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Tim's Blog – From Startup to Value Realization

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

Entrepreneur Tool #2: Medicine, Vitamin or Laughing Gas

ku-xlargeIs it a medicine, a vitamin or laughing gas? How do you convey the value of a feature or product concept to your team or get them to discuss it based on market value? One way is labeling.

As an entrepreneur, there always is another shiny object to chase. With a talented development team at your disposal, you can very easily chase any of these flashy baubles. The secret is for you and your team to stay focused on those few that your target customer needs.

If you discuss your product features or product as whether it is a medicine, a vitamin or laughing gas, it helps your team focus on the value the market will place on it.

Medicine: A feature or set of features with this label should solve a clear and immediate need. The customer takes the medicine; uses the product/feature, and, bang, ailment cured.

Vitamin: A feature or product with this label does not directly address an immediate need. Like most vitamins, the impact is longer term and not all too clear. In other words, it is a nice to have but not necessary in the short-term.

Laughing Gas: A feature or product with this label is a exciting way-out idea. It may have a direct market impact or not, but no one knows.

All products have a mixture of medicines, vitamins and laughing gas. However, in version 1.0 of any new product, make sure your service or product contains mostly medicines. It makes it easier for your prospects to recognize the ailments it cures and easier for you or your sales team to sell your new product.

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Entrepreneur Tool #1 – Forcing Functions

Trade shows: It seems we have all attended them or helped organize one or two. Intentionally or not, over the years, I have used them and other such events to launch new businesses and products. As I look at them through the entrepreneur lens, I see that they are more than just marketing exercises. They are forcing functions* that can drive overall company growth.

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As an entrepreneur, you should recognize and embrace the power of these forcing functions. Don’t just let them happen or go to waste. In fact, seek them out. Use them to manage the growth of your business and propel it forward.

Think about how people in your company act day in and day out. There is a routine. Everyone thinks they work hard. They are smart and they put in long workdays.  Then reflect on how everyone responds when there is a hard stop, when the company needs to present and demo its latest, greatest product at a major trade show or deliver it to that first customer.

Bang! Things get moving. Everyone moves from running fast to running faster than full speed. Of the millions of things that need to be done, notice how quickly they are narrowed down to a select few. And of these, notice how quickly you and your team zero in on and act on those that really matter. This is the value of a forcing function.  It focuses you and more importantly your whole company on what matters. In addition, it is supported with intense action.

Forcing functions are catalysts for getting things done.

As an entrepreneur, these intense bursts of activity associated with a forcing function are valuable. Plan them. Control them. Moreover, manage them to rally your team and to focus them on what needs to be accomplished as well as to carry out the seemly impossible. Use them to get your team moving faster than full speed. Use them to generate a growth spurt for your business.

There are many types of forcing functions. Good growth forcing functions are ones that break a company out of its well-worn routines and engage it around key growth initiatives or help reshape it completely.

Hence, look for forcing functions that

  • Focus you and your team on key results or initiatives
  • Push your team out of their well-worn routines
  • Stretch them
  • Gets you out into the market and produces a market event

* A forcing function is any task, activity or event that forces you to take action and produce a result.

Build a Massive Email List and Fix Your Daily Deal Site Woes

I’ve received a lot of calls over the last month from people who have started deal sites or plan to set one up. The technology consumes them and they miss out on the importance of the email list.  The daily deal technology is the easy part of this business. Those that have started sites are finding that without a good list, they don’t generate significant sales.

Most people at daily deal businesses that I’ve spoken with, do not have aggressive plans for building their email list. Anyone getting into this game should realize that when they start out, a new list will perform as follows: on the average, .5% of those on the list will buy any deal offered. What this means is that for a list that has 5,000 names, 25 people on that list will buy whatever daily deal they are mailed.  (A more mature list will perform at a higher rate – .8% to 1%)

Using an average deal price of $20, this means that when a new deal is mailed to a list of 5000 names, it will generate $500 worth in orders. With 10 deals a month, that means revenues from the site are $5,000 and ones take home pay is at most, half of that or $2,500. Annualized, that equates to $30,000 of income.

Hence, the bigger the  list is, the bigger ones income will be. Furthermore, the bigger the list is, the more value a deal site offers  the participating merchant. Building and maintaining a list is a key activity of running a successful daily deal business.

Size Matters: Success in the Group-Buying business is rooted in the size of the email list

Hundreds of companies have already jumped on the Group-Buying bandwagon, serving up all kinds of daily deals. What would you expect with Groupon being the poster child for this new industry? They’re 26-month-young, the fastest growing company in Web history, and have received a 6 billion dollar offer from Google.

As others have already written, Groupon and its clones rely heavily on their email marketing efforts. The social media marketing part of this business is important, but email is the catalyst that precipitates the shopping event. Groupon’s or any other Group-Buying company’s list is the fuse that once lit (sent), sets off a chain of social marketing events that drives their daily deal volume.

Hence, any company that wants to have any success in this business needs to develop a list of significant size. In fact, a key indicator of which Group-Buying companies will be successful in any given market – locally or nationally – will come down to one thing – the size of their email list.

Look at the 800-pound gorilla’s numbers. As of November 2009, Groupon was in 25 cities and had an email list that consisted of a million addresses. That equated to 40,000 per city. By November 2010, they were in 250 markets and had a reported list that contained thirty million addresses. This averages out to 120,000 per market.

