Saras Sarasvathy’s Effectual Reasoning Model for Expert Entrepreneurs

Written by Sean Murphy. Posted in 1 Idea Stage, 4 Finding your Niche, Customer Development, skmurphy, Startups

Update Feb-24-2011: Since I first wrote this in 2010 the Effectuation.Org site has been considerably upgraded and contains a lot more information on Saras Sarasvathy’s research.

Recapping ideas, papers, and books that had changed my life yesterday reminded me of Saras Sarasvathy’s Effectual Reasoning Model from her 2001 paper “What Makes Entrepreneurs Entrepreneurial” (There is a reference on the Khosla Ventures site at “What Make Entrepreneurs Entrepreneurial” with an annotated PDF version)

Entrepreneurs Rely on Effectual Reasoning

Effectual reasoning, however, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.

Effectual thinkers are like explorers setting out on voyages into uncharted waters.

All entrepreneurs begin with three categories of means

  1. Who they are–their traits, tastes,and abilities;
  2. What they know–their education, training, expertise, and experience
  3. Whom they know–their social and professional networks.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

In our “Idea to Revenue” Workshop we talk about three kinds of capital that startups begin with: intellectual, social, and financial. We don’t call out what she refers to as “human capital” or “who they are–their traits, tastes, and abilities” as a resource but instead encourage teams to “begin in phase two.” That is, to build on prior accomplishments and long term interests so that early customers view the startup as a continuation of earlier efforts and focus.

But I like this model of bootstrapping entrepreneurs as foragers: living off the land as hunter-gatherers until they can find a market to homestead. Bootstrappers have to start from where they are and search for opportunities. Pasteur advised that “Chance only favors the prepared mind” so you have to open yourself up to possibilities and be prepared to be surprised (which is another way of saying you have learned something new). Some more quotes from her paper:

Using these means, the entrepreneurs being to imagine and implement possible effects that can be created with them. Most often they start very small with the means that are closest at hand and move almost directly into action without elaborate planning.

Plans are made and unmade and revised and recast through action and interaction with others on a daily basis. Yet at any given moment, there is always a meaningful picture that keeps the team together, a compelling story that brings in more stakeholders and a continuing journey that maps uncharted territories.

Eventually certain of the emerging effects coalesce into clearly achievable and desirable goals–landmarks that point to a discernible path beginning to emerge from the wilderness

Seasons entrepreneurs, however, know that surprises are not deviations from the path. Instead they are the norm, the flora and fauna of the landscape, from which one learns to forge a path through the jungle. The unexpected is the stuff of entrepreneurial experience and transforming the unpredictable into the utterly mundane is the special domain of the expert entrepreneur.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

One of the reasons that we run the Bootstrapper Breakfasts as 90 minute unconferences–where folks introduce themselves and put issues on the table they would like to discuss–is that it keeps everyone in an entrepreneurial frame of mind:

  • When you hear someone describe a challenge that they are facing, it gives you much better insight into their thinking and allows you to evaluate what they might be like to work with.
  • Often as not they are describing a common problem, or aspects of a common problem. Hearing their perspective just on the problem can give you new insights into how to solve it.
  • It’s good practice to learn how to ask for advice and insight. Entrepreneurs need to do a lot of that in the early market especially.
  • Explaining how you managed an issue or situation can deepen your understanding of you solution, it forces you to put it into terms others can use and understand. This is good practice for scaling up (e.g. adding your first employee).

Sarasvathy stresses the cooperative nature of entrepreneurship in the paper, a perspective that I share. Often an entrepreneur is attempting to obsolete an aspect of the status quo, but they have much less competition and much more opportunity for collaboration than is appreciated.

Markets are stable configurations of critical masses of stakeholders, who come together to transform the outputs of human imagination into the forging and fulfillment of human aspirations through economic means.

Effectual reasoning may not necessarily to increase the probability of success of new enterprises, but it reduces the costs of failure by enabling the failure to occur earlier and at lower levels of investment.

Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet-to-be-made future that can substantially be shaped by human action; and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it. In fact, to the extent that the future is shaped by human action, it is not much use trying to predict it–it is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

Saras Sarasvathy on 3 Key Differences In Effectual Reasoning

Saras Sarasvathy highlights three key differences between effectual reasoning and traditional startup management models:

  • Risk taking
    • Traditional: expected return, work the plan to deliver results to your investors (“Ready Aim Fire” can become “Aim–not big enough–Aim–not big-enough–Aim…”).
    • Effectual: affordable loss, make many small mistakes as early and cheaply as possible to speed learning (“Ready Fire Steer“)
  • Focus:
    • Traditional: competition
    • Effectual: strategic partnership (especially with early customers)
  • Value Creation
    • Traditional: rely on pre-existing knowledge to aim for a known market you can dominate and exploit
    • Effectual: leverage contingencies; create opportunities as you map a new market

She goes into some detail on the “affordable loss principle” and offers extracts from an interview with an expert entrepreneur’s approach to a new market:

