Tools for Buzzword Compliant Business Models

Written by Sean Murphy. Posted in 1 Idea Stage, skmurphy, Tools for Startups

First there was Dack Ragus‘ (@dack)Web Economy Bullshit Generator.” He started with sketches (“Kinda like Da Vinci’s sketchbook, except for bullshit”): “I made this massive list of potential bullshit terms while sitting on Miami Beach in January, 2000. Add a little JavaScript and it turned into the Bullshit Generator.” The archives of dack.com are also worth a peek.

At about the same time 37Signals launched with a manifesto and the e-NORMICOM parody site of the dotcom branding process for naming, logos, and taglines.

Then Stavros the WonderChicken (@wonderchicken)–no I cannot find his real name–did the “Web 2.0 Bullshit Generator™” noting that ”Profits for your Web 2.0 company are not guaranteed.” It’s funny how that has not changed with firms like Box and Dropbox competing in some oddly configured on-line potlatch designed to provided services at a loss in exchange for new investment at ever increasing valuations.

Andrew Wooldridge launched Web Two Point Oh! to help with naming as well.

Stavros later lamented in “Lomans not Shamans” at what the Web had become: “My god, it’s full of ads!” Here I think his anxiety was misplaced: most new media is advertising supported; the original newspapers were simply classified ads that gradually added news items to differentiate themselves.  Stavros references “What Puts the ’2′ in Web 2.0” by Brandon Schauer who was inspired by “Design Patterns and Business Models for the Next Generation of Software(2005)” by Tim O’Reilly and John Batelle. They followed up in 2009 at the Web 2.0 Summit with  ”Web Squared: Web 2.0 Five Years On” (see also the white paper: “Web Squared: Web 2.0 Five Years On” [PDF]).

Next in 2010 the Lunatech Ventures team launches  PlanCruncher as an attempt to compress a business plan into a single page using a couple icons. From their About Page:

“Plan Cruncher creates a standard one-page summary of a business plan for a start-up company that is looking for external investment. You do this by choosing icons that represent some of the standard answers that a business plan must provide.

Why investors want entrepreneurs to use Plan Cruncher:  Plan Cruncher saves investors’ time. To investors, business plans all look more or less the same, which is not necessarily a bad thing, and they are always too long, which is. Before an investor decides to wade into your ten or twenty-page document, he wants straight answers to a few basic questions about your plan.

Plan Cruncher generates a standard one-page summary that investors can use to screen business plans and compare them to each other.”

I don’t believe Plan Cruncher is a parody site, I listed in in my roundup of Business Model Canvas tools.

And in 2012 Norman Clarke (@compay) has launched Bullshit 3.0: Bleeding Edge Bullshit Generation in the Cloud which embeds the ability to launch a Google search for your tagline to see if it’s already real.

I still find the 1999 Clue Train Manifesto a useful guide to marketing: it’s argument for real conversation between individuals is as compelling now as it was 15 years ago. Business models have changed with the advent of new technologies and many of these sites are parodying two real needs that every entrepreneur must satisfy: a succinct and comprehensible explanation of their product benefits to customers and a compelling description of their business model to investors.

 

 

 

Q: We Already Have a Prototype, Can We Still Do Customer Development?

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, Design of Experiments, skmurphy

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:

linear
Standard sequential pivot approach:
pivot
His recommended approach:
recommended

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.

John Gardner: Leaders Detect and Act on the Weak Signals of the Future

Written by Sean Murphy. Posted in 1 Idea Stage, 5 Scaling Up Stage, skmurphy

Some excerpts with commentary from “On Leadership“  by John W. Gardner.

There is such a thing as the “visible future.” The seedlings of [future] life are sprouting all around us if we ahve the site to identify them. Most significant changes are preceded by a long train of premonitory events. Sometimes the events are readily observable.”
John W. Gardner “On Leadership”

Marcelo Rinesi advised “the future is an illusion, all change is happening now” and Peter Drucker told us to “systematically identify changes that have already occurred.” From an entrepreneurial perspective you can often transplant a solution from one industry to attack a similar problem in another: as William Gibson suggests, “the future is already here, it’s just unevenly distributed.” This model for innovation brokerage requires that you be open to new solutions to old but pressing problems and that you scan more broadly to find them. Gardner offers his own explanation for why opportunities are overlooked:

“…the future announces itself from afar. But most people are not listening. The noisy clatter of the present drowns out the tentative sound of things to come. The sound of the new does not fit old perceptual patterns and goes unnoticed by most people. And of the few who do perceive something coming, most lack the energy, initiative, courage or will to do anything about it. Leaders who have the wit to perceive and the courage to act will be credited with a gift of prophecy that they do not necessarily have.”
John W. Gardner “On Leadership”

There is always a value in closing the deals that are in front of you and making this month’s payroll. But there is a risk in getting caught in the treadmill of the urgent. Gardner offers a prescription for leaders and leader/managers to differentiate themselves from managers trapped in the immediate crisis.

