10 Years, 10 Lessons: Year 10: You Reap What You Sow

Enjoying the wildflowers

Enjoying the wildflowers

The No Asshole Rule and why you should smell the roses

The valley is small.  Your target market is probably smaller.  The internet doesn’t forget, and nor will your network.  More than ever before, people don’t have time to find the perfect candidate.  In this Reputation Economy, inter-personal bridges you have burned will come back to haunt you, and relationships you’ve nurtured will keep bearing fruit.  So, be nice (and helpful). Please.

I don’t know if it’s a function of my age, but I’ve had plenty of reminders recently that life can change at any moment.  This is surely the best reason for enjoying it to the fullest. Don’t take yourself or your work too seriously.

Key Takeaways: Carpe diem and nurture your network.

Sign Posts: Has anyone left because of a difficult co-worker or boss? What is the company doing to help the greater community?

Summary

This concludes the 10 years, 10 lessons.  Hopefully there were a few nuggets in there.  Let me know what you think!

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10 Years, 10 Lessons: Year 9: On the Way Down, the First Offer is the Best Offer

photo courtesy of jakerome

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?

10 Years, 10 Lessons: Year 8: Enterprise Software is Dead

photo courtesy of Tony the Misfit

photo courtesy of Tony the Misfit

User experience is a necessary organizational capability

Obviously, companies will keep buying software.  But the opportunities for a new SAP or Seibel are few and far between.  I ran a session on this at P-camp 08 last year, and the group was pretty vocal – the traditional software model has to change.  The consumer software market has lifted the bar for expectations for enterprise software: it should be easy to use, offer fast screen response times, constantly improve, and be much, much cheaper.

Customers don’t want:

  • To be sold software by the equivalent of a car salesman that can’t even remember their name after the ink has dried on the contract.
  • Implementation services that focus on the plumbing rather than adoption
  • Training that doesn’t teach them how to fish
  • Non-intuitive user experience
  • To hear that they’ll have to wait a year for the next release to get that desired feature
  • To hear that their infrastructure that is causing poor performance.
  • To hear that they have to upgrade their windows platform, or upgrade to an enterprise version of Oracle to use the software
  • Support that requires them to run a server log to diagnose the problem.
  • Support staff that don’t understand their business.
  • Upgrades that are “free” as part of maintenance but end up costing cost nearly as much as purchase “because” of their customizations and deliver no tangible business value.

Mission critical applications can probably still get away with a poor user experience. Everywhere else the consumer revolution is chipping away at the enterprise software kingdom.  Edge Dynamics won when we had a mission critical application.  As soon as the market changed to a nice-to-have reporting tool, everything we had built became a liability – bad user experience, slow performance, costly upgrades, huge upfront investment, costly upgrades

Key Takeaways: Enterprise software vendors need to stand in their customers shoes and design a “whole product” experience, and total cost of ownership that is significantly better than the alternatives.

Sign Posts: What improvements would customers like to see to your sales process, implementation, training, and support services and to your product? What are the alternatives to your solution?

10 Years, 10 Lessons: Year 7: Change or Die

photo courtesy of asw909

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?

10 Years, 10 Lessons: Year 6: If You Can’t Find the Right Person, Don’t Hire

photo courtesy of franckdethier

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?

10 Years, 10 Lessons: Year 5: You Don’t Know What Your Customers Want

photo courtesy of clairity

photo courtesy of clairity

Keep talking to customers: you know you should

It’s one of the toughest problems in enterprise software.  It is really hard to find time to meet with customers and get quality feedback.  You have no choice.

When you’re launching a new type of product, its quite likely customers don’t even know what your talking about. At this point you have the vision and are hoping to deliver something useful enough that they’ll get it too.  In these initial stages, companies I’ve worked with talk to prospects initially to understand their needs and define the market.   Once you have something to address these needs, companies typically spend a lot of time with the first few customers getting putting the solution in place and training the users, and testing and refining Release 1.  This is good.   Its after this point, in the initial growth phases, when time and resources are strained that this discipline seems to just slide away.  Just because you knew their business better than they did at that point in time, doesn’t mean you’ll know it better from that point forward.

Every customer is different, and their business and their needs will keep changing. So you have to keep making the time to get the feedback.  It’s also the only way you will hear about new problems that may provide opportunities for differentiation.  While new web tools offer ways to facilitate interactive discussions without costly face time to improve and refine existing offerings, you will need to be on site, watching them work to spot the bigger opportunities.

At Edge Dynamics, we assumed we knew our customers after we had spent time on site with them through the first three implementations.  Around that time the market changed structurally.  We didn’t create a dialogue with our customers (once a year user group meetings are not a dialogue).  As we stayed in the ivory tower designing and pumping out ever more complex features, customers became overwhelmed with the feature set and started looking for something simpler.

Key Takeaways: Make time for customer interaction.  Keep your eyes open for structural changes, and opportunities for new products and differentiation.

Sign Posts: How do determine what customers need?  How do you involve the customer in the product design process?

10 Years, 10 Lessons: Year 4: Focus!

photo courtesy of ihtatho

photo courtesy of ihtatho

Geoffrey Moore was right about beachheads

After Year 3’s grisly topic we’re back to comfortable, less controversial ground.  Probably why so many forget this vital lesson.

It’s been said that to appeal to everyone is to appeal to no one.  Keen to win early deals, startups will jump at everyone who shows interest.  Engineers will want to build every possible feature. Opportunism dilutes your message and your solution.

Example 1. Perksatwork.com dominated its HR market.  As soon as we entered the general portal market we were done.

Example 2. At Edge Dynamics we religiously followed a Crossing the Chasm beachhead strategy with a single application in a single vertical.  We killed it until the market changed (more on this in Year 7).

Example 3. I watch a mobile social networking startup flounder because of a lack of focus.  Was it for college kids or everyone, a dating site or a provider of blinded phone numbers for classified ad postings?  Users were confused too, and growth never materialized.

I’ve also heard it said that VC’s believe: once means you got lucky, twice is a coincidence, and three times is a lock.  I’ll call these three examples my proof.

The benefits of focus are huge.  Every subsequent sale in a vertical market is easier (you have references, you speak their language, you know their business, why they bought, the value, the price, you have a contract template, services template, etc).  Your messaging and marketing materials can be tailored to their specific situation.  And your product will work.  You know the likely systems landscape, data and integration points.  Change the target audience and this all goes out the window.

Key Takeaway: Dominate your niche market before being distracted with other places you could sell.

Sign Posts: Which markets do you serve? What is your expansion strategy?