Search

Tim's Blog – From Startup to Value Realization

Stepping up the Growth Curve – Develop, Discover, Build, Grow, Scale, Exit

Does it sell? Do you have product-market fit?

Are you creating a new company? If you are, as an entrepreneur, the day you open up your shop, start selling.

yourstory_startup_valutaion

In 2016, I consulted with six startups.  Two bootstrapped their way through the year, and four lived off of money they had raised. During the last twelve months, it became clear that the most challenging issue these companies faced was not developing a product, but instead, getting to product-market fit, or more simply, finding people they could sell their product or service too.

You have product-market fit (PMF) if you can sell your product to multiple people and can do so at a price where there is a real exchange for value. You do not have it if you have only signed up a beta account or a non-paying proof-of-concept deal. When you have PMF, you can sell your product at a price that supports your business model, and there is repeatability to your deals.

Not surprising, the two companies that were bootstrapping their business acquired paying customers and found product-market fit for their offering. One is selling into a nice niche market that can sustain them as well as offers them a gateway into a larger mass market. The other discovered a massive market which they are aggressively servicing and expanding into today. The companies that had raised money were the ones that struggled to find people to sell their product too and realize product-market fit.

The bootstrappers, having elected to grow their business through personal investments in the company and cash they generated through sales, forced themselves to focus, and quickly iterate to where they could get paid for their offering.  In general, those that raised money were less focused and disciplined in iterating as a team to find a clear sellable solution. They tended to take a shotgun approach to finding a market. And they were unable to discover their product’s Superpower and were less scientific in testing for what it could be.

Whether you are bootstrapping your business or have raised money to fund it, until you have discovered product-market fit and have a repeatable sales model, you should maintain a small, focused team. Furthermore, you have to have a clear understanding of what you are trying to sell and to whom, so you can quickly iterate if need be to find a market for your product. Then when you have secured key lighthouse accounts and paying customers, then quickly iterate your sales effort into a repeatable sales model by working your company through the key steps of what is called the sales learning curve. This effort should help you develop a predictable sales process that drives cash into the business.

Moreover, if you think your company has product-market fit, test for it! Don’t just assume you have it. If you have product-market fit, when you engage the market, it should respond with interest. For example, two of the companies I was working with had mobile solutions. The one that had found product-market fit, when they suspected that they had found it, ran a simple test. They sent out an email to 100 prospects. The response they had was strong. They had over a 50% open rate and 20% of those that opened the email reached out to them directly requesting a demonstration and a more detailed discussion of their offering. The mobile company that did not have product-market fit, when they ran a similar test sending out 200 emails to prospective customers, had about a 5% open rate and no company reached out to them for a demonstration or made a request for additional information.

The rule of thumb here is that if you have product market fit, with some marketing visibility you will have prospects seeking you out. Moreover, when you do outreach marketing to your target group, you will see a strong response rate to this marketing effort. If you do not, you have more work to do, so keep your team small, focused and iterate quickly.

Advertisements

The Golden Rule of Startup Pricing: You are priced too low if you never get complaints about it.

the price is right

The other day, while out on a long roller blade, I happened to be listening to a podcast by Tim Farris. (You need a long outing on the blades to consume one of his recordings.) He was referencing pricing, startups, and a statement that Marc Andressen’s made. Marc indicated that the No. 1 theme that their investment companies have when they are really struggling is that they are not charging enough for their product. And this reminded me of a key startup rule of thumb. If your customers have not complained, every now and then, that your prices are too high, then you have not priced your product or service high enough.

Price objections are part of the sales game. But if you are dialed in to your target customer, their needs, etc. and are making some sales, and if you have never gotten push back on price, it is highly likely that you are leaving money on the table. Lots of it.

Think about the power and dynamics of increasing the price of your product. If you have a given level of deal flow, are closing a fixed amount of deals per month, and you can increase your price – say 2 times, you just doubled your revenues without working any harder!

