Beware of a contract’s exclusivity clause

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Writing about strategic alliances brings up the issue of exclusivity clauses in distribution and sales agreements. Someday, I hope, someone will write the full story of Software Arts, Inc., the company that invented the first electronic spreadsheet, VisiCalc, and foundered on the shoals of its original distribution contract. In brief, the founders of Software Arts had no interest in sales, marketing or distribution. Upon the advice of a Harvard Business School professor, they entered into a contract with Personal Software, Inc. to distribute VisiCalc. That was in 1979 or 1980. By 1984 that exclusive distribution agreement resulted in a deadly embrace that ended up killing off both companies.

The period when VisiCalc was launched was the dawn of the personal computer era and attorneys who understood both intellectual property law and software were scarcer than women software engineers of color.  During my time working at Software Arts and after its demise I was often asked the question why didn’t they patent the spreadsheet? Then Lotus, Microsoft, and any other company would have had to pay the inventors royalties, making the founders multi-millionaires if not billionaires. They did consult an attorney who told them software could not be patented, so no filing was made.

But that’s a side note to the crux of the issue: Software Arts entered into an exclusive contract with Personal Software, later VisiCorp, to market, sell and distribute its invention. When the two companies wanted to go their separate ways a few years later litigation over that ironclad contract knocked both companies out of the game, leaving a clear field for Mitch Kapor to dominate the corporate PC software market with his
Lotus 1-2-3 spreadsheet, a brilliant blending of an advanced version of VisiCalc with Mitch’s first successful product, distributed through Personal Software, VisiTrend/VisiPlot.

When mentoring founders who are in discussions or preparing to sign a contract with another party I ask them one simple question: What is the most important part of any contract? The answer is in my post; it’s the termination clause. In my view contracts are analogous to insurance policies. You hope to never have to pull out your home insurance policy to refresh your memory for what it covers because that means you must have had some untoward incident in your home – fire, theft, vandalism, etc.  Similarly with a distribution contract, when all is going well you have no need to try to enforce its terms and conditions. But when the parties have a falling out you need to pull out that contract and read the termination clause, because if all else fails that’s your one and only recourse. Suing a large company is just slow motion suicide for a startup. Large companies have in-house attorneys – a sunk cost – who will litigate you to death as you pay legal fees to combat them. Stay out of court at all costs!

The trap that Software Arts fell into, and here I would definitely fault their legal counsel, was to make the term of the contract co-terminus with the copyright to the VisiCalc’s code.  That was a huge mistake,  as we are talking many years here! So that brings up to the nut of this post: how do startup companies deal with prospective partners who insist on an exclusive agreement? No one likes competition, let alone sales or distribution companies. They want the whole market and nothing but the market.

The VCs who trained me hated exclusivity and constantly reminded me of this as I entered into contracts with Lotus, Software Publishing Corporation, and other PC software pioneers. But if you are really desperate for the help a large partner can give you then their demand for exclusivity must be met or countered. Here’s how:

Term: the length of the period of exclusivity should be limited in time. And that time should range from about one to three years. Do not tie the term into some other exogenous factor like the length of copyright!

Territory: startups by their nature lack reach. That’s why they enter into distribution contracts with large partners. By granting your large partner exclusivity in a territory you would have trouble reaching anyway you can hope to satisfy their need to protect their investment in sales and marketing. Typically for a U.S. startup granting exclusivity to one or more international markets is a good strategy. Just keep in mind that you must also apply a restricted term, as in the future your venture may be big enough to serve international markets itself.

Type of customer: often startups will decide to negotiate exclusivity around the type of customer they target, believing that if they can maintain exclusivity for those customers they aren’t giving up anything by granting exclusivity for other customers. For example, if you have developed a new social media platform aimed at millennials you might rightly feel that you aren’t giving up anything by allowing your partner to have exclusive rights to sell to corporations. But there are two problems with this strategy. One, it can be hard to predict who will actually end up being the users of your product. By locking out a market segment like corporations you will never have the opportunity to discover if they would be good customers. The other issue is that there are other markets you may not even be thinking about, such as government or education. By ceding all other markets than consumers to your partner you may well be giving up great opportunities in unexplored or untapped markets.

