Four Movies To Renew Your Gumption

Written by Sean Murphy. Posted in 2 Open for Business Stage, 4 Finding your Niche, 5 Scaling Up Stage, skmurphy

Here are four movies that I watch when I need to refill my gumption or recover my sisu.

The Verdict

Paul Newman’s portrays of an alcoholic plaintiff’s attorney chasing lawsuits by attending wakes and funerals, he re-discovers his moral core and perseveres in a complex medical malpractice lawsuit. Near the beginning of the film he is offered a settlement to look the other way and he says “If I take the money, I am lost.” It marks the turning point of his recovery.

Apollo 13

Two scenes stand out that highlight the challenges of persevering as an engineer:

  • Gary Sinise as Ken Mattingly, working in the simulator to determine a cold start sequence that will get the capsule operational without exhausting the remaining battery power.
  • A team of engineers crowd around a large table that has a copy of all of the material available in the capsule. They need to find a way to adapt carbon dioxide filters from the Command Module for use on the Lunar Excursion Module (LEM) where the crew has taken refuge after an accident has disabled the Command Module.  Gesturing first with a squat square filter and a longer thinner cylindrical filter, the lead engineer says, “OK people, listen up. The people upstairs have handed us this one and we gotta come through. We gotta find a way to make this fit into the hole for this, using nothing but that.”

The Dish

This is an extremely funny movie about the team manning the Parkes radio telescope in Australia,  the dish is destined to capture the video for the Apollo 11 moonwalk. Many things go wrong (see official version) and a small team learns the value of both checklists and improvisation. Best line “”Failure is never quite so frightening as regret.”

The World’s Fastest Indian

The Indian is a motorcycle driven by Bert Munro that sets a land-speed world record on the Bonneville Salt Flats in 1967. The “World’s Fastest Indian” portrays a series of challenges that Munro had to overcome to set the record, as many related to raising money and battling bureaucracy (e.g. US Customs) as engineering challenges.  The real Burt Munro was born in 1899 and 68 when he set the record, Anthony Hopkins goes a great job of portraying a tinkerer and a problem solver who continually modifies a motorcycle originally designed and manufactured in 1920 to achieve a world record.

The Business is Everyone’s Business

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage, 5 Scaling Up Stage, skmurphy

“A business should be run like an aquarium, where everybody can see what’s going on–what’s going in, what’s moving around, what’s coming out. That’s the only way to make sure people understand what you’re doing, and why, and have some input into deciding where you are going. Then, when the unexpected happens, they know how to react and react quickly. ”

Jack Stack “The Great Game of Business” (page 72) see also http://www.greatgame.com/

Edward Carrel left a great comment on Hacker News in response to “Project Manager’s vs.  Developer’s View” this quote (the thread is here)

I’ve never understood this bright line boundary between the patchwork of people that make up a technical group, and the patchwork of people that make up a business group. Presumably, the technology being developed is part of what makes the business viable; it isn’t just a bunch of people playing with text editors on company time, while the grown ups — the business folks — do everything that earns money.

It serious just seems like an artificial division to excuse the two groups for not listening to each other.

This becomes even more painful when you are one of the people who wants to be involved in whatever makes up this nebulous “business side”, and are told to go back to writing code.

My view: the business is everyone’s business, and any time you start developing bright line boundaries to either protect turf, enforce a hierarchy for its own sake, or excuse non-involvement, the least of your problems is one of your techies wanting to play with technology that seems superfluous to the untrained eye.

It reminded me a few paragraphs from an E-mail I sent to a client recently.

You have created a significant business opportunity with your accomplishments: you have happy customers, strong technology, and the demonstrated ability to close new business.

But I see the need for closer cross-functional coordination between sales, marketing, development, and customer service with clear agreement on both near term and long term strategy.

These four teams need to work together more closely to leverage your significant strengths and accomplishments. Closing new business opportunities and increasing penetration at existing customers is going to take more communication and continuous collaboration.

I think there are several things that work against effective cross-functional collaboration:

  • Time pressure: trust is built over time and developing a working consensus on a course of action takes extra time until  everyone is in at least rough agreement on goals, roles, and process.
  • Different perspectives:  software is easy to change and update; customers are much less forgiving and typically not interested in the reasons that you let them down.
  • Shared improvisation requires rehearsal, and rehearsal takes even more time. But you often  don’t have a second chance with a customer.
  • It requires you to admit your dependency on others with fundamentally different strengths.  Many founders in particular have very strong skills in at least one or two areas and can fall victim to favoring their strengths instead of taking advantage of different approaches that require other people with talents that the founders lack.
  • Software is the promise of a relationship but relationships are much more ambiguous than test results, transactions,  or program output. Different groups live in different world with different score keeping mechanisms.

Figuring out the right team and company scorekeeping mechanisms and building trust and shared improvisational skills all take time. But  I agree with Ed Carrel that the business is everyone’s business.

See also “The Business is Everyone’s Business (Part 2)” and these related blog posts:

Matt Perez on How Nearsoft Leverages Yammer

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Consulting Business, skmurphy, Tools for Startups

I met Matt Perez in 2003 just as I was starting SKMurphy.  It was the tail end of nuclear winter in Silicon Valley and folks were trying to figure out what was next. We kept running into one another at various networking events and as we got to know one another realized that we both had a passion for technology and innovation.

After I facilitated the Conversation Central roundtables on “Global Teams” at the 2009 Design Automation Conference I decided that a significant shift was underway where not only were teams in larger firms more often global but startups and small technology firms were going global much earlier in their life cycle than had been the case in the 1990’s.  One of the enablers for this is a host of low cost collaboration tools. Some that are synchronous like Skype and real time dashboards,  and others that are “quasi-synchronous” like wikis, distributed source code management and Yammer. These tools  enable faster decision making because the team is able to maintain a “shared situational awareness.”

