Focus on the customer’s job to be done

 

gogglesI’ve been swimming most of my life. I even got paid for it as a lifeguard for three summers, which financed my travels around Europe and the Middle East after I graduated from high school. So the Engadget article Form’s Swim Goggles are the first great wearable for swimmers caught my eye. If you are interested in wearables and augmented reality it’s a recommended read. But that’s not why I’m flagging the article on Mentorphile.

Probably the most common problem I see with founders is their adamant desire to boil the ocean. When I suggest they start off by boiling a cup of water and work their way up they often resist, as they believe that some competitor will swoop in and boil the ocean first. So I’m always looking for stories about successful founders who realized that focus was the name of the game. This article about smart swimming goggles is one:

I tested the Recon Jet back in 2015, saying that the smart glasses had the “potential to be better.” In part, that was because the device cost $700 and tried to be a platform, rather than a tool designed for a specific job or hobby. It was ostensibly designed for runners and cyclists, but could also run third-party apps and had a 2.1-megapixel camera. In trying to be all things to all people, it failed to do any of those jobs well enough to make it an essential purchase.

By comparison, Form’s Swim Goggles are a focused product that does one job very well. It tracks your swimming and relays those stats to your eye as you swim, and that’s it. The focus means that it’s got no unnecessary extra features, it weighs very little and its battery lasts for ages. And that means a lot for capable swimmers, who don’t want to carry around bulky devices that could hurt their times in the water.

Engineers love building things and usually they like inventing new features as well. This leads to the phenomenon of feature creep as new features get added to the original specification and the product becomes unwieldy. How do you avoid this? By starting your product development process with customer discovery, interviewing dozens of prospective customer to better understand what problem you are solving and what features are essential to solving this problem.

And don’t ask customers if they would like feature X or Y! Because they will say “yes,” and think “why not?” This is where agile development and the Minimum Viable Product come in. Your need to start with a very lean product that solves not three, not two, but one big problem for your customers. Features should only be added to your MVP based on customer demand, not engineering invention.

Once you have found your niche and dominated it you can start to add new features to box out competitors and develop stronger engagement with your customers, but not until you have that elusive product/market fit.  Startups never have enough resources; by focusing on only a minimal set of features that satisfy customer needs you are making the best use of those limited resources.

Put all your wood behind one arrowhead, as Sun Microsystems founder Scott McNealy used to say.

By focusing you will do one job for the customer and do it well. For extra credit, read the Harvard Business Review article Know Your Customers’ “Jobs to Be Done” by Clayton M. Christensen et al. Here’s the nut of the article:

After decades of watching great companies fail, we’ve come to the conclusion that the focus on correlation—and on knowing more and more about customers—is taking firms in the wrong direction. What they really need to home in on is the progress that the customer is trying to make in a given circumstance—what the customer hopes to accomplish. This is what we’ve come to call the job to be done.

Focus & simplicity: twin drivers of success

 

steve-jobs-2x2

I’m a strong advocate of both simplicity and focus, but hadn’t give a lot of thought to how the two are related until I read the article on MacRumors by Joe Rossignol entitled iBook Turns 20: Watch Steve Jobs Unveil the World’s First Notebook With Wireless Internet.

When Steve Jobs returned to Apple from his exile of 11 years at Next, Inc. he found a foundering company with a bloated morass of products. The company totally lacked direction and focus and had just spewed out product after product, confusing its customers and costing a lot of money in product development and manufacturing. Jobs inherited John Sculley’s bid for tech stardom, the failing Newton MessagePad, which was totally unrelated to anything else the company was doing, but had attracted some of its top tech talent. In two words, a total mess!

As I recall after reading the article, Jobs called his hand-picked lieutenants into a conference room and drew a simple two by two matrix on the whiteboard. The two columns were labeled Consumer and Pro: Apple’s target market. The rows were labeled Desktop  and Portable, Apple’s two and only two, product lines. Out went the Newton and a host of other miscellaneous products. In one bold stroke Jobs had greatly simplified Apple’s product development, manufacturing, and marketing. But as should seem obvious, he also seriously tightened focus. It became abundantly clear to those in product development and manufacturing what they were building for whom. And now marketing and sales could focus on two groups, consumers – Apple’s largest and traditional customers, and professionals – graphic designers, software developers, and other creative professionals who had been loyal Apple customers since the invention of the Laserwriter and desktop publishing.

