photo courtesy of jakerome

Just take it!

When you’re on the way down (you can smell death in the hallways) the first offer you get will always be the highest.  In a failing startup, you lose value quicker than a laptop.  Market sentiment writes off the brand and talent leaves. It can take months to complete due diligence, and months can be significant if cash burn is eroding equity, so take the first reasonable offer.  I know of at least one start up that sold 12 months later for a third of the first offer.

Key Takeaways: When you’re on the way down, sell to the first real bidder.

Sign Posts: How would you characterize the momentum of the company? Is the company for sale?

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?