Now, you may not just want to arbitrarily increase your price two times. Test the water first. Check your value with your existing customers.  To do this, go back to some of your earlier customers and ask them about your products value. Ask them about the type of savings it is providing them, and whether or not they would have paid more for the product now that they are using it. If you are selling an enterprise level product, you will likely learn that your product is providing greater savings and value then you thought, and this is not reflected in your price.

Corollary to the pricing rule: You can increase overall revenues without any extra investment in people and process just by increasing your price.

Trust, is your #1 product feature

coinMost early enterprise products are buggy, lack features, and do not perform exactly as advertised. But, that early adopter, that person who becomes your first real customer, really wants to believe that this buggy, almost-working software well do everything that they have been told it will do. Hence, they are trusting, and sometimes, betting their career on the person selling the product. They are betting that she will make this idea a reality. They are trusting that her company will deliver on its promises.

Hence, it’s important to realize when trying to capture your first couple of deals, any action that impacts the trust that has been built up between your sales person and the prospect, can kill the deal. Trust, is your #1 product feature. And many times, in spite of the product, it will carry the deal.

In a startup, for many reasons, everyone is highly anxious and wants to get that first deal or two signed. And it seems that everyone wants to manage the account, negotiate the deal, and close it. Especially the CEO. They desperately want the deal to happen and this anxious and sometimes miss guided behavior can damage the trust between a new prospect and the person working the deal. More importantly, prospects, like sharks, can smell blood in the water and sense this fear. And when a prospect senses this from others that jump the account, they will retreat from a deal in a nao-second. I have seen it where a young new CEO is so nervous and unskilled at enterprise sells, that he feels out of control and then backdoors his sales gal in the account causing the prospect to question the company’s product, its ability to deliver, etc.

Major deals have a life of their own. There are many players and influencers in an enterprise sale. Having others on your team jump in at the wrong time and engage the wrong person, or the right person at the wrong time can dismantle a deal in seconds. Early deals are done not only on the strength of the technology idea, but more so on the strength of the trust that the person managing the deal has brought to it. Trust is the key feature of any early stage product. Without it, most deals would not get done.

Think about it for a second, why would any sane middle manager or vice president risk her career on a new product that is not fully baked. Trust is what makes it happen. The trust built up by the person doing the deal will carry the day.

As the CEO of a startup, to keep yourself sane and from disrupting an active deal, develop a clear communication channel with your deal person and have more than one deal in the funnel. Also, remember, deals have their ups and downs before they close. Most require many meetings, contacts, etc. before they close. Some go dormant for a while. Stay engaged, listen to what is going on in the account, and realize that deals get closed at this stage not purely because of your great tech, but also because of the great tech sales gal and the trust that she has developed between herself and the client and the potential of the product.

Sorry doesn’t win ballgames

son sorry doesn't win ballgames

Many years ago, when I still had bounce in my legs and ran with the best of them, I played college football. When I was a freshman on the team, one of my friends and teammates told us a story about when, as a high school player, he had been pulled from a game after making a big bonehead mistake that had let the other team score.

In his recounting of this event he told us how, as he trotted off the field, he stopped next to the coach and said he was sorry. The coach then glared angrily at him. Grabbed his facemask and yanked it so his face was inches from his own. Then he said the line that our college team would repeat over and over again on our way to winning two conference championships: “Son, sorry doesn’t win ballgames!”

I was reminded of this line yesterday as a CEO of a startup that I was trying to help kept saying he was sorry. He said he was sorry when he changed the agreed upon terms and conditions in a contract at the last minute. He said he was sorry when the contract was a month late getting to the prospect. He said he was sorry when what could have been his first deal fell through because of all his inattentiveness and lack of preparedness with regard to this contract. And this is when that old college football line popped into my head – “Son, sorry doesn’t win ballgames”. And in this case, I added one more phrase, “or help you or your sales team close deals.”