Mentorphile is focused on startups, not company turnarounds like Steve Jobs faced upon returning to Apple. But I encourage founders to focus their teams in much the way Jobs did: by diagramming out your product(s)  and customer (s). I put the s’s  in parentheses because startups need to start up with a single product and single target customer, but a roadmap to the future expansion of both needs to be part of any investor presentation.

Jobs was famous for his insistence on focus and once said he was prouder of the many things he had said “no” to than the products he had shipped. (Job was also famous for his grandiose exaggerations!). But note how focus can drive simplicity and how simplicity serves focus, even if you only have a single product and customer base, not the dog pound of mongrel products Steve Jobs inherited.

 

Why do most entrepreneurs fail?

failure

Here is a YAL (Yet Another List) for founders to pore over. There are several problems with the list format. For one there is implied importance in the order list elements are presented, with importance normally perceived as from top down. But the magnitude of the vector is seldom present. Each element is presented and described as if it were just as important as all the other elements. Often far from true. Each element tends to get the same amount of “air time” – which many times is not warranted. There’s a tendency to trade in certain number of elements, such as “top ten” lists. Ok, as you can see I’m suffering from list overload. Check out FlipBoard if you would like to join me. While I have nor done a study my informal reading is that lists are the dominant format of this news aggregator.

Ok, so why present YAL, then? Well founders are busy, the don’t have a lot of time to read. Lists break big subjects – like why most entrepreneurs fail – into small, easily digestible chunks. Some list elements may even be memorable. Lists lend themselves to being updated on a regular basis – top ten startups of 2019, etc.

So here’s a YAL which I think is important for founders: Pasha Carter’s 11 Reasons Why Most Entrepreneurs Fail from the Forbes Coaches Council. I’ve annotated this list based on my own experience.

1. Not Having Enough Money

Duh! And the main reasons why there are so many people in cemeteries who aren’t alive? Because that’s where we buy dead people! One needs to dig into the multifarious reasons startups don’t have enough money. For one, they may not recognize that they are in a capital intensive business (such as manufacturing) and fail to raise enough money to get their product to market. For another, they often spend far too much money on customer acquisition. When CAC far outweighs CLV (Customer Lifetime Value) you have a simple formula for running out of money. Paying executives market rate salaries when they should be taking below market rate in exchange for equity. Not stretching the dollar: paying too much for ancillaries, like office space and perqs. As they say in Hollywood, investors want to see all their dollars on the screen. So yes, we need a list of a list elements here! Not having enough money just oversimplifies the problem and tells founders very little.

2. Not Knowing Your Market

This to me is the number one problem. Engineers like to build stuff; they rarely like to talk to people about their business problems. So I’m in total agreement that founders must be able to answer these questions and more during the customer discovery phase – a startup phase many founders don’t even know exists.

Who are your clients? Who is your competition? What is your target market willing to pay for your product or service? Entrepreneurs must be able to answer these and many more questions about their market in order to run a successful business. If you do not fully understand who your customers are, what they want and where else they can get it, you will be doomed to fail.

3. Lack Of Vision

I tend to find the opposite problem: too much vision. Most founders want to boil the ocean. They get upset when you suggest they try to boil a puddle first! The entire cult of personality built around legendary superstars like Steve Jobs by the popular and tech press has bred a generation of founders with too much vision. As Bill Gates has said, “Ideas are cheap. Success is all about execution.”

4. Biting Off More Than You Can Chew

While it’s true that many entrepreneurs fail because they want to boil the ocean, in reality “More startups die from indigestion than malnutrition.” Founders don’t plan for success and thus run out of parts or product, have overloaded servers, abysmal customer service or the many other sinking signs of a venture that just can’t handle significant growth in customer demand. Thus frustrated customers go away. And the venture then goes away also.

5. Trying To Be Everything To Everybody

Yep, this is the boil the ocean problem. Focus is the name of the game for startups – though that word is not mentioned in the Forbes article.  Startups need to be fast, focused, and flexible. Why? Because those are three of their advantages over large companies.