  1. They think longer term—beyond the day’s crises, beyond the quarterly report, beyond the horizon.
  2. In thinking about the unit they are heading, they grasp its relationship to larger realities—the larger organization of which they are a part, conditions external to the organization, global trends.
  3. They reach and influence constituents beyond their jurisdictions, beyond boundaries. In an organization, leaders extend their reach across bureaucratic boundaries—often a distinct advantage in a world too complex and tumultuous to be handled “through channels.” Leaders’ capacity to rise above jurisdictions may enable them to bind together the fragmented constituencies that must work together to solve a problem
  4. They put heavy emphasis on the intangibles of vision, values, and motivation and understand intuitively the non-rational and unconscious elements in leader-constituent interaction.
  5. They have the political skill to cope with the conflicting requirements of multiple constituencies.
  6. They think in terms of renewal.

John W. Gardner “On Leadership”

I think this is a good list, even for bootstrappers who are worried about keeping the lights on this month. You have to devote 10-20% of your time to problems in the longer term, and connections and initiatives that may not bear fruit next week but perhaps in three months or a year or two. The last suggestion, to consider how to renew skills, relationships, and shared values, is also a critical one for the long term.


More on Drucker’s suggestion for sources for innovation:

“Innovation requires us to systematically identify changes that have already occurred in a business — in demographics, in values, in technology or science — and then to look at them as opportunities. It also requires something that is most difficult for existing companies to do: to abandon rather than defend yesterday. ”
Peter Drucker in “Flashes of Genius

Discovery Kanban Allows Firms to Balance Delivery and Discovery

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Design of Experiments, Video

I believe that Patrick Steyaert’s Discovery Kanban offers critical perspective on how large organizations can foster the proliferation of Lean Startup methods beyond isolated spike efforts or innovation colonies.

I think Patrick Steyaert has come up with an approach that builds on what we have learned from customer development and Lean Startup and offers an orchestration mechanism for fostering innovation and operational excellence. I think  this will prove to be a dynamic approach to managing innovation that will be as significant as Saras Sarasvathy’s Effectuation, Christensen Innovator’s Dilemma and Innovator’s DNA, and Ron Adner’s Wide Lens. I believe it’s going to become part of the canon of accepted principles of innovation because it offers not only a way to frame the challenge of balancing discovery and delivery, but a mechanism for planning and managing them in parallel.

Discovery Kanban is a synthesis of a number of distinct threads of entrepreneurial thinking–Lean Startup, Kanban, OODA, PCDA, and Optionality–into an approach that helps firms address the challenge  of executing and refining proven business models in parallel with exploring options for novel business opportunities. The reality is that you have to manage both current execution and the exploration of future options whether you are in a startup that is gaining traction and needs to develop operational excellence (or an innovation colony that now wants to influence the existing enterprise) or and enterprise that needs to avoid the “Monkey Trap” of escalating investment in a business model that is reaching the end of life instead of parallel exploration of a number of options for new business units.

At the extremes startups are viewed as scout vehicles–suitable for exploration to find sustainable business models–and established enterprises are viewed railroads, very good at moving a lot of cargo or passengers along predetermined paths. The reality is that almost all businesses need to manage both excellence in execution while not only keeping a weather eye on new entrants fueled by emerging technologies and disruptive business models but also exploring for adjacent markets that can leverage their established competencies and new competencies required by current customers.The Lean Startup and Customer Development models have fostered a broad understanding of the need for iteration and hypothesis driven product probes. Kanban models have shown the value of making work visible to enable the shared understanding that makes cultural change possible.

A Simple Checklist for Introducing a Collaboration Application

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage

We work with several teams who have launched or are launching an application that makes a team or group more productive.  Here are a couple of suggestions for things to consider.

Be compatible with the status quo if at all possible

  • Collaboration or workflow applications that require at least two people to adopt in order to realize productivity benefits are very challenging to introduce.
  • It’s certainly been done: fax, email, CRM systems. But the list of failures is much longer.
  • Find a way to provide a single individual with a productivity bonus that is backward compatible with existing workflow (e.g. email, CRM, wiki, website, …).

Use your team as a case study

  • Is your startup using the tool for collaboration? If not, why not?
  • What no longer happens that used to happen before you started relying on the application?
  • What can you now do using your application that you could not do (or only do with great difficulty) before?

Have conversations before putting up a landing page

  • What have you learned from your conversations with prospects?
  • What problems or needs do you probe for?

Use your team as an earlyvangelist

  • What problems or need or recurring situation led your team to develop your application?
  • What alternatives did you try to do before you developed your application?
  • Why were they unsatisfactory? What was missing or still too difficult?

Listen carefully to your early adopters

  • What do your early adopters tell you that they like about using the service?
  • What benefits does it provide them?
  • What do they still see as missing?
  • Ask what three features they would demo either to other similar teams or to others in their company.

Understand why some teams failed to adopt your application

  • Teams that don’t try it may give you reasons, and these are worth listening to.
  • Pay close attention to teams that gave it a fair trial and decided not to go forward. Their rationale is absolutely worth addressing.

If you are working on a collaboration application for business and are having difficulty getting traction, please free to schedule office hours and we can design some experiments to explore your situation, see “We help you design experiments that move your business forward.

 

Successful Bootstrappers Are Trustworthy Salespeople Committed to Customer Satisfaction

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, Funding, Sales

Start with what you’ve got: you have an insight into an opportunity, a marketing edge, a particular problem where you’re going to bring distinctive value.

Don’t wait to get started until an investor tells you there is a market and they will invest. An investor cannot validate whether there’s a market or not. Worse, the process of seeking investment rarely teaches you more about customer needs.

