeline as a basis for getting up to speed on a complex product:

  • 30 days: learn product and be able to communicate value
  • 60 days: start calling and get in front of prospects, start pipeline
  • 90 days: should have prospects who are developing

He shared that he was able to hire successfully about 50% of the time and that is was important to cut losses (“take no prisoners”) and not accept excuses after 90 days.

Three Simple Tests Before You Hire

James Connor, who runs the SVASE CXO forum, offered three simple tests that any sales candidate should be able to pass before being hired.

  • Show me a spreadsheet that demonstrates the ROI for a product.
  • Write me a short article on something you know about.
  • Call me and speak on the telephone.

If the candidate doesn’t have some facility with Excel, writing ability, and good telephone skills, then you should think very hard about extending an offer.

Comments From The Audience

  • Be careful of a VP of sales from a large company as your first hire: if you want someone who will “get out there.” You’ve hired a general when you need a soldier.
  • Understand when you need a business development person instead a sales person. A sales person needs a stable product with a proven sales process and works with a quota. Business development creates new opportunities and is measured on the markets that are identified that can be exploited.
  • Some sales hires will just work for base as long as you let them.
  • The marketeer makes the phone ring then sales guy answers it
  • It can be useful on a larger team to have someone who can cold call and generate leads
  • Expect to spend more than $100K in base for an enterprise sales person, don’t expect to find anyone worth hiring who will work on 100% commission.

You Need to Be a Little Crazy

Written by Sean Murphy. Posted in Books, Quotes, Rules of Thumb, skmurphy, Startups

Theresa heard a radio interview with Barry Moltz in 2003 and suggested that I get his book. In December 2003 I purchased a copy of You Need to Be a Little Crazy and when it arrived from Amazon I put it on my to-be-read pile where it languished until early this morning when I read it in one setting, making notes in the margin and jotting down page numbers for quotes I was going to harvest for later re-use on a 3×5 card as I read.

12 Books For the Busy CEO Tonight (Mon Dec-11-2006) @ SDForum

Written by Sean Murphy. Posted in Events, Rules of Thumb, skmurphy

12 Books For the Busy CEO: spend an hour and leave with a summary of key marketing insights and some rules of thumb for successful innovation in Silicon Valley. You might even identify one or two books that you haven’t read that will be worth your time over the Christmas holidays. I will cover twelve books that form the basis for conventional wisdom in Silicon Valley for marketing discontinuous or disruptive products.

Going Pro

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy, Startups

Some key points to remember as you ask folks in larger firms to take a risk with our new offering or service. They are from an early 1990’s article entitled “Going Pro” by Asa Barber.

Life in most business organizations is like life in a submarine.
For those of you who find yourselves in an office environment, understand that it is, by definition, a closed environment. Take note of how you conduct yourself. Do you talk too loudly? Are you argumentative to a fault? Do you wear well as an office companion? Do you think of the needs of others? […]

Life in most business organizations is like life in a Medici court.
The spirit of Niccolo Machiavelli lives in every business culture. There are political alliances and power shifts. There are assassinations and misdemeanors. There are those who are in, and those who are out. It is life on the refined edge of risk and reward. So play your cards like a careful courtier. Especially when you are beginning your career. Whom can you trust? Who wants help you and who wants to impede your progress? Better bide your time and keep your own counsel. And finally, don’t try to be too special or too unique in order to get noticed. Remember the advice of good old Niccolo:

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”

Employees in a large firm have to live with the consequences of failure in ways that can be more harsh than the effect the same failure has on your startup. It’s important to bear in mind that you can put a dent in someone’s career and while you may have opted for the entrepreneurial adventure, they don’t want to wander too far off their career path.

Also, startups are like mini-subs, very intense pressure cookers that require a high tolerance for stress induced behavior–and hopefully the ability to minimize the impact of stress on your own actions.

Thinking like a professional means sticking to basics.
The basics are founded on common sense, and they include: being on time, never missing a deadline, talking when spoken to, shutting up when not spoken to, being honest about expenses and other funds, giving your time and energy to the job without reservation while you are on the job, showing consideration for your colleagues, seeking solutions not perpetual conflict–and last but not least, being willing to go out on a limb and push for an idea you truly believe in…

I sometimes meet folks who think that being in a startup exempts them from most of the rules of business etiquette. It’s a mixture of “leading the revolution” that will sweep away all of the current practice and being clearer on their own short term needs without consideration for potential consequences. And let’s face it, many people join startups because they can’t fit in at larger firms for reasons that encompass a multitude of strengths and shortcomings.

I still prefer the challenges of aligning founders’ psychology with business reality to the need to navigate the complex political landscape–come join the kabuki–of most large firms. I say this as a former flying monkey for several evil emperors (it’s not just wicked witches who need flying monkeys) who never wanted to move up to samurai because the ronin retirement policy was a little too much to take in the event of the untimely demise of your shogun.

See the terrain from the point of view of your boss.
This is both an opportunistic and a humane approach to the workplace. Your boss, no matter his or her deficiencies, is not your enemy. Your boss has to get a job done. So before you decide that your boss has no grasp of the territory, you should at least know how territory looks from the executive suite. You might be surprised. If you put yourself in the shoes of your superiors, will learn a lot about their expectations of you. And, if you know what they expect of you, you can get the job done.

It’s also good advice to understand the situation from your prospect’s boss’ perspective. And if your prospect can’t explain the boss’ perspective, they may not prove to be that effective an internal champion or change agent.

