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?

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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?

10 Years, 10 Lesssons: Year 3: Cut Early, Cut Deep

crueltobekindEmotional 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?

10 Years, 10 Lessons: Year 2: Raise As Little Money As Possible

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

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?

10 Years, 10 Lessons: Year 1: The Smell of Success is Intoxicating

10 Years, 10 Lessons

At the tail end of the gold rush, on October 1st 1999, my wife, two dogs, and I arrived in Silicon Valley from Australia.  Since then, I’ve been lucky enough to work in marketing and strategy roles for startups, and while I’ve never found a pot of gold, I’ve enjoyed the journey, and believe there are a few nuggets I can share.  In the fine tradition of popular non-fiction, I’ve made a list of 10 lessons from the 10 years.  To keep it manageable, I’m aiming for 1 lesson each day for the next 10 days. I’ve included key takeaways and sign posts for the condition associated with the lesson with each year.

Photo courtesy of lushpup

Photo courtesy of lushpup

Year 1: The Smell of Success is Intoxicating

Greater mission vs. enlightened self interest

There is nothing more fun than working in a startup where everyone believes.  The energy is palpable and infectious.  People work joyfully around the clock and you jump out of bed every day, busting to get started.  Perksatwork.com was like this, my best ever year of work life, a veritable the-journey-is-the-reward, pot-of-gold experience (I’ve been trying to recreate this ever since).

I’m a great believer in a mission that people can believe in, but in this case, we had a nice idea (help people balance their life and work) and believed we could do anything, but either the team just got along really well, or Adam Smith was right and the prospects of success were driving the dedication.

Key Takeaway: Teams that believe (for whatever the reason) are a lot more productive and fun than those that don’t.

Sign Posts: Consistency of explanations about the overarching objective, and unshakeable confidence.

Caveat: The smell of success can be so blinding, you miss what’s going on in the market.  At my second startup we ignored the structural changes going on in the market for too long (see You Don’t Know What Customers Want).

Sign Posts: What are you worried about? (Nothing = blind spot – there’s always something to worry about)

Tomorrow: Year 2: Any guesses on the topic?  In the meantime, what lessons would you like to share?

Quick Mint

Aaron Mints $170M

Aaron Mints $170M

I never imagined this would be my first post, but last night I wrote down that Intuit needs a product to compete with mint.com.

Today, I received the email from Aaron Patzer, that Intuit is buying mint for $170M.  So I thought I better get started!

This is brilliant for Intuit, as mint solves the biggest problem of Quicken – its relentless insistence that every user account for every last cent (I don’t know about you, but I don’t balance the checkbook, I just need something to tell me with the least possible effort what we’re spending money on each month so we can adjust course if necessary) –  and adds the fabulous auto-categorization of major expenses, all within a gorgeous UX.

On GigaOm,  they point to the value of masses of customer data, but I think the value is in the team that has created an online finance solution that people actually like.

Brilliant for mint users?  Time will tell, but it’ll be tough to keep the team together if they’ve made a boatload of cash from the transaction.  It’d sure be nice if they keep up the pace of recent improvements such as the improved budgeting and charting released on August 19th.  I’ll certainly retreat to Excel if they turn mint into an ugly step-child of Quicken.