The following is a guest article by Jason Cohen. Jason is
the CEO and founder of Smart Bear, Inc. Smart Bear creates tools for peer code review. Jason "gets" software startups.
---
Doom and gloom. Layoffs, bankruptcy, insolvency, bailouts. Blah blah blah
Wall Street, blah blah blah Main Street.
It's a terrible time to start a company, right? Wrong!
Here are six reasons why you should start your new company right now.
1. Low opportunity cost
When the economy is booming, staying in a regular job makes sense. Generous
bonuses are common when revenues are soaring, stock option grants are valuable
when an IPO is imminent, your resume is improving in direct proportion to the
success of the company. Upside and safety! Fabulous.
Of course that scenario is almost non-existent today. Most companies aren't
hiring; many are laying off. Salaries are low, bonuses are suspended, stock
options are as worthless as a vote for Pat Buchanan.
So if the alternative is working for low pay without job security, why not
work for yourself and build your startup? You'll be investing your time and
energy into something with more potential upside in future. If you're talented
and have always toyed with the idea of a startup, financially it makes sense to
do it now.
2. Cheap Talent
It's hard to hire good people because they already have a job. But right now that's not true --
companies are exploding and laying off everyone, even the stars.
If you're starting a company you're probably looking for a co-founder more than an employee. Even better.
In an environment where few companies are hiring, lots of stars (or, better, potential stars) are out of work.
The market is flooded with good people. Maybe you yourself just got laid off
with some co-workers you like! Just keep your hiring standards high and dig into your social network. (Or go
get a social network now. See? That Facebook account really was a good
idea.)
3. Cheap Stuff
Need cheap office space? Layoffs mean newly empty desks in
empty offices with phones that still work. Look for subleases where someone is
trying to recoup some costs -- often they'll throw in Internet as long as you
don't abuse it.
Need cheap furniture? Companies are dumping stuff into used furniture stores
and there aren't a lot of buyers. Drive a hard bargain.
Need cheap advertising? Ad revenue is drying up as companies
down-size marketing budgets and miss their next round of funding. Combine that
with lower readership (especially in print) and ad deals are everywhere. Don't
listen to the protestations of ad reps -- they're under duress and will take
almost any offer. (I'll post later on ways to wrangle with ad reps.)
With everyone hurting, deals are everywhere. Your expenses will never be
lower than right now. Low expenses mean getting to profitability faster --
exactly what a new bootstrapped company needs.
4. Eager customers
When budgets are tight, people need to get stuff for free. Good for open
source projects, bad for companies, right?
Good for startups. Remember, with your first twenty customers you'll be
giving away your product for nothing. You need to -- your product isn't
fully-formed, they're helping you work out the kinks, you're counting on them
for testamonials, and you need to prove
your product works in the market.
You'll be a Godsend to companies who need your product. Their (lack of)
budget prevents them from buying anything else, including competing products
that are better than yours. They'll be ecstatic to get something for free or
cheap.
Here's a trick: Trade your product for a customer story (that you write and
they approve). They'll be happy to tell the world how you bailed them out of
their crisis.
I'd like a side of grated cheese,
please?
5. Competitor carnage
Is there an 800 lb gorilla blocking your market? Or a few hip companies
you're afraid to compete with?
They're all in SOS mode now. They have overhead, recurring bills, 12-month
advertising contracts and 5-year office leases. Their prices are high and are hard to lower.
They're eating cash. Those that are unfunded are watching cash reserves
fall, computing months-remaining before they'll have to close the doors.
Venture-backed companies are in a bigger pickle -- they weren't profitable
before, cash is now disappearing at an alarming rate, and many of them won't get fed again when they run out.
Perfect, if you're a little startup. You have none of these pains; you're
sipping cash with no overhead and lots of time to devote to coddling new
customers. While your competitors convulse, shed talent, and invent stories to
calm their doubting shareholders, you've got nowhere to go but up. While they're
figuring out how to wring more money from their existing customers, you're
acquiring new customers they can no longer entice.
6. "Now" is always the right time
The most common day for starting a new company is the same as starting a new
diet: Tomorrow.
Take the leap. Not tomorrow.
Today.
The third-hardest thing you'll do is to take the leap. (The second-hardest is
getting through the first fifty sales, the ones well before the
chasm, when you're sick of tech support and wondering when the real money is
going to show up. The hardest is firing someone.)
Never mind all that. Get started. "Now" is always the right time to start,
because otherwise odds are you'll never start.