6. Not Enough Marketing

Marketing is a Goldilocks problem. Not enough marketing and your product or service may die from benign neglect. Customer can’t buy it if they’ve never heard of it. Too much marketing and your venture will run out of money – see item number 1. Every founding team needs someone who is tough minded and experienced to set the budget. But what about sales? Building a direct sales force is very, very expensive. All marketing and sales expenses need to be very carefully examined and make their case. And of course WOM – Word of Mouth is best for two reasons: one, it’s free and two, it has more credibility than other types of marketing, namely advertising. This is another over simplification. What type of marketing? How does marketing relate to sales?

7. Poor Planning

This tends to be a 20/20 hindsight item. As well as a diagnosis by  exclusion – we have ruled out the other ten items so it must have been poor planning! What is more important is adaptability: the ability to adapt to changing market conditions. Failure to adapt leads to extinction. Darwinian laws apply to startups as well as species. As Mike Tyson said, “Everybody has a plan. Until they get hit in the mouth.”

8. Not Accepting Constructive Criticism

This also tends to be a post hoc reason. “If they had just listened to me when I told them …” There are multiple reasons why constructive criticism is not acted upon: it may come from a source the founder doesn’t respect; it’s already been thought through by the team and rejected; it is offered – too often – too late in the game.

9. Not Delegating

Delegation all comes back to the goals of the founder. If the founder just wants to run a life style business there is no need to delegate – they should have their hands on everything. But if the founder wants to scale that’s when failure to delegate can indeed be a formula for failure of the venture. Founders need leverage and leverage comes from delegating the right stuff to the right people at the right time.

10. Lack Of Soft Skills

Soft skills are the missing piece to the success puzzle for many entrepreneurs. Soft skills are the sometimes intangible and non-technical talents entrepreneurs need to lead effectively. They include attitude, communication, empathy, motivation, teamwork, networking, leadership, decision making, problem-solving and conflict resolution.

Engineers tend to lack soft skills as their education and culture emphasizes hard skills: math, engineering and science. I can’t think of a company that has failed due to lack of soft skills. Bill Gates, Steve Jobs, Larry Ellison – there’s a long list of hard skilled mega successes. Problem solving is indeed important as most startups are a bucket full of problems. And conflict between founders didn’t even make this list, but should have. I’ve seen a number of early stage companies fold their tents due to irreconcilable differences between founders. That doesn’t mean that communications, leadership, etc. are not important, they are. But as stated above, list elements suffer from the problem of false equivalency. Just because something like empathy appears in a list doesn’t mean it’s as important as problem solving. Here’s a good example of where a weighted sub-list is needed.

But let me borrow something from Y-Combinator: “Build something customers want to buy.” If you do that you can work on this other stuff as you scale – mainly by hiring people who know how to plan, how to manage cash, how to delegate, how to lead – in other words, how to execute. In startups it’s execute or be executed.

What makes for a successful business freemium model product?

freemium

Interest in the freemium model, where the venture gives away one version of its product in order to up-sell those users to a more feature-rich paid version, has had its ups in downs in the business market. But with freemium model companies like DropBox, Zoom, and Slack going public it’s definitely on the upswing now.

With the help of the article 7 markers of a viable freemium product by venture capitalist Matt Holleran on VentureBeat.com, let’s look at what will help founders be successful using the freemium business model.

1. The user’s first experience with the product is easy and awesome

Ease of use and simplicity are paramount to keeping technical support costs to zero and eliminating one major source of friction in product adoption. If you have a complex product with a steep learning curve that requires training, freemium is not for you. And you need to launch a Minimal Remarkable Product, not a Minimal Viable Product. A remarkable product with a flat learning curve has the best chance of going viral.

2. Rely of WOM (Word of Mouth) and viral marketing

Customer acquisition is the number one variable cost in virtually all tech companies in the enterprise market. By relying on WOM and viral marketing, millions of dollars can be saved on traditional marketing, dollars which can then be spent on converting free users to paid users.

3. Your product is not single-user only

Products like Slack and Zoom are inherently multi-user, in fact the value of Slack in particular goes up with the size of the active user base. Multi-user apps have two benefits: one, they become attractive to teams and thus can charge a higher price; and two, these products, like Zoom, can be inter-company, not just intra-company, thus selling themselves as users from one company invite another.

