Startups and the trials of being an entrepreneur

I think this should be the motto for entrepreneurs and people involved in startups...

It is not the critic who counts,
nor the man who points out how the strong man stumbled,
or where the doer of deeds could have done them better.
I think this should be the motto for entrepreneurs...
The credit belongs to the man who is actually in the arena,
whose face is marred by dust and sweat and blood;
who strives valiantly;
who errs and comes short again and again;
who knows great enthusiasms, great devotions;
who spends himself in a worthy cause;
who, at the best, knows in the end the triumph of high achievement,
and who, at the worst, if he fails, at least fails while daring greatly,
so that his place shall never be with those timid souls
who know neither victory nor defeat.

Teddy Roosevelt

Do you know how many prototypes did James Dyson make of his cyclonic vacuum cleaner before he succeeded? Five thousand!!

Edison spoke about perfecting the filament in the electric light bulb. "I have not failed 700 times. I have succeeded in proving that those 700 ways will not work. When I have eliminated the ways that will not work, I will find the way that will."  That is a heck of a lot of determination he showed there.  Would you have gone as far?  I’m not sure I would have got beyond 650

If you think things are going to be easy as a startup then you are wrong. If you fold under pressure then don't start. If you only have a limited stomach for the fight then don't join it. Being an entrepreneur will test you like you can't imagine. It will rob you of sleep, cash, time, family life and peace of mind.

One company I was helping had a fantastic technology. It could save mobile phone companies hundreds of millions of dollars. Their patent was sailing through the Patent Office until one Sunday when a blocking patent from Motorola was filed. To say that was a bad day for them can't express the long hours and horrible working conditions they had endured to get that far. I doubted they would get up. Instead of walking away they spent six intense weeks reviewing the patent situation. They did what they had said previously was impossible and came up with a better solution.

I was pretty angry at them because I had pushed as hard as I could to get them to consider alternative technical approaches. However, the anger was nothing compared to my delight for them at coming out of the abyss stronger than they had been a few short weeks before. Now they are on their way to Aston Martins all round and we are all very happy.

Could you have got up then?

How about a good friend of mine who has a very seasonal business. His life is a roller coaster of hyperactivity in Summers and then hoping that the sales start to drip in during Winter before his cushion of cash goes bang. He employs a fair few people and I admire greatly how he bears the pressure both on himself and imposed by caring for this larger 'family'.

Could you bear that year in year out?

Apparently the SAS candidates that make it through aren't thinking, "I can't do it," as they slog along with massive packs on their back, the good ones are convinced they can do it.

Still got some ambition to make it left? Okay, answer me this. Out of ten, how much do you want to achieve your dream with your business? Got your number in mind? Good. Now if it's less than eight experience suggests you aren't going to do it.

Richard Jones creates, improves and turns around technology businesses and helps large companies develop innovative new products and services.

This article above is made available under the "Attribution-NonCommercial-NoDerivs" Creative Commons License 2.5 available from http://creativecommons.org/licenses/by-nc-nd/2.5/.

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Unfair advantates - why technology startups need them

I love the phrase "unfair advantage."  Peter Crouch is a striker at Liverpool who towers over defenders and so gets more than his fair share of headers.  I always look for the same thing in startups (and I don't mean tall people). 

So what can these advantages be?

Preferential market access. 

• Does the company have an exclusive contract with a customer?
• Is there exclusivity for supply in a particular country or region?

Preferential access to technology. 

Is there unique access to a component, product or service that gives the company some form of competitive advantage?  This could be from having developed the intellectual property themselves or having put in place contractual relationships allowing them to exploit it – leading to:

• Lower production costs
• Lower distribution costs (smaller, lighter products)
• Lower prices
• The ability to use a different (and presumably better) approach to a particular problem (e.g. recording music on a hard disk instead of a CD leads to the I-pod)

One of the most important aspects of ‘unfair advantages’ is that they allow you to compete in markets that you might normally ignore.

Consider broadband for a second and some accepted logic for some Western countries.

You don’t want to dig up loads of roads and pavements to lay fibre to carry Internet traffic as this can be very slow, expensive and fraught with legal/contractual problems in some places.  The capital costs of such a roll out can be enormous (I’ve done a $500 million plan for this – expensive isn’t it) and trying to recover these costs can be difficult if the prices paid by users are already falling due to competitive pressures.

As with many cases of creativity, you can look at all the assumptions and start to smash them to see if there is an opportunity.

• Why is the digging expensive?  Because the roads and pavements are already in place.
• Would it cost as much to put fibre in place in new developments?  No – it would be a fraction of the cost.

Now if you have enough new developments then maybe you can start to use the unfair advantage principle.  Can you lock up exclusive contracts with major developers?  Can you build a marketing team designed to sell to developers?

If the answer is yes then you can build a company that delivers broadband (plus TV and phone services) at significantly lower capital costs and can compete in a market that previously you might have assumed was too ‘hot’ to handle.

If you don’t have the unfair advantages then you can look at your market and try to identify what you could do to develop some.  It’s a very interesting exercise in innovation that can allow your company to take huge strides forward.

This article above is made available under the "Attribution-NonCommercial-NoDerivs" Creative Commons License 2.5 available from http://creativecommons.org/licenses/by-nc-nd/2.5/.

 

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Real innovation requires real customers

I get to work with a lot of new companies and corporate ventures and, you know what, they frequently have no clue about what a real customer wants. Cambridge (the UK one) is a great place for technology innovation but even the smartest people don't always understand about having a real market. They have the “Field of Dreams” view about customers - 'if I build it, they will come." However, this mistake isn't limited to startups - I worked with a European electronics multinational and I couldn’t believe their approach to innovation.