If you don't start, you're doomed to a life of trudging through jobs,
depending on someone else for salary and bonuses and health care and retirement,
a life's work without ownership or upside.
You're better than that. That's why you're reading this blog.
So go for it.
--
So, what are your thoughts? Are you convinced yet? Still think that toiling away at that (ahem) "stable" job at that Fortune 500 company is the right thing to do? I realize that taking the leap is hard, and situations vary, but it's good to at least think about it. Lots of other people are thinking about it (or doing it) too. The OnStartups group on LinkedIn now has 34,000+ members. Of the 170,000+ groups on LinkedIn, it's in the top 10. So, you're not alone.
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If you’re involved in the operation/management of a startup, you’ve already
heard a bunch of advice over the past couple of months. Much of this advice can
be summed into about two words: Reduce Expenses.
I did a bit of paraphrasing (there are lots of variations and extensions to
this, but it’s close enough). The advice is intended to accomplish one thing:
give you more “runway” so that you can survive the down-turn. Overall, I think
this idea of increasing the time that you can continue to operate your startup
is a pretty good thing to solve for. The more time you have before you run out
of cash, the higher your chances that you’ll actually succeed. I’ve said this
about long-term startup strategy before:
“Part of your long-term strategy should be to survive the
short-term.”
If you don’t live long enough to see the long-term, all that strategic
planning and world-changing vision is not going to amount to a hill of beans (I
have a running assumption that the value of a hill of beans is negligible,
though it does seem odd to me that we’d use this as a benchmark — but I
digress).
So, back to the advice: You need to survive, and so you should reduce
expenses and thereby increase the time you have to figure things out. That’s
great, but it’s only one part of the equation. In reality, the length
of time you will survive is a function of how much cash you’re burning.
Your expenses contribute to this cash-burn, but there is this other
variable in the equation that people don’t seem to talk about a whole lot.
Revenue. It’s almost like we’d forgotten about that.
When software companies are born, there’s this vision of building a great
products company. Software startups tend to make a conscious effort
not to emphasize services. The reason is simple: The margins in
selling a product are usually much better. Further, it’s hard to get
venture-funding if selling services is a big part of your strategy — for the
right reason. So, many startup people (including me), shy away from selling
services. We accept that it’ll likely become necessary over time, but we
hold-off on it as long as we can. Now, I’d argue that in today’s climate,
things are a wee bit different. If faced with the decision of having to scale
back expenses (which is usually means letting go of people), generating some
service revenue might not be such a bad thing. Sure, as a software company,
selling services may not have been part of the original plan, but neither was
this massive economic downturn.
So, here are a few thoughts on selling services for revenue. Note: These
points primarily apply to B2B companies. I’m also drawing these points mostly
from experiences at my prior company (not my current one).
Thoughts On Product Companies Selling Services
1. Selling services (related to your offering) is almost always easier than
selling product. If you don’t think you can sell services to your target
market, I’d be concerned about whether you can sell your product.
2. Offering services to your existing client-base often works well. There
are two benefits: You get some revenue and you help your customers get
more value out of your product.
3. You should be careful that the services you sell don’t center around
customer-specific modifications to your product. That’s a high price to pay for
revenue. On the other hand, if a customer is willing to pay for enhancements
that you think would be valuable to a meaningful percentage of your target
market, it might be OK.
4. You might find that offering a bundle of services along with your product
increases your probability of a sale. Some customers might be more wiling to
buy if they knew they could get your help. This could include training, data
conversion, implementation, and customization.
5. Though services margins are definitely lower than that of product, one of
the nice things about selling services is that it’s easier to manage
head-count. For example if you’re trying to figure out whether to hire/keep
someone, trying to figure out whether they’d be accretive is simpler to figure
out in the services business. Not easy (particularly in this economy), but
easier.
6. I’ve found that the people delivering services on behalf of your products
company are often great at uncovering sales opportunities. For example, you
might have a consultant that is helping a customer complete an implementation.
During this process, she could identify how your product could be used in a
different division of the company, leading to an upgrade.
7. Services are often a very effective way to guard against attrition in
some of your recurring revenue stream. If you’re delivering services to a
customer on an ongoing basis, and they’re thinking about cancelling (in which
case you’d lose maintenance/subscription revenue), you’ll likely hear about it
sooner and have a chance to do something about it.