4. The freemium model should be built-in, not slapped on

If you plan on using the freemium model you need to plan for it before you start product development. First how will you build virality into the product? Second, what features, functions or even performance will be included in the paid version but not included in the free version? This decision is the core and the art of the freemium model. If the free version is not useful on its own you will never have the large user base needed to convert to the paid version. On the other hand, if the free version is so useful most users don’t see a reason to upgrade, you won’t generate significant revenue. This is where the need for customer discovery, A/B testing, and lots of trials are investments that will pay off.

You also need to make it virtually painless to upgrade. That means keeping the upgrade to the paid version very simple; don’t confuse users with a plethora of payment plans – for a subscription offer monthly or yearly payments, period.

5. Don’t rely solely on the freemium model – it’s not a panacea

Products like Slack, Zoom and DropBox are all very solid products that filled an unmet need. While their freemium business model no doubt drove rapid adoption, these products could have succeeded with a different business model, though perhaps not as quickly.

6. Study the winners and the losers

While there is a lot to be learned, especially from public companies like Slack and Zoom that have to disclose much more about their financials and operations than private companies, don’t restrict yourself to companies that have gone public or been acquired. Since freemium companies offer a free version, your only cost of studying their products will be company time. Remember as Picasso said, Good painters borrow, great painters steal. However, you can’t simply ape a winning freemium formula from another company. Your freemium model needs to be customized to your market and its users.

7. Understand the bottoms-up sales process

The freemium model stands the typical business sales process on its head. Users first adopt the product because of its fast on-ramp and value provided to them. They then exert upward pressure on the economic decision makers to upgrade from the free to the paid version. Help them out! Provide case studies, testimonials, webinars and other ways the economic decision makers can quickly and easily see and buy into the reasons to upgrade. Don’t try the standard field sales force, face-to-face selling process with the economic decision makers – that’s the antithesis of the freemium model.

8. Establish and track your metrics

Freemium companies must set goals for upgrades – what percentage of users must upgrade for you to break even, for example. You should track actual vs. projected on no longer than a monthly basis. Collect as much data as possible and establish what is the profile of your ideal customer. What drives customer engagement? What works best to incentivize upgrades to the paid version? And be careful of churn. Winning the customer is winning the battle; retaining customers is winning the war.

Freemium is not for every company nor for every product. If you can’t follow a majority of these best practices then freemium is probably not for you.

The biggest mistakes founders make

quote

The Forbes article He Sold His First Startup To Yahoo, His Second One To Google And Now His Third Is Worth $500 Million by Alejandro Cremades is focused on the successful career of Craig Walker, as you might assume from the title. But buried in the long Forbes article is something Walker learned from his stint at TeleSoft Partners, a venture fund that brought him on to do telecom internet investments:

The 5 Biggest Mistakes Founders Make

In all his experience, Craig says the five most common mistakes he’s recognized among startups are:

  1. Being too greedy and not creating win-win deals
  2. Scaling too fast and spending too much cash
  3. Not trusting yourself and sticking to your direction when decisions need to be made
  4. Poor interpersonal dynamics between the founders
  5. Not anticipating a competitive threat to the product or company

Number one is quite interesting to me, as I focused on business development at most of my startups. However, in all my time as a founder and now as a mentor, spanning several decades, I’ve yet to see any significant number of startups make this mistake! I’m not sure where Craig Walker is coming from on this one. He doesn’t specify who the deals were with. Partners? Investors? In any event, while it’s good advice to strive for win-win deals and to not treat deals as a zero sum game, I’d hardly put this on the top of my worry list.

However, scaling too fast and spending too much fast are deserving of the number two slot in my book. The problem here is that VCs invest their capital to enable startups to scale – and they will push founders to do so. Having the backbone to resist pressure to scale prematurely is absolutely critical for founders. You must have product-market fit absolutely nailed before you put the pedal to the metal and start paying millions of dollars for Facebook ads or whatever marketing push you choose to fuel your growth.