While managers are taught to analyze the market and choose target segments with the highest potential return, entrepreneurs tend to find ways to reach the market with minimum expenditure of resources such as time, effort, and money. In the extreme case, the affordable loss principle translates into the zero resources to market principle. Several of the expert entrepreneurs I studied insisted that they would not do any traditional market research, but would take the product to the nearest possible potential customer even before it was built. To quote but one of them, “I think I’d start by just… going… instead of asking all the questions I’d go and say.. try and make some sale. I’d make some… just judgments about where I was going — get me and my buddies — or I would go out and start selling. I’d learn a lot you know..which people.. what were the obstacles.. what were the questions.. which prices work better and just DO it. Just try to take it out and sell it. Even before I have the machine. I’d just go try to sell it. Even before I started production. So my market research would actually be hands on actual selling. Hard work, but I think much better than trying to do market research”.

In finding the first customer within their immediate vicinity, whether within their geographic vicinity, within their social network, or within their area of professional expertise, entrepreneurs do not tie themselves to any theorized or pre-conceived “market” or strategic universe for their idea. Instead, they open themselves to surprises as to which market or markets they will eventually end up building their business in or even which new markets they will end up creating.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

This is also an approach that favors older entrepreneurs to the extent that they have larger social networks (based on more shared work experience with more people) and deeper professional expertise. The one caveat is that they have to be open to new possibilities and not be blinded by what they “know” to be true in the face of new information.
This 2001 paper offers another perspective on bootstrapping entrepreneurship that is independently derived and predates “Four Steps to the Epiphany (2003)”, “Blue Ocean Strategy(2005)”, and the “Sales Learning Curve (2004).” But all four are clearly addressing different aspects of the same core paradigm that takes a scientific or hypothesis driven approach to new products and new markets.

I will leave with two final quotes from the paper which highlights the value of establishing enduring relationships.

Expert entrepreneurs […] are actually in the business of creating the future, which entails having to work together with a wide variety of people over long periods of time.  [They fill their future] with enduring human relationships that outlive failures and create successes over time

This is largely ignored in our entrepreneurship curricula which tend to focus on market research, business planning, new venture financing and legal issues. As far as I know no entrepreneurship programs offer courses in creating and managing lasting relationships or stable stakeholder networks, nor on failure management.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

Related Blog Posts

Federated Entrepreneurship 2

Written by Sean Murphy. Posted in Community of Practice, Events, skmurphy, Startups

Recapping on my earlier “Federated Entrepreneurship” post from January 5.

A federation is a union of partially self-governing units with a constitution that does not allow unilateral changes by a central governing body. I think it’s also a good model for what’s required to create an economically dynamic region. One parallel would be to a barn raising or Finnish talkoot, where a community comes together to solve an urgent problem that is beyond the means of a member or family in the community. As one of my old clients once remarked “it takes a village to raise a startup” and I think it takes a federation of entrepreneurs to improve the economy in a region.

Justin Bacon described this as a goal for his Minnesota Lean Startup Group in a comment on the LinkedIn Group

What we all hope to learn, the encouragement and advice that we give and/or receive, the lessons learned that we share and the relationships that we build, are as much about building this kind of community here locally as it is about helping us foster our own bootstrapped tech-startups.


Two other well known entrepreneurs have shifted their focus to entrepreneurial education.

Sramana Mitra outlined an ambitious New Year’s Resolution for 2010

Through the Entrepreneur Journeys project, I have come to conclude that the most vulnerable phase in an entrepreneur’s life is the pre $1 million revenue stage. This is where numerous ventures fail. Once the $1 million revenue milestone is crossed, entrepreneurs find it easier to find additional customers, manage working capital, and access funding, whether it is credit or equity.

In my roundtables, the vast majority of entrepreneurs I work with are in this rather vulnerable pre $1 million revenue stage.

Thus, I have come to the conclusion that if I could help a million entrepreneurs globally reach $1 million in revenue (and beyond), that would be the foundation of a robust, distributed, and sustainable economic value creation that would add up to a trillion dollars in global GDP. It would also result in creating at least 10 million jobs around the world.

Through my efforts — blog, books, columns, roundtables — I am trying to develop a scalable entrepreneurship education system that entrepreneurs from every corner of the world can access. I am sure, in 2010, this work will gain further momentum.

But I do need your help in getting the word out that this resource base is available for entrepreneurs who wish to access it. Each of you — if you believe in this vision — can directly or indirectly influence, perhaps, another hundred entrepreneurs, and help them clear the all-important $1 million revenue hurdle. By using bootstrapping, crisp positioning, and laser-sharp focus, entrepreneurs can, each in their individual domains, build small businesses with solid foundations.

Eric Ries also outlined a desire to move Towards a New Entrepreneurship in his first post of 2010:

When I started writing about the lean startup, my aspiration was to do more than just share a handful of tips and tricks that work for consumer internet startups. I believe the only way to improve our chances as entrepreneurs is to develop a working theory of entrepreneurship.