In closing, one important point. I’m not suggesting that you use the service
revenue excuse to refrain from cutting expenses that you should be cutting. If
you need to let people go, you need to let people go. Also, keep in mind that
expense cuts are immediate and generating revenue (even service revenue) takes
time.
Summary: You likely had lots of good reasons to not sell
services when the company started. But, times have changed, and you might want
to revisit some of those decisions and arguments. Selling services may be the
lesser of two evils.
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If you are not a believer in “Release Early, Release Often” you can safely
stop reading now. No sense in clouding your passionately held opinions with my passionately held, and ill-defended opinions. My best
wishes to you.
On the other hand, if you’re as passionate about the power of the “Release
Early” model as I am, then this article is just for you.
If one of these tickles your fancy, please feel free to share it. Lets
improve the world, one waiter at a time. [waiter, as in “one who waits”. Oh
wait, those kinds of waiters wait too. Screw it, you know what I mean].
Enjoy.
14 Sound Bites And Insights On Releasing Early
1. Wimps wait. Revolutionaries release early.
Suggested reading: “Rules
for Revolutionaries” by Guy Kawasaki. Guy’s my hero.
2. Failing to scale is excusable. Failing to release is
not.
3. Don’t hug your software too hard. If you love it, set
it free.
4. You will more often regret when you were reluctant than
when you released.
5. At the end of the day…just ship it!
6. You don’t get a first chance to make a second
impression.
I realize the above statement makes no logical sense. But, the argument
against releasing early is often “you don’t get a second chance to make a first
impression” and I wanted to twist it into something clever for my purposes. I
failed. No worries. This one’s on the house.
6. It’s
better to release early, and irritate some users than not release, and not have users at
all.
7. If it helps you release earlier, know that my software
sucks more than yours.
8. Ship it now. Why wait until tomorrow to learn what you
can today?
9. There are always 10 pretty good reasons not to
release. But, they’re not that good — so just release.
10. Software in the wild always trumps software in waiting.
11. You’re overestimating the degree to which people give a
flying flip. Get over yourself and just freakin’ ship it already.
12. To succeed, you need to be remarkable. To be
remarkable, you actually have to release something.
Suggested reading: Seth
Godin’s blog. Seth’s my hero.
13. Better to release early and be ridiculed than just
ridiculed.
14. No heroes and legends are created by software that
almost shipped.
—-
That’s about the best I can do. I have a feeling you can do better. Post
your best pithy insight on the awesomeness of “releasing early” in the
comments.
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It has been a while since I’ve written an article about startup compensation
(what do founders, CEOs and others make)? My previous article about startup
founder compensation continues to be popular, despite having been written in
2006.
The data in this article is taken from compstudy.com which publishes a report
titled “2008 Compensation & Entrepreneurship Report in IT”. The report is
based on a compensation survey. This year’s report is based on 342 survey
respondents representing 1,600 executives. Note: I am not affiliated with
CompStudy. I received the report for free, and I do not know what they charge
for it.
Here are some points from the report that I found interesting.
1. This year’s survey was conducted between April and June 2008.
2. 31% of the executive population this year were founders in their
companies (up from 28% in the prior year).
3. CTOs and CEOs were the most frequent founders.
4. Average base salary across all positions increased by 4.7% from 2007 to
2008.
5. On average, non-founding CEOs received a 5.4% grant.
6. Outside of the CEO/President the non-founder Head of Technology holds the
highest average equity percentage at 1.53%.
7. Just 33% of the companies in the latest financing stages still have the
founding CEO.
8. For companies raising one or fewer rounds, the average founding CEO holds
nearly one third of the equity. After two rounds, this reduces to an average of
18%.
9. Founding CTOs have 17.1% on average in companies with one or fewer
financing rounds and 7.49% of companies with 2–3 financing rounds.
10. CEO average base salary went from $227,000 to $237,000.
11. Non-founder CEOs have greater total compensation ($339,000) than founding CEOs ($286,000).
12. Founding CEOs hold an average of 22.05% of the company vs. non-founding
CEOs which hold just 5.46%.
13. The chairperson is the CEO of the company 56% of the time.
14. Investors comprise more than half othe board of directors seats.
Outside board members comprise about 20% of the board.
So, what are your reactions to some of these data points? What were you most
surprised by? You can leave a comment here or discuss in the OnStartups community on LinkedIn (now with 30,000+ members).