In the contact game of entrepreneurship and startups, this line is apropos. It is one young startup CEO’s should remember. Why? Because you don’t want to be the one saying you are sorry when things blowup because of your lack of preparedness or inattentiveness. Because saying you are sorry does not win ballgames or in the game of entrepreneurship help you or your team win deals.” Entrepreneurship is a contact game and when you make bonehead mistakes, they will cost you; sometimes more than you can afford.

Customer Discovery = Demand Harvesting = Focusing on the NOW!

In the next 90 days, if you must put money on the table to prove to your investors that your product concept is the real deal, are you in a Demand Harvesting (DH) or Demand Creation (DC) mode? For those that answered DH go to the head of the line. For those that said DC, grab your ass and kiss it good bye.

now 1

Demand Harvesting is about finding and selling to companies or people that are already in market, NOW, looking for solutions for a specific problem. Anything else is Demand Creation.

An entrepreneur should never confuse the two. Many do. It is one of the reasons many startups struggle early on.

If you are following the Lean Startup model and are doing customer development, what mode are you in? Harvesting or creating demand? Customer development is a harvesting activity. If this is not the lens through which you are viewing this process, then you will struggle. You will struggle to find REAL customers and build a business. You’ll spend more time and money then you anticipated and be on a fast pace to your first pivot. More problematic, you’ll be pivoting and not know why.

Legendary Demand Harvesters

Two of the 20th century’s biggest business icons, Henry Ford and Bill Gates, got their start because of their ability to harvest existing demand. Gates did not create the demand for DOS, he harvested it. In his case, IBM was in market looking to buy an operating system and Microsoft found a product that they could sell to them to satisfy this demand.

Henry Ford did not create the demand for the automobile. Demand creation for the modern car (self-powered motor vehicle with an internal combustion engine) started in 1886 when German inventor Karl Benz built the Benz Patent-Motorwagen, 20 years before Ford launched his Model-T. Ford was just harvesting the demand that had built up over these 20 years.

The Misguided Love of the Feature Set

Why is Demand Harvesting so hard for new entrepreneurs? They get myopic and enthralled with their product, its beauty and its unique and specialized feature set. They sell features and technology and the WOW of the new thing. They don’t sell to the need that needs solving NOW. Most importantly, they don’t focus on getting people to pay for their product if it addresses their need. Focusing on selling to a need is hard. Getting someone to part with their money now if you satisfy their need is even harder.

What you see in the startup world is that many entrepreneurs spend an inordinate amount of time with non-buyers. People that show interest in their product but who will never buy. These pseudo buyers will play with the product. They’ll ask for new features. They will show great interest. And they will keep stringing the entrepreneur on but never purchase the product.

So many entrepreneurs lose valuable time and waste precious resources chasing these non-buyers. They hope and believe that as soon as they get that next special feature added into the product the deal will magically fall into place. But it does not.

Startups have neither unlimited time nor money and must focus on harvesting existing demand first and foremost.

Harvesting Demand Takes Discipline

During the customer development and sales model development stages, you have to be brutally honest with yourself about who the real buyer is and who is not! Most entrepreneurs will say that their solution solves a problem. It may. But if people are not demanding a solution like yours NOW, then you are in trouble. This means that you are a long way off from collecting cash.

Another mistake entrepreneurs make when testing a new idea or trying to sell a new product, is that they confuse interest for demand. How do you tell the difference? It’s easy. It is about the four NOW’s.

  • What problem is the customer trying to solve NOW?
  • Do they need to solve the problem NOW?
  • Do they have money available NOW to purchase something that solves this problem?
  • If your product solves their problem will they pay you money NOW?

It is ok to walk away from people that don’t need to solve a problem NOW. In fact, you must walk away from them and focus on finding people that do.

Customer development is about addressing the NOW.

Summary

Acquiring new customers requires discipline. Don’t sell features and technology and the wow of the new thing. Sell to the need. Ask the right questions. View your product as a solution to a problem. And don’t waste time with individuals whose problems you cannot solve with the product you have today. Address the four NOW’s and harvest the demand that already exists in the market.