Like other industries – from publishing to automobiles – entrepreneurship is in the process of being disrupted by globalization. On the whole, this is a good thing for America and for our civilization. The cost of creating new companies is falling rapidly, and access to markets, distribution, and information is within the reach of anyone with an internet connection. The result is a profound democratization of the digital means of production.

In a subsequent post today Eric did a roundup of Lean Startup Resources; there is also this list of Meetups.

Related posts:

  • “Continuing Education in Entrepreneurship” from October 2006 suggests networking offers “knowledge that isn’t written down” (and not to be found in Mr. Google’s basement):
    “I had this epiphany that I had spent the last dozen years or so, since I started attending Software Entrepreneur Forum (now SDForum) and Churchill Club meetings, in this ad hoc program in continuing entrepreneurial education. Books are valuable, and not enough entrepreneurs do enough reading, but there is also a category of knowledge that hasn’t been written down yet. And you can gain wisdom from listening to someone who has played the game–even if it’s just their mistakes–that you would otherwise have to gain from your mistakes experience.”
  • Breakfast with Tom Anyos of Technology Ventures Corporation” Between 2002 and 2008 TVC offered a set of six monthly classes twice a year in Silicon Valley:
    • Entering the Entrepreneurial World
    • Market Research & the Marketing Plan
    • Financial Management
    • Preparing & Presenting the Business Plan
    • Operations Startup, Monitoring & Human Resources
    • The Term Sheet & Lessons Learned

Federated Entrepreneurship

Written by Sean Murphy. Posted in Community of Practice, skmurphy, Startups

Federated entrepreneurship was a phrase that William Krause used to explain 3Com’s model for management and innovation when he was CEO. Federation comes from a Latin word foedus for covenant or treaty and describes a union of partially self-governing units with a constitution that does not allow unilateral changes by a central governing body. It was a good model for the entrepreneurial business units at 3Com to pursue opportunities both independently and in concerted action.

Nanette Collins: Startup Culture is Critical

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

I am happy to be able to offer another guest blog by Nanette Collins, her first was on “Volunteering, Lessons Learned from the Trenches.”  Nanette is an entrepreneur in her own right, she is the principal at Nanette V. Collins Marketing and PR with offices in Boston and San Francisco and one the web at www.nvc.com

It’s All About Corporate Culture by Nanette Collins

In the 15 years that I have owned a marketing consulting business, my focus has been on working with entrepreneurs and startups in the EDA and semiconductor area. This has given me a ringside seat to grand successes, gut-wrenching failures and plenty of case study material. I have seen a lot and learned a few things in the process.

If an entrepreneur were to approach me for advice on the first steps to starting a business, I’d recommend thinking carefully about the kind of culture he or she wants to create. This effort will set the tone and help lay a foundation for success. A corporate culture based on a strong value system and an implicit understanding of ethical business practices will engender loyalty from the team, customers and various other stakeholders.

Corporate culture is much more than Six Sigma, the business management strategy du jour, or Quality Circles implemented by many large companies in the 1980s. It’s also more than the detailed corporate identity list of must haves –– name, logo, tag line, website and so on.

Instead, it’s a careful assessment by a company’s management on how it should operate and be perceived, based on a standard set of ideals that reflect its goals and objectives. The corporate culture should be fluid enough to be able to integrate attitudes, behavior, experiences and personal and cultural values.

A great example is a long-gone EDA startup called Viewlogic that hired the Boston Public Relations firm where I worked as an account executive in the mid 1980s. What quickly became apparent was the thoughtfulness and care the five founders –– Sal Carcia, Alain Hanover, Will Herman, Ron Maxwell and K.S. (Sri) Sriram –– had placed on building the company’s corporate culture. Maybe it was instinct. It may have been good management skills. More likely, it was the experience that they gained from working for a large corporation before going off on their own.

Whatever the motivation, it was the right thing to do, but it took a year’s worth of meticulous planning before they launched themselves. This company taught me many things, but the most valuable insight was the need to pay attention to corporate culture.

As a regular visitor to this company long acquired by a larger vendor, it was clear to me that the focus on corporate culture instilled a set of shared values with employees. The entire team seemed to have a set of customs and traditions that was this company’s and none other, which made it a terrific client and business partner.

Employees were dedicated, focused and all had a sense of purpose. That’s because they understood where they fit within the culture and knew what was considered appropriate behavior. During new employee orientation, Will Herman proudly carried into the session a three-ring binder with the presentation on the company’s corporate culture. This emphasis helped the company navigate through tough times and encouraged the team to keep going. After all, even with a well-conceived corporate culture, it wasn’t immune to the vagaries of a new business.