Mistake number three – not trusting yourself – is in the “founders need strong backbones” category, just like resisting pressure for premature scaling. The prerequisite here is have a very clear vision and operationally defined mission that is well communicated to your team. The company’s vision is the founder’s lodestone in decision making. Founders will be making hundreds if not thousands of decisions in the course of building their companies. Without vision and mission it will be too easy to change direction based on market forces or pressure from investors or fellow partners. And a well-defined decision making process is a must. Nothing complicated, simply document the pros and cons of each option. Weigh the cost/benefits and make a choice. But don’t stop there. Create a decision tree based on that decision to make sure you don’t end up running off the rails based on choosing that option. And no decision is worse than a bad decision; at least you learn from making bad decisions.

Unfortunately I have see “Poor interpersonal dynamics between the founders” all too often. This usually stems from lack of alignment of values, metrics, goals and corporate culture between founders. This is why Y-Combinator’s research showed that founders who had worked together previously and/or knew each other for a significant period before founding their company were significantly more successful than those who just met recently.

Finally, as I’ve written previously, I made mistake number five myself by not being aware of an established competitor that I hadn’t found because they came out of a small business market, not the startup ecology I was part of. I’ve seen too many founders fail to do a sufficient scrub of the Internet to source competitive threats. There always will be some; the mistake is not anticipating them. If there’s no competition there is likely no market either.

And let me nominate my candidate for mistake number one: doing a poor job of customer discovery. Without knowing your target customer you are like a rifleman who fires before they aim. To extend the metaphor, keep your gunpowder dry until you have nailed your target customer. Don’t rely on being able to pivot if you make this list leading mistake. Lack of knowing who your customer is by far the most common mistake I  made by startups, in my experience.

Switching from an efficiency mindset to a productivity mindset

productivity

What is the definition of efficiency? It’s a word that gets thrown around a lot in the startup world but what does it mean?

efficiency means producing the same result with fewer resources — less time, money, or energy

There’s no doubt that startups who have raised capital have investors who demand they be capital efficient. But making stuff faster is not the metric you want to measure. That measure is productivity. Productivity focuses on getting a new, better and more impactful with the same resources. This is what investors want! Stretch the dollar. Being efficient is necessary, but not sufficient. Note the sub-title of the article by Aytekin Tank on Entrepreneur.com:Why Founders Should Focus on Productivity Instead of Efficiency, sub-titled Productivity is a way to accomplish more of what matters in your business.That sub-title is a good definition of productivity for startups.

Interestingly effectiveness does not appear in the article. As I posted previously, Efficiency is doing things right; effectiveness is doing the right things. Managers tend to focus on efficiency, C-suiters focus on effectiveness. Needless to say everyone should be both efficient and effective! But where does productivity fit in? I’ll list the major todo’s from the article to create a productive venture, with, as usual my own annotations based on my experience.

Prioritize teamwork over solo efforts

At Jotform, the author’s  company, each cross-functional team works on one project at a time and operates like a small company. This is my preferred org design, as opposed to Apple’s, which is tightly organized as one company from the top down. Jotform has 150 employees, so some type of org design is mandatory, your startup only needs a plan for org design as you are all on one team! Ownership is a powerful motivator – workers take pride in ownership, not in piece-work.

Make the most of your MVPs.

Aytekin has a great example of this, Apple vs. Microsoft. Both have about 16% MVPs. But the 600 Apple engineers were able to develop, debug, and release iOS 10 in less than two years, while it took 10,000 Microsoft engineers more than five years to develop, refine, and then eventually decommission Windows Vista. Why? Because every  business-critical role at Apple was filled by an MVP.

Slash the red tape.

By definition entrepreneurs hate red tape. If you don’t I would like to know why! Founders must have a bias for action. Process needs to serve results and be as simple and streamlined as possible. According to Bain research, the average company loses more than 20 percent of its productive capacity to “organizational drag,” otherwise known as red tape or unnecessary complexity.  I saw this in action when our small startup, Course Technology was acquired by what was the Thomson, a $7 billion behemoth. While they mostly just left us alone, there were still the company wide meetings and initiatives that sucked up our resources. I had an earn-out so I stayed my required three years, but not a minute longer. I couldn’t wait to get back to the startup world.

Forget the “more is better” mentality.

Aytekin notes that entrepreneurs often have a rebellious streak. I’d go beyond that to say entrepreneurs must have a rebellious streak. This quote from George Bernard Shaw encapsulates my take on founders:

The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

The More is better fallacy doesn’t just apply to the number of employees, it applies to the number of hours worked. Too many startup workers humble brag how many hours they work. But hours worked is just an input to a function; the output is a difference that makes a difference – a measurable result.