The converse is even more important: don’t be dissuaded if an investor does not believe that there is a market.

It’s OK to ask your friends if it’s a good idea. But sometimes they will tell you they like the idea just so that you will stop talking about it and get out of their living room or office.

And again, if they don’t think it’s a good idea you should weight their perspective by whether they are a prospect or not.

Which ultimately means that you have to build a minimum viable product and start selling.

When a prospect tells you that they have problem that you want to solve for them, that’s good. When they write a check or give you their credit card, that’s validation.

But just because they have quantified their love for your idea it doesn’t mean that you are done. You need to follow through and see that you delivered the benefits that you promised to them.

More bootstrappers go wrong by not conserving trust than not conserving cash. Cash is important, but if you don’t keep your promises you cannot bootstrap successfully.

It’s primarily about selling and customer satisfaction. There may be challenges in building the product or getting it to work reliably when it leaves your hands. But the primary challenge is building something that people will pay for and order again (or extend their subscription) because it delivered the value that you promised.

Many of the people who are attracted to startups are drawn to a technology or a craft or the idea of being their own boss. Those are great reasons to bootstrap.  But success requires developing an empathy and rapport for your customers and delivering value.

The key differentiators are your ability to sell and ensure customer satisfaction.


Conor Neil has a great quote in “If You Can’t Explain what You do in a Paragraph, You’ve Got a Problem” (great title but he admits he cribbed it from Brad Feld)

“I believe the major risk of early stage startups is getting customers to buy, and showing that you can sell.”
Conor Neil

Q: How To Speed Up Early Trials, Adoption, and Sales

Written by Sean Murphy. Posted in 3 Early Customer Stage, skmurphy

Q: I run a SaaS B2B startup that boosts employee engagement by bringing co-workers together for peer-to-peer knowledge sharing. We have an MVP. We have done some customer development interviews and have half a dozen potential early adopter customers. The next step would be to do a free pilot of our product on a subset of about hundred employees at an early adopter company.  Our contacts are enthusiastic about what we do, we have had a couple meetings with each, we are offering discounted pricing, but it’s now been more than four months and none have them have decided to move forward to a pilot and we don’t have a path to a decision. 

How can we speed this up?

A: You can adjust your message (description of benefits for a particular target customer), your criteria for selecting a target customer, or feature set. Normally the cheapest thing to fix is to change the message, second is to pick a new target, and the most expensive is to add features.

A benefit will normally be one of these if you are selling to a business decision maker:

  • reducing an existing cost stream
  • adding new revenue that’s incremental to their current plan
  • managing or reducing a risk that they are concerned about
  • reducing the cycle time for a business critical task or process
  • reducing the error rate for a business critical task or process

You need to pay particular attention to:

  • How will you measure the before and after?
  • Who signs the check and how do they benefit?
  • There is no such thing as a free trial, there is always opportunity cost for everyone involved.

I am a huge fan of “peer to peer knowledge sharing” but it sounds more like a method or management practice than an application. I suspect you need to connect the dots more directly to a business payoff or the specific business problem you believe that this will help them address. Can you give them a better diagnostic–offer more proof based on data from their operation–on the scope of the problem you are offering to solve for them?

A hundred people is a large number to involve in an early pilot. Can you show results with a small group of four to six? You don’t have to stop there, you can make that the first phase of the pilot, but you can use the small core group to encourage others to adopt within the organization and ultimately get to your target group of a hundred in three or four steps.

There is a temptation to increase the size of the promised benefit if the prospect is wavering, it’s often better to focus on a faster benefit even if it’s smaller. Time to positive impact is a good proxy for a prospect’s estimate of the amount of risk involved in a new tool, process, or methodology. I did a video chalk talk on this at  you may find useful.

Several meetings and no decision to go forward is a polite no.

Q: What if we played hard to get and told our prospects that we have limited resources and with other firms asking to get in we have to decide who to start this month?

I see several problems with this. You reinforce that you have limited resources which may make them question you ability to support them if they decide to go forward.  Also, if you are talking to bona fide early adopters this is can backfire very badly. While this “velvet rope marketing” model seems to employed by some B2C marketing folks, in my experience it does not work well and will turn off the change agents you are trying to reach. They want to be sure that you understand the risk you are asking them to take and will be there to support them to a successful conclusion. A message that you are unable to provide support when you are just getting started will make them very leery of placing a bet on you.

A better message would be based on the impact adopting you offering will have on their business. Make that your forcing function. For example, every month you delay you spend this much on workarounds or errors or forego this much revenue because you are not capitalizing on this capability. What is the cost of leaving things the way they are for another month? Make that a reason to change, not your impending inability to support them.


Related blog posts

Update July 16: This post was highlighted in Foundora Issue 333

Dan Scheinman’s Blue Ocean Venture Strategy: Target Entrepreneurs Over 35

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Funding

Dan Scheinman (@dscheinm) graduated from Duke Law School in 1988  and went to work as an associate at DLA Piper  before joining the Cisco legal department. Once inside he worked his way up to General Counsel, then ran corporate development which included managing minority investments and acquisitions, and finally was general manager for Cisco’s Media Solutions Group before striking out on his own in 2011 as an Angel investor with an unusual–for Silicon Valley–investment thesis: supply “seed plus” financing to entrepreneurs with track records (another way of saying “over 35″). From his Angel List profile:

I am looking to fund great companies who are going to run out of seed money but are not ready for the A round yet. Operationally useful (helped Cisco go from 80M in sales to 40B), but also useful at ground zero. Invested/on boards at Tango, Arista, Zoom and more. To date, have funded 7 companies.