As the company grew in size and got more successful, a plaque was hung in the reception area outlining its five-point value system, underscoring the corporate culture. Many of the specific points seem to have been forgotten over time, but there are a few that stand out:

  • The first is an emphasis on professionalism and personal integrity that started with the founders who set the example for all.
  • A focus on ensuring a return to all stakeholders –– investors, employees, customers and partners –– may seem obvious, but well worth articulating to the entire team.
  • Providing value to customers may seem obvious as well, but who hasn’t experience lousy quality support from a formerly valued vendor? In recent years, many a large consumer company has been resoundingly criticized for their lack of customer service. A corporate culture focused on successful customers has to be a winning strategy.

I have worked with more than 30 startups and see too few founders give enough consideration to the culture of the firm that they are building, an unfortunate miscalculation. Too many entrepreneurs seem to think this is trite, quaintly old fashioned or don’t consider it at all. And yet, the benefits are numerous, from employee recruiting and retention to loyal customers and repeat business. With a strong corporate culture, there will be no ambiguity about behavior or ethics or what a company stands for.

Just as every startup has a product strategy and roadmap, it should also develop a set of corporate guidelines. It may be the blueprint for success.


I have included a 1985 article on Viewlogic for some background for readers who may be unfamiliar. The company was a pioneer in EDA but does not have a Wikipedia page or definitive history on-line that I could find. It’s from “D&T Scene,” IEEE Design and Test of Computers, vol. 2, no. 3, pp. 10-15, May/June 1985, doi:10.1109/MDT.1985.294730

Viewlogic unveils first CAE product at show Viewlogic Systems, a start-up company formed in October 1984, will show its first product, a desktop CAE system based on the IBM PC, at this year’s Design Automation Conference. The company also announced it has received $1.5 million in first-round financing, provided by company founders and venture-capital firms.

Viewlogic was founded by Alain Hanover, Salvatore Carcia, Ronald Maxwell, Sri Sriram, and William Herman, all from Digital Equipment Corporation. The company claims that its software addresses key elements of a design engineer’s desktop needs, providing facilities for design, documentation, and communication.

An open architecture approach gives users access to a reliable electronic design automation system that fits into existing CAE environments.

Sriram, Viewlogic’s director of marketing, says that the key benefit of the system is that it is priced at a level that allows each design engineer to have a system at his desk, where it is always accessible. The PC-based system is powerful enough for many applications, but the software, written in C, is also available in a version that runs on a DEC VAX operating under VMS for more demanding applications.

The software is currently being evaluated at five beta sites.

Startup Maturity Checklist Session Sun-Oct-4 1pm at SV Code Camp

Written by Sean Murphy. Posted in Events, skmurphy, Startups

Athol Foden‘s encouragement I have submitted the following session (links added) for this year’s

Silicon Valley Code Camp has now finalized the session schedule and my Software Startup Maturity Checklist session is set for Sunday, October 4 at 1pm in Room 5501. The description follows:

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.”

The Startup Maturity Checklist is the first module in our “Idea to Revenue” workshop, which is next offered in January 2010 (Sign up to be notified).

Code Camp takes place 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

Update Sep-30: I got an E-Mail this morning from Peter Kellner, the Silicon Valley Code Camp coordinator, which clarifies what registration means for a session:

We have gotten a lot of questions regarding what “Plan to Attend” means so I thought I’d take this opportunity to explain what that means to us.  First, we are very grateful to Foothill College for providing such a great facility for us.  They let us use about 20 rooms for every session time.  These rooms can handle from 35 to 120 people at a time.  We use the “Plan to Attend” information to allocate sessions to rooms at each time period.

For the past 3 code camps (this is v4), we have come close, but still, there have been some rooms that filled up and we had to turn people away to other sessions.  We have no reservation system so it’s first come first sit.

We are sorry if you can not attend a session you want, but are proud in that we have many other sessions people can go to.

So if you plan to attend please register for the session, you might be advised to arrive a few minutes early as well.Please note that it’s in Room 5501.

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.

“Better” is the Enemy of “Good Enough”

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

Better is the enemy of good enough–This phrase is attributed to Sergey Gorshkov, the commander in chief of the Soviet Navy from 1956 to 1985, who managed it’s dramatic expansion during the Cold War. Perfectionists get this wrong, siding with “Better.” Entrepreneurs who prosper, for the most part, side with “Good Enough” and keep improving.

Startup Marketing Lab Next Monday at SDForum Marketing SIG

Written by Sean Murphy. Posted in Events, skmurphy, Startups

I have been invited to take part in a “Startup Marketing Lab” next Monday at a joint session of the SDForum Marketing and Startup SIG’s. Four companies with “a tiny marketing budget” want to get “best use of their marketing.” They have ideas for how to market “but want to get some second or third opinions from other experienced marketers.” I will be joining two “experienced marketeers” dispensing advice:

I have been asked to make my feedback “directly actionable and appropriate for a small budget” which I have assured the organizers is all that the bootstrapping start-ups we normally work with will tolerate. There will be four companies presenting and it should make for an interesting evening.