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If you’re from the Boston area and into technology in any shape or form, you
should be reading Scott Kirsner’s blog “The Innovation Economy”. Scott had an
article on his blog recently titled “Boston’s
Biggest Trade Associations Flunk the Student Test”. [Oh, and by the way,
Scott also writes for the Boston Globe].
The article builds on a theme that Scott has been talking about for some
time: How to keep all those great students that the Boston area is able to
attract every year.
Let me open by saying that I hate students just as much as Scott does — which
is to say, I love them. As an entrepreneur, my motives are
completely selfish. I want to keep as much raw, passionate and brilliant talent
in the area as possible.
In his most recent article, Scott looks at the local trade associations and
grades them on how well they are doing to encourage and engage students. (The
comments posted to the article are worth reading as well). I think getting the
associations to pull in students more is definitely a great way to keep the
students.
So, in addition to getting our trade associations to step up, here are some
random thoughts on how we might lock up the students and keep the talent
here:
1. Help students build a network locally. The more powerful and valuable
the network, the bigger the sacrifice of moving somewhere else.
2. Help students get new ideas off the ground in terms of capital and
mentoring.
3. Help students stay students. I think our academic institutions should
invest in ways that graduating students can continue to stay involved and keep
learning. The value of all of these graduate students is much higher than just
the potential alumni donations.
4. Help students have fun. I don’t mean in the “they need to learn how to
party sense”, but in the “creativity as applied to business” sense. Recruit
student talent to help experiment with some new ideas for your business. Try
unleashing some of their creativity. It’s not all going to work, but I’m
guessing that lately, not all of your projects are working anyways.
Would love to hear your ideas on how we could do a better job locking the
students up.
And, if you’re a student yourself, what are your thoughts on how we might
keep you and your awesomeness around in the Boston area?
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Earlier this year, I had the opportunity to present at the Business of
Software conference held in Boston.
Here’s a video of that event. Though I was a bit off my game (not enough sleep), people did
seem to find it interesting and/or useful and the presentation was highly rated.
I’ll watch it along with you and add some notes to this article later today.
Enjoy (and please leave your comments and criticims). Would love to hear
them.
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The topic of partnerships comes up relatively frequently in startup circles.
The common question entrepreneurs have about partnerships with Some Big Powerful
Company (SBPC) can be reduced down to something like this: 
Q: “My startup has the opportunity to explore a partnership
with a Big, Powerful company. What should I do?”
(Short) Answer: Don’t.
Of course, there are exceptions, but on average, not knowing anything about
you, your startup, the big company you are dealing with or the terms of the
deal, I think this is good advice almost all of the the time.
Let’s dig a bit deeper into some of the analyis that I’d put into making the
decision. One warning/disclaimer: I’m not a lawyer and don’t play one on TV.
This is not legal advice. If you’re signing a deal, make sure to get competent
counsel.
Thoughts On Partnerships With Some Big Powerful Company
1. Beware The Distraction: Big companies have something
you don’t. Time. They can commit one or more people to the ongoing task of
“exploring partnership opportunities”. You probably can’t. You have a day job
(and probably a night job too). As such, the mere act of continued
conversations with a big company to expore a partnership can be a major
distraction for a startup. Even if it leads to something (which it usually
doesn’t), it takes a bunch of time and energy. Beware this distraction risk.
You were warned.
2. PR Glow Lasts A Day, Lock-In Lasts Longer: One of the
reasons big partnerships are so tempting for a startup is you envision the
positive press. It adds legitimacy. It makes your startup feel more “real”.
You can almost feel the warmth and glow that comes along with signing a
partnership with a big, powerful company. But, this glow is short-lived. On
the other hand, even after the PR glow fades, the terms of your deal don’t.
There are a number of tricky deal terms that could be prolematic later.
3. The True Cost of “Right of First Refusal”: Let’s say
Some Big, Powerful Company (SBPC) is interested in partnering with you. One of
the likely reasons is that you’re doing something innovative, and they “believe
in innovation”. Heck, they believe in it so much, the’re considering investing
in you or buying you. But, it’s a bit early for that. So, as part of the
partnership discussion, they ask for a seemingly innocuous deal term like “right
of first refusal” on a sale. Here’s how it works. A few years down the road,
you find some other company (SOC) that wants to buy you for $50 million. Per
the terms of your deal with SBPC, before you can sell to SOC, SBPC
would have the right to look at the deal, and the option to buy you for
$50 million. Now, at first glance, this doesn’t seem like that bad of a thing.