After a lunch with Matt in December where we had discussed this trend he agreed to share some of the ways that his firm, Nearsoft, was using Yammer and other collaboration tools to enable them to keep distributed teams providing development services and ongoing support in sync.

Q:  Can talk you a little bit about what your firm does? I understand that your focused is on outsourced product development.

Nearsoft is a software product development firm with operations in Mexico.  We work best as innovation partner to ISVs, SaaS companies and consumer-facing sites.  These businesses understand that software is at the core of their business and they demand to work with people who are as dedicated and serious as they are about building great software.

We specifically avoid working with businesses that treat their software as a “backroom” operation or, worse, as a necessary evil.

Q: How do you work with clients?

We work in long-term relationships with our clients.  We create teams around each client, with the right skills in the appropriate technologies.  As the new team learns about the client’s business, they can contribute to all aspects of it, not just the raw coding.

Short-term, project-based engagements don’t work for us and I don’t believe they work for clients, either.  It may work for doing something of the side, some throw-away code.  But for the core product, you want to have a stable team of people that work well together.

We invest heavily in hiring the best and brightest and have created an environment that helps attract and retain that level of talent.  A big part of that is because of the opportunity to work with leading-edge companies in the Valley as part of their core team.  If we had people work on little projects here and there, we would not get the good ones; or, if we got them, they would not stick around for long.

Q:  What collaboration tools do you use internally and with clients to support your methodology and your engagement model?

A: The first that comes to mind is Yammer, a Twitter-like system but for private use.  Our folks are used to Twitter, so using Yammer was a natural.  It works great for geographically distributed teams because it helps maintain a team presence.

In the situation where everybody in a team works out of the same office, team presence is a function of being physically in the office at the same time.  Without consciously checking, you know when people are “there” and when they’re not.  Yammer serves a similar function in that even if I am not reading each posting individually, I get a sense of people being “there” as the stream flows through.

It’s also a casual environment where people can jump in and out without much protocol.  If I am looking for somebody, I can just ask “anybody seen Joe?” and one or more people will respond.  Also, if people are joking around a particular event, you can also jump in and do the water cooler thing that’s part of social cohesion of effective groups.

Besides Yammer, we use Skype a lot.  For example, a group of us keep a Skype “group chat” open all the time that we use a lot like Yammer.  The reason we do it on Skype is that it’s easier to switch to voice conferencing when the text chats get too convoluted.

One of our client teams uses video all the time.  They use both Skype and Adobe Connect.

Of course, we also use a number of tools to keep track of open issues, source code control, etc.

Q: What has been the impact of Yammer on your ability to deliver results?

Yammer and Skype and the rest of these real-time tools give us and our clients the benefit of being in touch constantly. Little problems and misunderstanding remain “little,” they don’t snowball into big, hairy messes.  One person may say, “I am going to implement X using Y” and immediately another will jump in with “No, you shouldn’t use Y for reason Z.”  They may go back and forth in the text stream, clarifying things.  Then switch to voice or video.  Misunderstanding is cleared before any major work is wasted building the wrong solution.

Without something as immediate as Yammer or IM tools, the question may sit in somebody’s email for a day before anybody looks at it.  By then, the wrong solution may be finished only to be thrown away.

BTW, that is true for the folks working physically in the same office.  In many ways, it is more convenient to casually ask a question or make a comment using one of the tools than in person.  You can ask your question without “imposing” on the other people to drop what they’re doing to answer your question.  The other people can choose when to respond.  If they glance at it and see a “Google It” question, then they can just ignore it.  If it looks important, then they can direct their attention to it at their convenience.

Q:  What, if anything would you do differently?

When I started the company I tried several models before settling on the way we operate today.  It would have been nice if somehow I could have gone through that part of it a bit more quickly.

We’ve had a couple of startup clients that didn’t make through the crisis in 2009.  I thought they were dynamite businesses and wished they could have been able to stay in business.  We helped all we could but in the end they didn’t make it.

Q: What else have you learned from working internally and with customers in this fashion?

The most salient thing for me is that cultural alignment is key.  Effective communications include a ton of stuff that’s never said; it literally goes without saying.  There’s a lot of “you know what I mean?” in there and it would be too costly, emotionally and in time, to explain every little subtlety that goes on in a conversation.  Likewise, it can very expensive when people miss out any of those subtleties.  To deal with this you need to make sure that everybody in the team is aligned with the goals of the business and that they “know” what it takes to get there.

One example I can think of is when a developer is asked when he can get something “done.”  If we both don’t have the same understanding of what “done” means, then we are going to end up in hot water.

Q: Thanks for your time


For some outstanding examples of how to blend humor into an explanation of a complex service I would encourage you to take a look at  two of Nearsoft’s videos:

I really appreciate Matt’s willingness to talk about some of the practical challenges in working in a geographically distributed organization. If you would like to talk about lessons learned from your startup or innovative business practices that you would be willing to talk candidly about, please contact me and we can explore an interview that would be of interest to bootstrapping entrepreneurs.

Sustaining Is More Important Than Starting

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Rules of Thumb, skmurphy

Literature is mostly about having sex, and not much about having babies; life is the other way round.
David Lodge

Startup pundits have focused primarily on funding events and product launches, and not much about how viable the business model and scale up strategy are. Successful businesses are the other way around.

Jeff Nolan wrote in January 2009 about “Why the TechCrunch Economy Will Falter” noting (bold in original):

“…a fundamental flaw in the startup economy promoted by a wide swath of pundits and proponents, that starting is more important than sustaining.”

Martin Edic in the comments  noted that

The other half of this situation is the ‘pundit’ sites lack of aggressively asking companies exactly how they are going to make money. Endless coverage of start-ups that are more about a gimmick, reiteration of an original technology or an imitation of something else, without questioning the viability of the business model, helps create an environment where typically young entrepreneurs scoff at the need for revenue. When we hit a downturn like this and funds dry up, they are going to fold.