Before hitting the accelerator – do a business checkup

tune up imageIs your business model firing on all cylinders? These questions will help determine if your business needs some tweaks or a major overhaul before kicking it into gear. After all, it is pointless to step on the gas if the engine is misfiring. At best, you under-deliver vs. your goals. Worst, the engine breaks down entirely and you come to a screeching, unprofitable halt. Here are six questions to asked yourself to decide if your  business needs a tune-up. The questions and the follow-up questions that each drives address the most important aspect of a business.

1. Who is your target customer? What types of companies and management teams are most valuable to you? How do we recognize and priorities customer opportunities?

2. How do you gain and keep customers? What is your approach to marketing and pipeline development? How do you convert relationships into profitable clients? How do you keep the customers you have gained?

3. How do you serve customers? What is your staffing model? How well are you executing that model? What is your plan to build on the intellectual capital you have and continue to build more capital?

4. How do you price your services? When should you sell services at a discount, and toward what end?How do you price your services in fee-based vs. equity-based relationships?

5. How do you attract and retain talent? What type of people do you want to hire (skills, cultural fit)? How do you recruit and hire effectively and efficiently? How do you develop your team and grow their capabilities? How do you manage the team? How do you keep the valuable members of your team? What are the right culture and incentives to drive retention?

6. What investments should you make in adjacent growth opportunities? What bandwidth do you have as a management team to take on more opportunities? Do you have the right talent within the firm to pursue those opportunities?

By working through these questions with your team, and having done your homework in advance, you can have a robust debate on your business model. You’ll learn from your team which parts of the business are humming along nicely and which need a tune up. This should also help you agreed on a path forward to address your tune-up challenges over the coming months so that you can really put the pedal to the metal. For your business, what are the answers to the above questions? What were your top issues? What were your biggest surprises?

Apply the Compounding Effect

imagesThe compounding effect, it’s the process of reaping rewards from a series of actions and reactions. The accumulated effect helps your company gain business and opportunity.

Compounding happens when you associate with a person, event or group of people who by that association keep putting you and your business out in front of others even when you are not there. Therefore, from the day that you launch your company, you should be looking for these compounding opportunities and let them work their magic.

When we launched our SaaS Company, we not only planned the type of product we would develop, but also the first event that we would attend. The event, we knew was a key industry gathering, but then, it was hard to gauge what impact it would have. Today, looking back, I now know that this show was one of those compounding events. Things we set in motion back then have continued to produce opportunities in terms of new customers, partnerships and ideas. Furthermore, I attribute getting through the Gap Stage to the work that we did here. Customers, partnerships, relationships and ideas; this event and other small actions helped generate these and continues to do so. These compounding events are little engines of growth that keep working when you are not.

If we had not attended this event at that time and waited a year when the product was more mature, refined and working, we would have missed the compounding effect that this event has had on our business every year since we attended.

The earlier you plant seeds of opportunity, the sooner you can sow success.

The Gap Stage: Between Market Fit and Scaling or The Blood, Sweat & Tears of Selling Your Ass Off to Get Sustainable Growth

The-Ultimate-Workout-Collection-Blood-Sweat-And-Tears

The Gap Stage

The first significant group of customers you sell your product or service to is special. They set you on your way to sustainable growth. I’m not talking about signing up an early adopter or two. I am talking about that first sizable group that you work your ass off trying to and then selling. They become your company’s foundation for growth. They create the forward momentum needed to move your business to the next level. As an entrepreneur, signing up the first 50 or so customers who pay $2000 per year or the first 20 that pay $20,000 is a special stage in the evolution of a startup. It is the Gap Stage. It’s the stage after you determining market fit but before you press the gas pedal down in order to scale the business. It’s the messy stage. It’s a hard but transformative stage. It is here that you really birth your business.