The event is at DLA Piper Rudnick Gray Cary LLP on 2000 University Ave., East Palo Alto, CA 94303

Registration and Networking start at 6:30 and the formal program begins at 7pm, with four companies presenting the program will run to 8:45PM. It’s free for SDForum Members and $15 for non-members.

A sad postscript: I learned late today that Barbara Cass, who retired as the volunteer coordinator at SDForum last December after more than two decades of service (starting with the original Software Entrepreneurs forum that subsequently merged with the Center for Software Engineering to form the Software Development Forum) passed away yesterday. I had the pleasure of first meeting Barbara in the early 90’s when I started attending the old Software Entrepreneur’s Forum meetings that were held at the old Palo Alto Elks club. I was immediately impressed at her charm and efficiency in “herding cats,” keeping a roomful of technologists organized and on track. She was the reason that I got involved in reviving the SDForum Marketing SIG in 2005/6. She had a strong sense of the traditions and values that have enabled the SDForum to continue providing value to it’s members over more than two decades of technology evolution and revolution in Silicon Valley.

More on Barbara Cass: SDForum has posted a remembrance page at http://www.sdforum.org/barbaracass

According to her wishes, no services were held. Donations in lieu of flowers may be sent to the Palo Alto Medical Foundation, Oncology Department, attention Philanthropy, 795 El Camino Real, Palo Alto, CA 94301

July-24-2008 obituary in The Almanac: Barbara Cass created software entrepreneurs forum

Barbara Cass, a longtime Ladera resident who had a second career as executive director of software industry groups, died at her home July 8 of pancreatic cancer.

Her volunteer work at the Resource Center for Women in Palo Alto, where she counseled women re-entering the job market, sparked her interest in the fledgling computer industry. She eventually became an executive in several nonprofit associations in that industry, said Tom Cass, her husband.

Ms. Cass helped form Software Entrepreneur’s Forum (SEF), where software engineers and entrepreneurs exchanged ideas during monthly dinners. She became executive director of the forum in 1984 and started inviting industry luminaries to speak. She was named to the “MicroTimes 100” several times in the 1990s.

In 1998, SEF and the city of San Jose’s Center of Software Development joined forces and became SDForum, a merger that was one of the proudest moments of her career, she had said. That same year, she helped create the prestigious annual Visionary Awards, which recognize the successes of luminaries in the technology field.

Ms. Cass retired last December as a result of her illness.

Born in San Francisco, Ms. Cass graduated from Lowell High School at age 16 and graduated from the University of California.

She married Tom Cass, whom she met while at Berkeley, a month after graduation. They lived in Washington, D.C., while her husband was in the U.S. Navy, then returned to Berkeley, and later lived in Paris while Mr. Cass completed postdoctoral studies.

Ms. Cass, a nursery school teacher during the early years of her marriage, later stayed at home to raise her young children. When the family relocated to California in 1970, she was guided to Ladera by her aunt Fanita Stendell, then secretary of Ladera School.

Ms. Cass became active as a parent volunteer at Ladera School. When her children were older, she began volunteering at the Resource Center for Women/Career Action Center in Palo Alto.

Her husband said her skills as a homemaker carried over into her professional life. She had a way of making everyone feel comfortable and welcome, he said, and as a hostess, she was always ready to accommodate one more.

Ms. Cass is survived by her husband of 49 years, Tom Cass; her mother, Norma Stendell of San Jose; a son, Peter Cass of Menlo Park; a daughter, Carin Zimmerman of San Francisco; and three granddaughters.

According to her wishes, no services were held.

Strategy is a Hypothesis

Written by Sean Murphy. Posted in Blogging, skmurphy, Startups

I caught this tweet on the VentureHacks Twitter feed but in checking with Mr. Google I discovered it was part of the Balanced Scorecard methodology. An excerpt from Dr. David Norton’s “Measuring Value Creation with the Balanced Scorecard” a summary is available here.

“Strategy is a hypothesis. Strategy implies the movement of an organization from it’s present position to a desirable but uncertain future position. Since the organization has never been to this future position, the pathway of how it intends to get there involves a series of linked hypotheses.”

And some excerpts from a presentation “Using Balanced Scorecard to Build a Project Focused IT Organization” by Glen Alleman:

Strategy is a hypothesis. Metrics are the data for testing the hypothesis.

Strategy is making a hypothesis about a desired outcome, constructing the measures to test the hypothesis, deploying the experiment to test the hypothesis, then making adjustments based on the metrics.

The concept of strategy as a hypothesis and the experiments to test the hypothesis may be new to many. But this approach puts strategy in a different light. Strategy is not something you do then go off to execute the plan. It is a continuous feedback process. Always testing the strategy with metrics derived from projects.

The take away for startups is to understand how you are going to keep score, measuring both progress and distance to goal. Whatever strategy or mix of strategies you adopt, for each you should define up front and in simple terms how you will track impact on the key outcomes you are trying to achieve (e.g. revenue, profit).