Version of the product:  at Addison-Wesley Publishing Company, where I invented the student edition of professional software products, we were able to convince developers like Lotus to provide us with a different, more limited version of their crown jewels, in the case of Lotus it was 1-2-3. You can modify software in many different ways: capacity and features being two of the most common. But taking this tack puts a development, testing and support burden on your venture – a cost you might not want to bear. And your market may rebel against getting an older or less capable version of the software. So granting exclusivity to a different version of your product can work, just be careful of those two issues. An interesting twist on this idea is how Tesla sells their vehicles. All Teslas have the same basic features and performance. But Tesla can “turn on” new features and enhance performance through remotely unlocking software – if the customer is willing to pay. This clever tactic can be used in other markets to sell different versions of the same product at different price points.

Performance:  my preferred way to grant exclusivity is to make it performance based. Thus your distributor can only maintain exclusivity by selling X units in a set period, usually one year, or they risk losing their grant of exclusivity. A good twist to this is to enable your partner to “buy up” – meaning if they don’t meet the agreed upon sales targets they can pay you as if they did.  Performance is also the best way to manage term. Your partner can maintain exclusivity so long as they meet agreed upon targets, which should grow year by year. The trick to this is it is very hard to forecast sales of new products from a startup, so you need to be careful about how you handle this condition of the agreement.

The bottomline is to avoid exclusivity agreements whenever you possibly can. The main reason is that it is so difficult to predict who or where your best customers will come from and to forecast revenues for a new product. But exclusivity can be a strong motivator for sales and distribution companies – it gives them a monopoly, the best way for them to profit by selling your product.  But no matter what type of agreement you negotiate – non-exclusive, exclusive or conditionally exclusive – make sure you have an escape hatch if things don’t work out. Get a lawyer who is familiar with sales, marketing and/or distribution contracts and knows how to craft that termination clause. That’s really your only protection from entering into an agreement that you find significantly disadvantageous, but it’s vital as and those of us who lost out big-time through Software Arts’ bad contract with Personal Software learned the hard way. As the saying goes, “Those who do not learn from the past are condemned to repeat it.” And the first priority of all startup is to learn!

 

The downsides of the personalization wave

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As I’ve written previously, personalization is the megawave of this decade and probably the next, just as self-service was the business megawave of the previous decades. However, the downsides of personalization are becoming more apparent as it spreads across social media and jumps out of the screen to managing our interactions with with the real world.

One of the most valued characteristics of new hires for the top tech companies like Google and Apple is curiosity, the strong desire to know or learn something. Why is that? Because tech moves so fast that what you learned in college becomes obsolete in your first year or two at work – new programming languages sprout like mushrooms for one thing. So the ability to learn, and learn quickly, becomes the most valued trait in new hires. And curiosity is the intrinsic driver of learning – despite public schools best efforts you can’t use extrinsic stimuli, rewards or punishments, to stimulate learning.

But personalization is the enemy of curiosity because it eliminates anything you don’t already know and like. Curiosity eliminates discovery. The reason I prefer going to a local bookstore to buying all my books on Amazon is the fun of discovery that browsing a physical bookstore enables. Finding new things that may be at the far periphery of my interest sphere is fun! I value serendipity: the occurrence and development of events by chance in a happy or beneficial way. Serendipity is the opposite of personalization. The best way to satisfy curiosity, to discover new things, to let chance present beneficial events, is to get out of the personalization bubble!

While Netflix attempts to determine what films I’d like from what I’ve already watched it has no idea what books or articles I’ve read that have been adapted into movies. Nor does it incentivize me to take a chance on something new. My wife and I have always liked European movies. Australia is not in Europe, but our curiosity about films from other cultures lead us to discover Australian films, which we find uniformly excellent, perhaps due to the support of the Film Australia, a company established by the government of Australia to produce films about Australian culture. Discovering films from Australia lead us to try films from Scandinavia, Norway in particular, much to our delight. The big advantage of subscription services like Netflix and Spotify is that the cost of such experimentation is nil – you lose nothing by trying a Norwegian film like Insomnia, because it’s already paid for by your monthly subscription. And by watching the Norwegian version of Insomnia we discovered the brilliant actor  Stellan Skarsgård. Yet Netflix does nothing to stimulate curiosity, in fact it’s a curiosity killer with its recommendation engine.