The division I worked with produced equipment for automating factories - essentially like computers with input and output connections to make machines work. Here were two classic conversations with them.

"Good news Richard - we have done a deal with M****** (identity masked to protect the innocent) and will be distributing their single board computer series. Our arrangement means we will have the same market price as them."

"Okay. What do you mean by market price?"

"Our list price is identical to their’s."

"Hang on," say I, "our normal customer gets a discount of 10% whereas M****** give a discount of 30% as standard. Our real market price to users or distributors is going to be significantly higher than their’s.  In what way do you think that is market pricing?"

....silence....

The problem was that they supplied a big internal market of factories that could not go anywhere else for equipment. There was a very resentful trapped market that this division could ship any crud to and no-one could do a darned thing about it.

Here's the second conversation.

"This is our new programmable controller. We are going to sell it and gain market share against Siemens, Allen Bradley etc. Customers think it is really good."

Me - "Which customers?"

"Our factories."

Me - "So have you spoken to any customers using the equipment you want to compete against and get conquest sales over?"

"Erm.....no."

"So you have had a decent reaction from people that have to buy this stuff but not actually talked to any 'real' customers who buy the best solution for themselves."

At this point I recognised a fairly common look which was a mix of hoping the ground would open up and swallow them up or wishing it would swallow me.

Shortly after this, the internal factories were released from their orders to buy automation equipment from their own company.  After this I can summarise the sales for new equipment to the factories - zero.  Annoyance at poor products and being forced to buy from their internal division led to a disaster for this division. They didn't have any real customers so they didn't create any real products.

Technology push is very challenging and works only rarely. For every Walkman or I-pod there are thousands of dead companies that thought they had the best idea ever and found that they weren't solving a real problem for real customers.

If the pain of changing to a new product is greater than carrying on doing what they are doing then customers won't buy. If they don't see a need they won't buy. If you don't find real customers with real needs then you won't have a business.

Copyright Richard Jones 2006

This article above is made available under the "Attribution-NonCommercial-NoDerivs" Creative Commons License 2.5 available from http://creativecommons.org/licenses/by-nc-nd/2.5/.

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Never work with idiots and.....people you don't get on with and respect

Ten years ago, I had a discussion with a friend who was a serious rower. He's not Sir Steve Redgrave but understands what it takes to win. His assertion was that teams don't have to like each other to perform. In fact they can downright hate each other and still do the job. It was alleged that Eric Cantona would never pass to striker Andy Cole at Manchester United for example.

At the time I wasn't convinced that the sporting metaphor could translate to business. I'm certain now - he was wrong.In sports, the interaction is for a given period and you are focussed on defeating the opposition. Even a team that hate's each other's guts know that by passing to one another or tackling the opposition in particular ways, they can win the game. Even the rowers just have to stare at the back of their bete noir for a limited period each day.

During training you can steer cleer of them (I don't think swimmers have too much difficulty being in their own world) and football players can stay at opposite ends of the gym, get treatment at different times etc.

The problem with business is the amount of time you have to spend together without the rules you have in sports. You have to sit down eyeball to eyeball with the object of your loathing for hours on end in meetings and pass them at the coffee machine. I'd take this a stage further. The worst place to have a team that doesn't get on is in a startup.

One venture I saw recently has some interesting technology to allow people to increase their broadband speed. The chairman and technical guru were not exactly on the same page. I quite enjoyed the knockabout relationship but the guy I was with was appalled and didn't think they could be put in front of potential investors without serious changes. That was nothing, I was with the very intelligent leadership team of a Cambridge company who basically would have an argument every time I saw them (I'm pretty sure it wasn't me causing these problems). I'm talking real needle in the exchanges and serious bickering.

So why is this a problem for startups?Well, a startup is not like the insulated environment of a large company where roles are clear and responsibilities laid out. The senior team are going to have to have very flexible roles that may cover several disciplines. With the team all daydreaming about driving away in an Aston Martin DB9S (mmmmm me too) then the personal stake they have invested and their perception of the future value of the company will drive the pressure up even harder. Startups don't have the same clear route in front of them that say a division of General Electric, General Motors or Virgin might have.

Which direction should the company take? Should the company stick or twist, grow or die, diversify or focus?

Under this pressure, my view is that you need to start from a base of getting on with, and respecting, each other. It's not the army so discipline and shouting won't stop a dysfunctional team from getting at each other but, like the army, you certainly will end up 'in the trenches' together from time to time.

My experience makes this very clear now. I won't work with anyone that I don't think I can share a trench with. I'm lucky that I can make that choice but being in a new venture, helping a startup or creating a new business for corporates is tough enough without having a madman on board. My friend might be right for sports teams but I am convinced he is wrong about business. Never work with people you can't get on with and respect.

Copyright Richard Jones 2006

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Project management at the borders - why milestones count

I was at the airport recently with a business partner. The check in girl was looking perplexed as she could not find my reservation. The problem was that my partner told me to buy a return flight and I did - in other word the flight back from Vienna, assuming he had bought the outbound flight. Sadly, his idea of a return flight meant both ways! I made the flight but it's a real example of what besets projects all the time.

I may know what I have to do. You may know your part. But actually do they meet up or do they overlap meaning we're all working too hard?