Sarah McBride profiled him in December 2012 with “Moneyball, valley-style: Investor uses age bias to advantage, funds older entrepreneurs,” noting:

When he started looking around for start-ups in which to invest, Dan Scheinman noticed something: twenty-something entrepreneurs building Internet companies usually had a much easier time lining up early financing from venture capitalists compared to their forty- and fifty- something counterparts.

Age bias, increasingly acknowledged as a widespread phenomenon in Silicon Valley, has created opportunity too. “I was so excited you would not believe when I saw the pattern,” Scheinman, the former head of mergers and acquisitions at Cisco Systems (CSCO), recalls.
[..]
Scheinman generally invests $50,000-$250,000 as part of a $1-$2 million funding round. He takes an active role, helping to line up other investors, generally taking a board seat, and providing strategy advice. Scheinman says he is pro-entrepreneur, no matter the age, but finds it easier to invest off the beaten track.

Scheinman elaborates on his strategy in a January 2013 profile by James Grundvig: ” ‘Moneyball’ Comes to Silicon Valley: What Technology Investor Dan Scheinman Sees

“Venture capitalists of Silicon Valley won’t invest in founders who are more than thirty-five years old. They don’t do it. Knowing that, I look at being a contrarian — an opportunist — to find opportunities where the herd isn’t,” he said.

“A typical venture capital firm will look at 1,000 business plans each year. They will invest in fifteen of them. They are trained for pattern recognition. By reviewing so many (startups) they see common patterns on which type businesses should succeed,” Mr. Scheinman said. “But there’s a problem.

“I sat on a venture capital pitch before. Some entrepreneurs don’t pitch well. But instead of engaging them, those in the room looked away. I realized I had to go to the source and ask questions. Go deep. Assume nothing. Look beyond the pattern for bigger returns,” he answered. “Like in Moneyball, I look out of pattern. That includes founders who are more than thirty-five years old.”

Noam Scheiber also talks to Scheinman as part of his research on “The Brutal Ageism of Tech:Years of experience, plenty of talent, completely obsolete?”

Though he had ascended to head of acquisitions at Cisco during his 18-year run there, he always felt as if his quirkiness kept him from rising higher. His ideas were unconventional. His rhetorical skills were far from slick. “I’m a crappy presenter,” he told me. “There are people in a room whose talent is to win the first minute. Mine is to win the thirtieth or the sixtieth.” Back in the early 2000s, he proposed that Cisco buy a software company called VMware. It did not go over well. “Cisco is a hardware company,” the suits informed him. Why mess around with software?

Most Silicon Valley investors, he came to believe, were just like the suits at Cisco: highly susceptible to “presentation bias” and, as a result, prone to shallow conventional thinking. “Paul Graham”—the founder of Y Combinator, the world’s best-known start-up incubator—“says the most successful [investor] makes his decisions in twenty-four hours,” Scheinman told me dismissively. It was time to set off on his own.

The only question was what to invest in. “I could see the reality was I had two choices,” Scheinman told me. “One, I could do what everyone else was doing, which is a losing strategy unless you have the most capital.” The alternative was to try to identify a niche that was somehow perceived as less desirable and was therefore less competitive. Finally, during a meeting with two bratty Zuckerberg wannabes, it hit him: Older entrepreneurs were “the mother of all undervalued opportunities.” Indeed, of all the ways that V.C.s could be misled, the allure of youth ranked highest. “The cutoff in investors’ heads is 32,” Graham told The New York Times in 2013. “After 32, they start to be a little skeptical.”

I think the idea of working with older investors on seed plus gives Scheinman several opportunities and creates several risks:

  • Opportunities
    • Longer track records, easier to do due diligence on them as people and managers.
    • Older entrepreneurs may see risks more clearly than opportunities but probably better able to execute in the face of setbacks.  They are probably better able to  dodge some potential setbacks
    • Less competition for the deal, potentially a friendlier or at least less adversarial relationship
    • Funding amount is commonly sought but not often available, less competition more demand
  • Risks
    • Because these are “undesirable” Scheinman will have to help them to transition from “not a good idea” to “numbers are so good how did we miss this.” He will lose the benefit of the doubt going with older entrepreneurs for follow on funding (e.g. an A round after seed).
    • Unless he is “last dollar in” (which may also be deals worth searching out) he needs a clear plan to support the team for what they will need for a follow on “A round” presentation at time of funding.

Related posts

Ten Principles for Trust and Integrity from Adventures in Missions

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Rules of Thumb, skmurphy

I have come to believe that morale or esprit de corps is the critical resource for a bootstrapping team. With it they can persist, blending freelancing, consulting work, customer discovery, product development, sales, and customer support.

The simple view is that you can just focus on one thing at a time–develop a product, market it, refine it, scale up–and that a few iterations will get you there. The reality for most is that it’s much harder and requires perseverance as a team.

