I'm continually interested in the means by which words are used within various startup situations. It's often called "positioning" or "managing perception" and at times, it seems to veer on the side of a pure lie. The art of using words to your advantage is a powerful force in business circles and can spin out of control quickly.
Going on since the beginning, when the serpent deceived Eve by twisting God's words, this type of subtelty is de rigueur in business. There are several methods to this, most of which revolves around leaving out crucial facts, or modifying phrasing such that some specific emphasis is avoided or left out entirely.
This phenomenon is most interesting in startups, particularly those that sell to larger businesses. Since such an enterprise requires credibility to make a purchase, even purchases less than some perceived risk amount, business viability and stability are critical components in those decisions. And having been on the other side of that decision process, I know those factors differentiate between who makes the list for the next meeting and who doesn't.
So how do you establish credibility in this situation? Here is where we see this subtlety emerge - initially beginning as harmless positioning and eventually leading to massive hyperbole and cringing engineers who sit in sales meetings thinking, "please, please don't let anyone ask about what he just said!". Or you fight and scrape to establish small user groups with the folks that will let you... it's a tough road. When your sales decision process has to go through an IT department, face it - you're looking at a long sales cycle - as a startup relying heavily on cash flow, that's daggers.
But I think there's way more to it than that. It has a lot to do with your identity, market product/market fit, and your ability to recognize and remove objections during the process. There's a significant difference between hyperbole and recognizing and removing objections. This difference is founded in the most pure logic - the ability to create a series of facts and arguments that alleviate fears and position you around them. In the startup environment, having this talent (I call it a talent) is critical. Ideally, you want to take the shortest path to a definitive "NO". It's often been said that "Getting to YES!" is most important, but as a startup, "Getting to NO" as fast as possible is equally as important. Asking the questions that draw out the NO early and fast and working through the objections that force your prospect to say NO minimize your time outlay and give you more opportunities to land prospects and customers that are more likely to buy.
This mentality allows you to identify the objections you just can't win on - if your prospect is looking for an established base of 10MM users and $10MM revenues, well, that ain't you - walk away and find someone who is looking for you. Don't tell any stories to stretch out there. If they're looking for whiz-bang feature #1047, and you don't have it, don't lie about it. Position it in the future if it is in your future, but don't say you have it just to get to the next step. It all ends up bad going down that road.
I'll discuss identity and how that aligns with product/market fit in another post, "Be You."
Thursday, June 28, 2007
Wednesday, June 27, 2007
Finding Open Seas and Strong Winds
Here recently on the Andreessen blog, there was an amazing truth posted:
Blue Ocean Strategy
The Deviant's Advantage
The cool thing about thinking about these 2 books together is that you get some very interesting insights: the Blue Ocean is more about innovation in existing spaces, whereas understanding the Deviant is about understanding the cultural fringe and how they come up with new ideas. In examining how the lack of a market can destroy a startup, it's interesting to view how a startup is positioned.
When we look at existing markets, we define it with variables that give us an idea of a company's strengths. One of my favorite views from Blue Ocean is this graph:
Not sure how the quality of this is, but hopefully you can see enough - across the variables, Dr. Seuss innovated by establishing a place where no one else was; thus becoming the first in an untapped market. One particularly good example they use is Yellow Tail wines - how they basically brought a high-end, high-education product to the masses. Now there's a ton more theory and evidence around the tenets of this (value-cost balance, differentiation and all that) but we can generate simpleton equations (maybe there's a layman's guide to market theory in here somewhere):
x = number of market forces/segments/functions
y = number of players on the board
z = size of market
q = ability to a new "x" all for yourself
M = the draw factor of any "x" (demand)
As x increases, y increases. By addressing additional market functions, you attract other competitors. This is seen through companies that try to do too much, and instead of creating a blue ocean, they just put themselves in a bigger red ocean.
As y increases, the number of possible x's decreases. Maybe... but we don't like to think this way. This is the idea that there is some invisible pie, and over time people eat it - it never comes back. This is consistently disproved .001% of the myriad of mISVs out there who become successful in established their own "x".
A low x and a low y = a high q. Although this is certainly true, you can much more easily create new factors (blue oceans!) when there aren't many factors and not many players, this doesn't always mean we get a high M. As proven by the myriad of companies who have a whiz-bang idea, but no one is yet to buy it.
In my own humble opinion (I am just an unfrozen caveman lawyer) the key here is the corollary between M and x, not q. This is where many folks fall into the gap that if they can increase the likelihood that they'll find a niche, they will be successful. Not exactly true! The list of market functions can go out a mile and have no sufficient demand attached to them. So, when we pitch our VC friends, we can't expect to make a list a mile long and say we've create a new Blue Ocean, because we've combined the 418 factors that already exist in the marketplace.
This is the key to "product market fit" as Marc mentions. You've got to have something that opens up demand, and this isn't always the last item on the market function list ahead of the other players.