The good news it that most serial entrepreneurs fail at least once and return as much more knowledgeable and pragmatic business owners. So covering failure has its purpose.

It’s taken a little more than a year but Dave McClure notes yesterday in “Subscriptions Are The New Black

We have largely WASTED an entire web decade of time, energy & venture capital on extremely inefficient revenue models.  There have been a few interesting examples of startups acquired in the 00’s for large amounts due to amazing growth (eGroups, MySpace, Skype, YouTube) or advertising potential (aQuantive, DoubleClick, AdMob, RightMedia).  However, mostly the decade has been an uninterrupted string of uninspiring business models and small-time acquisitions of Web 2.0 startups filled with rainbows & unicorns, rather than those based on simple, transactional revenue models.

and he posits two key assertions related to startup business models:

  1. The default startup business model from 2000-2009 was based on growth (aka acquisition) and CPM- or CPC-advertising
  2. The default startup business model for 2010 & beyond will be subscriptions and transactions (e-commerce, digital goods).

What does this mean for the average bootstrapping entrepreneur?

  • More competition as fewer teams bet on “build it and they will come” models and start competing to deliver services that firms or individuals will pay for today.
  • Perhaps less derision when they tell other startup entrepreneurs that they plan to charge right away.
  • Craig Newmark’s answer “Our history is slow, continuous growth. In the race between tortoise and hare, well, we’re the slow guy” to “How Craigslist Spread” is worth keeping as your screen saver quote.

Related posts

Do Not Pay to Pitch Investors

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

Jason Calacanis has gone a little bit off the dial on “why startups shouldn’t have to pay to pitch angel investors” but he is nonetheless correct that you should not pay large fees to potential investors for consideration or the right to present.

Our focus is helping bootstrapping technology startups but we do get startups at the Bootstrappers Breakfast who ask whether they should “pay to play” as well as those that have. I have yet to meet anyone in a startup who was happy with the outcome after paying a large fee to present. And by large I mean more than $100. There are a number of pitch preparation groups in Silicon Valley (e.g. VC Task Force, SDForum VC Funding SIG, SVB Competition, Under the Radar, Launch Silicon Valley) that are worth exploring before you write a large check to an Angel group in hopes of getting a larger check back.

The Angel Capital Association issued some guidelines in 2008 you should bear in mind (bolding added to body of text):

ACA Guidelines on Charging Entrepreneurs Fees for Applications and Presentations

In 2008, ACA recommends that angel groups charge entrepreneurs no more than nominal fees for applying for and/or making presentations for angel capital and that all fees are fully disclosed, ideally appearing on the group’s Web site. The fees should be no more than a few hundred dollars for applications and no more than $500 for presentations. Transparency to entrepreneurs is of utmost importance, so full information about fee amounts and what the fees are for should be included on the group’s home page and/or other prominent portions of the site and other important promotional materials. Angel groups should also provide a consistent program of high quality coaching, preparation and feedback to entrepreneurs participating in screening and presentation activities.

These guidelines match the practices of the great majority of ACA member groups, based on a 2008 survey. About two-thirds of responding members charge no application or presentation fees, and the other third mostly charged nominal fees. […]

ACA is an inclusive association that welcomes membership from any angel organization meeting the application criteria, but it does not endorse the practices of any group that levies large fees and/or does not forthrightly explain its potential fees to the entrepreneurial community.

Let me give an example from a Silicon Valley Angel group that I am familiar with: The Angels’ Forum. Here is what they say on their FAQ page for how they are different (bold added):

  • We are a small, stable and committed investor group with long history of investing together and low turnover. TAF only has 1-2 openings per year for new angels members.
  • All of our deals are reviewed and the due diligence is carried out by the angel investors, not by consultants looking for business opportunities.
  • Investments are always made via a single investing LLC.  This not only simplifies the entrepreneurs’ process but also protects our investing members’ privacy. The aforementioned TAF LLC will often lead the A round and be instrumental in bringing in venture coinvestors.
  • Entrepreneurs are not charged any fees to present, we don’t have “success” fees or any other fees for that matter.
  • TAF only invests in Northern California headquartered companies in order to devote sufficient attention and resources to the management and encourage their success.

Sometimes engineers feel that it would be more efficient just to get all of the possible investors in one room, make a single presentation, and get an answer right away. It’s somewhat similar to the challenge of finding early customers, the presentations are entirely different and the negotiation dynamics are different, but the process of improving your presentation is very similar. In fact someone asked this question on a mailing list I am on:

Ask yourself which is better:
Scenario A): Spend 2 weeks preparing biz plan/ppt/talk and $3,000 to present to 40-50 angels
Scenario B): Spend 20 weeks and $1,000 (coffee/lunch/gas/printing) and talk 1:1 with 20-30 angels

If you get feedback from each (or most) of the 20-30 angels on an individual basis that you use to improve your plan and your presentation then the 20 weeks is well spent. It’s not clear from your hypothetical situation whether you are able to make progress on your business in the absence of funding, but assuming that you can taking a retail approach (selling one by one vs. “wholesale” trying to sell all of them at once) allows you to improve your presentation and increases your odds for success substantially.

Look at it another way, let’s say that there were still two or three things missing/wrong from your presentation to the group of 40 Angels, what are your chances of being able to approach them again once they have heard you once. What are the odds that you will get feedback from more than a handful of them in a group setting? Talking to 40 at once seems more efficient of your time but it has a much lower chance of success than 20 or 30 sequential presentations–providing you take the time to get feedback and improve your presentation as you go, if you give the same presentation to the 20th as you gave the first you are wasting your time and the time of your potential investors.