The teams that persevere bring complementary skills and shared values to a common effort sustained by trust, shared vision and joint accountability. The first ten principles from  Adventures in Missions focus on trust and integrity,  offering some useful guidelines for building and maintaining trust:

  1. Integrity in an organization is built by developing trust.
  2. Trust is the glue that enables a team to function well.
  3. Trust is built over time through competence, commitment, and care.
  4. Trust is built as we preserve and build the significance of others.
  5. Trust is built through bearing each others’ burdens.
  6. Trust is built through a rapid response to communication.
  7. Trust is built through humility.
  8. Trust is built through personal contact.
  9. Trust is diminished by sarcasm and criticism.
  10. Integrity means making and living up to commitments.

See also “Entrepreneurship is the Launching of Surprises” which explores George Gilder’s essay “Unleash the Mind” and contains this insight that I think I am building on in my focus on morale as the key resource in a startup:

“America’s wealth is not an inventory of goods; it is an organic entity, a fragile pulsing fabric of ideas, expectations, loyalties, moral commitments, visions.”
George Gilder

Bootstrappers Turn Time Into Resources and Possibilities For Customers

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, Rules of Thumb

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:

  1. “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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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:


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.

D. H. Lawrence’s “Escape” Offers a Vision of the Entrepreneur’s Journey

Written by Sean Murphy. Posted in 1 Idea Stage

Escape
by D. H. Lawrence

When we get out of the glass bottles of our own ego,
and when we escape like squirrels from turning in the cages of our personality
and get into the forest again,
we shall shiver with cold and fright
but things will happen to us
so that we don’t know ourselves.

Cool, unlying life will rush in,
and passion will make our bodies taut with power,
we shall stamp our feet with new power
and old things will fall down,
we shall laugh, and institutions will curl up like burnt paper.

The Complete Poems of D. H. Lawrence

Many will also die of cold in the forest, or look around and decide to go back and live in the cage.

Others will decide to build new cages and squirrel wheels.

Not everything that is old will fall down or whither.

But there is a sense of possibility and self-actualization and revolution in entrepreneurship that Lawrence captures evocatively.

Advice on Crowdfunding from Matt Oscamou, Mark Palaima, and Noah Dentzel

Written by Theresa Shafer. Posted in 1 Idea Stage, Crowdfunding, Startups

Here is some advice from a couple of founders that ran successful crowdfunding campaigns:

Matt Oscamou, CEO of Frontier Bites shared at a recent Bootstrappers Breakfast meeting that he ran a successful kickstarter campaign $30K for pay for new packaging artwork and initial order. He found it useful as a way friend and family could help support his effort but he had little donations from strangers.

Mark Palaima, Distinguished Engineer at Avagent, hit their funding goal in the first 5 hours. Most of their donations came in the first two days and spent a great deal of time on a marketing road trip hanging out at tech bars showing off the product. See more about their campaigns at Avegant Glyph Kickstarter Surpasses Stretch Goals Before They’re Made, Try the Glyph in a City Near You 

At a recent SV Hardware Startup to Scale meetup, Noah Dentzel, CEO of Nomad Goods emphasized the importance of getting the word out on your campaign.  He offered the tip of writing article for press and bloggers.  His goal is to make their job easier for them.  He also took advance of holes in press schedules – no shows or other delays. His biggest piece of advise is to go for it, ask, knock on the doors. His biggest surprise was learning all the logistics about shipping and delivering products oversea.  He knows that shipping to S and Russia cost $0.90-1.10.

 

Q: How Much Attention Should I Pay To Potential Competition?

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, Customer Development, skmurphy

Q: When I introduce the idea for my business a lot of my friends are quick to ask: “are you sure there is no one else doing this?” In today’s fast and disruptive business world, I think it is very hard to come up with a business idea that is 100% unique, and utilizes a completely new set of technology features. I constantly find myself arguing that it doesn’t matter if someone else also has the same startup or business idea, it’s how you go about executing your business idea that matters.

What are your thoughts on competitors and how put off should I be when I find out another company has a similar product and mission to my startup?  

Your friends are trying to help you but you may be asking them to comment on a problem where they have little expertise. Evaluating a new business idea is challenging even for professional investors and firms already in the target market–how many times have new entrants been underestimated or new technologies view as far more promising than they turned out to be. It’s a hard problem.

You are being encouraged to look left and right at potential competition, I would try and walk around the table and look at the situation from your prospect’s perspective.

Perhaps a more important set of of question for  B2B are:

  • What is your prospect doing now to solve the problem?
  • Are they satisfied with their current solution or do they still view this a critical business issue?
  • What other solution options are available to them?
  • Which of these other options have they also evaluated and rejected and why have they done so?
  • Are you providing a capability or solution for what they consider a critical need.

Execution only matters in the context of a particular category of customer with a distinct and identifiable problem or need.

Working to develop new capabilities when it’s not clear who will pay for them may give you the illusion of progress for a while but ultimately won’t let you build a business.

My suggestion is to pay close attention when prospects ask you to explain why your product is superior or at least different in some useful ways from what they are currently using or have available to them.

My question is why are you talking to your friends instead of having serious conversations with prospects? What are your prospects asking for or telling you?

Q: Can We Launch First and Ask Customer Discovery Questions Later?