Worse yet, personalization has now invaded one of my favorite places: museums. The Wall Street Journal article The Museum of What You Already Know describes how the $50 million National Comedy Center in Jamestown uses an RFID identification wristband programmed according to your preferences among comedians, TV shows and movies. Signals from the band trigger displays specifically tailored to those interests. Museums used to be a place of discovery but now with pre-programmed personalization they can limit your ability to discover something outside your “likes.” As author Peter Funt writes,

That seems both cynical and misguided. In his 2016 book, The Return of Curiosity, Nicholas Thomas writes that museums are rewarding for their “unexpected discoveries of pieces that may be minor in art-historical terms or otherwise supposedly of secondary interest but that appeal to you nevertheless, that enable you to know something new or that take you somewhere you have not previously been.”

Visits to museums, libraries, bookstores or foreign countries should expose you to something new, to expand your horizons.  To help to satisfy your seeking system, not to stunt it.

Personalization is being damned these days for keeping people in a political filter bubble. But it’s actually worse than that: personalization is a curiosity killer, it disables learning, and thus personal growth.

That doesn’t mean you should ignore all recommendations from Netflix or Amazon. I find it useful to see “Customers who bought this item also bought ….” as I often discover books that I am in fact interested in. But it’s by reading, especially books and movie reviews, that I can jump out of Amazon’s or Netflix’s personalization box to discover something that might interest me but that neither service would recommend based on my previous media consumption behavior.

So if you are curious, if you love to discover, if you love to learn new things – be ware of personalization. Make an effort to meet new people, go to new places, to let serendipity expose you to new things. Otherwise you might face a major downside of personalization: boredom! And you won’t grow, you’ll be stunted. There is more choice than ever before and personalization can be an effective guide to this plethora of books, movies, TV, events, and products but to rely on it exclusively is to risk missing out on many things that you might enjoy, if only you found them on your own.

 

 

A PR primer for DIYers

 

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No, PR does not sound for Puerto Rico! It stands for public relations – an obsolete term in these days of social media and 24X7 cable TV news. A better term would be media relations. Other call it free media, or earned media, in contrast to paid advertising, such as buying ads on Facebook or Google.

It doesn’t surprise me that very few if any of the founders I mentor lack a deep understanding of the sales process. Why should students who major in engineering or science know anything about sales and marketing? But it is a mild surprise that founders leave media relations out of their business decks. Their idea of marketing is social media – either posting or buying ads on Facebook or both. This is necessary but far from sufficient.

But media relations is still a powerful marketing tool for startups. Yes readership of newspapers and magazines is dwindling but apps like Flipboard quote from them constantly. Keep in mind that the media machine focuses on news. Meaning what’s new? Journalists, bloggers, Twitter hounds, podcasters all the others in the mediasphere are on a constant hunt for what’s new. So make sure all your efforts fit. If it ain’t new, it ain’t news.

So here is a very basic PR primer:

Hire an agency. This is a $5k+/month option – one to think about if you have pulled in a massive Series A where this will be a rounding error in your income statement. Basically what you are paying for is access. I hired one firm at Software Arts only to have them stolen away by Mitch Kapor at Lotus. They were on a first name basis with the editors of all the major newspapers and magazines. As a result I ended up in a couple of articles in The Wall Street Journal. On the other hand, at SmartWorlds where we had less financing than any startup you will find – roughly $00.00 – we managed to not only get an article in WJS, but a hand drawn illustration to go with it! My only regret was not buying the original from the artist. So the rest of this primer is strictly DIY. Your major costs will be your time and effort.