Highlighting Matt Maroon’s “Why Not To Do A Startup”

Written by Sean Murphy. Posted in Blogging, skmurphy, Startups

Matt Maroon wrote a very thought provoking post on “Why Not to Do a Startup” a little over four weeks ago that I have been meaning to write about. He opens provocatively:

I’ve been doing a lot of thinking about startups lately, and I’ve come to realize that they’re really not for most people, probably even most people who attempt them.

I am reminded of Sramana Mitra‘s quote in the Real VCs of Silicon Valley that “The truth is, start-up-land is littered with mavericks, iconoclasts, dropouts and misfits.” (As I read that quote again I think to myself, yes, that’s me, these are my kind of people).

There are a number of people floating around the Valley whose lives are a pretty sad story. Every startup they joined tanked, every one they passed on went public. They went without salary for years, and even when they had one, it was pretty low.

It’s always the one that got away that is successful (probably because so many can get away for every one you take part in).

Even sadder are the people whose startups succeeded but still aren’t happy, because they never learned that there is more to life than making money.

Perhaps we should introduce the first group to the second. But this affluenza isn’t limited to startup founders.

The biggest problem with startups..is the variance. Startups tend to be fairly binary, with you making either a very large amount off of them or nothing at all.

I think this is actually not true, and while many fail, there is a large spectrum of outcomes. Even among founding teams. Even among venture backed founding teams, which I think is the population Matt is describing. Matt’s entire post should probably be required reading for all YCombinator, TechStars, etc.. applicants, because it makes a lot of points that will make founders uncomfortable but that have to be acknowledged and managed.

Some folks win big, but many do well, especially when coupled with:

Benefits to startups other than the money..Working for yourself.

We see a lot of bootstrappers who run “small successful” software firms who are about as happy as they would have been in “a real job.” Some break out and some fail, but many fall into a fairly large middle ground: they achieve modest success but stay below the radar screen of most observers. It’s one of the reasons we facilitate the Bootstrapper Breakfasts as a service to the startup community.

Update Oct 18, 2009: removed all references to “awesome highlighter” and retained focus on Matt Maroon’s article.

SKMurphy’s Startup Resource Center at SDWest 2008

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

If you missed us at SDWest last week, here are pointers to firms and organizations we had in the Startup Resource Center.

Jotspot Emerges From The Bowels of Google

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

Rob Hof notes–hat tip to Ross Mayfield–tonight in “Jotspot Returns as Google Sites: Wiki Style Collaboration” (emphasis added):

Ever since Google bought the wiki-based online application startup Jotspot in late 2006, people have been wondering if it had disappeared forever inside the bowels of the search giant. Tonight, Google’s launching Google Sites, using Jotspot’s technology to create a free group collaboration service that will be part of its online software suite Google Apps.

Like many things that come in one end and go out the other, it seems to bear little resemblance to it’s former self. TechCrunch observes in “It Took 16 Months, But Google Relaunches Jotspot” (emphasis added)

Google Sites looks absolutely nothing like Jotspot, other than the fact that both are hosted wikis. All of the structured data templates launched by Jotspot in July 2006 have been stripped out. Users now have a choice between just four basic templates – a standard wiki, a dashboard where google gadgets can be embedded, a blog-like template for announcements, a file cabinet for file uploads, and a page for lists of items. Instead of creating structured templates, users will now simply embed spreadsheets, presentations and word documents from Google Docs, as well as Google Calendars, YouTube Videos and Picasa Albums.

I had blogged about the Jotspot acquisition in “Jotspot Dissolves into Google Business Model” and later speculated that the “Dodgeball Duo Departure a Harbinger for Jotspot Wunderkinder” (although the earn out period still probably has eight months to run so this may still prove accurate). If Joe Kraus’ picture and his son’s lego creations weren’t splashed across one of the demo sites, it would require a vivid imagination to associate this new offering in any way with Jotspot.

The acquisition–and Google’s putting any further sites on stun and current sites into limbo–triggered our search for a new wiki/workspace provider. We’ve been pleased with our selection of Central Desktop and have built more than 100 private workspaces for use with customers since we converted. We’ve blogged about them in several different contexts and have them listed as a partner because they have become an intrinsic platform for our business. We probably don’t say enough good things about them.

Other coverage:

Advanced Topics Session Added To The March 8 Great Demo! Workshop

Written by Sean Murphy. Posted in Events, skmurphy, Startups

In response to requests from prior workshop attendees we’ve added an afternoon session to the March 8 Great Demo! workshop that will address advanced topics. You are welcome to attend if you have attended an earlier Great Demo! workshop, or you can register for both the morning and afternoon sessions on March 8. Lunch is included in the morning session so you can make a day of it with us if you like.

Peter Cohan’s “Great Demo!” Advanced Topics Session

Create and Deliver Surprisingly Compelling Software Demonstrations
“Do The Last Thing First” — the recipe for a Great Demo!