It's at the interfaces that things most commonly go wrong. For example, the spacecraft that crashed into Mars because one group worked in yards and another in metres. Their invidual parts were fine but they didn't fit together. It's the railroad tracks meeting in the middle of the US and finding they use different gauges for the track (a great cartoon not a fact). How do you stop this happening in projects.

Well there are a few things to remember. The main one is to always incorporate the 'voice of the customer.' This might be an external company, an internal function or simply a champion in management who wants this new 'thing.' In terms of agreeing the specificaton for the project and carrying out reviews, they are vital. If you can't identify a 'customer' then you are actually in some trouble. If no-one really cares then who is going to help you when you need extra resources, a favour, influence or whatever? The answer is probably no-one.

However, let's assume you have a customer who can review and agree the specification. You then need to have a sensible way of creating and agreeing milestones as these are the key. I'm not talking about putting a nice black diamond into MS Project to signify a milestone. I am talking about a definite state of achievement. A milestone should represent a point that the project has reached. To prevent misunderstanding that means a milestone should not be a verb.

For example, a milestone that says "write software for six weeks" is useless. Okay you do six weeks work but is it finished? Does it work? Is it bug free?

A proper milestone should be expressed as an achievement followed by an evidence statement.

The engine is assembled AND has passed test procedure A17

The molding machine is installed AND has produced 10,000 parts accepted under quality standard
G1

By creating milestones that show the achievement AND how you know when you are there, you can control different groups within the project so that it is clear what each will deliver. This makes it easier to then review for consistency because you know exactly how each will quantify success. If a group reaches milestone A then you know what will have been achieved. If you don't consider that's enough you need to change the acceptance criteria and add detail.

Okay so will this solve the problems I gave as examples above? The simple answer is not always, but it will reduce them down and eliminate some really daft misunderstandings.

The next step is to work out how you will actually test the overall performance (systems integration test) as opposed to each element (unit integration test). It's another story but by setting clear and unambiguous milestones you will be on your way.

I'm always happy to discuss and help with real project issues. Let me know if I can help.

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It's about customers (stupid!)

Where to start?

I want to try to get across what starting a business is really about.  I want to help you understand just how hard it can be and how the odds are stacked against you.  If you still want to do it then I want to help you understand what works and what doesn't.

This is about starting companies on your own or trying to spin out a company from a corporate.  You would imagine the latter is much easier with the lowered risk and support from the parent.  Well you would be wrong.  Starting on your own is daunting but starting out from a corporate tends to inherit all the bureaucracy and short-sightedness that made you want to leave in the first place.

Maybe the best place to begin is to tell you about customers.  Steady now - this is not too advanced and you might find them useful.

I talked to a company with a great idea a while ago.  Patent protected, it looks like the Holy Grail when you hear them talk about it.  Faster broadband for all!  They can just increase your broadband speed - sounds good right?

Well at the same time you'll have to pay more than double your current charges.  Still interested?  If you can't get broadband now you won't be able to get it with this company either.  So you have to already have broadband and just want a faster service.

Tell me.  What are you going to do with your increased bandwidth?  I play online video games (look for interCEptOr in Counter-Strike - I'll be the dead one at the bottom of the stats) but I don't need more speed.  I mean it would be nice but I can't justify the extra cost and that market is full of students and unemployed males from Wigan as far as I can see.  They can get by with what they already have.  What are you going to do with it? 

I won't go on about broadband because the point is general.  When someone has to persuade you about why you need a service then you probably don't.  Need is pain.  When you have something that is really inconvenient in your life then you recognise a solution when someone shows it to you. 

Sick of the shower burning your bum when someone flushes the toilet - you need the ....... 

Worried about losing your family photos from your laptop, then you need the ..........

If there is not a 'selfish benefit' to a company, one that you understand intrinsically, then you probably don't want to buy the product and I don't want to help it grow and succeed (because it won't).

Copyright Richard A D Jones 2006

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Project management mistakes - ridiculous resourcing

I went into a development programme once and looked at the project plan.  It looked good.  That’s the problem with Microsoft Project (and Powerpoint) - the biggest, steaming pile of junk can be made to look good.  The problem that makes this worse is that most senior managers are incapable of spotting a dodgy project plan when they’re two inches away from it. 

Having had to diagnose, then turnaround, some big projects, I went straight to the resource usage.  The first person was down to to 56 hours work on the following Monday.  It was clear that this unreality was repeated throughout the plan.  No-one bothered checking and the project manager was both new to the company and completely inexperienced.  When the real availability for the team was used, the overall duration lengthened by 700% before any optimisation.  It ended up 250% longer than the team thought when I arrived.  There’s a few other questions I ask that can prove a project is in trouble within a day (although they can’t prove the project is going well).  They were un-necessary in this case.  One question – one hit – one broken project spotted.

Planning from the start with real availability would have avoided this problem.  By real availability I mean the actual time a team member can devote to a project excluding training, holidays, meetings, distractions, coffee, lunch etc.  When you look at this you will find some of the team only have 10 hours a week to move the project forward. 

For senior managers – the ability to review a project and understand the real position accurately is vital.  That’s why you can’t leave project management to project managers!

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5 more things not to do when you start a business

My friend Mike Trup’s posting on his experience about starting up his own software distribution business.  He starts with a nice variation on the classic advice (Ansoff) not to go for a new product in a new market.  Mike’s twist replaces the market with the channel.  I’m going to be posting more about screwing with your channels soon.

1) Do not try and introduce a completely new product or service and a completely new way of buying it all in one go. I promise you, you will be up against enough of a problem trying to get people to understand and accept one of these concepts.

