Category Archives: Work

photo courtesy of asw909

It’s not them, it’s you

Often startups can’t understand why they have a group of customers they didn’t expect or who want to use the product in a way they didn’t anticipate.  Don’t fight the power – change.  Particularly when you are creating a new category, it is essential to get it out there early and get user feedback. If you build a perfect solution because you think you know who the customer is and what they want, you will find it is difficult to change when you learn your initial assumptions were wrong.  Founders At Work (as Guy Kawasaki suggested, it really should have been called Flounders At Work) is full of examples of startups launching a product, stumbling, realizing what the market really wanted and revising their offering to suit and then enjoying market success.

A shout out is due to Eric Ries of Startup Lessons Learned for his concept of The Pivot – that critical point when you must change the business to match what the market needs.  I’ve experienced this first hand with Edge Dynamics.  When the market changed structurally, and we finally realized it, our product was way too complex to be easily changed.  We needed to either stay in a shrinking high end market, or change our entire organization for the new reality (to change from mission critical enterprise software to nice-to-have reporting application best delivered as Software as a Service).  We dithered and died.  Abilizer did this better, cutting to the bone and re-launching (in this case from SaaS application to enterprise software).  In both cases, we proved that SaaS and enterprise software are two completely different businesses.  You can’t be both and to change from one to the other is very, very difficult.  The failure of hybrid software delivery business models is another example of the need to Focus!

Key Takeaways: Get the simplest, cheapest, bare bones product in front of customers as fast as possible and learn what they want. Then build the product they really want.  You’re either offering SaaS or software – don’t try to do both.

Sign Posts: How do you decide what features your customers need? Who makes the decision on what to include in the next release, and using what criteria? Do you offer on-premise and on-demand software?

photo courtesy of franckdethier

Bad choices are worse than no hire

In a startup, the team is the biggest determinant of output and day-to-day happiness. Choose wisely.  You’re going to be effectively married to these people around the clock for years on end.  If something bothers you during the interviews, or the salary negotiations, don’t hire!  Any issues will be magnified a thousand-fold, and getting people out is painful and risky.  I hired someone who performed brilliantly in interviews, but became unnecessarily high maintenance during the negotiations.  Big mistake.

It has been said that you get ahead with A-players, tread water with B’s and go backwards with Cs.  My output and that of my team and our reputation definitely suffered due to this mistake at a critical time in the company’s development.  While it can be very hard to find the right person, it is always worth the wait. Don’t be suckered into settling for less, especially in today’s market.

This is a really challenging issue for most startups, because most startups, be definition, can’t be A-list.  There’s a limited number of killer ideas in growth markets addressed by well-funded, brilliant teams who are awesome fun to work with, have a great office, pay and perks.  Most startups have a least one blemish and the challenge for potential employees is working out which blemishes they can live with.  Likewise for a startup, finding and attracting the perfect talent is hard, and deciding what blemishes you can live with is crucial.

I’ve noticed a tendency amongst startups to put too much weight on experience in the market the startup operates in (anyone remember those hilarious posts in 2000 requiring 10 years of Internet experience?). You don’t hire IDEO or McKinsey for their prior expertise in the space, and I think the same thinking should apply to employees.  From what I’ve seen in both marketing and consulting, an A-player will get to know the space better than most on the team within 6 months of starting, and the right attitude and inter-personal skills, together with the boost in creativity from new thinking from other industries will outweigh the slight improvement in productivity of the experienced B player in months 0-6.  It’s clearly helpful to have some experts on the team, but I’d argue that always hiring experience over potential is an error.  Seth had a good post today on the tendency to prefer apparent risk over actual risk – what seems more risky can actually be less risky.

In that highly successful book, Good To Great, Jim Collins argued for “getting the right people on the bus, the wrong people off, and the right people in the right seats”.  He has posted some helpful mp3s on this topic. About ½ the VC’s I’ve heard, on the excellent iinnovate podcasts from Stanford’s Business and Design schools, say that they’d rather have a good team with an ok idea.  Amusingly, the other ½ say they’d rather have the average team in the killer market over the A-team in the bad market.  That said, my experience suggests you have to win the race your in, and the race has to be worth winning).  A good team will increase the likelihood of winning the race your in.