On any given day, if one percent of the people who receive an email from Groupon buy that day’s deal, that equals 1200 purchases per market. If the price of that daily deal is $15, then that equals 18,000 dollars. For Groupon, who is in 250 markets, this adds up to an annual revenue of  over 1.5 billion dollars, which is what their current revenues are estimated to be.

What does this all mean? If you have to compete with the big dogs in the Group-Buying space, the size of your list per market should be at least the size Groupon’s was in its first year – 20,000 to 40,000 addresses.

One to one and a half percent of customers from any Group-Buying list buy on any given day. (This is the estimated Groupon daily average as well as what we’re seeing from our clients who run Group-Buying businesses.)  If the size of your list is not in the range above, then you cannot deliver deals for a participating merchant in the quantities that Groupon and others can; hence, you’re not competitive.

Therefore, in the Group-Buying business, size matters. Success is rooted in the size of the email list – it determines your reach, your daily sales level as well as the visibility each daily deal has within social networking sites like Facebook and Twitter.

Technologies to Follow in 2011

Below is my list of interesting technologies to follow this year. I’ve listed these, not because they are all brand new technologies, but because many are moving from cool technology to mainstream tool or resource. And that means their impact is going to be bigger than in years past.

Smartphones

This has been an exciting technology trend for a while now. However, the smartphone makes this list because this year it goes mainstream in a massive way. Verizon customers can now get Apple’s iPhone, Android based smartphones are being offered for free with a two-year contract, and Microsoft has to play aggressive with their phones to stay in the game. All this means that these devices will be in everyone’s hands faster than a blink of the eye.

The shift is significant because it will impact how we connect with each other as well as transact our lives. (I include Tablets in this bundle today, next year we can address them as a mainstream product on their own as they become more powerful and start to replace PC’s.)

This year we will see mobile security and identity protection (IP) emerge as an important issue. Like the PC, smartphones are computers and they will get viruses. But more importantly, because many will contain key financial and personal data and they will get lost, security and IP will emerge as important services.

Other mobile areas to watch

  • Mobile Scanning: We’ll be scanning everything to ingest information faster.
  • Mobile Recommendations: With the smartphone at our side, we will be able to get recommendations anytime, anywhere.
  • Mobile Video: videos, videos and more videos – enough said.
  • Mobile Health: Connecting with sensors of all types and as more sensors are added to smartphones, the health community will want to monitor and check every aspect of your life.
  • Mobilization of the Enterprise: This has been talked about for years and has been occurring in small steps. However, in 2011, we will see corporate IT make significant investments in mobile, driven by the proliferation of smartphones and the rise of tablets.

Near Field Communication

This technology moves into the market this year. It will be a foundation building year, not a mainstreaming one for this technology. It is an important technology but it requires many retailers to engage with it before it becomes mainstream.

Apple will have to do its part, but others like  Target and Wal-Mart will need to get involved for this to go mainstream. Look for this technology to be mainstreaming in three years.

Cloud Computing

In the late 20th century, I pitched a company on moving their ERP software to the cloud. This was before Salesforce, etc. Now more and more enterprises are looking at how they can put enterprise software in the Cloud. This trend will just continue moving into the mainstream. There is not doubt that this will be the way enterprises engage with key software tools. It is just a matter of time for budgets to be made available to switch internal systems over to this new platform.

Shale Gas

This is a game changing resource. It is not digital, but it can and should have as much impact on our lives as the smartphone.

As it becomes known that we have an abundant supply of this natural resource on the North American continent – a 100 year supply – people will start to develop ways to use this asset to shift how we interact with the geo-energy players.

The huge shale gas finds in North America — with ever-growing reserves — are only the beginning of the unconventional hydrocarbons revolution.

Smartphone Growth to Excellerate to Warp Speed

The unprecedented growth of smartphones is a hard trend to miss. Yet, the blistering pace that we have experienced so far will seem slow compared to what we see in 2011 and 2012.

Growth is set to jump to warp speed because smartphone prices will drop substantially over the next year! A report last week by Seth Weintraub at Fortune.com titled, “2011 will be the year Android explodes,”  highlights this shift. The article states that with new advances in hardware, real smartphone prices, the price of a mobile phone without a contract,  will drop from $200 to under $100.

This is not the cost of components used in the Smartphone, it is the retail cost!

So think about it, at a retail price of $100, AT&T or Verizon, with a two-year service contract, will be giving these devices away for free. Hence, for a service agreement, you’ll also be able to get a pocket-sized computer that is more powerful than many PC’s we grew up using. You’ll be able to get a device that makes you more connected and puts infinite amounts of data, information, and content at your finger-tips. You’ll get a device that connects you with the everyday physical world in more immersive, compelling and interactive ways as well as tracks your every movement and records all your social interactions.

This dramatic shift in price is sure to broaden the use of smartphones on a grand scale. In addition, because of their unique feature sets, more wide-spread use of these devices is sure to bring about a significant change in the way people across the global engage with the physical world and connect and interact with others.

Furthermore, I suspect that few businesses are ready to take advantage of the opportunities that this growth will bring with it. The opportunities to expand their business or enhance the relationships they have with their customers.

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