Lao-tzu gives outstanding advice:

“He who knows others is wise; he who knows himself is enlightened.”

“To know that you do not know is the best. To pretend to know when you do not know is a disease.”

“The way of the sage is to act but not to compete.”

“When armies are mobilized and issues are joined,
the man who is sorry over the fact will win.”

Time is worth much more than money, so don’t waste it
your own or anybody else’s…the true professional guards his time. More important, he doesn’t steal time from others. His written memos are brief and to the point, his phone conversations are neither chatty or windy, his statements in meetings are compact and organized. Few things can get you fired faster than a selfish use of someone else’s time.

And few things make it very hard to get a meeting with someone, even if you are now in a different company, than asking for a 30 minute meeting to offer a briefing on your offering and arguing with a prospect for more than an hour. Ask for 30 minutes and be prepared to be packed up heading for the door at the 25 minute mark if your prospect is not interested or doesn’t see the value in your offer.

The professional mind-set is built on common sense, rationality, cold logic, and a shrewd understanding of the business process.
On the battlefield and in the marketplace, our emotions are perpetually attacked, manipulated, courted, and torn. But the real professional is the person who can overcome all of the glitter and distraction, all of the melodrama and posturing. The true pro stays within himself, analyzes the chessboard, thinks ahead, stays cool and keeps this constant mind: Just get the job done.

This is a tough one, but making and meeting commitments that create value for your customers is what gets remembered (of the positive things that get remembered).

Nesheim vs. Cowan on Bootstrap Economics

Written by Sean Murphy. Posted in Rules of Thumb, Startups

John Nesheim, author of High Tech Startup, has been blogging for a little over a year. His most recent post, just before Thanksgiving, gives his perspective on bootstrapping

BOTTOM LINE: Bootstraps are difficult to do. A few rare ones become giants (Dell). Most struggle and remain small, or go out of business. Buyers of such companies normally do not get rich. Think about it before you start off to do a bootstrap. The romance can quickly become a diet of stress and just plain hard work. They rarely can build an unfair advantage that converts them into amazing successes.

Wow. So venture backed startups must be easier, involve less struggle, and normally allow the founders to get rich. Of course the example he cites is a one man company selling cell phone games to the large American telco’s who are slow paying him because they can! I would think there are a number of other markets that aren’t quite so characterized by oligopsony (i.e. a market with so few buyers that they can set prices and other purchasing terms and conditions). But it doesn’t appear that he has done anything to preclude seeking at least angel funding, I don’t see why the choices are only to bootstrap on, or sell out, especially when he is anticipating revenues of 300K in the following year.

For another perspective we need to go back two weeks to David Cowan’s post “Get Big Cheap” (ellipses and hyperlinks added)

Consumer ventures used to burn so much time and money that most high tech entrepreneurs focused on carriers and large enterprises. […] Seduced by the proposition that more capital up front would buy branding and accelerate distribution, many venture investors bought into Neil Weintraut’s motto GET BIG FAST.

Wait a minute, in Lighting the Way for Your Competitors I attributed this motto to DFJ (and certainly item 4 in their investment philosophy seems to incorporate this injunction, albeit less succinctly; item 6 hits the same note again in case you missed item 4). But in a Business Week article on December 4, 1995 entitled “The Software Revolution” Neil Weintraut, then at Hambrecht and Quist, is quoted as saying

“The marching orders are: Get big fast, subjugate profit–even revenues. Just get your product out there.”

So he was also saying it as well. Cowan continues:

We all know how that turned out. No matter how proven a team may be, they still can’t predict consumer behavior, and so we spent about $30 billion acquiring eyeballs for web sites of dubious value, and when the capital dried up, so did the businesses.

But today, entrepreneurs have the opportunity to launch web sites so rapidly into a market that adopts technology so quickly, that with some iterative tweaking and feedback from users they can test their ideas in months, and on a shoestring budget. Without the need for capital, they needn’t sport a proven track record of success, and so many many more ideas can be tested, and the winners can come out of nowhere, from anywhere on earth. With the right user experience, the best innovations can attract 50 million users in their first year of general availability, as proven by Skype, Firefox, Wikipedia, YouTube and MySpace.

And so the winning recipe today for aspiring entrepreneurs is GET BIG CHEAP. Don’t waste expensive development on untested ideas, and don’t let a fat marketing budget mask a weak value proposition. If instead you tinker your way to scalable organic growth, you’ll have a valuable business on your hands. Don’t worry about how long it takes—just make sure your burn rate is low enough to accommodate several cycles of iteration.

There’s never been a better time to start a company. Find a community underserved by technology – be they disenfranchised American teenagers, bored commuters in Asia, or small business advertisers in Europe – and repeatedly craft a better user experience for them until you GET BIG CHEAP.

My personal bias is for bootstrapping as long as possible until you have met with an unexpected success that indicates your business would benefit from additional capital to exploit the opportunity you have uncovered.

Bruce Mau’s Incomplete Manifesto for Growth

Written by Sean Murphy. Posted in Blogging, Rules of Thumb

Bruce Mau wrote 43 statements in 1998 to articulate his beliefs, motivations, and strategies in what he called “An Incomplete Manifesto for Growth.”

His focus is on “growth” in the sense of increasing both craftsmanship and artisanship. I have selected eight that I think are are the most applicable to folks in software startups. I kept the numbers from the original, adding comments and some hyperlinks not in the original because that’s what bloggers do.

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