In response to requests for assistance on demo delivery we have added an afternoon session to our March 8 Great Demos workshop. If this is your first exposure to the Great Demo come for the morning and get a great overview of the methodology and stay for the afternoon if you would like an opportunity for more interactive training on advanced topics such as multi-solution, multi-player demonstrations, and vision generation demonstrations. The advanced topic session as covers real life issues like handling bugs, crashes, and time challenges.

This interactive workshop with Peter Cohan of The Second Derivative is only available to people who have already attended the basic Great Demo! workshop or who also attend the morning session on March 8.

When: Saturday Mar 8, 2008, 1:00 – 5:00 pm
Where: Moorpark Hotel, 4241 Moorpark Ave, San Jose CA 95129
Cost $40 After March 1 $60
Register Here

Agenda:

  • 1 PM Advanced Topics
    • multiple solution demos
    • presenting to a mixed audience with different needs
    • vision generation demonstrations
    • handling bugs, crashes, and time challenges.
  • 5 PM Wrap up

ABOUT THE SPEAKER: Peter Cohan, Principal at Second Derivative
Community Web Site: www.DemoGurus.com

Peter Cohan is the founder and a principal of The Second Derivative, a consultancy focused on helping software organizations improve their sales and marketing results. In July 2004, he enabled and began moderating DemoGurus®, a community web exchange dedicated to helping sales and marketing teams improve their software demonstrations. In 2003, he authored Great Demo!, a book that provides methods to create and execute compelling demonstrations. The 2nd edition of Great Demo! was published March 2005.

Before The Second Derivative, Peter founded the Discovery Tools® business unit at Symyx Technologies, Inc., where he grew the business from an empty spreadsheet into a $30 million operation. Prior to Symyx, Peter served in marketing, sales, and management positions at MDL Information Systems, a leading provider of scientific information management software. Peter currently serves on the Board of Directors for Collaborative Drug Discovery, Inc. and the board of advisors for Excellin, Inc. He holds a degree in chemistry.

Peter has experience as an individual contributor, manage and senior management in marketing, sales, and business development. He has also been, and continues to be, a customer.

Founder Story: Mike Lanza’s Lessons Learned from Two Startups

Written by Francis Adanza. Posted in Founder Story, Startups

Last week I had lunch with Mike Lanza, a serial entrepreneur, who I met at the SDForum Startup SIG in September ’07. He gave a thought provoking presentation on his entrepreneurial career, bootstrapping a company, and working with VC’s, which I blogged about here: Mike Lanza: Starting Companies Without Venture Capital. I thought a more in depth personal analysis of his “Lessons Learned” would be a great addition to our Founders Story series.

Q: What are your thoughts about partners compared to going at it alone? Did you have co-founder(s) for any of your companies? If so, how did you find them?

I have seen several approaches to starting a company. Some founding teams are formed before they think of the idea. A group of really smart people join forces, brainstorm a bunch of ideas, pick one and then go. I think I am more of a visionary, so I like to think of the ideas first and then assemble the team. I believe the idea is the core of the business and that you need the idea to attract the right people.

I have built companies with and without partners. Once I come up with something, I start off by informing all my contacts about my idea and plans. Then I ask them to spread the word to see if anyone is interested in joining the team. At first, I always try to find partners, but if I can’t find partners I hire doers. In the early stages, its more about execution and follow through. If you have too many senior people on the project, nothing ever gets done because its all strategic.

Unless I happen to find the perfect partners, I like to hire more mature junior personnel rather than experienced veterans.

Q: For those looking to hire ambitious junior personnel, can you share any tips on recruiting, retaining, and managing them?

When you interview them, figure out whether they can take a particular project tomorrow and make a big impact right away, without a lot of supervision. These are the ideal first employees. I call them “heat-seeking missiles.”

As for retaining and managing them, people like this thrive if they are constantly given new challenges. Don’t give them challenges that are too big – give them things that are a bit outside of their comfort zone, and let them knock down success after success. If you’ve got the right person, you’ll find them growing tremendously in a very short time.

Q: After you figure out the idea, develop the team, and hire the necessary people, how do you start building a company?

Most important thing you can do is manage your time. In early market exploration, I believe most of your time is spent evaluating the market and incorporating customer feedback into your product development efforts in order to get a purchase decision. Reference customers are key. After you have identified a target market, figure out who in the market will serves as a reference to other potential prospects. Make sure your first reference customers are not too big. Big reference customers take a long time to close, beat you up on price, require additional services, and extra support. They will consume all your resources and you won’t even have the time to use them as a reference for new prospects. You don’t want a big brand name, otherwise you will get killed on the deal.

A good reference customer is usually a company that is roughly the same size as you. They will help you refine your product and your technology will play an important role in their success. For as much as you put in for them, you will get out in return. They will vouch for your offering and put a name behind the testimonial. Another strategy I use is what I call a “throw away customer.” This is a prospect whom you have a lot of bargaining power. Consider walking away from the deal early but come back later when you get a favorable price.