I call it the Gap Stage because there are gaps in your market and customer knowledge and gaps in your product and service capabilities that once filled will make scaling possible. The Gap Stage is where you refine, polish, re-polish, reposition and re-learn what you know about your sales process, the market, the product and target customer through repeated sales and customer engagement.

Obtaining that Special Group of Customers

There is nothing you can do that will help you develop your business and product strategy better than trying, selling and then servicing that first significant group of customers. There’s no other way to deeply understand your customers’ challenges, and get a true sense for their experience with your product then getting into the trenches and trying to sell your product over and over.

Nothing you do during the Gap stage is really scalable. But what you learn during this time will lead to a scalable sustainable sales process. More importantly, if you are not successful here, the concept of scale does not matter.

During this period, you the entrepreneur must be intimately involved with the selling of this group of customers. This is where you refine your earlier learnings and gain the experience and knowledge needed to move the business forward and move beyond a minimum viable product.

How do you secure this set of customers? You give some deals away or discount heavily. You call on your friends, their friends and their friends to find prospects and customers. You cold call prospects and do it again and again and again. You scrape websites for email addresses or hire low-cost labor to just copy them. Then you send out emails again and again and again to potential customers. You go hang out at market specific trade shows to meet prospects and industry influencers. You give talks about your product where they will let you. You follow Facebook groups that cater to your market and call those in the group that bitch and moan about your competitor’s product or complain about a problem that your product or service addresses. You scrap, claw and fight hard for every one of these customers. You try almost anything to find prospects and sign them up.

Going All in With the Customer

Once you start gaining customers and they start using your product, you and your team will put in many, many hours with each one of them learning, coaching and making sure that they have a positive experience and get the desired use out of your product. (Customer success is the bedrock on which everything else is built.)

This stage is a learning process on how to sell, onboard and support customers as well as fix and enhance the product so it fits better the needs of your customers and the broader market. You repeat it over and over again refining the process and product so that selling and onboarding each new customers get smoother, faster and easier.

During this stage

  • You’ll find out what your product or service does not have but that your customers need and want.
  • You’ll get a clearer understanding of your product’s worth and how to price it.
  • You’ll developed a greater understanding of your target market and what segments are best to attack now and approach later.
  • You’ll develop a richer and more comprehensive understanding of your target customer and what excites them and what their key hot buttons are.

It is during this stage that you assemble the knowledge and relationships necessary to construct a sales and marketing model that will help you scale your business.

The Take Away

The key premise of this stage is that it is a market first stage. Furthermore, you need to embrace the cold call and love the deal. This is not the scaling stage. This is a foundation building stage. If successful in this stage, you will have the tools to scale. Get the customers, care for the customer, and learn from the customers and repeat!!!!!

Go all in with the customer. Stay customer obsessed and use the feedback to refine and grow your product beyond an MVP as well as improve market fit.  Even if it doesn’t feel “scalable”, do whatever is needed to generate measurable value for the customer. Delighted customers provide you with the foundation to scale. Once you figure out the recipe for making a significant sized group of customers successful on your product and sell them on it, you are ready to address the issue of scale and are on your way to creating a sustainable growing business.

Great Customer Validation Resource – Trade Shows, Conferences & Conventions

PS_20150103110255

It’s January 2nd,  and it’s the start of the meet and greet season as I call it. Starting today and for the next eight weeks, my company will attend 14 state conventions across the US. It’s a time when we get face to face with our customers and prospects and try to sell them product as well as test new product and service ideas.

I have always thought highly of Steve Blank’s Customer Validation model that says that you need to get out into the market to test the viability of new product ideas.  And I can think of no better place to do this and get a lot of advice quickly then at conferences and conventions that cater to your target market.

At these event, within a day or two,  you can generate a lot of feed back about your product and idea. And if you spend time at the bar, after the sessions are over, you can get the real real feed back. Trade shows are an excellent  resource for getting product feedback and should be high on a entrepreneur’s to-do list when developing and testing the viability of a new product.

Create a free website or blog at WordPress.com.

Up ↑

%d bloggers like this: