Three Good Books for Consultants

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

I continue to run into folks who find themselves encouraged to launching a consulting career by their former employer and what is proving to be a very deep recession. Here are three books I recommend to them to help get some perspective on the career they now find themselves in.

I have a related blog post from October of last year on “Customer Development for a Consulting Practice in a Downturn” and another one from July of 2007 on “Networking in Silicon Valley” that is still accurate.

Good Marketing is Good Content

Written by Theresa Shafer. Posted in 3 Early Customer Stage, 4 Finding your Niche, 5 Scaling Up Stage, Blogging

This week I have been developing content for a client’s website. We are helping them formulate a message that is intended to explain both their knowledge of their customers’ problems and how they are able to help.

Good marketing is really just good content.

It focuses on your customers’ problems and how they will benefit from your offering. It is not about your product features. It answers all of the questions–or at least all of the common questions–a customer will have they have as they consider buying your product or services.

Good marketing material should be useful, interesting, and even funny to your customers. Material should be clear and concise, it should be use the language that your customers normally use to talk about their challenges and their needs.
Here are a couple of examples we have worked with our clients on over the last year:

Sign-up for Software Startup Checklist Seminar at Silicon Valley Code Camp

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

With Athol Foden‘s encouragement I have submitted the following session (links added) for this year’s Silicon Valley Code Camp:

Software Startup Maturity Checklist

This session is for both aspiring and active entrepreneurs. We will walk through a 36 point checklist that covers Product Development, Customer Development, and Business Operations. You will leave with a better understanding of where you are today and what some logical next steps are for each of these stages:

Primary focus is on bootstrapping, there will also some discussion of what is required for a business to deserve outside investment. If you are thinking about doing a startup or you are underway and looking for a quick diagnostic on what to focus on next, this session will offer practical guidance based on the specifics of your situation.

This session does not require but will build on Athol Foden’s session on “From Code to Complete Product to Brand.”

Follow this link to indicate your interest in attending. It will be based on the Startup Maturity Checklist which is the first module in our “Idea to Revenue” workshop. Code Camp is Saturday October 3 and Sunday October 4 at Foothill College 12345 El Monte Road (Parking Lot 5) Los Altos Hills, CA 94022
As the description indicated, my session is a companion to Athol’s “From Code to Complete Product to Brand” which also looks good:

Before you can go out and market your code, you need to productize it. Whether it is for a small downloadable utility or an enterprise application, software seldom sells itself. Even for Open Source, it has to be packaged, promoted and presented correctly… and that is the start of your branding for the long term. For startups, product and company may both be dependent on this proper execution. This overview session will give you the highlights and a check list to do a proper product packaging and launch. For startups, continue this subject with Sean Murphy’s startup checklist talk

And follow this link to indicate interest in Athol’s.

Update Mon-Sep-2: The “SW Startup Maturity Checklist”  session is set for Sunday 1pm, Oct 4 2009 in Room 5501 at  SV Code Camp.
Register here: Session 201 Sun-Oct-4-2009 Room 5501

Other Customer Development Models

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

In “The Challenges of Measuring Non-Existent Markets” Scott D. Anthony outlines four principal challenges in measuring non-existent markets:

  1. Data does not yet exist. When a market doesn’t exist, there are no baseline market research reports or time-series data sets to analyze.
  2. Lack of comparable products. Without existing data, there is a natural tendency to look for good analogies. However, for truly new markets, there typically are no good historical analogies to look for to estimate uptake rate and penetration. Basing estimates off flawed analogies can lead to dramatically incorrect conclusions.
  3. Existing consumers provide bad data. When a new product or service has disruptive characteristics – that is, it trades-off some dimensions of performance for new benefits around simplicity, convenience and low prices – trying to estimate the market size by talking to existing consumers in markets that appear to be similar to the new market is very dangerous. The existing consumers will naturally discount and denigrate the innovation because they compare it to products and services they are accustomed to consuming.
  4. New consumers provide unreliable data. Consumers are notoriously bad at visualizing the uses of products or services they are not yet using or do not exist. Because of this, the predictive value of consumer research into emerging markets is low. Furthermore, new markets often develop in surprising ways with surprising consumers, making it difficult to be sure that you are even gathering data from the right sources. Finally, consumers that are currently not consuming a product or service lack reliable reference points, making their reactions to prices somewhat unreliable.

I am aware of two other “customer development” models that are similar to Steve Blank’s “Four Steps to the Epiphany” that are designed to address early market exploration:

Note Venchar’s Feb-8-2005 “Value of Customer Development” that points to a 2003 version of Steve Blank’s slides. In particular slides 28 and 29 are key:

Slide 28 defines an Earlyvangelist customer

  • Has a Problem
  • Know they have a problem
  • Has Been Actively Looking for a Solution.
  • Has Put Together a Solution out of Piece Parts
  • Has, or Can Acquire, Budget

Slide 29 Customer Validation: Four Big Ideas

  1. The goal is to build a repeatable sales process. Orders are proof the process is working.
  2. Only earlyvangelists are crazy enough to buy unfinished product.
  3. No orders? Back to discovery process.
  4. Early customers help spec version 2.

I am looking for other books, methodologies, tools that address the early market exploration problem. In particular that address Clayton Christensen’s observation in the Innovator’s Dilemma that “markets that don’t exist cannot be analyzed” by offering techniques for exploring emerging markets. In particular any recipes for what Christensen calls a parallel process to development (and what Steve Blank calls customer development):

Only by creating a parallel process for developing and shaping disruptive ideas—one that acknowledges their distinctive features—can companies successfully launch disruption after disruption. Such a process relies more on pattern recognition than on data-driven market analysis. After all, markets that do not exist cannot be analyzed. Even when numbers are available, they are never clear.

from “Six Keys to Building New Markets by Unleashing Disruptive Innovative by Clayton Christensen et. al.

Conserving Trust in a Downturn

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

A lot of is written these days about how to conserve cash in a downturn. In particular the need to cut expenses by cutting headcount and unnecessary fill-in-the-blank spending. But conserving trust is equally important. If you have been bootstrapping and only increasing expenses in response to revenue (versus in anticipation of revenue) then your next question might be “What else can I do?”

Ridge Evers wrote “Guiding Your Business Through the Recession” in March of this year. For me it stands out as the best “top ten” list for surviving this downturn. It starts off with two good suggestions for protecting your current revenue by making sure you stay intimate with your best customers.

1. Focus on your existing customers – Figure out how to keep them. Remember, they’re under the same pressures you are. Make sure you’re the one they want to do business with when things get tough. But don’t make the mistake of becoming their bank by extending too much credit.

2. Make sure you know your best customers, and that they know you care about them – Who, specifically, is your buyer? There’s an old expression in sales: “know your customer’s shoe size.” It’s always a good idea, but especially in an uncertain economy. If you sell to other companies, you need to understand them at the individual level. Communicate frequently, but take the time to make your communication relevant and interesting.

His list is the only one I have read that also addresses the need to remain trustworthy–and therefore creditworthy (hyperlinks added):

5. Conserve creditworthiness – Just like you don’t want to be your customers’ banker, don’t get into the position of being overextended with vendors, especially the ones you really depend on. This is often the opposite of what your instincts are – we all think our key vendors need us, which is true right up until they decide they can’t afford you as a customer. If you have to stretch payments, do it with ancillary vendors, and don’t wait for them to call you – tell them that you’re going to pay them later than you think you can, so you then pay them sooner than you said you would.

6. If things are tight, pay off all the little bills first – You’ll spend as much time and energy answering calls from the little guys as you do from the big ones. And remember the old adage: “If you borrow $1,000 and can’t pay it back, you have a problem. But if you borrow $100,000 and can’t pay it back, the lender has a problem.” Your bigger vendors will work with you – they don’t want to lose you if they can help it. So pay off the little guys, and then communicate with the big ones openly and frequently. And pay something – it shows good faith, and makes it harder to cut you off.

Evers wrote an earlier post in December of 2007 “Should You Raise the Ceiling or Lower the Floor” which used a great visual metaphor for business planning: headroom.

Essentially, a business has “made it” when you can stand up inside the “room” that you’ve created. Obviously, there are two different ways to create more headroom: you can raise the ceiling (revenues), or you can lower the floor (expenses). It’s a physical analogy, but one that I’ve found is really useful in both understanding what’s going on, and in figuring out what to do.

Many owners spend a lot of their time focused on controlling costs (lowering the floor). Some degree of this is healthy, especially when it comes to building a culture within your company that encourages thrift. It’s also the easiest thing to do when you hit a bump, generally, because expenses are something you can control. But it is exceedingly rare that cost control – in any size of business – paves a path to success. The best you can hope for is to buy time.

Most bootstrappers tend to be risk averse: they have all of their eggs in one basket so they have to guard the basket. Given that, attacking an existing expense stream makes a lot of sense, it’s much more tangible than identifying and attempting to exploit an opportunity. Cost management and accounting tools are more mature, especially for small businesses, than marketing and opportunity identification tools. What’s the marketing equivalent to QuickBooks for a small business or a VSB (very small business with less than 15 people, less than four million on revenue)? Please contact us if you know of or are using a good one.

I think for the most part cost saving requires less change in behavior (obviously there are exceptions like the lean model, which requires a fundamental re-think, and some well constructed re-engineering efforts) than going after new customers and so requires less “social cost” inside the business to implement. The negative side effects from a cost savings effort typically take a while to manifest, where the costs savings themselves are normally quickly available.

The place where the most successful business owners focus their energies is on raising the ceiling: growing revenues to the point where the business can stand up comfortably, and keeping it there. And, paradoxically, in many cases the path to a higher ceiling involves increasing expenses – for example, adding a new salesperson, upgrading equipment, or investing in marketing – so as to be able to attract more customers or increase sales to your existing customer base. (More about this in a later posting, but as the old saw goes, “You have to spend money to make money.”)

“What else can I do?” Give us a call.

Our promise is “early customers and early revenue” and our focus is on “raising the ceiling.” We work as virtual members of your team to build on your strengths: your current customers and current products. We help you to sell better what you have. We use low cost methods to explore current and potential markets for new customers. We gather feedback from your current customers, prospects, and lost opportunities, looking for ways to improve your offering to meet their needs more completely.

And we teach founders how to do all these things for themselves over time because we believe that this is the best way to build trust and a long term relationship. We started this firm in 2003, some of our early clients had barely survived the dotcom bust of 2001-2 and were concerned about how to add new customers: we’ve “seen this movie before” and understand how to help you spot the opportunities that are available.

Negotiate the Level of Reference in Parallel with Price and Others Terms and Conditions

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

Steve Bengston is the Managing Director of Emerging Company Services (ECS) at PricewaterhouseCoopers, a frequent explainer of the PWC MoneyTree report, and the host of “PricewaterhouseCoopers Startup Show.” He is also a nice guy who is knowledgeable and very approachable. He was interviewed by Anthony Nassar in April 2004 and had some good advice for entrepreneurs on negotiating a reference at the same time they are negotiating the rest of the contract.

I advise entrepreneurs to secure a referenceability clause when entering into beta agreements with customers, and perhaps refrain from entering into a beta agreement if the customer is unwilling to serve as a repeat reference with investors or prospects.

I have had three conversations in the last two weeks about the fact that there are many levels of reference, so I have put the following list together to document my perspective. It starts with an agreement with an individual (potentially at a company that refuses to allow any mention of their use of your product) and work up to a full endorsement with a logo.

  • Basic: Your customer agrees to take calls from new prospects. We normally specify a maximum rate (e.g. one a month, three per quarter) as this forces us to prioritize and not waste folks’ time on low probability events. You may mention their name, title, and company verbally and share contact info verbally or in an e-mail to a serious prospect.
  • NDA only: You can use name, title, and company on a slide that’s part of a presentation that’s delivered under non-disclosure.
  • LinkedIn: for service firms you can ask for a reference on LinkedIn.
  • Web Release: You can use name, title, and company on your website with a testimonial statement.
  • Press Release: You can issue a press release with an agreed upon quote or set of quotes.
  • Other (Public) Document: e.g. a case study, white paper, joint paper for a technical conference. Consider other ways that a happy customer can support you and help to evangelize your shared success. These documents normally sidestep an highly territorial PR or corporate identity or branding group who will pay more attention to what’s being messaged directly to media and analysts.
  • Joint Press Release: You and the customer issue a joint press release. This is a very big deal with a public company and can be difficult for an early stage firm to secure. We have helped clients do this but you need to start this negotiation as a part of the purchase as Steve Bengston advises above and be prepared to make concessions on price and other terms.
  • Logo: Using a customer’s corporate logo is normally involves more effort than securing an endorsement or testimonial from an individual employee. It carries with it a stronger level of endorsement. It may be NDA only, or agreed to on a case by case basis for a particular web page or collateral piece. This is a very strong endorsement that we don’t normally try and negotiate as part of an initial purchase, although it’s very appropriate for other kinds of joint ventures and partnering activities.

You should start discussing the form of a reference as soon as it becomes likely that you are involved in a serious evaluation. One way to approach this issue indirectly is to ask how they supported or acted as a reference for other suppliers/partners. With a large company you may want to pursue a two track negotiation model where you at least secure a private agreement from your direct customer to act as a reference and answer some number of calls and e-mails. Normally your customers will want you to be successful: they don’t want to pay for all of your development efforts but see them spread across other customers. If your prospect has never acted as a reference for a vendor/supplier/partner at least at a phone call or e-mail level or is unwilling to do so it may be wise to invest effort elsewhere: if you can’t substantiate your success it gets hard to talk about it.

We never ask for a positive reference as a part of a negotiation, only an accurate one: the prospect will more readily agree to tell the truth than shill for you and it’s up to you to convince them with your performance and results that your product is worth bragging about to strangers.

After the fact we try and encourage the customer to be as positive as they feel, but in their own words. We do this by interviewing them and ask them for their perspective on a client’s performance and results delivered. This can sometimes be negative, in which case the issues have to be addressed directly and forthrightly to the customer’s satisfaction. There can be a temptation to “put words in the customer’s mouth” whereby they regurgitate your preconceived advantages. We have come into the middle of several situations where this didn’t end well: when the customer was called by a prospect they offered their real perspective, not the press release phrasing. This created a serious perception mismatch that stalled or killed the sale.

Overnight Success

Written by Sean Murphy. Posted in 1 Idea Stage, 3 Early Customer Stage, skmurphy

Some thoughts on aspiring to “overnight success.”

  1. If you define success as making a lot of money quickly you should go into sales and cut out the middleman.
  2. You can buy one lottery ticket and make a lot of money. You can buy many lottery tickets every day of your life and never recover the cost of your lottery tickets.
  3. Most of the time the opportunity for “overnight success” is sold by folks who are interested in making a profit on your dreams without actually fulfilling them.
  4. Of all the sources of funds for an early stage venture, revenue is the most compelling demonstration of traction. Too many entrepreneurs view fund raising as an accomplishment in and of itself.

Three Tests For Negotiating A Software Deal

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

Negotiating a software deal, from either side of the table, can be different from many other negotiations that you enter into. I have been surprised over the years at how folks who are successful in other domains can fail one or more of the following tests as they negotiate a software deal.

  1. Have You Created the Basis for an Ongoing Relationship?
    Software is the Promise of a Relationship: software typically involves getting your custom information into a new format (or creating information you would later like to translate into other formats) and almost always involves process and habit changes. The expectation on the vendor side is that the customer will contribute not only bug reports and enhancement requests but also additional maintenance and/or license fees over time. The customer expects the vendor to continue to maintain and enhance the product in response both to general changes in the environment and to specific requests from customers. If the negotiation leaves such ill feeling on one or both sides that a mutually beneficial relationship is out of the question, it’s not a good deal.
  2. Have You Assessed Both Yours and the Other Party’s BATNA?
    In their 1981 book “Getting to Yes” Roger Fisher and William Ury coined the term “Best Alternative To a Negotiated Agreement”  which they abbreviated BATNA. Both sides have a BATNA. It describes the status quo ante or likely result for a side if an agreement cannot be negotiated. You must continually assess not only the other side’s BATNA but your own as well.

    • Explore the other side’s perception of their BATNA from the beginning. Their perception of their options will shape their negotiating position.
    • Be careful in multi-way negotiations as a smaller firm, you may have been brought in just to give the appearance of adding a key feature or a lower price to the other side’s BATNA. For example, your offer may be used to induce another bidder to cut price.
  3. Are You Considering Something That Must Be Kept Secret After The Deal is Signed?
    Assume everyone finds everything out! It’s rare that a negotiating ploy can be kept secret over the long run. Active misrepresentation in particular can be destructive to any ongoing relationship. However, you are not testifying during a negotiation: while I believe that you should tell the truth and nothing but the truth, you don’t have to tell everything that you know.

    • Don’t assume that the other side is telling the whole truth: trust but verify.
    • In “Negotiations and Resolving Conflicts: an Overview” Prof. Edward G. Wertheim of Northeastern University includes this guideline from a British Foreign Service Manual on diplomatic negotiation: “Nothing may be said which is not true, but it is as unnecessary as it is sometimes undesirable to say everything relevant which is true; and the facts given may be arranged in any convenient order. The perfect reply to an embarrassing question is one that is brief, appears to answer the question completely (if challenged it can be proved to be accurate in every word), gives no opening for awkward follow-up questions, and discloses really nothing.”

“The Check is NOT in the Mail” this Friday at Bootstrappers Breakfast

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

Compare notes with entrepreneurs who eat problems for breakfast.At a Bootstrappers Breakfast you can:

  • Take part in a serious roundtable conversation among bootstrapping entrepreneurs
  • Compare notes and exchange ideas
  • Learn from others’ mistakes
  • Find potential business partners and co-founders

The Check Is Not In The Mail

CheckNOTInMail

Len Sklar joins us in Milpitas this Friday, he will make a short presentation on why “The Check is Not in the Mail” and answer questions on effective approaches to getting paid in full, on time, at less cost and without losing valued customers.

Len came to our March 7 breakfast and facilitated some very well received interactive exercises: several bootstrappers in turn took the role of a delinquent customer and Len demonstrated a variety of low key techniques to move beyond a current deadlock.

One of the key points he made was that you have to prevent payment issues before they start by being clear in writing about your credit terms and polite but no-nonsense once a slow payment situation starts to occur.  To many entrepreneurs are afraid to pick up the phone and see if it’s a quality problem or a slow payment problem, letting the situation fester until they become angry and less effective or staying ignorant of real defect in their offering that need to be addressed.

Here are some comments from Amazon reviews:

“Author Leonard Sklar knows his stuff. As well as ‘what to do’, Sklar is right on in covering the areas ‘you shouldn’t go’, or more particularly, waste your time.”

“Definitely a great read/reference for the beginning entrepreneur. I’ve learned quite a bit from it.”

“Any small business owner has faced reluctant-to-pay-in-full clients. Author Leonard Sklar has some great tips about asking for money firmly without pissing people off–which often is enough to get them to pay in full.”

Bootstrappers Breakfast Friday Aug 8

RSVP and bring your questions Friday August 8 to the Bootstrappers Breakfast.

Related Blog Posts

Paul Graham’s Six Principles for Making New Things

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

This article compares Paul Graham’s “Six Principles for Making New Things” with Bob Bemer’s “Do Something Small But Useful Now”,  Gary Hamel’s Innovation Hacker, and Peter Drucker’s list of seven places to search systematically for opportunities.

Startups Should Sign Their Work

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

A great post by Tim Bonneman on “Startups Without Face Nor Name

I always find it surprising:

You sign up for a beta invite. Time passes. One day, you get an email after all stating the app, project whatever is now live. You sign up, you log in, and then, when you try to see who’s behind all this — nothing. No names. No pictures. No (real) address. No background info whatsoever about the founders or the team or the management or the backers or the first customers or their mother or their cat. Nothing. Nada. Zilch.

Sorry, but what do you think this is? Hide and seek?

I think it stems from a fear of failure. But unless you commit how can you expect other folks to spend time (and ultimately bet a chunk of their business and/or career) working with your application. I am coming to the conclusion that “stealth mode” as currently practiced by many firms (often a variation on “I’ve got a secret”) gets the team off on the wrong foot. I think it’s better to tell what truth you can and to say who you are.

Dharmesh Shah wrote about this in “Stealth Mode Schmealth Mode: the Real Reasons Startups Don’t Talk

  1. Lack of Direction
  2. Lack of Focus
  3. Lack of Commitment
  4. Lack of a Solution
  5. They Have a Secret

[…]

Before you decide to clam-up and guard your “super secret business idea”, make sure that you have something worth guarding, and that it’s in your best interests to do so. More often than not, you’re better not being coy, and doing some talking.

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

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