The rest is here

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So you thought marketing is fun - lessons from software companies

An important part of any product based startup is to consider the marketing channels by which the product will be delivered to market.  It’s a simple point but capable of extreme pain for a startup that get’s it wrong and painful enough even if you get it right! 

The following goes through the detail of some of the issues that will keep you up at night for a software business.  Some of the points are equally valid across other types of product.

1 Upsetting your distributor

Imagine you produce some form of software and you’ve established a distributor arrangement.  They have sales people who are out talking up your product and their cut is say 30% of the retail price.  Now you might also want to sell the software online.  It’s not unreasonable and relying solely on a distributor is something I’ve personally come to regret when I’ve not had other parallel channels in place.  Okay so it’s a good idea – but here’s how you can screw it up.

• You need to consider the pricing strategy compared to your distributor.  If you are going to undercut them then how happy do you think they are going to be?
• Your website may be the main ‘landing point’ for people looking for the product and so if you have a huge banner saying BUY HERE that points to your online store then again, your distributor is going to be furious when they spot the little link to their site.  You’re essentially taking all the leads that result from your driving people to your website – distributors normally consider that those leads should belong to them!

2 Protecting your product

How is the product protected?  You can’t download a version of the software that has dongle protection (an electronic encryption key that fits into a USB port for example).  So your customer has to download a version that has software protection.  You can’t let them download a version without copy protection because you will end up with a huge market share among people who paid you nothing to get their illegal copy. 

Untrue you might think – well 3D Studio Max is a great bit of animation software with loads of loyal users.  Sadly 30 – 60% of those users are using ‘hacked’ versions of the software.  I love the company to bits though because they write this loss off as ‘training new users who will buy a legal copy when they get some money or join a company.’  When it’s your turn for the bear to eat you it helps to have a sense of humour.

So you have an ability to deliver the software but how does a client ‘activate’ it?  Again, the correct answer is using online and automated methods – i.e. email/web.  I say it a lot but you have to get people out of the process as you scale up a business.  The alternative is someone ringing you up at 3 in the morning for the unlock code.  Remember the web is global and your customers may well be too so you’ve got to deal with sellling 24/7/365. 

I know a few companies that get back to you with a code via email when their offices open but if I’m buying something I want it now, I want it yesterday and I certainly don’t want it when the company gets around to it.  My advice – don’t even think of any solution that requires any human intervention delaying a customer from using the software. 

3  How do you encourage people to try the prooduct?

I’m not going to touch on open-source and freeware/shareware models here but think more about the typical software sales model.  If I want people to buy my software then I will have better results if they try it (unless it’s a total nightmare to use in which case your career probably lies elsewhere anyway).  You’ve basically got two choices here:

• Time limited version with full functionality.  Here people can try the software with full functionality for a limited time or a limited number of ‘openings’ of the software.  You need to pay attention here as I once set a 15 day trial period for a piece of software and it was really not enough time for people to get their head around the full functionality of that complex piece of software. 
• Limited functionality version.  This type of software build does not include all the functionality that you require.  I use Groove and there is now a 3 month trial version of that software.  Previously they had a version allowing only a limited number of workspaces (shared areas among users) and limited upload speed.  I think they changed to a time limited model because the ‘limited’ version was frankly perfectly usable for many users.  The new time limit forces people to buy the product.

Trial versions work because you get used to the product and potentially create information that only the software can handle.  You can get a time limited trial version of Mindmanager for mind mapping and I am writing this using BlogJet.  In both cases I produced and saved information using the trial applications that I then really didn’t want to lose later on.  I was convinced by the products as they got to the end of their trial periods and so bought them both.

4  Web delivery of software is a global market

Did I just say global?  That means a different version of the product to cope with different languages – not to mention manuals, demos, FAQ’s, video walkthroughs etc.  Not just that but even the license agreements will change from country to country.  The US version will not be suitable for the UK or for other English speaking countries.  That means you have to cope with localising the product for every market.  The dumb way is to have different builds for each country.  It’s bad enough trying to keep a development programme under control with the usual problems of source code control within the software team.  Adding in 20 build versions of each release to cope with different country versions will create more chaos.

The solution (within country areas sharing a common language), is to incorporate the license agreements into one build and have the user select where they are when they do the install.  Remember we are talking about startups here – Microsoft can justify doing things differently.

5  So what’s the price in a global market 

Software in the US often has the same price in dollars as the UK price is in pounds.  So what’s to stop an enterprising person in the UK (or any other higher cost country) buying from say the US?  Your distributors are going to be ballistic at this point as well by the way – if you can’t prevent people buying from the US then they aren’t going to get many sales themselves.

So do you apply a single price across the world?  If so, which one – the higher UK one that will hurt sales in the US or the US one that will leave money on the table in other countries?  Actually you do neither, you setup your buying process (or more likely work with an experienced online sales processing company) that prevents people from buying out of territories you define.  You can do this, for example, by using the credit card billing address to check it is consistent with the geographic ‘shop’ that the person has entered.  In this way you can set and attain different prices for the product in different markets.

Copyright Richard A D Jones 2005

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Dead project walking -why you have to kill projects to be successful

Companies can be outstanding at generating new ideas – I mean really world-class and yet they struggle.  The simple reason is they don’t have the resources to exploit them.  I’m not talking about the resources not existing in the company, I am talking about them just not being available.

If the resources are being used for something useful then is that okay?  Well only if it is more valuable to the business than the project it is delaying.  If not, then your resource prioritisation across the portfolio of projects better be good.