What’s the downside? Wouldn’t you want to bring SBPC into the
negotiations and hopefully drive the price even higher? Since they’re not
getting a discount, and are willing to pay up, what’s the problem? The problem
is that when you have a “right of first refusal” with SBPC, folks like SOC are
less willing to enter into discussions. From a game theoretic perspective, SOC
knows that regardless of what they do, SBPC is going to have the opportunity to
evaluate the deal and take it away (exercise their right of first refusal). So,
SOC thinks “I can’t win this game…someone else has the advantage. The deck is
stacked against me. I’m not going to play.” This is a very specific example,
and it’s a nuanced issue, but hopefully you get the idea. When you provide
special rights to someone, you’re reducing the incentive of someone else to get
into the game.
4. What Do They Have To Lose? What About You? As you
overcome your initial excitement about all the opportunities that a partnership
with SBPC would bring, it’s extremeley important to try and think
through the downside scenario. What’s even more important is ensuring you have
some way “out” in the event that things don’t work out the way everyone had
hoped. For example, let’s say you sign a distribution partnership with SBPC.
They volunteer to use their powerful sales resources to help sell what you have
into their market. It could be game-changing! All they ask in return is that
you exclusively work with them. So, in this kind of situation, the question to
ask yourself is: “What if they don’t sell?” Could be intentional, could be
uninentional, but the result is the same. Dollars are not coming in your door.
And, unless you planned for this contingency, you’re sort of “stuck” into an
exclusive arrangement where you can’t change your strategy to something that
will deliver sales. One simple answer might be to trigger any lock-in
provisions to actual sales results. So, if things are panning out, great. You
hold up your end of the deal. If not, your hands are untied and you can do what
you need to do.
5. How Are Incentives Likely To Change? Lets say for a
second that the partnership works out and delivers real value beyond your
wildest dreams (that’s highly unlikely, but it’s fun to dream sometimes). What
then? How do the incentives of the parties (particularly them) change? If
things are going swimmingly well, is SBPC going to be happy? Or, are they going
to thinK: “Hey, we’re delivering all this value through the partnership, and
we’ve got this big R&D team over here, wouldn’t it be in the best interests
of our customers if we provide a scalable, integrated, enterprise
solution?” This is a long-winded of saying that after you’ve demonstrated that
there’s a market for your startup’s offering, and they’ve demonstrated that they
can sell it into their customer-base, they may decide that they’d be much better
at serviing this market than you are. So, even when things work out well (which
once again, is rare), it creates its own set of challenges.
6. Have they succeeded with partnerships before? Not all
partnerships are created equal (or is that equally, I can never remember), and
there are many different types of partnerships. Technology partnerships.
Distribution partnerships. Reseller partnerships. All sorts of stuff. When
exploring a partnership with Some Big Powerful Company, one of the key things to
figure out is if they’ve succeeded with prior partnerships they’ve
done. If they haven’t done these kinds of things before, and you’re one of the
first, you’re in for some pain. In theory, big companies see the value in
injecting some innovation into their market through partnerships with startups.
In practice, they usually don’t. It’s just hard to get them to move.
If SBPC has done partnerships before, how did they go? Was there any value
delivered to either side other than the press release and announcement?
That’s all I have for now. It’s a complicated topic and one that
(thankfully) I don’t have to deal a lot with right now in my current startup.
For those of you that made it this far, you might be tempted to write me an
email describing your specific situation to get my thoughts. Resist the
temptation. Although I’m a startup junkie, looking at individual startups and
individual cases just doesn’t “scale”. Leave a comment and tap the OnStartups
community. They’re much smarter folks anyways.
Also, if you’ve had experiences with partnerships with big, powerful
companies (negative or positive), please share them. I’m an entrepreneur, just
like you, so I have a limited set of data points. Share your wisdom,
particularly if it was painful to acquire.
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If you’re one of those rare entrepreneurs that has the discipline to stay
reasonably focused on what you should be working on, feel free to skip the rest
of this article with the comforting knowledge that you have my admiration and
envy.
But, if you’re like most of us, you are probably plauged at one time or
another by the “Shiny New Thing” (SNT) bug. This particular syndrome is pretty easy
to describe. There you are, minding your own business (literally) and working
on your startup. Then all of a sudden, BAM! Some shiny new thing comes along
and tries to distract you. You either get distracted, or you stay up nights
wondering if you should have gotten distracted. If you’re like me (my
sympathies if you are), you have this experience quite frequently. I think it
harkens back to our childhood days when just about any shiny new thing
would immediately grab our attention. [Hence the toy robot photo, blog image selection is not a core competency.]