Know your audience and better yet, know the media they consume and where they hang out. There are three types of media: business media, technology media, and general news media. As a raw startup your best bet is technology media, as writers there are constantly looking for what’s new so they have something intriguing to write about. Take advantage of this fact.

Build your media list. Think of your media list as like your CRM system. Use whatever database you normally use – even Excel will work as a flat file db. Best case is when you are your customer, so you know what tech sites and blogs your customers frequent. If not use all your connections to start building a list of contacts in the media. You need to know the title, in my case Mentorphile; the writers associated with the publication, including freelancers who play an increasing role as print publications lay off workers but still have work to be done. Frequency of publication, for Mentorphile it varies, but for newspapers it’s usually daily, magazines are usually monthly. All contacts: web site, Twitter handle(s), Facebook, and LinkedIn contacts. And increasingly Instagram is becoming more important. Media lists are organic creatures, they should always be growing. Building your list is not a one and done effort. When conducting customer interviews be sure to ask them how they get their news. Don’t neglect your university’s alumni directory. Several of my MIT founders have made very good use of this source.

Create your presskit. In the old days when I started doing PR for the public library that employed me and when I moved into the startup world you need three items: a company backgrounder, a fact sheet (now an FAQ on your web site) and a bio list for all the company principles (now the About us page on your web site). So you get the idea: your web site is your presskit and a lot more.  While we are on the subject your first order of business in your media or PR effort is your web site. The contents and layout are so well known I won’t bother to repeat them here.

Industry analysts. Every investment bank has a team of analysts following the tech markets. While their focus has to be on public companies they are always writing about technology and where the trends are.  I don’t know of a directory of industry analysts, but Google is your friend here. Some digging should yield contacts worth pursing. There are also tech analyst firms, Forrester Research probably being the largest and most important, but there are many more, some specific to your slice of the market, be it bioengineering or medical devices.

Customer testimonials. Whatever you do please don’t get those testimonials from John B. in Peoria or Joan K.  in New Jersey. These look cheesy, like late night ads on the cable channels. If you can’t attach a full name, role and company forget about. But if you can make sure you have their permission in writing and don’t over do it.

Don’t forget podcasts. If you are a DIY media relation person you can easily get bogged down in just keeping up with Twitter, Facebook, Instagram, LinkedIn et al. Not to speak of your company’s web site and blog. But podcasts are hot right now and podcasters are always on the look out for new people to interview. Start following the ones that focus on startups like How I built this by Guy Raz, one of my favorites, as well as others that focus on more general business and technology topics. NPR, Apple and many others have hundred of podcasts indexed for the search function.

Monthly newsletter. Exhausted yet? One way to keep in touch with your customers as well as attract new ones is to publish a monthly newsletter. It doesn’t need to only have news about your company; interesting observations about the state of your market are also good fodder.

It’s a very visual world. Like it or not but the world news is dominated by photos and videos. Visual communications can be very engaging, but also expensive – it will chew up your most valuable resource: time. So don’t be afraid to link to other’s work. Just give them credit and don’t do wholesale copying. All creators welcome inbound links so long as copyright is protected. For those with a visual bent Instagram and Yahoo are the best channels. In fact if you are prolific enough you can have your own channel on Yahoo. Too bad these channels weren’t around in the days of Software Arts. Dan Bricklin was a talented an prolific photographer and videographer. He still is I’m sure. But in the last century there weren’t any channels for visual communications – today we are overrun with them.

Webinars Webinars have become effective sales and marketing tools. I’d suggest you sign up for webinars both from your competitors and also from companies totally outside your field. Both activities will give you a good sense of what customers expect and what you will do to meet or exceed their expectations. Like virtually every other item in this blog post there are books that could be, and are, written. Remember, this is primer. You can’t do all these things are a DIYer, pick the the activities that yield the most engagement.

White papers. I don’t know how white papers got their name, after all most paper is white. Be that as it may in B2B markets white papers can help educate your market of line managers and their CIOs. White papers must be very well written and carefully tread the line between public information and your trade secrets. Regurgitating news of the day will turn people off, but your lawyers may squark if you start giving away your trade secrets. As recommended elsewhere, read some white papers in your market and others to get a feel for how much detail to include. Keep in mind these are aimed at your customers, not for the general public, so emphasizing your technology is fine, in fact it’s a must to attract readers.