Written by Sean Murphy. Posted in 2 Open for Business Stage, skmurphy

Q: We have built an application that lets small businesses employees easily manage vacation days. Here is our game plan

Objectives
  • $2,000 a month (in revenue) in 6 months.
  • Written up in 2 major publications
Target Users
  • Small Business
Metrics
  • Page views
  • Number of users who sign up for trial that we convert
  • Who’s paying for our product (identify industries to target).
  • Measure the impact of weekly blog posts
Branding
  • Logo
  • Home page redesign.
  • Improve copy on home page and sales page
Paid conversion
  • 1 month trial instead of free
  • Collect emails and generate a monthly newsletter for paying customers.
  • Improve “first use” experience after signup.

What do you think?

A: You are making an implicit assumption that you have the right features for the right target customer to deliver a compelling benefit. This is a marketing campaign that assumes you have validated the customer hypothesis.

Normally you are in a customer discovery mode with a new app like this, formalizing your assumptions/hypotheses and engaging in conversations with early prospects and early users to determine where you can create differentiated value. This is a brutally competitive space and a target of “Small business” is not a useful discriminant.

Vacation obligations and payment are subject to regulatory oversight, so while it’s good to stress the ease of use it would be useful to explore the integration required with the payroll system to make it truly stress free for a manager or small business owner.

Building a Business Requires Building Trust

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, 5 Scaling Up Stage, Sales, skmurphy

“Don’t take business advice from people with bad personal lives.”
Frank Chimero “Some Lessons I Learned in 2013

One of the hallmarks for success in a business-to-business market is the ability to form personal relationships as well as professional business relationships. I am always dismayed when I read advice that advocates bait and switch or other forms of con games that erode trust and make it difficult for any startup to build relationships.

Anyone who always puts themselves first ends up with bad personal life. Startups that are only clear on their own needs rarely outrun the same fate. It’s the difference between a focus on funding or an “exit” and a focus on building a business.

Working with bootstrappers sometimes puts us on teams that are in desperate circumstances. Where they are able to translate time pressure and resource starvation into a bias for action from a change in perspective they often succeed–or at least move beyond the current crisis: success, like the horizon, is an imaginary line you can approach but never seen to cross. But where they use it as an excuse to take shortcuts that abuse prospects trust we sometimes have to part company. It does not happen very often, and it hasn’t happened in more than a year, but perhaps three or four times in the last decade we have had to walk away from a sales or marketing strategy we didn’t feel was in the long term best interest of the startup or their prospects.

“Fame is something that must be won.
Honor is something that must not be lost.”
Arthur Schopenhauer

Related posts

  • Treat Social Capital With The Same Care as Cash
  • De Tocqueville on Concept of “Self Interest Rightly Understood”
    You meet people who have a clear understanding of their own needs and seem to spend no time on anything else. But the deals that they make seem to based only on fear and threat. To create real opportunities in your own business requires that you explore and understand the needs and aspirations of your current and potential customers. To bring them ideas that will improve their lives and businesses requires that they trust you have their interests at heart when they talk about current problems that may expose their weaknesses and shortcomings
  • Keeping Your Customers’ Trust [Includes a Recap of Weinberg's 11 Laws of Trust]
    I think B2B software is often purchased by firms hoping to achieve–or avoid–some sort of change. Like consulting, software is the promise of an ongoing business relationship.  The two essentials in a mutually satisfactory business relationship are trust and an exchange of value.
  • Sustaining Is More Important Than Starting
  • David Foster Wallace: The Only Choice We Get is What to Worship especially this section from Wallace’s talk:
    But of course there are all different kinds of freedom, and the kind that is most precious you will not hear much talked about in the great outside world of winning and achieving and displaying. The really important kind of freedom involves attention, and awareness, and discipline, and effort, and being able truly to care about other people and to sacrifice for them, over and over, in myriad petty little unsexy ways, every day. That is real freedom. The alternative is unconsciousness, the default-setting, the “rat race” — the constant gnawing sense of having had and lost some infinite thing.
  • Honesty in Negotiations
    One of the key tasks we help early stage teams with preparing for and executing successful negotiations.  There is a belief among some engineers that the best marketing and sales people are the most accomplished liars. In my experience nothing could be further from the truth. Most negotiations have long term consequences and involve interacting with people that you will encounter again and who know others you will encounter in the future.  I always assume that at some point in the future the folks I am negotiating will know the full truth of the situation and that very few secrets remain that way for long. In George Higgins‘ novel “Dreamland” a character remarks “I never forget and I always find out. ” I assume that about anyone that I am negotiating with.

Without A Revenue Hypothesis Your Business Model Is a List of User Activities

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, Customer Development

Q: I am building an app that helps people build nearby interest groups (e.g. local model railroaders, quilters in your town, etc…). I am trying to establish a baseline for my value hypothesis testing and am considering the following metrics:

  • Registration rate of those who come to landing page
  • Rate of registered users who join or create an interest group
  • Rate of interest group members who interact (post etc) in a group
  • Rate of interest group members who log in again after a month

Even if I estimate the each of these rates at 50% I cannot tell what this would mean in terms of validating my business. Also I cannot determine how to use these metrics to determine the features to put in my MVP.

Any advice for where to start in a minimum set of metrics and features for an MVP for this service?

A: For the sake of an initial model let’s accept your estimate of a 50% rate for those four metrics. There are two key sets of hypotheses that you are missing:

  1. What are your hypotheses for how you generate revenue? What will your customers pay for and why? 
  2. What are your hypotheses for the cost of acquiring and servicing a paying customer? How much will it cost to get them to the landing page and to maintain the service?

Your answers to these two sets of hypotheses interact to tell you how long you can stay in business.

Q: Those are great questions but I feel like they are related to growth, something I think I should explore once I have figured out the value testing.

A: Getting paid is proof of your value hypothesis. You need to map your path to revenue. Once you can do that then planning how to do it in a repeatable scalable way is your growth hypothesis. Given that you are zero revenue you need to grow to at least break even to keep running experiments.

Q: OK I understand the importance of the monetization strategy in the hypothesis testing, but I don’t think it’s relevant to my original question. Suppose I added a another metric:

  • Rate of interest group members who convert to a premium account (e.g. for unlimited messaging)

And I assume it costs me $1 to get new visitors to my landing page. So now I have six hypotheses:

  • It costs $1 to get a visitor to the landing page
  • 50% of visitors register
  • 50% of registered users join or create an interest group.
  • 50% of interest group members interact in a group.
  • 50% of interactive group members login after a month.
  • 50% of persistent interactive group members upgrade to a premium account

What does that tell me? I still cannot tell if I have a  good starting point.

A: I think it makes all of the difference in the world, now you are optimizing for revenue in your experiments. The others are all vanity metrics if you don’t have hypotheses for their relationship to revenue and impact on cost.

You can enter whatever you think your conversions will be a priori, and now you can construct a hypothetical business that is profitable.

Without that you don’t have a (profitable) hypothetical business, you have a list of activities that users are engaging in.

Q: Should I Persevere With My Product Or Get A Job?

Written by Sean Murphy. Posted in 1 Idea Stage

Q:  I can’t get people to use my service. For the last 9 months or so I been trying to get it going, trying to validate the idea, but I can’t get people to use it, and I’ve iterated and improved the product multiple times. I can get people to click on ads  and visit the service but no one will even sign up much less use the service.

A:  Whom have you talked to about the service? Have you talked to potential customers?

Q:  Up until now, I’ve only really gotten feedback from my family and friends. I thought that marketing would be enough to explain the idea and convert visitors into customers, but it’s not working, and I’ve tried different methods and messages.

A: How did you come up with the idea for the service?

Q: I got the idea from my Dad almost two years ago and developed the idea into what it is now. I have been into technology for as long as I can remember and I am constantly dreaming of tons of amazing ideas, but most of them are too complicated to create myself. When my Dad came along with the idea I saw it as a chance to start fulfilling my dreams. At the time I thought that idea was simple enough to develop into a product. But I was wrong; it was much much harder than I had anticipated.  

A: As Paul Saffo advises, “Never mistake a clear view for a short distance.” I can sympathize with the challenges of having too many ideas and ideas that are too complex to make viable. It doesn’t hurt to write them down and in the case of the more complex ones also try to break them into phases or steps and see if you can create a building block that might then enable a second step etc..  How long have you been working on this particular idea?

Q: I took me about a year to develop a minimum viable product. About halfway through I dropped out of college to focus on it full time. It has been rough but I have finished developing it. I don’t know what to do and I can’t keep wasting my time and money on something that’s not working. My parents were supportive at first, but now they are saying I need to get a job. What should I do?

A:  A year ago if your parents had said we will support you for a year but if you have no customers then you have to go back to college or get a job would you have agreed? If not, how much time would you have asked for?

You have to treat the friends and family who are supporting you just as you would an investor and give them visibility into your plans and results. It’s also not fair to ask for a blank check: you have to have a stopping rule.

Experienced investors, whether Angel or VC, will impose one on you. But friends and family may find it harder. That’s why you have to agree up front on the limit of investment you are asking for.

You don’t have to give up on your vision, but you need to either earn enough to become self-sufficient to pursue it on your own, or go back to college to finish your education. Here are a few questions you can use to measure your progress and navigate your way forward:

  • What have you learned in the last six months that’s made you more effective as an entrepreneur?
  • In the last three months?
  • What do you hope to learn in another three that will allow you to gain customers?
  • Before you start a new project you need to define your stopping rule or you risk going bankrupt or you force the people who are supporting you to define it for you–or you bankrupt them as well.

Here are “Three Questions to Ask Before Quitting” from pages 66-71 of Seth Godin’s “The Dip

  1. Am I Panicking? Decide in advance when you are going to quit.
  2. Who Am I Trying to Influence? A person or a market? Markets value persistence far more than an individual.
  3. What Sort of Measurable Progress am I Making?

Q: What do you think of the advice a friend gave me: ”You’ll never fail if you don’t give up.”

Be very careful of this advice:  if you keep doing the same thing expecting different results you won’t succeed either. Take a long-term view for a moment. Looking back from 30 or 35 or 40 it’s unlikely you would regret finishing college and perhaps even working for five or ten years to get some real world experience before starting a company.

If your goal is to be an effective entrepreneur then you may learn faster in other situations than by continuing full time on your startup today. Despite what you read on TechCrunch and similar sites very little success is overnight.