You need to realize that you’re not going to do a very good job with that customer initially, so you want someone who is a cutting edge enthusiast, familiar to you and understanding when you fail to deliver perfectly. There’s no away around the fact that you’ll learn a lot from servicing this first customer, so you don’t want to do this first project for the largest potential customer in your market.

Q: What was the hardest decision you had to make in any of your ventures?

At 1 View Networks I realized that a bubble was forming and it was a good time to get out of the business. Word got out that the company was going to be acquired. There was a group of employees that approached me and threatened to quit if they were not given more stock.

At the time I had a convertible note from investors that were pleasant to work with. I had a short window of time to issue them stock so that they could participate in the acquisition benefit. I was basically juggling a group of disgruntled employees, trying to sell a company, and do good for some investors who I wanted to do business with in the future.

I did not want the employees to quit because it would look bad to the acquiring company. However, the three that were threatening had all been there less than six months, so I felt that they had not even earn what they were asking. Ultimately, I gave in to the blackmail. It was one of the toughest decisions I’ve ever made, but it was the right one. Unfortunately, my most loyal employee resented me intensely for this. So, I got no love from anyone for this decision – the blackmailers just took the stock and ran, and the person closest to me ended up hating me. However, we closed the deal. Welcome to the loneliness of being a CEO…

Q: What were three things that worked from Just In Time Solutions that you implemented into 1View Network?

  1. Sell to big, fat customers that don’t have adequate internal resources but have big budgets. Then, go “crazy” to satisfy them, but bill for every minute you spend.
  2. In the sales discussions, tell them exactly what you think they need. Don’t give a “here are our capabilities – we can do whatever you want” presentation. Remember – you’re trying to build a company, not a one-off project, so you need to sell a product vision that works for your entire market.
  3. Always be true to your ideals, even in the most tiring of management situations.

Q: I am sure there are many problems, but if you could just pin point one thing you learned from Just In Time Solutions that you made sure to avoid in starting 1View Network, what would it be?

I would avoid raising venture capital as long as possible. Most of the time the founders get replaced. Also people associate raising capital as a form of success. I have seen founders raise capital and then set the speedometer on cruise control. People begin to spend money carelessly. If money is around, companies tend to start spending it and relax a bit, even if their largest challenges lie ahead of them.

Q: What are you up to now?

Right now, I am working on a project that is more of a cause than a business. Who knows, it might turn into a business, but I right now I am having fun and doing something that I have always wanted to do. I am developing an online community for parents who want their children to go outside and play, but are frustrated with the lack of opportunities in their particular neighborhoods. It’s called Playborhood.

Our goal is to reach out to people who seek better play-based communities and neighborhoods for their children. So many families now have structured play all the time and neighborhoods where they don’t feel safe letting their kids play outside unsupervised. We’re lucky to find the rare place where they can. So Playborhood aims to become a great community resource where parents can go to find the right neighborhood for them and engage others in that neighborhood in the process of creating a safe, inviting Playborhood.

SKMurphy goes to SDWest 2008

Written by Theresa Shafer. Posted in Events, Startups

Join us at SDWest 2008 March 3-7, the conference offers with both business and technology tracks and has an interesting mix of sessions for software entrepreneurs. In addition to the technology oriented sessions you would expect, the conference has added a “Business of Software” track that should prove valuable to folks in–or planning to be in–a software startup. As a part of the business track, Steve Blank is speaking on Starting and Running an Entrepreneurial Company: Customer Development and he is always worth listening to.

Come visit us at Booth #318 and see our Startup Resource Center.

Where Can I Find Speaking Engagements?

Written by Theresa Shafer. Posted in Startup CEO: Question of the Day, Startups

If your New Years Resolution is to speak more, you might be wonder where to go. One type of group that is always looking for speakers are local user groups. User groups offer an informal network and forum for the exchange of ideas, tips, and gotchas. With user groups I also include professional group because the members usually are faced with the same set of problems and challenges and are willing to share problems and solutions. They can be a source of direct leads and referrals — from folks who have interacted with you and substantiate your reliability and character — once you have established yourself as a solid member not just a tourist.

Besides speaking, there are many other ways you can contribute. Here are some suggestions. Think about what can you offer?

  • Training Workshop
  • Write Articles for Newsletter
  • Be a Speaker
  • Plan Something Fun
  • Contribute to Group Forums, Bulletin Boards or Discussion Groups
  • Sponsorships & Prizes

It’s OK to visit a group meeting once or twice to see if it’s the right group, but you should make a personal commitment to regularly attend for a year or so if you want to join the group. Trust is built over time and finding small ways to meaningfully contribute will improve your legitimate reputation in the community.
Provided you can be patient, and abide by the community standards and unwritten rules, user groups offer you opportunities for good face to face discussions (often supplemented by an on-line forum or e-mail reflector) and speaking.

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