A blog. Blogs take up a lot of effort. If you aren’t publishing regularly, aren’t presenting new and engaging content, don’t include interesting photos and video forget about it. But don’t forget about blogs. Sign up for blogs in your market and comment intelligently if not provocatively on those blogs. One trick I use is to set up Google Alerts for the topics I write about. That way I’m fed a daily stream of news I can comment upon. The biggest problem is if your search terms aren’t tightly defined you’ll be inundated with useless links.

Events. Speaking of presenting high absolute costs events also present high opportunity costs. Beyond local events there will be costs in time and money in attending events. There are conferences in your targeted market! You need to find them and add them to your media list. You will have to determine the ROTI of any event (Return on Time Invested). It’s best to start off with local events. Whether it’s events or sales I always advise my founders to try their pitch off-Broadway. They’ll learn a lot and failure won’t cost much. Once you have your pitch honed you can approach the big events. But start off trying to get on a panel on a local event, move up to a speaking slot, then score a keynote. Then it’s time to head for Broadway where you again start at the bottom and work you way up. However, there is one very effective trip I learned from my days in business development. If you are working with a name company they will often give you a little bit of space in their booth to show off your product that works on their platform. That way you’ll only have to cover travel costs. Actually exhibiting should be left to when you land a significant Series A round. One rule of thumb I used: would I be conspicuous by my absence at trade show X or conference Y. If not exhibiting here probably isn’t worth it. But events can be a great sales channel –  one place where you can talk with a lot of potential customers and channel partners.

Become a thought leader. I’ve never managed this myself, but as an avid consumer of print and online media I see the same names come up again and again for interviews and quotes. If you are working in AI, big data, robotics, crytocurrencies or any other major trend it may be difficult to compete with entrenched thought leaders from consulting firms, the press, hot shot companies, academic stars and analysts from investment banks. So I hope you aren’t in the latest hot market – that will give you the opportunity to emerge as a thought leader before it does get hot.

I’m sure I’ve left out something important. In fact I know I’ve left out TV and radio. You are going to have to be a grand slam hitter to make even cable TV. Local radio is doable, but it doesn’t have much reach and it’s unlikely you will draw much of an audience. I will update this post if there is something PR DIYers need to know that I’ve left out.  And keep in mind, there’s lot of important writing being done on virtually all of these media relations topics.

Finally I will strongly recommend Inbound Marketing: Attract, Engage, and Delight Customers Online by the founders of HubSpot, Brian Halligan and Dharmesh Shah. After reading their book and talking with your peers you may want to become a customer of their’s.

Aspirational marketing – the use of celebrities

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I wrote not long ago about my theory that all advertising is about the playing or preying on the aspirations of the the consumer. Advertising – the aspirational mirror

The New York Times article Bob Dylan’s Latest Gig: Making Whiskey by Ben Sisario has the most succinct explanation of how celebrities are used in advertising.

Here it is:

The marketing of celebrity alcohol tends to lean on the perceived lifestyle of its mascots. Drink George Clooney’s Casamigos tequila, for example — sold last year to the beverage giant Diageo for up to $1 billion — and acquire some of his movie-star glamour. Want to party like Jay-Z? Buy an $850 Armand de Brignac.

“It’s about fairy dust,” said Michael Stone, the chairman of the brand licensing agency Beanstalk, who is not involved with Heaven’s Door. “People are looking for some of the fairy dust to be sprinkled on them from that celebrity’s lifestyle.”

and here’s even more insight into the use of a celebrity’s image in aspirational advertising, in this case Bob Dylan’s recently released Heaven’s Gate whiskey:

“Dylan has these qualities that actually work well for a whiskey,” Mr. Bushala said. “He has great authenticity. He is a quintessential American. He does things the way he wants to do them. I think these are good attributes for a super-premium whiskey as well.”