Update Mon-Oct-12: following up on a comment left by Benjamin Kuo on an earlier post by Jason I came across two good posts by Joe Platnick of the Pasadena Angels, (I have highlighted some key quotes from each).

  • Angel Investors – Do They Charge Fees?
    • The best Angels make money the old fashioned way—working with entrepreneurs to generate investment returns upon exit
    • “Some reputable Angel organizations charge a nominal fee (~$50-100) to submit a funding application. The intent here is not to use this as a money making opportunity, but to provide a filter or sincerity test for the entrepreneur and to reduce the number of poor and incomplete business plans (aka junk) that get submitted.”
  • Friday Random Ramblings
    • “These pay-for-play scams remind me of the “modeling agencies” that charge people for representation, acting lessons and to have their headshots done.”
    • “Beware of for-profit angel groups based on a franchise model–as those are typically the ones that charge companies. If they don’t make money the old fashioned way and exclusively through investment returns, then they aren’t worth talking to.

Brad Feld, a VC with the Foundry Group, weighed in on this topic August 24, 2009 with “An Angel Investor Group Move That Makes Me Vomit” offering some key points to consider”

  • “I’ve personally made around 75 angel investments during two periods of time – 1994 – 1997 and 2006 – 2007.” [For details read the full post].
  • “I give you this background so that my statement below has some credibility.  I think it is grotesque that an organized angel investor group would charge an entrepreneur to present to their members.
  • And many of the members of organized angel groups aren’t actually angel investors.  I’d like to suggest that to “qualify” as an angel investor, you have to have made at least one equity investment of at least $25,000 in the past 12 months.  If you haven’t done this, you can’t call yourself an angel investor.

Update Tue-Oct-13: Jason Calacanis has posted a follow-up in “and now for some smoking guns (or part two of angels that charge)” that has a number of sourced comments on the problem. Worth reading, it’s written in a more temperate voice.

Update Tue-Oct-20: Bob Crimmins  left some very insightful comments on a Keiretsu Forum member’s website; here are some key excerpts but the whole set of his comments are worth reading:

“While I don’t fully understand the inner workings of Keiretsu, what I think I have learned thus far is 40%- 50% (huge numbers) of the startups that pay significant fees to Keiretsu get no funding.”

“In fact, I believe that Keiretsu’s incentives would be more properly aligned if they did have a stake in the outcome of the startups they represent. As it is, they have no incentive to ensure that every startup they put in front of their cadre of investors has a better chance than a coin flip of getting funded. [..] For example, Keiretsu could only take fees from startups who actually get funding, i.e., a success fee.”

“I would support a pay for performance model where the angel aggregator group only gets paid if they are successful in making a good match between their investors and the companies they charge fees to–no funding, no fees. Charging, say, a 2% – 4% success fee is utterly reasonable and in this scenario, the angel group has it’s incentives aligned with the startups and the investors, i.e., to make successful matches between entrepreneurs and investors.”

Update Tue-Oct-20 (more): Deborah Gage at PE Hub reports that “Keiretsu Forum to Drop Fees For Early Stage Startups” part of their Keiretsu Forum Thread.

Williams said the change is not a response to the recent attacks on the fees launched by investor Jason Calacanis […] but have been in the works for several months. Keiretsu also has no plans to drop fees for other entrepreneurs.

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:

Founders vs. Employees

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

Abishek Desai wrote an interesting post in April of 2008 “What Happens With People Having No Aim?” that I commented on (it appears that he has changed blogging systems and lost comments from his older posts) and I came across my answer and thought it would make a nice short blog post.

First Mr. Desai’s question

Right now my company has around 50 people on roll. We are doing development in various technologies like .NET, PHP, Facebook Applications etc. We do really interesting development which is good for company and developers.

Now for some reason we thought that our company needs some more structured technical growth and for that we need to scrap one of the holidays in month people enjoy. Right now first and third saturday are holiday here. For training we have to scrap first saturday so that we can get full day for training and at the end we can have monthly event (We do fun event once a month). The moment we announced this there was outburst in the company about scraping one holiday.

People were obviously not happy with the decision which was expected but there was something which was more disappointing. I found that most of them don’t know what they want to do in life. They think that life will just go on like this coding, developing, testing etc. Nobody wanted to be the best in whatever they are doing. They wanted to enjoy the holiday they get just like any other unambitious person.

Please note that I am not criticizing my own team. We have a very strong and dedicated team who are good in whatever they are doing and I really love my team but there is always room for improvement i.e. to become the best. Lack of this quality makes any person so lifeless, at least to me.

This kept me wondering what happens to people having no aim in life ? do they really do something important in life ? or they are just like people wandering around in zombie movies ? I love my team probably that is why I am more disappointed.

Please correct me if I am wrong somewhere, I am sure I am wrong somewhere but I am not able to find it. Regards, Abhishek

I thought this nicely captured the tension between founders/owners whose life is the company and employees, who although they  be quite dedicated, have competing priorities. My answer:

No one wishes they spent more time at the office on their deathbed.

There are many kinds of excellence and accomplishment, not all of them are work related. With 50 people in the firm surely not everyone has the same stake in success as you do. Also, there are limits to how much you can improve in a given period of time. Rest, relaxation, meditation, play, time with friends and family, volunteering, arts and crafts, reading, and many other activities are required to make a well rounded person.

Your employees may have aims that are very different than yours. It seems  a little aggressive to take more of their free time, especially without offering them an option to not attend or paying them more.

If they are not requesting the training I would be suspicious of imposing mandatory Saturday training sessions. If I were in your shoes I would ask folks individually and in small groups what’s holding the firm back, it could be many things that you could fix unrelated to having them work more hours.

See also

Why Partners Are Critical

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

We invest a lot of effort in finding partners and maintaining partner relationships. We do this for a variety of reasons.