However, the more frustrating problem for companies relates to when their resources are ‘lost’ to the business either still working on bad projects or doing ‘after sales’ on previous projects. 

The pre-requisite for these problems is that the business does not understand what people are doing.  I know that seems ridiculous but I’ve seen it enough to realise that resource management can be truly appalling without visibly crippling an organisation – it just runs as if through treacle and delivers far less than it could.

The second factor is that there is no mechanism to actually ‘kill’ projects.  Surprised?  Again, there are companies that start projects and assume that if something was started it must be a good idea and therefore should be completed.  Think about it, the company starts several projects in a similar area but success of the first project to complete renders the other projects superfluous:

• as the problem has been resolved
• the technical performance target has been achieved
• the solution created by the successful project is not compatible with the other projects

Now what I’m saying is that if you don’t actually have an ongoing review process that can kill or put projects on hold, then you will struggle to start new projects.

The review process should therefore kill or hold projects if:

• the project cannot meet a milestone (a milestone being a project specific state of achievement)
• the project fails a gate review (a pre-defined step in the process that new ideas/concepts etc. have to pass through)

and the important addition is…

• the project no longer makes sense with respect to other projects that have completed or are in progress and other projects that are awaiting approval

 

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Some rules of investing in technology companies

I'll do a version of the classic rules of investment and startups some other time but here are a few you don't find in books.

• If there's money on the table - take it!
• You’ll be wrong sometimes but hanging on for a better deal later on seems to go wrong way too often.
• If it feels wrong - it is.
• Don't get seduced by spreadsheets, sometimes the best judge is going to be gut instinct.
• If the team say any of the following you are either going to have to work hard to help them or should leave by any convenient exit (including diving head first through a window if necessary)
• We have no competition
• We’re using the money to pay ourselves salaries
• We know that <insert huge company name here> failed with this product but this’ll be different <insert lame justification here>
• If you think this during the meeting then you’re probably in trouble
• I know more about this than they do
• I can think of 10 companies that have tried this area and they're all dead
• If the team falls out in your first meeting then they’re probably not getting along in the background. I’ve not seen blows (yet) but I’ve seen some major hissy fits. Seriously if the team can’t control itself in ‘public’ then I’m going to imagine the worst in private

These are just ideas – please apply your brain to whether you apply them as you know few rules are valid in every case. Except not arguing with a grizzly, I think that one is pretty good always.

Copyright Richard A D Jones 2005

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Technology startup funding tips - 'go faster' money

Money invested in a company is there to make something happen.  I normally refer to it as ‘go faster’ money – as the most normal use is to fund the business accelerating towards it’s goals using the extra funding as fuel. 

In comparison, the following are not seen as reasonable uses of their money by investors:

• Giving yourself a great salary
• Taking expensive office space
• Feeling better because you’ve got some ‘breathing space’ money in the bank
• Acquiring a nice company car
• Funding extravagant trips to conferences on tropical islands
• Fancy lunches
• Upgrading office computers

Early stage investors want to see that you are working hard with their money and doing things that will make them (and you incidentally) wealthy.  Every pound/dollar/euro should, in their view, be sweated harder than a fat guy in a sauna. 

So if you want an investor to give you funding then provide them with the details of the ‘as is’ business case and the relevant changes that will be made to the business with the new money.

For example, HP studies (and some real classic thinking) showed that a product delivered on time will make substantially more money back than a product delivered six months late.  Time really is money in that case.

What is it in the business in question?

• A bigger sales team
• A new territory opened early
• A new platform
• Incentives
• More developers
• A license agreement for technology

Whatever it is, the investment case should indicate the clear financial benefit of the altered plan.

 Copyright Richard A D Jones 2005

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10 rules for web-startups

The man who created Blogger has some interesting thoughts here

http://evhead.com/2005/11/ten-rules-for-web-startups.asp

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Bloody heck

Blogjet is misbehaving and I've created some image rich articles. It was working before, posting images happily to this blog and now it isn't. Frankly, much as I love you, it's gonna be a pain in the arse to copy the article here without some serious work.

They're good honest mister and you can find them here

http://innovation2execution.blogharbor.com/blog

Enjoy

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When product management goes bad - T-mobile come on down!

Okay you're sat in Starbucks wanting to access the internet. You know they have a T-mobile wireless hotspot but what you don't know is that T-mobile have developed a cunning process to make it almost impossible to buy their product without upsetting customers.  Read on for a rant with a few lessons hidden inside.

You know they have a T-mobile wireless hotspot and last time you were there you gave them £5 for instant access to the net for an hour. It was all done via the computer by credit card in a minute.

Now they have a very tempting offer of a monthly subscription at £23.50 for unlimited wi-fi access at any of their hotspots. How hard can it be to buy? Well you go through a similar process and put in Direct Debit details and also credit card to pay for the first month. You hit buy and wait.....and wait. Then it tells you that a SIM card will be delivered to your home in 2 days. A SIM card!

So by now I was panicking and wondering what the hell I had ordered but after checking for 10 minutes I then phoned T-Mobile and asked what was going on. First, their voice mail system has no option for wi-fi. Next it loops around a few times selecting options for itself.

Eventually you speak to a customer service person. They are tremendously helpful before telling you the SIM card will arrive in 24 - 48 hours. Why do I need a SIM card? Well apparently they issue a 'dummy' mobile number to you as a customer so that they can recognise your account if you ring in!! So can I connect now (like I could when I paid the £5 for an hour's access). Well sir, in 24 - 48 hours a SIM card will be............. you get the idea.