So there you have it founder’s leverage your customers’ aspirations to sell you product or service. It may be a simple and mundane as a CIO’s desire to secure his company’s data. Just make sure you fully understand exactly what your customers aspire to and how your product or service addresses that aspiration. Yep, feel free to call this process aspiration-product fit.

 

Advertising – the aspirational mirror

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Disclaimer: I am not now, nor have ever been, nor ever will be, an advertising guy or even a marketing guy.

That being said, I’ve developed a simple working rule for judging the marcom efforts of my mentees and it seem to work well, so I thought I would share it.

The idea is simple: your ads should reflect back not the image of your target customer, but an enhanced image, the image that they aspire to project, not who they really are.

This came to me one day while I was watching pro football, which I do a lot. But unless it’s a New England Patriots game, I record the game my Tivo and watch it perhaps an hour or more into the game so I can skip over the ads.

But when I watch the Patriots I watch in real time with my football fan friends. It’s the only time I see TV ads, everything else is Tivo’d. The ad that struck me that day was of a young man with the stylish 3 or 4 day stubble driving a convertible down what looked like Route 101 in California, wherever it was the scenery was breathtakingly beautiful, as was the blond woman sitting in the passenger seat, and the weather. What were they selling? Well the car, of course. But I can’t even remember what make and model car was being advertised. Watching the ad it hit me: the car company was not trying to convince viewers that the car was faster, got better mileage, or was more reliable than its competitors. No, what they were trying to do was reflect the aspirations of the mainly male viewers who watch pro football: to be driving down 101 in a beautiful car, with a beautiful woman, on a beautiful day, whilst most of the viewers were actually sitting on a lumpy couch with their male football friends and if they lived in the midwest or east coast, on a cold, bitter and windy day. Who wouldn’t aspire to be that guy, 30 years younger, handsome and carefree, enjoying driving his convertible? The car the advertising was designed to sell, by association, not on either features or benefits. After watching that ad I started viewing every ad as an aspirational mirror. First you had to figure out the demographic – who the target audience was, then what activity was being shown that they would aspire to. That lens works almost unfailing well, whether it’s cars, beer, or washing machines. Of course, there are the odd humorous ads, designed to cut through the clutter, but for the most part holding up the aspirational mirror to the target audience held true.

So now when I review marcom materials, whether it’s for enterprise security or an app to help you lose weight, I advise the mentee to make sure his ad does two things: present an image of the target customer, solving the problem the product was designed to solve. If your customer doesn’t see him or herself in your marketing materials you’ve lost them right off. But that’s necessary, but not sufficient. You have to show them in a better state than they really are. Instead of being the harried CIO worried to death about data security you show them as the young with it hip technologist totally on top of the problem. The CIO as hero. Because as a vendor that’s your job: make the CIO the hero! One of the best, and simplest ways

Creating successful ads or other marketing collateral requires three things: a very clear definition of the customer, a very clear understanding of the problem they have, and a way to depict them as triumphing over that problem. I used to think that consumer ads for aspirin and other OTC drugs were designed to convince the viewer that they have a problem, then sell them the solution. That’s not totally wrong, and certainly it’s the proven technique for the various nostrums pushed by the pharma companies every since our government decided it was ok to allow drug companies market their drugs directly to the consumer instead of being forced to go through the intermediary, their doctor.

You can play the game by choosing a TV show targeted at your demographic and watching the ads carefully to see how they are designed to reflect not you, but the aspirational you. If you don’t recognize yourself in the ad the advertiser has made a mistake. Likewise if you don’t see yourself not as you are, but as you’d like to be: younger, better looking, wealthier, sexually successful are probably the top four qualities the aspirational mirror is designed to reflect back the advertiser has probably wasted their money.

One of the most effective ways to design aspirational advertising is to show the before (the target customer without your product) and the after (the happy customer using your product.)

You know the old saw, half of all advertising dollars are wasted, you just don’t know which half. As I’ve written in The business driver you can’t afford to ignore, personalization is the business megatrend of the 21st century. Of course, the holy grail of advertising is to get that personalization down to the individual consumer.

The irony of Facebook’s current problems are that it’s achieved that holy grail, and become one of the richest and most powerful companies in the world. It’s problem is that while it was doing so it ignored security in the process.

Here’s a great example of aspirational advertising from the back cover of Rolling Stone:

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Here’s an aspirational ad from The Sunday New York Times. Are you cool enough to even know what the ad is selling? Hint: O.J. Simpson was a customer.

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The one business parameter that will determine your customer acquisition strategy

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As a mentor for the past 8+ years at the MIT Venture Mentoring Service (VMS) I have seen a very wide variety of early stage startups – and with a few exceptions all my mentees are at zero stage – idea conception or stage one – idea validation.

There’s one question I ask these very early stage startups to answer for me, but more importantly for themselves: Are they a high volume, low price business or a low volume, high price business? For example, creating apps for iOS and/or Android is a very high volume business – you will need thousands if not hundreds of thousands of users to succeed, because Apple and Google have set the pricing for apps incredibly low – a few dollars per app at the most. Conversely developing drugs for very rare diseases for a very small number of patients results in very high prices – as much as thousands of dollars per month.

Typically high volume, low price businesses are in the B2C market. There the cost of customer acquisition has to be very low. You can not afford a sales force if you are selling an app that cost $3. So it’s absolutely critical that you have a very well thought out customer acquisition strategy or another way to make money, such as in-app purchases. Typically consumer apps need to go viral – customers sell their friends and zero cost to you (search for viral on Mentorphile to see several posts on this subject). Conversely, if you are selling a very high end product you will probably need either your own sales force to call on the relatively few prospects you have, or a partner who does. The valley of death is littered with those companies try to do both: “We’re all floor wax! No, we’re a dessert topping!” Only on Saturday Night Live can you be both!

The reason Apple is a money machine and the most valuable company on earth is that they have succeeded in being a high volume, high price business! But that has only taken the genius of Steve Jobs and Steve Wozniak and thousands of brilliant designers, engineers, marketers, and executives and over thirty years to achieve.

So please, early stage founders, stay out of the valley of death! Determine if your business will be selling to millions of consumers who won’t pay more than $X or $XX, or a business that will sell to hundreds or perhaps thousands, but where customers will pay $XXX or even $XXXX+ for your product.

The foundation of all marketing is product positioning

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I’m not a marketing guy, never even played one on TV or in a high school play. However, I’ve been quite involved in marketing since my days at Software Arts decades ago. I’ve concluded that all marketing has to start with positioning: what product category your product fits in and how it compares to other products in that category. Most important is how your product is differentiated from other products in the category, in the eyes of the customer, not the eyes of the developer.

I was reminded of this reading Jean-Louis Gassee’s (JLG) weekly newsletter, Monday note, one of many sources about tech news I consume regularly. Jean-Louis is a former Apple exec and often writes about Apple products. This week’s newsletter article is entitled More HomePod Trouble: Positioning. Like JLG I’m a long time Apple user, starting with the Apple II in 1980 and up to today with my iMac, MacBook, two iPads and iPhone X. I’m also an audiophile and former sound reinforcement engineer, so I’ve followed all the reviews and news about Apple’s HomePod with interest.

HomePod positioning is dead simple: Apple’s latest audio product belongs to the smart speaker category, a space dominated by Amazon and Google. Amazon fields a range of Echo devices starting at $49 and sporting the Alexa voice assistant. Google Home speakers, with the powerful Google Assistant voice interface, also start at $49. Apple’s one and only HomePod costs $349 and features the Siri conversationalist, generally perceived as substantially inferior to Alexa and Google’s Assistant.

Positioning case closed: HomePod costs more, but does less. Late start. Once again, Apple’s offering is dead in the water.

Jean-Louis goes on to write about how Steve Jobs – with a great deal of help from Adobe and Aldus – positioned the Mac in its early days as the leader, in fact the category creator, in desktop publishing. You may want to read that historical background, Apple’s relationship with Adobe was truly win-win.

JLG uses Clayton Christensen‘s Job To Be Done (JTBD) in an attempt to determine the HomePod’s positioning. I heartily endorse the JTBD framework. What job does your product do? And for whom? In Jean-Louis’ example, a car gets you from Point A to Point B. But more subtly it also provides benefits such as self-presentation, entertainment, moments of privacy.

So what job does the HomePod do, and for whom? Is it just a music player, or is it a more ecumenical home control device, an companion for all kinds of everyday tasks? Is it a bi-directional communication port to the rest of the world?

My answer is that in typical Apple fashion, the HomePod does the job of providing very high quality sound to those customers who value high quality sound, regardless of where you place the HomePod in a room. The HomePod plays on Apple’s strengths: ease of use, simplicity, and quality laid over very complex technology that the customer never sees.

I’m going to end the discussion on the HomePod with JLG’s conclusion: the HomePod is an incomplete product.

The HomePod that ships today lacks important features such as stereo, multi-room audio, and a better version of Apple’s wireless Airplay protocol. Over time, the A8 processor and iOS derivative inside the HomePod are likely to provide substantial improvements and make it very competitive compared to speakers that have less hardware and software muscle. But for today, the HomePod is incomplete and its place in the world unclear.

So what’s to be learned from this dive into the HomePod’s positioning? First of all only a world class company with incredible financial and talent resources could get away with launching a product that is more than twice the cost of competitors from Amazon and Google and has by far the weakest smart assistant, Siri. As founder of a startup you need to either launch a complete solution for the customer or launch a partial solution that dovetails nicely with the market leaders. For example, you could launch a mini-monitor speaker without providing stands – which any mini-monitor must have to sound its best. Why? Because there are many 3rd party stand suppliers out there. In fact you might want to develop a business alliance with one of them.

Lesson two is to figure out what category your product fits in. In Apple’s case it is the smart speaker – a category brilliantly created by Amazon with its Echo hardware and Alexa assistant.  Then, unless you are Apple, you must determine your USP –  Unique Selling Proposition. What differentiates your product in the eyes (or in the case of smart speakers, ears) of the customer? Customers decide product differentiation. What does that mean? They don’t care about specs and features – they care about benefits! Benefits are in the eye of the beholder – the customer. But it is your job to make that job as easy as possible for the customer. Getting market leading sound quality, irregardless of where you locate the HomePod is a wonderful benefit to that segment of customers who care about sound quality. Sadly for me as an audiophile most people do not: witness the popularity of MP3s, which contain only about 10% of the original music – the rest is thrown away in order to shrink the file for ease of sending and storing. And earbuds – their quality is terrible, but millions of people seem happy with them!

So when you position your product against the leading competitors in the product category make sure your USP resonates with virtually everyone in the category, otherwise you are a niche product. And that can be ok, so long as you have a roadmap to expanding that niche to a sizable portion of the total market. For example, Apple is initially addressing the niche of audiophiles: those of us who are willing to pay a lot more money for better sound.

But as JLG points out, over time the HomePod will become more complete and I wager Apple has some eye-opening feature/benefits up its sleeve.

Everyone in the tech startup world is fixated on the MVP – Minimum Viable Product. And with good reason – you need to engage the market ASAP. But without proper positioning your product won’t be viable, it will die on the vine as so many have. Read my post MVP vs. MRP for why I don’t buy into the MVP thesis. Being viable in today’s crowded market is not enough. Every founder is in a fierce battle for the customer’s attention. Your product needs to be remarkable!

Finally there is one other high risk, high reward approach to positioning: create your own category! Netscape did this with the Web browser. Jeff Bezos and Amazon did it with the Echo smart speaker. It can take a lot of patient capital, hard work, and some luck to create your own category. But it can be done. But either way positioning will drive all marketing activities from PR to trade shows to social media: what category you are in and why the customers in that market category should chose your product over all the competitors are the keys to product positioning.

P.S. Just in case you are wondering, I won’t be buying HomePods any time soon. I’ve been using Sonos for whole house audio since the day they shipped. But if Apple can offer me something really useful who knows, I must might try a pair, if and when.