Find the forcing function!

 

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I’ve hijacked this term from mathematics for use first as a product manager, now as a mentor. In math it’s restricted to a time dependent process, but in startups there are several other processes where it applies.

Inside the Venture

Two enemies of the product manager are scope creep and thrashing, two related problems. In scope creep engineers who want to get their favorite feature into the product, no matter what, and marketers who insist customers must have feature x both contribute to uncontrolled growth in a project’s scope after its spec has been set and the project has begun.

Thrashing is a computer science term referring to a computer’s performance degrading or failing due to constant paging – constantly switching data from memory to disk excluding application processing. But again I’ve taken that term to be used in project or product management when the team is constantly going back and forth on some feature or major aspect of the project, unable to finalize a decision, which ends up paralyzing the product development process.

Finally, the product manager’s biggest issue is missing deadlines – commonly known in software development by the euphemistic term “schedule slippage.” So how do you fight scope creep, thrashing, and schedule slippage?

Outside the Venture

One of the biggest problems startups have is creating a sense of urgency in other companies they are doing business with, usually ones that are more established and wield greater market power.

My most common experience with this is with investors. VCs never say “no,”, but getting them to “yes” can be very time-consuming and frustrating. Without a forcing function, if they have some interest in your venture, they will sit on the sidelines and observe your progress. Are you hitting milestones? Growing your customer base? And otherwise reducing risk? That’s what they want to see and they will wait until they do and even longer.

The other classic problem is getting partners to move to action: to deliver on a service or part or come through on a marketing or distribution agreement.

Competition or the threat thereof can be a great forcing function for getting investors to move. Most investors hate losing deals; they are extremely competitive. And competition is also market validation. So don’t settle for a single interested investor or even a single term sheet. Competition not only creates a sense of urgency, it can also drive valuation. Competition is also classically used within large, established firms in marketing, where ad agencies and other service firms have to compete for the firm’s business. Don’t forgo this forcing function just because you are a startup.

In general

J.D. Meier has a great post on his Sources of Insight blog entitled Forcing Functions – How to Make Action Happen.

Here’s how he defines forcing function:

A Forcing Function is any task, activity or event that forces you to take action and produce a result.

By putting a Forcing Function in place, you create motivation for taking action, whether it’s to meet a deadline or to respond to social pressure.

If you have areas in your life that you’re finding inertia, try adding some Forcing Functions to get better results.

Here are his examples of forcing functions:

Where I differ from J.D. is my focus is on apply forcing function on others, not myself!

This is a great list. I’d just be a bit more specific about events and meetings. Public facing events like conferences and trade shows are great forcing functions, as those dates virtually never slip and the cost of not showing up can be very high. So setting schedules around shows where marketing plans to have a company presence is a great forcing function for product development schedules. But there are also internal events, one of the best ones being Board of Directors meetings. Another is an all-hands meeting. Your team doesn’t want to miss a scheduled demo for the Board or the entire company, that is for sure!

One of the major forcing functions is peer pressure. Software engineers and other creative talent are particularly prone to be subject to the assessments of their peers. So making sure your projects goals, especially milestones and most importantly ship dates are publicized throughout your venture – just having written goals is necessary, but not sufficient. Used diplomatically and subtly, peer pressure can be one of the most effective forcing functions. But used in a heavy handed way it can backfire on you. So be careful.

Budgets are another great forcing function.  Budgets don’t just have to be about money, they can be about resources of any kind. The threat of losing an engineer to another project can light a fire under a development team, just like the threat of running out of marketing funds can galvanize a marketing team.

Time and money are two of the most important resources in any firm. But if not strictly defined and controlled they won’t help you as forcing functions, so make sure they are tightly boxed-in from the get-go.

So whether you are trying to get a product shipped or an investor to offer a term sheet or a vendor to deliver a need part on time, dip into your toolbox of forcing functions. But remember, a forcing function is often most effective if it’s carefully thought out and applied before a project starts – not applied post facto.

Forcing functions can help turn activities into results. That’s key to success in your startup.

 

What’s the single most important question to ask your mentors?

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I don’t recall where I came across this question, but it’s stuck with me for years:

If my startup fails, what will be the reasons?

I tend to like working backwards – see my posts on pitching and product development – and this is yet another example. Look a few years out into the future and imagine your startup has failed. Then try to work your way backwards to out what contributed to your startup failing.