So I purchase an hour's access as I can't actually use the monthly subscription I've just paid for. Then when I am online I read my email and there are my account number and password to use with my new monthly account. Except you can't get to them unless you can get on the net......and you can't get on the net until the bloody SIM card arrives or you are somewhere else with Internet access.

So, to summarise, the process is designed around their internal needs.

• What a daft idea to send a bloody SIM card. Why not reference accounts off my name, address, inside leg measurement or any of the other bits of information they got off me
• Why can’t they authorise a £23.50 payment instantly and give me instant access like they can when I pay £5!  I might fail the credit check for the subscription but they have the first month’s money so why not let me on there and then
• Why send the authorisation information to somewhere that can’t be accessed unless I am on the net (which would mean I wouldn’t need their service there and then).

Poorly thought out and a real pain when the offer itself is so good.  Now I have to moan to get that £5 back that I needn’t have spent in the first place if………. Oh sod it – rant over.

I’ll leave you to draw your own lessons from this debacle.

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7 things investors do wrong...

Having laid into people pitching their ideas to investors and resource managers, I was challenged to come back with a blog about daft things investors do to provide some balance.  Well, balance in this case is going to come from a chip on both my shoulders so let’s move into the shadowy and sometimes arrogant world of investment.  A few dont’s and dont’s with the odd bit of personal experience thrown in…

• Never invest against your better judgement.  If you have a bad feeling about investing in people – don’t do it.  You’ll regret it later when things are tough (as they will be at some point) and you realise that the management team should have straight jackets instead of matching polo shirts.
• Don’t embarass yourself by moaning and crying like a little girl (not me honest) when the VC’s term sheet arrives for a company you’ve made an angel investment in.  Yes it’s dramatically in their favour - they always are! 
• Don’t invest if you don’t speak the same language as any of the mangement team and their head man is a slippery accountant.  You’ll probably never figure out exactly how the operation allegedly turns a profit and I mean even with the accounts and a whole lot of concentration I still couldn’t figure it out. 
• Never invest on sentiment.  If a company you are working with has seen it’s shares plunge then assume there’s a reason.  Don’t then invest when the shares go up slightly – it’s known as “the dead cat’s bounce” and will swiftly be followed by a further plummet in all probability.
• Don’t invest in a team that won’t listen.  If you can make a difference to a company’s success then you’ll be wasting your efforts if the team won’t listen.  It’s frustrating and you might as well spend your time elsewhere.
• Don’t imagine everyone has your standards and values.  One CEO was essentially trying to crash a company to pick it up and re-finance it cheap (rumours were going around that the funding was in place for this little scam) but he honestly didn’t seem to see this as a problem.  Sometimes what walks like a duck, quacks like a duck and looks like a duck is a duck and one that is going to get you into big trouble unless you head them off at the pass.
• Don’t accuse the people opposite you of drafting a letter from a potential customer themselves – even if they obviously have.  It makes them grumpy, means they stick around longer trying to justify their (in this case) daft idea and can put you right off your double de-caff, skinny latte.

 

 

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Startups - how to blow it with potential investors

Oh dear. I’ve had a day when I’ve seen another very enthusiastic person with an early stage business and absolutely no clue how to get their idea across. Okay to be honest he wasn’t that enthusiastic………… and he smelled a bit strange……………and smoked the smallest ‘roll-ups’ I have ever seen but anyway – back to my point. How is it people blow investment opportunities so badly? It appears like a sub-conscious wish to fail it can be so bad. To save people who really want to screw up but don’t have the energy to figure out how to do it, I have compiled a list of real ‘show stoppers’ when you’re looking for investment or approval for a new corporate venture.

• tell the potential investors that you are working across several businesses – they will be ‘delighted’ that you are going to spend all your time on other endeavours and let the idea (and hence their investment) die worse than a blue comedian in a convent
• say that you’ll let them know about the core idea after they invest – people putting resources and/or money your way always enjoy a mystery
• be vague – no-one likes a number monkey who is on top of all the facts about the business. Build up the sense of excitement by not really know what you are talking about
• make sure you haven’t over-burdened yourself with knowledge about your market – in fact it’s really ‘impressive’ if you know less than your audience. That makes them feel superior and puts them in a good mood
• bring along the cigarette packet you had the idea on and ask for a couple of million – come on, it’s a good idea and must be worth at least that
• predict sales aggressively – if you have a hockey stick you can trace around the curvey bit to model your sales in the first years. If your sales growth isn’t near vertical after a couple of years then you’re not trying hard enough. Take some more drugs or whack yourself on the head until the numbers appear sensible
• do remember what I call the “10% of China” syndrome and back up your business model with sensible facts like that the numbers for you software startup are ‘only’ 10% of Microsoft’s revenues

There are a few others but my brain is already twitching with horrific incidents of the above.

Note: The tips above should be taken with a sense of irony and the ridiculous…..if you don’t have these personal attributes then just try just doing the opposite of what I say above. I take no responsibility if you learn nothing from this blog as you’d probably have to be the sort of person who runs around the office blindfold with scissors in their hand.

Copyright Richard A D Jones 2005

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Free innovation - "What's in the cupboard?"

I tend to ask this question in quite a lot of companies, although it is particularly important in the development of new products/features/ventures!  When new initiatives are put in place, everyone seems to somehow forget the past.  Ongoing projects are respected but innovation pipeline, idea banks etc. are ‘created’ and then people studiously start to fill them up with new stuff.