There are various manifestations of this Shiny New Thing (SNT) phenomenon.
Here are a few:
1. New technology/platform/language/framework: This
applies mostly to developers. There you are coding away on your project, and this article comes
up in Google Reader about this new paradigm-driven-framework. BAM! It’s so
cool! It could change everything! It could make you 10X more productive! So,
you immediately start conjuring up ways to use that shiny new thing in whatever
you happen to be working on at this point in time.
2. New market/customers/industry: Your startup has a
market, you probably even have some of the product developed. You’re making
sales, albeit things are going a little slower than you hoped. Then, you read a
blog article somewhere and BAM! You think of this new market that you
could go after. And, brilliant technologist that you are, you’ve already
developed your existing product such that with just a few small tweaks you could
go after this new market pretty easily. In fact, the beauty of it is that you don’t even have
to give give up your existing market/customer/industry. You can do this one
too! If one market is good, two has got to be better, right?
Right?
3. New Feature/Application/Product: Your existing
product is cranking along. The few customers/users you have seem to be happy.
You’re signing up more people. You’re supporting your users.
You’re truckin’ along. Then BAM! You get this idea for a shiny, new feature or
product to add to your arsenal. You pause briefly to ponder whether the legal
services industry really needs an ERP app for the iPhone. But hey, you know
this industry really well, and your best customer has a daughter who has an iPhone. You’re
just a little “ahead of the market”, right. Right?
3. New Company: There you are, cranking along. And,
you just kind of start getting bored. Your idea was really cool and got you all
fired up in the morning. It was so shiny, new back then. But alas, it’s just
not that shiny any more. The idea is sooo last month. It’s really
hard to be passionate about it now. You’ve got to absolutely love what you’re
doing, every day, right? It’s a waste of time to stick to something that you’re
just not excited about, isn’t it? And then, BAM! You come up with this
new startup idea. It’s bright! It’s shiny! Life is good again.
So, you get the idea. If you’re like most entrepreneurs, you’ve been hit by
some variation of the above Shiny New Thing bug at some point. Unfortunately,
when you get hit with it, it’s rarely in the exaggerated, “Boy, that’s a supid thing to do, I would never do that” kind of way as the above examples illustrate. The SNT bug is usually much
more subtle and insidious than that. It’s why it infects so many smart,
rational entrepreneurs — and me.
What makes this problem a problem is that it is rare that going after the
Shiny New Thing is going to increase your oddds of success (however you define
it). Most of the time, it’s a distraction. The rest of the time, it’s usually
a major distraction. To really succeed and get things done, you’re
going to need to stick to something and get the basic machinery “working” and plug away at it. Good ideas take time. Great ideas take even more time.
Don’t get me wrong, I’m not suggesting you be stubborn about your idea, business
model, product, whatever. Far from it. I’m a big fan of the agile approach to
startups. But, there’s a difference between iterating on an existing
thing and being distracted by a Shiny New Thing.
So, here’s my advice to you the next time you see the Shiny New Thing bug
buzzing around your head as you’re trying to get real work done. Ask yourself
the following 4 questions:
1. Am I simply intrigued by the shininess and newness, or is there
really a there, there?
2. What would I need to know and what minimal questions would I need
answered to figure out whether this Shiny New Thing is worth my attention?
3. How long will it reasonably take me to figure out what I need to know?
Can I even afford that investment? How does it impact what I’m doing
now?
4. Should I go ahead and….Hey wait! As I was writing this, I just came
across another topic for this blog as a result of something on Guy Kawasaki’s blog.
Must…try…to…resist…shiny…new…thing. Oh no…it’s too…shinyyyyyyyy....[click]
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Startups, particularly those world-changing, curve-jumping, bet-the-farm kind
are a tricky business. The temptation for startups is, as Seth Godin would say, “to create average
products for average people”. The reason is simple, there’s a massive market of
average people. And, they want average products. Nothing too controversial.
Nothing that makes them too uncomfortable.
Guy Kawasaki, one of my favorite business authors addresses this in a recent
article titled “The Art of
Innovation”. Here’s #4 from that article:
“Don't be afraid to polarize people. Most
companies want to create the holy grail of products that appeals to every
demographic, social-economic background, and geographic location. To attempt to
do so guarantees mediocrity.”