One of the advantages to working in a large firm is that there are normally resources and expertise you can call on when confronted with a challenge. There are typically other specialists who have your same job you can compare notes with; there are other managers who can offer perspective on management challenges.

As a solo entrepreneur or member of a small team the limits of your perspective and capabilities can keep you from excellence in ways that may not even realize. I tell people that when I was at Cisco I was held back by the people around me, now I am held back by my own limitations. If only–I used to think to myself–I could be in my own company I wouldn’t have all of these bureaucratic hold ups and delays.

We value our partners because they bring perspective, skills, and expertise that we lack. We can’t do everything, and in fact it’s taken a while to realize that there is an important difference between tasks that you can comprehend and those that you can execute with distinction. You have to pick a few domains that you can excel in and be careful to avoid wandering into other areas.

Defining and managing the line of demarcation is the key to long term viability in a relationship. We strive to for clarity on what their areas of focus are and where there is overlap we talk about how we will manage it. We don’t expect them to sell our services, but we are always delighted when we get a referral. And we are always happy to recommend them when it’s appropriate.

Conway’s Law: the Co-Evolution of Business Organization and Product Design

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Rules of Thumb, skmurphy

Bruce Sterling in a 1994 speech “The Virtual City” made some interesting points about the interaction between the co-evolution of communication technology and cities.

The telegraph, and the telephone, which followed on its heels in about forty years, made the urban skyscraper possible. Not physically possible — the skyscraper was physically possible as soon as you had iron girders, curtain walls and steel-cage construction. But the telephone made the skyscraper informationally possible. Imagine how incredibly difficult it would be to run a business inside a skyscraper without electrical communication. It would be physically impossible to ship all those necessary messenger boys up and down through the structure.

There are very few high rise buildings in Silicon Valley, most of the technology firms end up in campuses full of buildings no more than four or five stories tall. Most startups tend to be in one and two story buildings.  Winston Churchill observed that “We shape our buildings, and afterwards our buildings shape us.” I have worked my entire career in one and two story buildings in the urban sprawl of Silicon Valley. I wonder if the software that comes out of firms working in highrises in downtown San Francisco is markedly different from what’s produced in the industrial parks and campus office buildings of Silicon Valley.

In “How do Committees Invent” Melvin Conway’s observed what come to be known as “Conway’s Law.”

The basic thesis of this article is that organizations which design systems (in the broad sense used here) are constrained to produce designs which are copies of the communication structures of these organizations. We have seen that this fact has important implications for the management of system design. Primarily, we have found a criterion for the structuring of design organizations: a design effort should be organized according to the need for communication.

Another formulation of Conway’s Law is that communication problems in an organization will be manifested in their finished products. One example of this is from Tracy Kidder’s “The Soul of a New Machine” has a scene where Tom West, the leader of the Data General effort to develop a 32 bit mini gets a look at the VAX, DEC’s competing machine:

“Looking into the VAX, West had imagined he saw a diagram of DEC’s corporate organization. He felt that the VAX was too complicated. He did not like, for instance, the system by which various parts of the machine communicated with each other; for his taste, there was too much protocol involved. He decided that VAX embodied flaws in DEC’s corporate organization. The machine expressed that phenomenally successful company’s cautious, bureaucratic style. Was this true? West said it didn’t matter, it was a useful theory.”

Some lessons from Conway’s Law for startups:

  • Attack a much larger competitor at “interstitial opportunities” that will require two or more divisions to collaborate to be able to compete with you.
  • Be alert to a pattern of software defects that indicate team communication problems that you have overlooked (or been ignoring as not important).
  • Whenever there is more than one way to accomplish the same thing, do a root cause analysis to make sure that the relevant parties are collaborating and not each going their own way.

See also

Sales 2.01

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Customer Development, skmurphy

Francis Fischbach attended the first Sales 2.0 conference in November of 2007 and blogged about it in “Inside Sales 2.0: A Report From the Front Lines.” I just realized that we missed the 2009 version that was held this week so I am recycling two comments that were added to Francis’ original post since I think they are still useful. And we will have to make it back next year to Sales 2.0, it looks like it’s becoming a very useful conference.
At the time Craig Klein commented:

Isn’t Sales 2.0 about building new pathways using technology that give the customer self serve access to information and letting the customer “pre-qualify” themselves by virtue of their actions before a sales rep spends time with them?

Jim Sterne of Target Marketing wrote a great book in 1996 called “Customer Service on the Internet” that’s now in it’s second edition that outlined how savvy firms were allowing customers to satisfy their service needs using the Internet. The implications for the sales process were clear then. The challenge that many startups face is that they are still on the “sales learning curve” and can’t effectively anticipate enough of their prospect’s questions to quality them without a conversation.

I am not sure we have a good definition for Sales 2.0, perhaps by the time we get to Sales 2.1 or 2.2 things will have settled down a bit. The Sales 2.0 that the blog post title refers to is just the name of the conference, and like “39 minute cleaners” just because something has a particular name doesn’t imply a warranty or guarantee of results. Not every self-titled next generation or paradigm shift actually obsoletes established practice: if and when “Sales 2.0? actually arrives it will be called “sales” for the same reason that very few people refer to cars as “horseless carriages.”

However, we are big fans of the cluetrain manifesto and the perspective it offers on the impact of Internet-enabled communication on customer development–sales, marketing and business development. I worry that the premise of your definition–”pre-qualify based on self-service access to information before a sales rep spends time”– sounds more like an attempt to avoid a conversation that could form the basis for a relationship, a relationship that might lead to a sale.

In our experience, it’s incumbent on startups to initiate conversation. Not the typical “sell, sell, sell” approach that established firms encourage in their sales teams to “maintain control of the conversation”–that’s an interrogation–but one where you are genuinely committed to understanding the prospect’s needs and are open to letting them teach you something new about your product.

