Silicon Valley: Not as Nuts as 99…Yet

Written by Sean Murphy. Posted in 2 Open for Business Stage, Rules of Thumb, Silicon Valley, skmurphy

So we are starting to pump a little hot air back into the bubble every week now. The streets of Silicon Valley witness young entrepreneurs looking for department store Santas venture capitalists to listen to their list of needs and make their dreams come true. It’s “not as nuts as 99” but not as sane, or dour, as 2003. Roger McNamee blogged for the better part of 2004 on “The New Normal” with this as his inaugural post:

Wake up and smell the coffee. This is not your father’s economy. And it’s not the boom that inflated our expectations and then exploded. But it’s also not the doom and gloom we’ve been mired in for nearly three years now! So, wake up. Pull yourself together. Get on with it. With what you ask? With the rest of your life. It’s a bright, fresh world full of opportunities. I know that runs counter to many of the opinions all around us, but it’s true, and I can show you why. It’s true for the investor, the entrepreneur, the CEO, the unemployed, and the human being seeking balance. This blog will be dedicated to insights and discussion about life, business, and investment in what I call The New Normal.
Please join in!

Now I regularly have conversations that remind me of 1997-2000. I am routinely admonished that “the old rules no longer apply” and advised that successful firms spend much of their treasure on PR social media and viral marketing (regular marketing is a waste of money since viral marketing is free). YouTube’s 1.6 billion dollar exit is the exemplar burned in 10 mile high neon letters into the back of everyone’s retinas.

This is not a lament nor a longing for the early 90’s (or early 80’s), now is the best time to be alive and an entrepreneur. It’s a wish that more firms would aim for creating value for their customers.

Note: This is cross-posted from  “Report from Silicon Valley” on FunMurphys, my brother’s blog.

Related Blog Posts

No More Than Four Items on Your To Do List

Written by Theresa Shafer. Posted in Rules of Thumb

From Tom Peters Blog “The Single Most Important Thing

Consider these Four Cardinal Principals:

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

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

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

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

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

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

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

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

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

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

3 Things I Learned at WIC Tech Talk

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

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

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

2. She loves AVG for virus software.

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

Applying the “Agile Manifesto” to Software Startups

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

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

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

Principles behind the Agile Manifesto

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

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

Getting Early Feedback

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

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

Conversation Works Best With Early Customers

One on one conversation works best in my experience.

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

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

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

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

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

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

Maximize Learning by Being Efficient With Customer’s Time

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

See also

Julian Fellowes on Persistence, Getting Started, and Logical Consequences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pixar’s Ed Catmull Highlights Value of Post Mortems

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

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

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

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

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

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

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

Beyond Google: A9, Citeseer, and Krugle

Written by Sean Murphy. Posted in Rules of Thumb

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

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

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

Krugle searches code examples and some related technical references.

3 Ways to Build Credibility with Prospects

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

Here are three ways for building credibility.

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

People Manage People, Tools Manage Data

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

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

It should. People Manage People, Tools Manage Data

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

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

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

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

Tips for Hiring (and Firing) a Sales Person

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

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

First 90 days Is Critical

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

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

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

Three Simple Tests Before You Hire

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

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

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

Comments From The Audience

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

You Need to Be a Little Crazy

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

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

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

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

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

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