Giving employees the power to set their own schedules really pays off. At Mainspring our guidelines was unless you were working from home, you should be in the office during core hours:  10  to 2. Note I said guidelines. If you want to move fast and not be bogged down, run your company on guidelines, not rules.

There you have it: organize for productivity, doing more stuff that matters, efficiently and effectively. To quote Aytekin one last time:

Experiment with what works best for your business, and be sure to engage your staff in these discussions. Happier employees perform better. They’re more creative, more productive, and will deliver the kind of innovations that can set your company apart. In the end, I think that’s far more valuable than squeezing expenses or pushing for irrelevant but good-on-paper efficiency gains.

 

When building teams diversity is the key

 

cupA typical mistake hiring managers make when building a team is to aim for the best person for each and every position, but anyone who follows sports knows that it’s not the most talented team, say the Kansas City Chiefs, that wins. It’s the New England Patriots.

Back when the Patriots played the heavily favored Los Angeles Rams in the Super Bowl in 2001 I knew the Pats would win before the coin flip. How? Because Bill Belichick flouted NFL tradition, by not introducing his offensive team. No he didn’t introduce his defense or even his special teams. The entire 53 man team ran out onto the field! That said it all. As Lao Tse said, “Battles are won before they start.” Belichick’s “team-first” philosophy beat the “Greatest Show on Turf” because he didn’t hire for the most talent, he hired for intelligence, for grit, for willingness to play any position, and most importantly, for the ability to put the team first.

So what does this have to do with your startup? Read the Fast Company article by Scott E; Page Want to hire the best team? Don’t hire the “best” people, sub-titled Hiring high performers doesn’t always lead to great results. The article is based on the book by Scott E. Page, The Diversity Bonus: How Great Teams Pay Off in the Knowledge Economy.

Yet the fallacy of meritocracy persists. Corporations, nonprofits, governments, universities, and even preschools test, score, and hire the “best.” This all but guarantees not creating the best team. Ranking people by common criteria produces homogeneity. And when biases creep in, it results in people who look like those making the decisions. That’s not likely to lead to breakthroughs. As Astro Teller, CEO of X, the “moonshot factory” at Alphabet, Google’s parent company, has said: “Having people who have different mental perspectives is what’s important. If you want to explore things you haven’t explored, having people who look just like you and think just like you is not the best way.” We must see the forest.

The complexity of modern problems  often precludes any one person from fully understanding them. Factors contributing to rising obesity levels, for example, include transportation systems and infrastructure, media, convenience foods, changing social norms, human biology, and psychological factors.

So how do you hire for the best team if it’s not the process of hiring a bunch of the best specialists? You need to act like Bill Belichick – hire for team fit, after you have made sure the candidate checks off the necessary expertise and experience boxes. The best way to insure that I’ve found is to involve not only the team but staff whose function is orthogonal to the team – they have no vested interest in filling a position, as the team leader and team members may have. So I might ask the CFO to interview a candidate for a graphic artist position or a programmer to join the interviewing process for a marketer or sales person. Back to our friend Alan Kay’s statement, Perspective is worth 80 IQ points.

Another technique is to dive into the candidate’s background, below the shiny surface of recent jobs and academic accomplishments. Do they play sports? Is it an individual sport like golf or swimming or a team sport like basketball or baseball? If their entire sporting life consists of individual sports experience they may not work well in teams. What are their interests beyond work and family? Do they display curiosity? A wealth of interests or a narrow slice?

Many ideas come from group sessions where each person builds on the previous statements of others. There are no “mistakes” or “wrong answers”, rather every attempt at solving the problem can be thought of a stepping stone to reaching the solution. How does your job candidate function in groups?

Attempting to “hire the best’ inevitably leads to ranking. In the field of neuroscience upwards of 50,000 papers were published last year. How could you possibly rank the authors of all those papers? “Optimal hiring depends on context. Optimal teams will be diverse.”

Let’s be clear that hiring for diversity should not be confused with treating women and minorities equally – that’s table stakes. The winning teams will meet or exceed that type of standard by digging deep into candidate’s lives, not just their resumes.