Sobering Workshop By Corum on Software Mergers

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

I attended a “Merge Briefing” workshop today offered by the Corum Group Ltd. on the status of software acquisitions. I had learned a lot from a workshop that Ward Carter, Corum’s CEO, gave at the Software Business 2007 conference and felt that this would be informative. It turned out to be much more. It was given by Nat Burgess, and it was quite sobering.

Burgess characterized merger and acquisition activity as either driven strategic considerations or by consolidation. Strategic software acquisitions are driven by major changes in the business environment caused new technologies, new or rapidly growing markets, or new regulation requiring IT infrastructure upgrades. Consolidation is driven by general financial uncertainty, IT purchasing slowdown, or regulation creating additional expense.

Burgess offered the perspective that, with the exception of a few highly strategic market sectors, we have moved from a market driven by strategic acquisitions to a consolidating market. Consolidation driven acquisitions tend to be done at lower multiples than strategic ones, and as mergers or acquisitions have historically accounted for 90 to 95% of the dollars in a software company exit this means that firms need to focus on recurring revenue models, clear ownership of all relevant intellectual property, and attacking a customer’s deteriorating cost or risk situation.

Corum offers a free weekly newsletter that tracks software merger and acquisition activity as well as quarterly briefings on-line. It was a sobering assessment but one that seems thoroughly grounded in the current realities. I was glad to be able to meet Nate Burgess and to hear the presentation. One thing that became clear as I was reading through the briefing book afterward was that acquisitions are going to be the overwhelming majority of exits for the foreseeable future, and I need to pay more attention to software M&A activity if our firm is going to be able to assist our clients in getting the best value for their technology and business.
Update: Nate Burgess blogged about the event and posted photos including this one that shows me sitting next to Craig Sirnio of the Angel’s Forum.

Craig Sirnio and Sean Murphy sitting in front row of a sobering merger and acquisition briefing by Nate Burgess

Bob Lewis on Progress and Economizing vs. Cost Cutting

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

“Contentment comes from wanting what you have,
Ambition from wanting what the other person has,
Progress from wanting what nobody has.”
Bob Lewis “Random Thoughts

Bob Lewis writes the “Keeping the Joint Running” E-mail newsletter, devoted to practical advice for leading IT organizations effectively.

From his column “In General, a Time for Generalists” Bob offer three tips for reducing expenses.

  1. Any schmuck can cut costs. Economizing–finding efficiencies that allow the organization to continue delivering as much service as possible while reducing costs–requires excellent management.
  2. Don’t try to solve it in big, bold strokes. The best solutions usually come from nibbling away at the problem.
  3. If everyone does everything the same old ways, all you’ll be able to do is cut costs — you won’t find any opportunities to economize.

I feel that there is a deep insight here: organizational change has a number of complex interrelationships that can yield sharply non-linear effects (sometimes no effect after seemingly large changes, and often small changes generating huge unintended consequences). Nibbling away allows you to proceed cautiously, especially when making cutbacks, to assess the effects. I have touched on a different aspect of this in “Doing Less with Less” but startups should be continually re-evaluating development and support methodologies, running experiments to see if changes in approach can yield more productivity or bona fide cost savings.

Tips For Handling Referrals

Written by Theresa Shafer. Posted in 5 Scaling Up Stage, Lead Generation, Sales

Tips for Nurturing ReferralsNurturing Referrals Is Critical to Growth

Nurturing referrals is a critical activity for every entrepreneur. A referral is an introduction to a prospect with an endorsement. They come from shared success with your customers or colleagues, someone who knows your potential and can vouch for you or your team’s ability to deliver. These individuals are the best way for you to get new business.  However, it requires time and energy to build and maintain the relationships that foster referrals. When someone gives you a referral here are a couple tips on how to nurture it.

7 Tips For Nurturing Referrals

  1. Model your relationship after the Save-the-Children Sponsor Program: Pictures and Thank you Letters
  2. Be proactive with Thanks
  3. Communicate on Progress
  4. Keep Them in the Loop
  5. Manage their Reputation
  6. Deliver for them
  7. Be clear on service demarcation (small overlaps are better than gaps)

Three Key Things to Remember

  • They are sponsoring you
  • Reputations are hard to build and easy to dent
  • You are creating “customers in common”

Tristan Kromer left a comment: “It’s rarely possible to overdo follow-ups!”

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How To Measure Your Lead Generation Effectiveness

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, Consulting Business, skmurphy

Many start-up founders believe that the sales process should be this straightforward:

  1. Get the phone to ring (or e-mail inbox or skype or web contact form)
  2. Tell your prospect about your offering
  3. Take the order

Alas it is normally not this simple, especially if you are selling to businesses. We do encounter some startups that are looking for “smarter prospects” who will buy after they explain their offering but the typical business customer has a more complex buying process. At a minimum the prospect needs to understand your offer, to believe you can deliver the benefits that you promise, and to act based on an important if not critical business need.

It will normally take multiple interactions with a prospect to turn them into a customer. For business customers this may take weeks to months. This means that  you will need to keep track of more than one prospect and more than one contact with each of them. Even for those readers blessed with a powerful memory this will require a system and a systematic approach. There are number of software tools available to track contacts/prospects:

Any of these are acceptable provided that you enter a minimum amount of information for every prospect and every contact with them. To be able to determine if a particular lead generation approach is working you will need to track the source of each prospect’s call and whether or not you ultimately won their business. This allows you to reinforce methods that are working with more time and budget, and to adjust or discontinue methods that fail generate calls that lead to revenue.