But, my advice would be to not try and “solve for the middle” — but strive to
polarize an audience. If you’re really looking to make a big difference, you
want a group of people that passionately disagrees with your
idea/approach/business. Why? Because when you’re doing something that
polarizes, and you have a bunch people that passionately disagree with you, you
have a chance to find people that passionately agree. It is these
passionate people that help fuel the growth and help spread your idea. And
curve-jumping companies almost always have an idea that spreads at their core.
Your enemy, as in many walks of life, are not the ones that hate, but the ones
that are apathetic.
In short, have the courage to take a stand even if it means you’re going to
make some people uncomfortable or annoyed. Of course, you actually have to
believe in the stand that you take, but the idea is that if you believe
in it, push towards the edges even if it causes a big rift in your
community.
So, let’s take a look at a small, recent example from my own startup,
HubSpot. I’m using the HubSpot case because I know it well and have been on the
“inside” of (as a founder and Chief Stirrer of Pots). It also just happened
yesterday as part of our own internet
marketing efforts.
The quick story at HubSpot is simple: We believe there’s a massive
transformation going on that is causing people to move from outbound
marketing (advertising, direct mail, telemarketing, etc.) to inbound
marketing. Inbound marketing is about increasing the chances that people
that actually give a flying flip about your offering will find you. (Not to
hunt down masses of people most of whom don’t give a flying flip and interrupt
them with your message). The idea itself is not that controversial. But, this
video that we created recently is. It’s short, and sort of funny, so go watch
it and then continue.
So, here was our issue. When building this video we had to decide: Are we
really advocating that companies throw away all of their old marketing methods
(including telemarketing) so they can switch to our way (inbound
marketing)? It’s just not practical. If we asked people to do that, we’d risk
losing a bunch of prospects that just wouldn’t take us seriously. We’d risk a
bunch of our prospective customers thinking we were a whole lot of clueless.
But, we did it in anyway. Then, we went a step further. When we created the
associated blog article, we gave it a controversial title “Dude,
Cold Calling Is For Losers”. Now, not only are we making fun of people that
are doing cold calling, we’re actually calling them losers. Remember,
we have 5,000+ people that are subscribed to this blog, many of them are
marketers, and most of them likely do some sort of telemarketing.
So, what do you think? What are you doing to “take a stand” when it comes to
the vision of your startup? What was the last risk you took online? Something
that would really irritate a big batch of potential customers? Share your
experiences here. I promise, we won’t hate you.
Apologies for those that think this is article too self-promotional. I
try to keep OnStartups focused on things that I think will help other
entrepreneurs. Often, my best exampes are from my own personal experience.
Nudge me back if I cross the line.
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I’ve had a really interesting and crazy week (crazy in a good way). As many
regular readers of OnStartups.com know, I’m a huge Seth Godin fan. I’ve read
most of Seth’s books over the years and keep up with his blog. He’s even been
kind enough to comment on one of my prior OnStartups articles (“Why
Your Startup Shouldn’t Hire Seth Godin”). But, until recently, I’ve never
had the opportunity to actually hear him speak in person. This past week, I got
to hear Seth twice.
Most recently, Seth was a keynote speaker at the recent Inbound Marketing
Summit in Kendall Square, Cambridge (MIT central). Not only did I get to hear
Seth speak, live and in person, I had the thrill of getting to have lunch with
Seth and “just chat about stuff” (like getting some advice about my startup).
This has got to be the most thrilling thing that’s happened to me all year.
Very exciting. [Interesting trivia: Early in Seth’s career he worked in
Kendall Square for Spinnaker Software].
So, here are some of the ideas and insights I gleaned from Seth, that I
thought might be useful to other startup fanatics. Although the core insights
were inspired by Seth, I put my own lens/spin on it from the perspective of a
startup. All the really brilliant stuff is Seth, the mediocre stuff is
mine.
8 Startup Insights Inspired By Seth Godin
1. Resist becoming “average”.
This is my favorite insight. At my startup HubSpot, we use the geekier term
“regression to the mean” to refer to this phenomenon. Basically, the notion is
that over time, the world pushes you towards becoming more average. Often this
means doing what is “tried and true” or “proven. Or, as Seth says, “creating
average products for average people”. For businesses in general, but startups
particularly, regressing to the mean is a dangerous thing. Why? Because the
“average” startup is not successful. The only way to succeed is to
not be average. You have to go to the edges and resist the pull to the
middle.