Related

Feeling Lucky Is Not a Strategy

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, skmurphy

“Luck cannot be duplicated.” Richard Kostelanetz

Riffing on a Nov-2-2013 TechCrunch post by Cowboy VenturesAileen Lee (@aileenlee) “Welcome To The Unicorn Club: Learning From Billion-Dollar Startups” Ryan Hoover suggests that you should ”Forget What You Know: There is No Right Way to Start Up”[1][2]

“They didn’t talk to people. They didn’t do market research. They didn’t create a landing page to see if people would enter their email. They just built it. For the past year, they invested in the team and technology to prioritize speed of iteration with disregard to traditional methods of customer development and company building.”
Ryan Hoover in “Forget What You Know: There is No Right Way to Start Up”

This is not a methodology, it’s hoping to get lucky. The article cites several startups that may have gotten lucky as proof of…I am not sure, I guess that it’s possible to get lucky.

“Lean methodology and the startup community at large, espouses customer interviews, landing page tests, concierge experiments, and other tactics for testing hypotheses and measuring demand before building a product. In many cases, this is good advice but sometimes it’s a waste of time or worse, directs entrepreneurs away from something truly great.”
Ryan Hoover in “Forget What You Know: There is No Right Way to Start Up”

For every team that gets lucky I wonder how many thousands run through their savings in search of the truly great without talking to customers or testing their hypotheses. Perhaps a more careful and detailed analysis will uncover ways to duplicate the success of some of these startups but I worry that it may be like trying to select the winning lottery ticket: the fact that some people do it does not change the fact that on average it’s a terrible investment strategy.

“Diligence is the mother of good luck.” Benjamin Franklin


Ryan’s essay also appeared on LinkedIn and TheNextWeb:

I don’t think this “Forget What You Know” post is representative of the quality of Ryan’s insights. Here are three blog posts by him that I have found very useful and recommend reading:

 

Video from Lean Innovation 101 Talk at SF Bay ACM Nov-20-2013

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, 4 Finding your Niche, Events, Lean Startup, skmurphy, Video

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
  • Build-Measure-Learn
  • When and how to pivot
  • Rules of thumb for successful lean innovation

I want to thank Alex Sokolsky for his outstanding effort on behalf of SF Bay ACM doing the video capture and editing.

IEEE-CNSV Panel Explores Engineering in Japan vs Silicon Valley Mon-Mar-3

Written by Sean Murphy. Posted in 1 Idea Stage, Events, Silicon Valley, skmurphy

I am helping to moderate a panel 7pm Mon-Mar-3 at IEEE-CNSV on “Innovation: Work and Life of the Engineer in Japan and Silicon Valley” The event takes place at Agilent Technologies, Inc. in the Aristotle Room, Bldg. 5 located at 5301 Stevens Creek Blvd., Santa Clara, CA 95051. There is no charge to attend and the event is open to the public.

The event is organized by Takahide Inoue, the Global Outreach Director for the Center for Information Technology Research in the Interest of Society at UC Berkeley.

The panel members are:

  • Takashi Yoshimori, Toshiba Semiconductor
  • Laura Smoliar, Independent Consultant, Signal Lake Venture Capital
  • Tom Coughlin, IEEE Region Six Director-Elect, CNSV member and Independent Consultant
  • Kim Parnell, Past Chair, IEEE Santa Clara Valley Section, CNSV member and Independent Consultant
  • Brian Berg, Past Chair, IEEE Santa Clara Valley Section, CNSV member and Independent Consultant

Here are some of the questions I hope the panel is able to address:

  • What are innovation lessons from Silicon Valley?
  • How does Silicon Valley do so many innovations?
  • What are innovation lessons from Japan?
  • How do Japanese engineers sustain their interest in a topic to achieve mastery instead of moving on to the “new hot thing” or next “bright shiny object?”
  • What makes an innovative culture? What can other areas do to create an innovative culture?
  • In Silicon Valley, we tend to celebrate the individual over the group. For Silicon Valley engineers how do you give back to your  community?
  • The Japanese say that “the nail that sticks up gets hammered down.” For Japanese engineers, how do you disagree constructively with your peers to foster innovation?
  • What advice do you have for engineers for finding an idea that can inspire them to work on for several years before it becomes a reality?
  • How do you see the work of the engineer changing in the next five to ten years?

I hope you can join us tomorrow night. Here are some background material on Silicon Valley’s innovation culture you may find relevant.

Here are five related blog posts about Silicon Valley it’s entrepreneurial culture

Finally Tom Wolfe wrote “The Tinkering’s of Robert Noyce” about the founding and early culture at Fairchild and Intel for Esquire in December of 1983 and updated it for Forbes ASAP fourteen years later as “Robert Noyce and his Congregation.” (Aug-25-1997).


The text of California Historical Marker 836:

PIONEER ELECTRONICS RESEARCH LABORATORY – This is the original site of the laboratory and factory of Federal Telegraph Company, founded in 1909 by Cyril F. Elwell. Here, Dr. Lee de Forest, inventor of the three-element radio vacuum tube, devised the first vacuum tube amplifier and oscillator in 1911-13. Worldwide developments based on this research led to modern radio communication, television, and the electronics age…California Registered Historical Landmark No. 836..Plaque placed by the State Department of Parks and Recreation in cooperation with the City of Palo Alto and the Palo Alto Historical Association, May 2, 1970

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