We believe that you need to be tracking the following:

  • Opportunity (Contact Name, Company, E-Mail, and Phone): If you are selling to a business you may need to group several different contact names under one company or opportunity name.
  • Source (e.g. Person, Event, Ad, URL):  Be sure to track the path that each prospect followed to find you. Ask if it was a referral (if so from whom), a search engine query, an advertisement, a paper or blog post, or a speaking engagement.
  • Status in sales process (e.g. Initial Contact, Percolate, Pitch/Demo, In Evaluation or Benchmark, Quoted/Proposal)
  • Next Action Date:  Always get clarity with a prospect on when you will contact them next, even if they plan to contact you (e.g. “If I don’t hear from you by Wednesday I will call you Monday of the following week). This should be less than six weeks and is normally one or two weeks for an active prospect.
  • Quoted – Proposal Expiration Date. Never put a quote or proposal in front of a prospect without an expiration date. This sets up two natural follow up points: before it’s due and after it’s expired. This also allows you to have a discussion about their decision time frame (e.g. “How long would you like the quote good for?”).
  • Win/Loss: Always follow through and determine if they ultimately selected another vendor and if they did buy, why did they buy.

Startup founders with an engineering background tend to focus much more on the tool, and selecting a tool, and less on the daily follow through needed to track essential information for each contact with every prospect. For most of the firms that we work with, until they are really scaling up, Excel or an on-line spreadsheet will work just fine. If you have less than 100 leads–not suspects but firms that have actually contacted you and demonstrated interest and a business need–just use Excel and bake the update process into your daily practice.

Herb Reiter Interview on Fostering Static Timing Analysis Adoption

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

I have followed Herb Reiter‘s consulting career over the last five years or so:  there aren’t very many business development consultants who work with EDA firms, fewer who have the mix of semiconductor and design background that Herb accumulated on the way to honing his business development expertise. He is personable, methodical, and always interested in talking with new start-ups. He gives good advice informed by a perspective on both industry and technology trends. When he met with PicoCraft a while back he mentioned that he had been part of the team at Synopsys that helped to establish PrimeTime as a de facto standard for STA (Static Timing Analysis), building on experience he had gained doing the same for Motive at Viewlogic before they were acquired by Synopsys. I caught up with him recently and asked him to tell the story of PrimeTime’s early customer development and lessons it may hold for other EDA companies, especially start-ups. What follows is an edited (and hyperlinked, good blogging is good linking) transcript of our conversation.

Q: Can you give me a brief bio and some background on the events that allowed you to establish static timing analysis as a viable new tool in the ASIC design flow and PrimeTime as a key player in that market?

I spent almost 20 year in semiconductors, I have seen the consequences of insufficient design tools. For example, in the early to mid 80’s I was part of National Semiconductor‘s plan to bring their impressive portfolio of micro controllers, communication chips, and other ASSPs as mega-cells into the rapidly growing ASIC world. A lack of good tools was the primary reason for this failed attempt.

When I joined VLSI Technology in 1989, VLSI had the best cell-based tools and flows. Their design centers were world-class, working with leading edge IC design teams at very successful companies. I got a close up view of the challenges the development of ASIC core technology represented. As VLSI’s lead in cell-based design methodologies waned, revenues and profits declined and eventually Philips acquired VLSI. After VLSI I joined Viewlogic. After I had been working there for a year, successfully encouraging many ASIC vendors to qualify Motive STA and VCS gate-level simulation as sign-off methodologies. Then Synopsys offered around $400M to Viewlogic’s shareholders and we merged with our former competitor.

Q: It’s rare that a larger EDA firm is able to develop and launch a new product in a new area. As you said, you were part of the Viewlogic acquisition at Synopsys. How did you build internal support to enable PrimeTime to achieve not just traction in the market, but ultimately dominant market share?

At Viewlogic we had been winning accounts with Motive against Synopsys/PrimeTime at Viewlogic. When I “changed sides” many members of the PrimeTime team were interested in our approach. The first thing that I did for Motive and then for PrimeTime, was to narrow our focus from dozens of potential partners to the top dozen technology leaders. Both at Viewlogic and Synopsys my team used the same basic formula:  We worked hard to understand our partners’ requirements, developed trust relationships with a dozen ASIC semiconductor vendors. This allowed us to make Motive and then PrimeTime an integral part of their ASIC design flows and the key to timing sign-off.

Just like my semiconductor partners, I had engineering sites all over the world, I wanted my people to be as close to these partners as possible. One of my engineering experts even worked at TSMC in Taiwan, and was instrumental in implementing Dr. Ping Yang’s vision of TSMC’s reference flow number one.

We also waived the PrimeTime training fees for the ASIC Design Centers of our partners. Synopsys’ product group gladly covered the training department’s exploding expenses and was rewarded with a flood of PrimeTime bookings from these Design Centers and their many ASIC customers. Just like TSMC‘s first and second reference flows–which were dominated by Synopsys tools–increased Synopsys revenues at fabless IC vendors, these ASIC Design Center seminars did the same at our big partners and their ASIC customers.  Most of the smaller ASIC vendors adopted PrimeTime quickly, after seeing its benefits giving their larger rivals a competitive advantage, and a de-facto Timing sign-off standard was established in about two years.

Q: What were a couple of lessons learned?

Introducing new EDA design tools is a lengthy and difficult process. Gate-level timing simulation was the proven and trusted methodology for timing verification through the 0.35 micron process node. But at 0.25 micron  chip complexities and clock speeds increased the challenge of chip level timing closure, 0.18 micron was even more difficult, such that simulation run times approached eternity. Mask and re-spins costs, coupled with the economic impact of being late to market meant that an exhaustive method that guaranteed timing closure was urgently needed. PrimeTime’s static timing analysis offered a comparatively very fast way to do exhaustive timing verification and the product group as well as my team offered excellent support during this transition.

It’s important to note that static timing analysis had been around for more than a decade, Motive had originally been used for board level design. When my ASIC Vendor team at Viewlogic together with the Motive developers introduced it to the semiconductor vendors, we learned a key lesson: People were not willing to abandon a methodology that is working until it seriously hit their pocket book. Eternal runtimes of 0.18 micron chips and expensive re-spins because dynamic simulation is not exhaustive, helped us win STA converts.