Traditionally there are three types of risks associated with startups: team, technology, and market.

Let’s take a look at each one for leading indicators that a few years from now these could cause your startup to fail.

Team

As noted elsewhere on Mentorphile, the CEO is the most important person on the startup team. So there are several ways you can get into problems with your CEO:

  1. The CEO can’t grow with the company. There’s really nothing wrong with this. Many entrepreneurs are much better are starting a company than running a public company, for example. The key is to recognize this issue before it hurts the company. Either there’s got to be another person on the team who can step up or more likely your investors will have to bring in a seasoned CEO who has a track record of running (not necessarily starting) growth companies.
  2. The team is not aligned in their objectives and goals for the company. 
  3. The team is missing a vital player. For example, channel sales can be critical to an enterprise company, as selling direct is very expensive. Without a channel sales manager with major league experience a company may have a great enterprise product but not be able to sell it. It’s important to note that a channel sales manager is different than a VP of sales – it’s a more specialized position focused on selling through other companies, what were once called VARS – Value Added Reseller.
  4. There is too much overlap between team members’ expertise and responsibilities. Engineers tend to know other engineers and may not know sales, marketing or financial executives. In the early days of the company it’s easiest to hire your friends. One way to guard against this is to develop an org design: one that is architected to how you will develop, sell, and support your product or service, not tuned to who your friends are.
  5. The team gets into a fight over equity ownership. Dividing up ownership is one of the most potentially contentious tasks in a startup. What might have seemed fair on day one may be perceived as highly unfair two years later. Equity should be based on contribution to the success of the company, not where you went to school, how many degrees you have or even your title. The best way to handle this is to get good advice from founders who have been through this before. Also leaving a large pool of stock for employees can enable some mid-course adjustments. And don’t let team members leave with stock – they need to sell it back to the company.

There are probably as many potential pitfalls for a team as there are teams. Building a team with a core of people who have worked well together before, or at least known each other well makes a huge difference. Watch the video with Jessica Livingston of Y-Combinator for her take on founder teams.

Technology

  1. Inability to scale.  Friendster was the first social network. But it was so popular its servers couldn’t keep  up with demand. As Yogi Berra once said of a night club “It’s so popular nobody goes there anymore.” Part of the brilliance of Mark Zuckerberg’s rollout of Facebook from Harvard, to other Ivies, to other top schools, to all colleges, etc. gave the company time to build and rebuild their infrastructure to keep up with demand.
  2. It’s a solution in search of a problem.  I founded my company PopSleuth to help me keep up with the latest releases from my favorite musicians, directors, authors and other creatives. But while this solved a problem for me it didn’t seem to be a problem for too many other people. The technology worked, but it just didn’t solve a widespread problem.
  3. Buggy or ugly.  While early adopters will put up with both, you’ll never cross the chasm unless your tech is fast, reliable, and easy to use – and preferably elegant to boot.
  4. Choosing the wrong platform or tools. It took a while, but Flash has finally been killed off.  A friend built an enormous program in Java, but issues with Java doomed it to fail.

I’m not a technologist, so when you ask the question “If my startup fails what will be the reasons?” make sure you are getting a good cross section of technical and business expertise along with founder experiences.

Market

According to Bill Gross, founder of Idealab, the biggest reason startups fail is poor timing. After watching his Ted talk I can’t find any reason to disagree with him, but there are other reasons besides timing.

  1. Competition. When I started Throughline to supply operating products and services to startups I totally missed out on a local company called BuyersZone. They ate my lunch. It was founded by a bunch of former purchasing agents and they used their contacts and experience to help all small companies with purchasing products and services, not just startups. As famed baseball pitcher Satchel Paige said, “Don’t look back, they may be gaining on you.” Before you start your company make sure you do a very thorough market scan for competition, afterwards task someone on the team with competitive analysis, and stay ahead via constant learning, constant innovation, and constant hard work!
  2. Size. There’s a reason VCs not just like, but insist on, large markets. They much prefer a small fish in a large pond to a large fish in a small pond because that small fish can grow. There are at least two important attributes to market size: absolute size and growth rate. If you choose too small a market or a stagnant one, your startup may fail.
  3. Too much need for customer education. We used to call this “missionary marketing.” If your product is so complex it needs a lot of hand-holding or training you better have plenty of margin, otherwise these costs will eat you up.
  4. Government regulation stifles innovation. There are two markets that have proven very difficult (but far from impossible) for founders to penetrate: education and healthcare. Both are heavily funded by governments and even more heavily regulated. As Herbert Hoover once said about education, “It’s easier to move a graveyard than to change education.”

Make sure when you ask your mentors for reasons why your startup might have failed that you don’t take generic answers like the above as sufficient! It’s quite possible that some idiosyncrasy of your technology, team, and/or market is what will end up bringing you down. The better they know your company the more likely they are to spot fatal flaws.

Many organizations do postmortems on failed projects or even failed companies. You can avoid this painful process by doing a pre-mortem on your company with your mentors and advisors. Don’t ask them to look out more than 3 to 5 years or allow them to tell you that sentient robots will have taken over your market – no one can predict the future. What you are looking for are structural issues, tiny cracks in the organization, that could spread, open up and split open the organization over time, not new magic technology that will upturn not only your startup, but the entire world.

 

Originality needs familiarity

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People’s need and demand for novelty has never ceased to amaze and fascinate me. For example, it’s the basis fore an entire industry: fashion. The article  The 5 Rules for Making a Hit Originality is overrated — and other counterintuitive advice from Heleo Conversations has some words of wisdom on the subject for entrepreneurs – who by definition are doing something novel.

Derek Thompson, Senior Editor of The Atlantic and author of the new book, Hit Makers: The Science of Popularity in the Age of Distraction has five essential rules for creators. But it is Rule #1 that I found the most interesting: Originality needs familiarity.

To sell something surprising, you have to make it a little bit familiar. And to sell something familiar, you have to make it a little bit surprising. Raymond Loewy, the father of industrial design, called this rule for why people like what they like “MAYA”: Most Advanced, Yet Acceptable.

People like new things. We are interested to discover new movies, music, fashions, and ideas — but we tend to like new things most when they just remind us of old things. Just look at Hollywood, where in almost every year this century, the majority of top ten movies have been adaptations, sequels, or reboots.

Take Spotify’s incredibly popular feature “Discover Weekly.” When they were testing the program, they wanted all the songs and bands to be new. But a bug in the algorithm included some songs and artists that listeners had already heard before. Spotify they fixed the bug and sent it back out for testing. What happened? Engagement with Discover Weekly fell by a significant amount.

It turned out that having a little bit of familiarity gave users a sense that the technology knew them, like a friend. Indeed, the evolutionary psychology explanation for MAYA is if there’s a plant or animal that you recognize, that means it hasn’t killed you yet. There has to be something ingrained in our biology that preferences us toward the familiar.

Jerry Colonna, who was a partner at Flatiron Ventures, an investor in one of my companies used to have a question for entrepreneurs who were pitching him on digital startups, “What’s the analog analog?” Meaning what is the real world analog of the digital product or service you are pitching?  For example, Facebook was based on the Harvard University printed book of all incoming students – once called “freshmen” – including their photos. Mark Zuckerberg’s brilliant insight was to turn this static, printed book into the basis for his social network.

So founders, keep rule number 1 in mind as you develop and sell your new product or service. Test your what’s new from your startup with the MAYA rule and the “what’s the analog analog? query. If what you are doing is too novel most people just won’t get it; if too familiar it will be dismissed as old hat.

And check out Thompson’s other 4 rules – they all have applicability to new ventures.

Pricing – it’s all about the business model

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Of the many questions I get in mentoring sessions with founders how to price their product is one of the most common. Here are some of my replies to this question (yes, I most often answer a question with more questions!):

  1. Determine your business model first – is it subscription? One-time fee? Freemium?
  2. What do your competitors charge?
  3. What do other products used by your target customer cost?
  4. What is the cost of substitute solutions to the problem your customers have?
  5. What gross margin and net profit do you need to keep your company cash flow positive?
  6. Can you compute the ROI for your customer in using your product and test that with prospects? If they buy into it, so to speak, ask them what percentage of that return they would be willing to share with you. Use ranges, like 5% to 15%, don’t ask an open ended question. You could even build a spreadsheet model for your prospects and let them use it to determine their ROI.

But attempting to determine pricing before you figure out your business model is like trying to figure out how long it will take you to get somewhere before you decide whether to walk, bike, drive or fly.

Freemium is a very popular business model, for example The New York Times allows people access to X number of stories before they need to become subscribers to the online edition to access more.

Hal Varian, Chief Economist at Google, published a great list of freemium business models years ago on Wired.com. It’s just as valid today as it was then.

This list won’t answer the pricing question for every founder, of course, but especially if you are in a content-related business it might help you with your business model which is the first, and critical step, in determining what your pricing should be.

How Snapchat succeeded without built-in virality

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I previously wrote a post entitled Build In Virality or Bust, positing that the only way to succeed with a consumer software business was to build virality into the application from the get-go.

Well The New York Times article How Snapchat, Often Overlooked, Transformed Social Networks, points out that sharing, the key driver for virality in social apps, was not part of Snapchat.

Snapchat’s “ephemeral” internet — which has since been imitated by lots of other companies, including, most recently, Instagram — did not just usher in a new idea for online privacy. It also altered what had once been considered a sacred law of online interaction: virality.

Every medium that has ever been popular online — from email to the web to social networks like Facebook — has been pervaded by things that are passed along from one user to another. This is not the case on Snapchat. Though Snapchat has introduced some limited means of forwarding people’s snaps, the short life of every snap means there is no obvious means for any single piece of content to become a viral hit within the app. 

So while the article’s author, Farhad Manjoo, doesn’t really explain how Snapchat became so successful, he does make it clear that it wasn’t virality or even personalization – it was a sense of “authenticity”. Read his article to see how Snapchat took a very different, non-viral path to success.

Everyone talks about virality but no one knows how to create it

 

word of mouth virality.jpegJosh Elman has a terrific article The Five Types of Virality and choosing the right one for your product to grow on the Greylock Partners site. (Greylock funded two of my companies, Course Technology, Inc. and Mainspring Communications) back in the last century.

I posted about the need to build virality into B2C products as the cost of customer acquisition in consumer markets is so high relative to the lifetime value of a customer that traditional customer acquisition techniques are cost-prohibitive. B2C – build in virality or bust.

But what Josh does is explain the different approaches to building virality into your products. He outlines five types of virality:

  1. Word-of-mouth – this is what we all tend to think of when we think of virality.It’s simply a product being so good that people can’t help telling their friends about it.
  2.  Incentivized word-of-mouth virality – paid word of mouth. PayPal and Uber have employed this technique.
  3. Demonstration virality – seeing is believing! For example, friends watching you use your phone to get a car to pick you up – Uber.
  4. Infectious virality – Infectious virality is when a product is designed in a way that people will work to get other people using it because it will make it better for both of them.
  5. Outbreak virality – things that spread because they’re fun to share.

I recommend reading the comments on Josh’s post as well, some good insights there.

If you are developing a consumer product this post is must reading.

 

It’s all about customer acquisition

“The purpose of business is to create and keep a customer.”

― Peter F. Drucker

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I watched an entrepreneur pitch yesterday and his deck didn’t include a single slide on customer acquisition. Unfortunately this is all too often the case with entrepreneurs. They have learned about trying to paint a picture of a large enticing market opportunity and that they have to lay claim to garnering a big chunk of it, but exactly how they will accomplish that is often ignored.

Given that yesterday’s pitch, like so many these days, was for a mobile app, let’s take a quick stride through what customer acquisition means for an app developer.

  1. Discovery – with over two million apps in Apple’s App Store and Google’s Play Store how will your potential customers even find your app? This is where you really need to lay out your marketing plan – whether it’s social media, traditional media, partnering or best yet, built-in virality – how much money you will need to get customers to discover your app and how you’ll spend it are critical to your business plan. See my post on the new sales funnel.
  2. Download – once your app is discovered what will motivate your prospects to download it to the phone? How will you generate positive reviews in the app stores and other means of getting people to take action? Make sure that all your pitches do end with the call to action for your audience to download your app.
  3. Engagement – unfortunately, downloading an app is necessary, but far from sufficient to build a  business. It’s the job of marketing to get the app discovered and downloaded, but it’s the job of product development to make the app engaging enough so it is used frequently. Most apps are downloaded and used just once or twice and either deleted or shuffled off to the last screen of the home page. During app development make sure you focus on driving frequency of use – making your app engaging.
  4. Tell a Friend – the cost of customer acquisition in the consumer market is far too high ($150 a head or more) to rely on advertising or other traditional marketing spend. Your customers have to love your app enough that they want to tell a friend to download it – that’s what it means to go viral. See my previous post on why you need to build virality into your product, you can’t simply paste it on.
  5. Monetize – the tradition path in consumer apps is to gain traction – very large number of users, with high month over month growth, before monetizing. But like virality, you need to think about your business model before you develop your app. If you are going to rely on a freemium model or in-app purchases, architect your app to enable those business models. Understand the lifetime value of your customer, because the value of your business is based on the aggregate value of your customers.

The barrier to entry to start an app company has never been lower, given all the development tools, and help from incubators, accelerators and mentors like the MIT Venture Mentoring Service. But that means that the battle to gain people’s attention has never been fiercer.

So while I believe that anyone can build just about anything, I don’t believe that anyone can sell that thing. Too many startup teams are too focused on the supply side – creating the product, and not enough on the demand side – selling it. Don’t be one of those!

 

Innovation/Innovative – worn out words!

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My advice to founders is to excise these words from  your presentations, web site, and any other marketing communications materials.
Google just delivered  553,000,000 results for the words innovation and  533,000,000 results  for innovative.
This article entitled Are charter schools truly innovative? The answer can depend on your definition from The Boston Globe highlights how these words are worn out and to be avoided:

So much confusion exists over “innovation” that the state Education Department avoids the term.

For example, the state asks charter-school applicants to explain how their design elements are “unique and distinct” instead of using the language in state law that instructs applicants to explain what “innovative methods” they intend to use.

In fact, the only time the word innovation appears in the 66-page guidelines for charter-school applicants is in quoting state law.

Even the state’s final review documents of charter school proposals, which the state education board relies on in voting on recommendations, rarely mentions innovation. The words innovation or innovative appeared in only a handful of those documents over the last five years, according to a Globe analysis of more than two dozen proposals.

Cliff Chuang, a senior associate education commissioner who oversees the charter school office, said the phrase “unique and distinct” is more effective in getting responses that show what is innovative.

 
“To say something is innovative doesn’t tell you much,” Chuang said. “Innovation is a buzzword.”
 
Avoid both buzzwords and business jargon!
 

The New Marketing & Sales Funnel for B2B Companies

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Understanding the marketing and sales process – how to go from lead generation to a closed sale – is absolutely critical to the success of B2B startups. A good, but oversimplified way to understand this process is the traditional graphic of the sales funnel, with leads at the top and sales and the bottom. Steve Patrizi, a veteran marketing and sales executive, has a great blog post about the changes in the B2B marketing and sales process.

Why I say this funnel is an oversimplification is that it ignores the players in the sales process: the end user (the person who actually uses the product or service), the economic decision maker (the person who actually cuts or approves the check or P.O. for the purchase) and influencers, those within the buying group who have a say in selecting the product, such at the IT department when it comes to software.

The exercise I give to founders is to put numbers into the sales funnel: how many leads can they generate (and what are the marketing tools to generate those leads) and how many sales will eventually result from those leads. But how to do sales projections is the subject for another post.

 

If you have two starting quarterbacks you really don’t have any

That’s the saying in pro football amongst coaches and general managers. Teams need a single leader that everyone needs to rally behind.

Likewise startups need a single customer focus – the early adopter market – otherwise they will diffuse their limited efforts chasing varied markets.

Just yesterday a company presented a compelling product case, but their market strategy was to pursue “incubators, consulting companies, and the federal government.”  Hard to think of three more disparate markets! Companies in incubators have no money to spend and selling to the federal government is a very tough job, even for established companies with customers and revenue.

I advised the CEO to think more about pursing consulting companies, there are hundreds of them, from tiny to gigantic, and since they are basically selling consulting time, a software tool that can help make their consultants significantly more productive could pay for itself very quickly.

But whatever the company decides to do, they need to focus their of necessity meager marketing resources on one very well defined market segment, one known for being an early adopter, as opposed to the federal government, a notorious late adopter, if not the latest.

But as noted in a previous post, startups are a succession of small experiments, and that goes equally well for sales and marketing. Start your experiment with a small defined customer niche that you believe you can dominate, but set goals and metrics and if you don’t meet them then it’s time for another hypothesis and another experiment.

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