Key Takeaways: Get the right people on the bus. If you make a mistake, act quickly to resolve it.

Sign Posts: Has it been easy to find the right people? How do you find and evaluate them?

Emotional roller coasters and kindness from cruelty

By 2001 things we’re not good for most dot coms in the valley.  Cash was running out.  Abilizer was no exception.  Today we look at the harsh reality of reducing numbers when things are working against you.

When you devote every waking hour to a venture, and you’ve contributed to its birth and growth, it’s hard not to become emotionally involved.  Success brings the highest highs, failure the lowest lows.  Much like a relationship, or an addiction, it can take as long to get over it as you were in it.

Most startups die a long, slow death (so do most businesses).  As described above, they build for success and wake up one day on the wrong trajectory, burning up all available funds.  If you trim a little here and there, in 12 months time, you’ll still be around, but lacking any power of will, or dollars, to do anything to save yourselves.  You have one chance to spot the change, cut to the absolute bone, regroup, redirect and re-launch. Take it.  In this situation, you’ve gotta be cruel to be kind.

Abilizer did this, and took a real run at a second life.  Edge Dynamics dithered, and even an acquisition failed to save the business.

Key Takeaways: If you know it’s over, do yourself a favor, and get out.  If you’re running the show, act fast, decisively and humanely.  The longer you drag it on, the more it’s going to hurt everyone.

Sign Posts:  Have you had any reductions in force?  Why, when, and how many?

Yesterday we looked at the joys and perils of being in a startup heading in the right direction.  Today, some thoughts on funding.

photo courtesy of gnerk

Year 2: Raise as Little Money as Possible

Pros and cons of all-or-nothing moon shots

This is controversial.  Most ventures need some money before the revenue comes in.  But it comes at a price.

First example: We raised over $60M, on a valuation in excess of $200M.  We had great momentum, lots of customers and registered users, but virtually no revenue (in 2000, it was only us early adopters that actually had broadband and shopped online).  When you get funded like this, you’re on a boom-or-bust rocket ship.  Either you enter Geoffrey Moore’s tornado and emerge victorious, or you crash to earth in a ball of flames.  We blew most of it in one year on a big name CEO, hiring like crazy, and a new name (would you pay $1M to re-brand as Abilizer Solutions?) Guess what happened to us?

The downside of too much money can be reduced opportunities for focus and fewer exit options.  If your valuation becomes too high, you will turn down otherwise reasonable offers, and you may be driven out of your original niche market.  If perksatwork.com had raised $25M on a $75M valuation, an $85M offer would have worked for everyone after the crash.  Instead, when the dot com market imploded, we left the HR segment we dominated (because it was “unattractive”) and vanished into obscurity in the hotly contested portal software market with about 500 other dot coms.   (See Year 4  for more on this topic)

Edge Dynamics also suffered from too much funding.  We used our market momentum to raise more than we needed, forgot our frugal 10-guys-in-a-three-bedroom-condo beginnings, hired ahead of revenues, and found ourselves burning too much cash, with too complex a product to change easily when the market turned on us (more in Year 7).

In a small marketplace, the burn-up on re-entry of the previously dominant player can be a windfall for a smaller, nimble, and less heavily funded competitor.  I’ve seen this happen both in channel management for Edge Dynamics main competitor, and in the pedigree space following the demise of SupplyScape.

The new abundances of processing power, storage, and network capacity, and increased ability to outsource everything mean that many startups no longer need to raise significant venture money and take on the expectations that come with it.

The current challenges of raising significant capital have been a blessing in disguise for the most recent venture I’m advising. Over the last year, we’ve refined the plan stripping out complexity, outsourcing elements, and consequently increasing deal attractiveness while reducing funding requirements.

Key Takeaways: If you raise money, you might end up giving up a pint of blood.  Raise money from a position of strength (momentum). Unless you want an all-or-nothing moon shot, find a way to get by with less. And don’t spend it like you’ve already made it.

Sign Posts: How much money do you need to raise to be successful? How has spending changed since you’ve raised money?

Thoughts?