"The only thing that matters is getting to product/market fit." This could be the understatement of the year. Here's where the variables really get tricky, like timing, and most importantly - capital. Even if you have identified the market demand function, if you don't have the capital to get there, you're toast.
The #1 Company-killer is lack of market.It's one of those things that seems blatantly obvious. However, I'd like to elaborate further on what makes a market and how that's defined. Not having invested a massive portion of my life into obtaining an MBA, I've only come to know what I know through experience and books. There are two books in particular that have impacted me the most in understanding markets and how they are created:
Blue Ocean Strategy
The Deviant's Advantage
The cool thing about thinking about these 2 books together is that you get some very interesting insights: the Blue Ocean is more about innovation in existing spaces, whereas understanding the Deviant is about understanding the cultural fringe and how they come up with new ideas. In examining how the lack of a market can destroy a startup, it's interesting to view how a startup is positioned.
When we look at existing markets, we define it with variables that give us an idea of a company's strengths. One of my favorite views from Blue Ocean is this graph:
Not sure how the quality of this is, but hopefully you can see enough - across the variables, Dr. Seuss innovated by establishing a place where no one else was; thus becoming the first in an untapped market. One particularly good example they use is Yellow Tail wines - how they basically brought a high-end, high-education product to the masses. Now there's a ton more theory and evidence around the tenets of this (value-cost balance, differentiation and all that) but we can generate simpleton equations (maybe there's a layman's guide to market theory in here somewhere):
x = number of market forces/segments/functions
y = number of players on the board
z = size of market
q = ability to a new "x" all for yourself
M = the draw factor of any "x" (demand)
As x increases, y increases. By addressing additional market functions, you attract other competitors. This is seen through companies that try to do too much, and instead of creating a blue ocean, they just put themselves in a bigger red ocean.
As y increases, the number of possible x's decreases. Maybe... but we don't like to think this way. This is the idea that there is some invisible pie, and over time people eat it - it never comes back. This is consistently disproved .001% of the myriad of mISVs out there who become successful in established their own "x".
A low x and a low y = a high q. Although this is certainly true, you can much more easily create new factors (blue oceans!) when there aren't many factors and not many players, this doesn't always mean we get a high M. As proven by the myriad of companies who have a whiz-bang idea, but no one is yet to buy it.
In my own humble opinion (I am just an unfrozen caveman lawyer) the key here is the corollary between M and x, not q. This is where many folks fall into the gap that if they can increase the likelihood that they'll find a niche, they will be successful. Not exactly true! The list of market functions can go out a mile and have no sufficient demand attached to them. So, when we pitch our VC friends, we can't expect to make a list a mile long and say we've create a new Blue Ocean, because we've combined the 418 factors that already exist in the marketplace.
This is the key to "product market fit" as Marc mentions. You've got to have something that opens up demand, and this isn't always the last item on the market function list ahead of the other players.
"The only thing that matters is getting to product/market fit." This could be the understatement of the year. Here's where the variables really get tricky, like timing, and most importantly - capital. Even if you have identified the market demand function, if you don't have the capital to get there, you're toast.
Tuesday, June 26, 2007
East Coast vs. West Coast
One of the interesting things that I've encountered along the way is the seemingly quite significant difference in investment criteria for VCs geographically. Now, my sampling isn't that significant (less than 15 firms), but the investment criteria might look something like this:
Okay, sure, I'll take the "you're exaggerating" comment. But Marc Andreessen's point about qualify, qualify, qualify is hitting home with me, and I believe a major issue is geographical. East of the mighty Mississippi, things are just different - and even though my sampling might small for early-stage technology firms, the fact is that venture capital on this side of the country just isn't as venturous as it is on the other side.
There are intrinsic differences between West Coast and East Coast VCs. I'm personally not beyond thinking that it stems from cultures seeded as the West was won through the Gold Rush and so on. There are some free thinking styles that emerged throughout the later 1900's that didn't take on this side of the country. It's like we got tobacco, cotton, coal, and steel mills and they got PARC.
My recent experience also indicates that although there's a myriad of nearly free communication and collaboration tools out there (full disclosure: I am CTO at some such company) startups and investment firms seem to have a new addiction to having their teams local. Having come from a software background where the entire objective has been to deliver solutions with teams scattered all over the world, I'm skeptical of this need for VCs to have their entire portfolio right in their backyard.
There's something to be said for the perceived impact of the investor and their activities within the startup that would be a driving force in whether the remote VC would be successful. For investors who like to get their hands dirty, I can see why they wouldn't be able to do the remote thing but so much. Even so, technology is rapidly driving the down the cost of being remote and companies are every day utilizing tools that enable remote relationships of this magnitude (our product being one of them).
Either way, there remain some challenges to having the remote VC that impact the style of investment and management based on geographic location. Would love to hear some thoughts on folks who have been through a startup-remote VC relationship and how that came together (or didn't).
Okay, sure, I'll take the "you're exaggerating" comment. But Marc Andreessen's point about qualify, qualify, qualify is hitting home with me, and I believe a major issue is geographical. East of the mighty Mississippi, things are just different - and even though my sampling might small for early-stage technology firms, the fact is that venture capital on this side of the country just isn't as venturous as it is on the other side.
There are intrinsic differences between West Coast and East Coast VCs. I'm personally not beyond thinking that it stems from cultures seeded as the West was won through the Gold Rush and so on. There are some free thinking styles that emerged throughout the later 1900's that didn't take on this side of the country. It's like we got tobacco, cotton, coal, and steel mills and they got PARC.
My recent experience also indicates that although there's a myriad of nearly free communication and collaboration tools out there (full disclosure: I am CTO at some such company) startups and investment firms seem to have a new addiction to having their teams local. Having come from a software background where the entire objective has been to deliver solutions with teams scattered all over the world, I'm skeptical of this need for VCs to have their entire portfolio right in their backyard.
There's something to be said for the perceived impact of the investor and their activities within the startup that would be a driving force in whether the remote VC would be successful. For investors who like to get their hands dirty, I can see why they wouldn't be able to do the remote thing but so much. Even so, technology is rapidly driving the down the cost of being remote and companies are every day utilizing tools that enable remote relationships of this magnitude (our product being one of them).
Either way, there remain some challenges to having the remote VC that impact the style of investment and management based on geographic location. Would love to hear some thoughts on folks who have been through a startup-remote VC relationship and how that came together (or didn't).
Monday, June 25, 2007
Where are the Big Ideas?
It is dramatically apropos to start this post with a quote:
Now, in my own humble opinion - this factor is completely dependent on the size of your idea. There's a huge difference between building the next telephone and another issue tracking system. Nowadays, we got folks out there doing all kinds of things and many times it seems easy. There's something major lost in the easy that is only built by the difficult. Companies with no product get major VC funding; companies with no profit get sold and have massive IPOs - and many times, we watch this and think we would like to be a part of it.
And I'll be the first to say, heck yeah, I want me some of THAT! But in more thoughtful times, I remember that there is immense value in the journey. We've got enough books and blogs from happy, successful people - who, by the way, are now mostly successful at selling books or getting traffic on their blogs. Now there's a stat I'd like to see on Amazon/Google Analytics - ratio of actual business successes (let's make it trailing 12 month revenues) against books sold/blog ad traffic by author. That would give us a a clear view of who is full of poop. If it's a VC/entrepreneur blog, let's see their ROI for every investment. Outperforming the S&P 500? Uh...
At any rate, everyone is out to get rich off someone else's money. Where are the people who are out there driving to something real? Something significant, something worth building? Here goes... that whole "project that has meaning" thing. I can smell Open Source/University all over this - just because something is shared and free doesn't mean that it's what is needed. Thank goodness we have 7,452 free issue tracking systems - they are steadily making the world a better place! (sarcasm)
Not that I'm against OSS - the point isn't about the open source part, but the software - where is open/shared actually creating software that is having a massive impact? Okay, there are a handful of projects that fit in this category - but as a percentage, what is the noise-to-value ratio of OSS projects that are differentiated in their category and bringing major value? They're looking to be the next big thing, not changing the world.
And we've got more than enough people who are working the cushy dev jobs while their mISV struggles to convert more than .02% of trial users, trying to find a niche where they can get $9.95/month for an advanced issue tracking system specifically for manufacturing applications.
There seems to me to be some shortage of people out there really trying to change the world. There's like some cosmic ethos to "having your own company" which makes everyone all giddy - but if the time to market is greater than 6 months or exceeds the amount of credit card debt I can carry, or burn exceeds the shortest sales cycle, we duck and cover. What's with that? Big ideas take big nads and that's that. Go to the mattresses with Microsoft, Cisco, Oracle, and the other big dawgs and crush 'em. Isn't that what America and capitalism is about? Changing the world for the better...
But alas, we are spent building another social networking engine, this time with VOIP, or podcasts, or mashed up stuff, or feeds from the Weather Channel. And another real estate site or another enterprise BI package... was it Web 2.0 or the iPod or Netflix or something else, and I missed it? Drats! Stupid day job.
Courage is almost a contradiction in terms. It means a strong desire to live taking the form of a readiness to die. "He that will lose his life, the same shall save it", is not a piece of mysticism for saints and heroes. It is a piece of everyday advice for sailors or mountaineers. It might be printed in an Alpine guide or a drill book. The paradox is the whole principle of courage, even of quite earthly or quite brutal courage. A man cut off by the sea may save his life if he will risk it on the precipice. He can only get away from death by continually stepping within an inch of it. A soldier surrounded by enemies, if he is to cut his way out, needs to combine a strong desire for living with a strange carelessness about dying. He must not merely cling to live, for then he will be a coward, and will not escape. He must not merely wait for death, for then he will be a suicide, and will not escape. He must seek his life in a spirit of furious indifference to it; he must desire life like water and drink death like wine.There's something about founding a company; there's some espirit de corps, some fight for your right to party, a little bit of brotherhood, and a few cases of empty used cans of Whoop Ass. There's some inexplicable ecstasy in the trials you go through to make it. Now maybe I've consistently been on the wrong side of this battle; the side where the mountain seems perpetually larger than our ability to climb it, but there is something about making payroll while you're trying to turn the corner with your product/company and your sales cycle is4x longer than your next month's burn.
Now, in my own humble opinion - this factor is completely dependent on the size of your idea. There's a huge difference between building the next telephone and another issue tracking system. Nowadays, we got folks out there doing all kinds of things and many times it seems easy. There's something major lost in the easy that is only built by the difficult. Companies with no product get major VC funding; companies with no profit get sold and have massive IPOs - and many times, we watch this and think we would like to be a part of it.
And I'll be the first to say, heck yeah, I want me some of THAT! But in more thoughtful times, I remember that there is immense value in the journey. We've got enough books and blogs from happy, successful people - who, by the way, are now mostly successful at selling books or getting traffic on their blogs. Now there's a stat I'd like to see on Amazon/Google Analytics - ratio of actual business successes (let's make it trailing 12 month revenues) against books sold/blog ad traffic by author. That would give us a a clear view of who is full of poop. If it's a VC/entrepreneur blog, let's see their ROI for every investment. Outperforming the S&P 500? Uh...
At any rate, everyone is out to get rich off someone else's money. Where are the people who are out there driving to something real? Something significant, something worth building? Here goes... that whole "project that has meaning" thing. I can smell Open Source/University all over this - just because something is shared and free doesn't mean that it's what is needed. Thank goodness we have 7,452 free issue tracking systems - they are steadily making the world a better place! (sarcasm)
Not that I'm against OSS - the point isn't about the open source part, but the software - where is open/shared actually creating software that is having a massive impact? Okay, there are a handful of projects that fit in this category - but as a percentage, what is the noise-to-value ratio of OSS projects that are differentiated in their category and bringing major value? They're looking to be the next big thing, not changing the world.
And we've got more than enough people who are working the cushy dev jobs while their mISV struggles to convert more than .02% of trial users, trying to find a niche where they can get $9.95/month for an advanced issue tracking system specifically for manufacturing applications.
There seems to me to be some shortage of people out there really trying to change the world. There's like some cosmic ethos to "having your own company" which makes everyone all giddy - but if the time to market is greater than 6 months or exceeds the amount of credit card debt I can carry, or burn exceeds the shortest sales cycle, we duck and cover. What's with that? Big ideas take big nads and that's that. Go to the mattresses with Microsoft, Cisco, Oracle, and the other big dawgs and crush 'em. Isn't that what America and capitalism is about? Changing the world for the better...
But alas, we are spent building another social networking engine, this time with VOIP, or podcasts, or mashed up stuff, or feeds from the Weather Channel. And another real estate site or another enterprise BI package... was it Web 2.0 or the iPod or Netflix or something else, and I missed it? Drats! Stupid day job.
The Visionary ViewPoint Blog
As I start off this blog, entitled "A Visionary Viewpoint" (note that this does not particularly identify the visionary) I am contemplating the sheer noise of the internet at large. Will anyone read it?
One might think, "shall I increase the noise of my life with yet another blogger added to my feed list?" As a potential "visionary" (or closet visionary) I would hope there is some value to be gained; if not, I should relate myself to those who have blogged (or journaled shall we say) in the past - let it be for the sake of the blogger.
That being said, I thought I'd take this opportunity early in the blog to identify the reasons why this content is going down in digital history in the first place, as well as to give some thought to the potential reader mass what should appear:
Constructive feedback and criticism is welcome. Enjoy.
One might think, "shall I increase the noise of my life with yet another blogger added to my feed list?" As a potential "visionary" (or closet visionary) I would hope there is some value to be gained; if not, I should relate myself to those who have blogged (or journaled shall we say) in the past - let it be for the sake of the blogger.
That being said, I thought I'd take this opportunity early in the blog to identify the reasons why this content is going down in digital history in the first place, as well as to give some thought to the potential reader mass what should appear:
- Technology Business Issues - posts about startups, VCs, micro-ISVs, and the like
- Project Management and IT Processes - agile, TOC, Scrum, and all that wonderful methodology goodness
- Personal Development, Success, Business literature - posts that focus on productivity, the latest books, analysis, et al
Constructive feedback and criticism is welcome. Enjoy.
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