I was the same until someone opened a filing drawer in their desk once and I spotted a strange bit of plastic.  After a bit of conversation it turned out this was actually an idea for a medical device that the person had thought of a few years previously.  I’d like to say it was a stroke of genius but it wasn’t.  Actually it was so bad it would probably only be good if you decided euthenasia was a growth area.  However, the more people I talked to, the more I realised that there was interesting stuff that had been canned in the past for various reasons but which might hold value now.

It stands to reason if you think about it.  A good innovation process will put some stuff on hold while you await specific conditions to be met.  That might mean a component needs to hit a certain price point or someone has to invent something new.  You’re just keeping it in a holding pattern waiting for the world to turn enough that it becomes worth something.  Well, this was the same situation.  A lot of good ideas in this company had been halted because there was not enough money, willpower, time, management attention and intelligence to carry on.  Some of the ideas were just hobby projects that never saw the light of day because the person changed jobs, lost enthusiasm or a myriad other reasons.

Okay the cupboard is a metaphor………..or is it a simile……no, it’s a metaphor.  There will be things in cupboards, drawers, hidden on computers and locked away in people’s heads.  However, I’ve never seen this exercise fail to find interesting ideas whose time has come.  You can ignore all this previous work and thinking but why make life hard for yourself.

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Technology only rolls one way - downhill!

Hands up if you remember company presentations where 35mm slides were used. That was all you could do 20+ years ago - have a very expensive, time consuming and therefore, by necessity, static set of images. Then the repographic department got their hands on Harvard Graphics and suddenly these acetates with pie charts started appearing. Then, and keep it quiet, there'd be a rumour that someone in marketing had a 'copy' of it and could circumvent the wait and inconvenience of having to convince the repro' people to do something for you.

Wind forward a little and a few, then more, then many and now almost all professionals have access to Powerpoint on their machine.

Think of computers themselves. Some people on here started working with computers that took punchcards. You had to book time to get access and come back the day after for the results. The first work computer I used was an Apple II - no hard disk and it was shared across a department. Then an IBM PC appeared.... and then another. Again fast forward (with or without Scooby Doo shimmery screen effect in your head as you wish). Many of us have computers at home as well as work and some have separate computers for their kids.

It's the same effect - something is a specialist skill that only a few people can do and gradually it becomes more widely available, cheaper and easier to use (no punchcards now - only blue screens of death and sanctimonious Mac users to deal with).


Many great technology companies are the ones that have made a big leap down this line and conversely, many great technology companies are no more because they got stuck and time overtook them.

If you're nodding your head now, can you tell me why people in some businesses don't recognise this.

What you are doing completely by hand now, someone one is trying to automate in part. If it's part automated, someone is trying to make it a pure handle turning exercise. What needs intervention from a human, probably won't in a while - and if you're not thinking about your product in those terms then rest assured - someone else will!

Let me give you an example of how you can respond strategically when you accept the reality of this inexorable drive from costly and rare to cheap and more widely used.

I was on the phone to a nice guy recently with a service for Internet companies. He is trying to sell his time around a nice bit of software that does some analysis of a site. He's trying to get this off the ground and he's got a good and interesting idea (imho). So if he want's a sustainable business you've got to ask if part of the analysis could be fully automated (YES). Could it be bought off the web if someone pays and enters their website URL (YES). So a good directoin looks to be to complete the application and, instead of trying to stay up the top left of that diagram (providing a specialist skill at high cost), he could be one of the people driving users down that diagram.

Are you going 'downhill' or staying still?

Copyright Richard A D Jones 2005

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How to spot a crap technology startup 1 - "No competitors"

Here are the signs of how to spot if you are talking to a startup company that is doomed. Might be a bit harsh and an exageration but I bet I'm right almost all the time on this. Here is the first thing they say that should make you run out of the door screaming.

We don't have any competitors

This is the bit where I have to resist the impulse to push half a grapefruit into their face James Cagney style. (I'm a nice guy really - honest)Almost every company has competition. If not a directly comparable product, then ask yourself how someone is solving the problem now. When you figure out that question then you have either identified:

• what the competition is (even if it is a different technology/approach etc) OR
• that you don't have a business

Am I being a bit harsh with the second one? Perhaps, but if your potential customers don't have a problem then they are unlikely to be motivated to buy your product. If you haven't thought this through, then the odds are you have the high-tech equivalent of an armpit fluff remover. Yes you can suggest instant messaging, the walkman and text messaging as being exceptions - successful products where a problem didn't exist before they were invented. However I suggest you don't - I still have that half a grapefruit and I'm prepared to use it remember.

Is your product really that unique and that compelling that it can invent it's own new niche? My experience is not. In fact my experience is that people who say they have no competitors are not paying enough attention to the market and are just plain wrong.

Instead of using the grapefruit I tend to use my time to try to help them understand that there are competitors and maybe they should consider them if they want to drive off in a Ferrari, ditch their wives/husbands and trade them in for a younger version.

Copyright Richard A D Jones 2005

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Pay or play - licensing mistakes and how they cost you big time

Okay you've sold your idea to a big company for $1 a unit they fit it to..... and they make millions each year. Just before you start driving away in your Ferrari though, you realise they aren't building any units with your baby incorporated. What's worse, you can't get the idea back from them. You've been caught in the pay or play trap.