Q: How big an issue was library management for the ASIC vendors?

Huge, ASIC vendors were at first reluctant to take on creating and supporting yet another library. One common complaint that I heard many times from ASIC vendors: supporting different libraries for different process technologies was a never ending effort. This huge effort got multiplied by the number of tools that relied on accurate libraries and, to make matters even worse, required a complete update and re-verification, whenever a new tool revision was introduced. I knew that we had to make it much easier for our customers to manage these libraries.

Q: When you talk about AEware (scripts written by Applications Engineers to supplement and extend the base product?

Already at VLSI I have seen our design centers developing a lot of what you call AEware, primarily to overcome tools deficiencies or extend the life of a proven tool. My Silicon Vendor Program team at Synopsys worked very closely with the strong corporate CAD groups at our partners to temporarily give Synopsys tools important capabilities for chip design within existing flows and to demonstrate to the Synopsys product groups the importance of such features–with remarkable success. The product groups, especially the PrimeTime team, adopted many of these scripts and made them integral and professionally supported parts of the next tools releases.

Q: Can you talk about how this experience led you to form EDA 2 ASIC Consulting and what your business is today?

In my role managing the Synopsys Silicon Vendor Program team I really enjoyed being a bridge between the powerful ASIC industry and the innovative EDA industry. I saw PrimeTime, VCS, TetraMax, Physical Compiler and other Synopsys tools getting accepted widely and really making a big difference for our highly interdependent industries. When I started my own firm in 2002 I wanted to replicate my dream-job: Being a bridge between these two industries and bringing to my friends in the semiconductor industry innovative EDA solutions, now primarily from smaller EDA vendors. In the 7 years of managing my own firm I have been able to make a number of contributions to the semiconductor industry. But I still look back at the work I did at Synopsys. Together with the product group and the training department, we laid the groundwork for PrimeTime’s market dominance as a lasting contribution. PrimeTime is still at 87% market share today, almost ten years later, according to Gary Smith EDA.

Financial Modeling for Startups Workshop–Early Bird Ends Tomorrow

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

Update Tue-Sep-23: Sold Out, No Walk-ins. We will offer it again: you can sign-up to be notified of upcoming workshops

We just finished our last rehearsal for next Wednesday’s (Sep-24) “Financial Modeling for Startups” workshop we are doing jointly with Nathan Beckord of Venture Archetypes. I think it will be a good lunch and learn opportunity (of course I am biased).

The workshop attempts to offer an approach for modeling your start-up that spans bootstrapping and developing a business plan that merits investment. Nathan addresses the first question that many entrepreneurs have about developing a financial plan: Why Bother?

  • A good financial model is an operating plan and roadmap for your business…sales targets, hiring plan, marketing, etc…
  • A financial model is a framework for thinking through key assumptions regarding growth rates, pricing, costs, etc
  • A good financial model is a mark of credibility and can help convince investors of the overall potential of your opportunity
  • A well thought out financial model gives you an idea of how much money you need to raise and when, as well as overall ROI.

It’s an interesting mix of topics that address the needs of teams that are bootstrapping and want a roadmap as well as teams that are preparing to seek outside investment:

  • Philosophy of Modeling: Top Ten To-Do’s
  • Getting Started: Revenue Build-Up
  • Cracking The Pricing Code
  • Prospect’s View of Cost
  • Product Mix Strategies
  • Forecasting Expenses
  • Hiring Plan Hat Chart
  • Roll It Up and Analyzing It
  • Adjusting Forecasts for the Real World
  • Pitching the Numbers

It’s only $20 if you sign up by tomorrow and includes lunch. It’s Wed. Sept. 24 at 11:30 to 1 at Plug & Play, more details and registration here: http://www.skmurphy.com/services/workshops/financial-modeling-for-startups-080924/

Networking and Referrals

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, Lead Generation, Sales

This is a guest post on networking and referrals by Steve Moore of SPMSolutions.

Networking and ReferralsNetworking and Referrals

Networking and referrals continue to be the primary marketing strategy for many community-based small businesses (especially those with limited budgets). In contrast, many technology-oriented small businesses rely more upon on-line forums, social networking sites, user groups, etc. to reach potential customers. I sometimes wonder if more old-fashioned ‘schmoozing’ skills can help these companies get more customers–especially here in Silicon Valley?

Two Different Things

First, we need to remember that networking and referrals are really two different things:

  • Networking is the act of putting yourself in an environment to meet and interact with others.
  • Referrals happen when someone introduces you to a third party who might benefit from what you have to offer.

I guess it’s a little like dating. You go to a dance to socialize with others (i.e. networking) and hope to get introduced to someone with similar interests (i.e. a referral).Getting a referral from someone is very special. They are sharing their credibility by referring you to someone you may not even know. They are essentially validating that you are real, credible and can do what you say you can do. This short-circuits the sales cycle considerably. While some referrals are nothing more than warm leads others can be considerably hotter!

So how can we all do a better job of getting referrals?

  1. The first step is to get out there and show up where everyone else in your industry goes. Sure there are a lot of referrals made using emails and over-the-phone but many more are made during face-to-face meetings.
  2. The second step is to give more referrals! The old adage that ‘givers gain’ is so appropriate. Go out of your way to refer your customers, partners and associates to others who could benefit from their services. After awhile you’ll notice them reciprocating and everyone wins.
  3. The third step is to simply ask for them. It is amazing how many business owners shy away from ever reminding their satisfied customers that their referrals would be much appreciated. I would also take things further and make referrals a strategic goal instead of a casual thing that either happens or it doesn’t.

Certainly referrals should not be your only marketing strategy to get more clients but it sure seems like every other strategy takes more time, costs more money and rarely gets the results that a dedicated networking/referrals strategy does.

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