2. Communicate Directly With Your Customers
You’re the founder/CEO/president/whatever of the company. You’re doing your
best to work on the company, intead of in the company (just
like all those business coaches said you should) . You may think you’re really
important to the business. In fact, you may even be really important.
It doesn’t matter. TALK TO YOUR CUSTOMERS. Whether you’re in the backroom
writing the next Facebook/YouTube/Google/whatever or you’re more of an
operations/finance person, you need to be have direct conversations with your
customers/users. There is no substitute. For startup people, this is not
particularly hard advice to follow (because someone has to talk to the
customers, and there’s only two of you in the company, so there’s nowhere to
hide). But, you’d still be surprised at how often people avoid direct contact
with the customer. No, not you of course, but your co-founder. For a
great example of a successful startup that talks to customers, look to Jason Fried from 37signals. He actually
reviews and responds to customer support emails. He’s a awfully busy guy too.
And, he’s got over a million users. What’s your excuse again? [Note to self:
write an article with notes from meeting with Jason Fried last week].
3. Let Your Users Talk To Each Other
Online communities are all the rage. But, too many of them are started
because companies want to “build a community to establish ourselves as a
thought-leader and promote rich interaction amongst our team and our
customers.” Blah, blah, blah. It’s fine that you want to be a thought-leader
and at the center of your universe. It’s great that you want to start a “rich
dialog”. But, provide some mechanism for those that inexplicably find your
offering “interesting” (hopefully interesting enough to actually pay you) to
connect with each other. Give them easy, convenient ways to connect to each
other and then get out of the way.
4. Start a Freakin’ Blog
Yes, I know. You’ve been meaning to do it. But amidst the writing of code,
and raising of funds, and meeting of minds and all the hundred other things you
have to do this week, there’s just no time to write. Heck, it’s just you and
your buddy Joe, right? And besides, you kicked off that
bobandjoeblog.wordpress.com a few months ago, wrote about some stuff, and only 4
people read it. It just wasn’t worth it. You have a business to grow! But,
you promise you’ll make the time. Someday. Once you get done with this
product-release/funding-round/support-nightmare/pr-event/whatever you promise to
try the whole blogging thing (again). I’m here to tell you that you need to
make the time. But, don’t listen to me. Here’s Seth Godin: “You’re forgiven
if you don’t get it…it’s easy to write the whole thing off…here’s what to do if
you still don’t get it: Start a blog.”
5. Stories Spread, Not Facts
Sure, I get that your shiny new startup with it’s shiny new software written
in a shiny new programming language is going to change the world. I get that.
But I, like most people, don’t want to hear about product. I certainly don’t
want to tell other people about your product. But I love a good story,
and I’m guessing others do too. If you want your idea to spread, stop focusing
on the facts, stop focusing on your offering and start focusing on your story.
Make it genuine. Make it interesting, and as Seth would say, make it
remarkable.
6. Beware The Need for Critical Mass
I’m going to lead with a quote from Seth on this one: “Failing for small
audiences is a loud cue that you will fail even bigger with big audiences.” Too
often, startup founders talk about how they are pushing to get to “critical
mass” and how “economies of scale” are going to kick in. That’s all fine and
dandy. I get it. I’ve been in the software industry for a long time. But, is
it absolutely, positively necessary to get to some “critical mass” before your
business starts to make any sense at all? Is that mass all that critical? Does
it have to be?
Can’t you make some kind of business out of something that looks a bit like
this:
Mass You Have < The Magical Mass That Is Critical
Why do so many startups have these mythical, magical numbers (“once we hit
1,000,000, users rainbows are going to spontaneously pop out of nowhere and
magic fairy dust will fall out of the sky and make our financials look sooo much
better”).
7. They Didn’t Call It the Industrial Gentle Change
It was a revolution, and like all revolutions, it’s neither gentle nor
comfortable. If you’re building a startup that really is going to
revolutionize something, you’re going to have take some chances and
make some people uncomfortabale.
8. You Have To Start
To do anything, you have to start. You can’t wait for the perfect
situation. The perfect idea (which doesn’t exist), the perfect business plan,
the perfect timing, the perfect market, the perfect investor, whatever. You
need to get going.
I’ll close with this quote from Seth during lunch: “I’m impatient
and shamelessly unafraid of failing.”
I’ve got lots more Seth nuggets and pearls of wisdom, but that’s all we have
time for right now. I need to get back to working on the next alpha version of
Twitter Grader.
So, what do you think? Did any of the above insights resonate