It's actually very easy to kid yourself that this won't happen to you. Our unit saves 10% of this, reduces that by 30%, makes it all much nicer, faster, stronger or whatever but think again. Say you are working with the leading manufacturer in a market, they have invested in making their product in a particular way. Changing all that will cost money. If one of their competitors had your idea then the leading company might be forced to change to follow suit, but now they have your idea effectively out of the game and can carry on as they are.

So simple rules for this simple game.

Get an agreed sales forecast that the company licensing/buying your idea must achieve. If they miss a quarterly target then allow them some time to come up with a remedial plan (that you can accept or reject at your discretion) - remember you don't want to kill the relationship unless you have to. However if they are not hitting the targets then you should have a clause that the idea reverts to your ownership. This should also be the case if they go out of business, have a change in ownership etc.

If you can get an upfront payment for a license then remember this can be very valuable. You get money into the company without giving away any equity - gotta be good right? Well sometimes - you should be able to figure out if it is good for you in your current situation.

Exclusivity is a subtlety that is worth considering. If you give it away to a small player you may find that you have lost time in the market when they don't meet targets. However, again, exclusivity can be treated as something a partner retains if they hit sales targets. If they drop below these you should be able to withdraw it (at your discretion).

It can be a bit tedious to work through but getting it wrong will kill your business stone dead so stay awake - there may even be a quiz at the end.

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Maximising the return for your startup

One of the most interesting problems in a technology startup can be figuring out where to enter the value chain. This real example shows the thinking needed to maximise the return for your company.

An electronics company had a revolutionary component for mobile networks. Thinking traditionally - they would be sold to form part of an assembly made by another company that would be sold to a systems integrator who would deliver the network for a mobile operator.

The overall savings in a network rollout by using this product would be in the order of 100’s of millions of dollars – by allowing the removal or down-speccing of other systems.

Okay you know enough to analyse the potential deals – but put your sales and psychology heads on please.

Where should they try to sell this product and for how much?

Sell to the company making the current components.

The individidual component that would be replaced costs around $100 each.

First, are the manufacturers of this component going to want to change to this new device? They might but they will have investments in existing devices, documentation etc..

If they do go for it, are they going to suddenly be able to charge $1000 each? I doubt it personally. They might try for a small premium but the massive savings this component allows will be lost to the startup. It’s a similar argument for the company making the assemblies. They might be able to charge a small premium but again, the massive savings are being left on the desk of the mobile operators.

Sell to the system integrators

Okay so these guys are in constant war over prices and winning new contracts. They try to shave the costs down as low as possible to win the next deal. So if they buy the components, they will use the overall system savings to reduce their contract prices. So they might win more work but they don’t make better margins because of the product. Again, the money is left on the desk of the mobile operators.

There’s a pattern here right? The mobile operators are the right place to start in the value chain. If you can’t initially work with them then the next step is the systems integrators etc..

Look for an early strategic purchase of the startup

When I see a technology that provides a knockout blow, I try to look at the tier one companies (the usual suspects) for an obvious buyer – someone who might want to really hurt the competition. However, it is also worth looking at the tier two companies to see if there is a company that is desperate to make the step up. Would an exclusive deal enable them to make that leap? If so, are they capable of paying a premium for the company either now or early on in it’s life?

Copyright Richard A D Jones 2005

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What the heck are investors looking for?

You may have the best idea in the world but if you can't sell it, you're not going to get very far. To sell it, you have to understand your target audience - investors. Now without going into huge reams of psychological detail, if I suggested they want to make huge amounts of money off your hard work then could we agree on that?

Investors see plenty of opportunities and are trying to find the perfect company with no risk and big cheques at the end. The perfect company is very tricky to find, and different investors will have different views on risk....but you need to consider what they are looking for.

In no particular order - here are the top four.

Management team. Investors want to see a complete management team (all critical roles filled) with people they judge can get the job done. In larger companies this may be a CEO that has done a flotation before but industry experience and contacts always seem to figure large in the concerns of investors.

High growth market. Developing the greatest steam tram is going to impress no-one. Investors like high growth markets because the penetration of the start up is also helped by the general rising of the market. High growth markets need more working capital than flat ones but that's for another time.

An unfair advantage. This is a great phrase and it's great when it's true. Does the company have some market access, proprietary technology or whatever that will make it much harder for people to compete with them. I see a lot of software companies where people are working like dogs but can't get funded because their idea can be copied by a larger company in months and they cannot achieve a significant market position before being swallowed up by the larger competition.

Intellectual property. If the company has some patent protection for their technology then it helps reduce the perceived risk for an investor. The 'threat of entry' by competitors is reduced
and patents can be worth their weight in gold in terms of attracting investment. However, again software companies can struggle here. In the UK, and Europe to some extent, it is very hard to get a significant patent for software.

Now the simple final thing you should be able to explain - because I'll ask when we meet. What is the selfish benefit to a user/purchaser of your product/technology? In other words, are you solving a real problem that people have and want solved or just hallucinating that they will love your new gizmo because it's cool. I used to work for Philips and I can assure you that technology-push is not a sustainable strategy for a startup.

Copyright Richard A D Jones 2005

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Monitoring the effectiveness of innovation

Innovation is like a sales funnel, you get prospects in one end and hopefully ‘sales’ out of the other end. The costs associated with generating concepts, clustering, evaluating etc. can be very significant and the business should really understand how these costs are spent throughout the process.

For example, if 90% of your innovation budget is spent on projects that do not become products/features then you probably need to re-evaluate how you are making decisions.

There are two sides to this argument though. If you don’t measure something, you can’t really tell how it is performing. However, the unintended and undesirable consequences of setting metrics can be extraordinary. The easiest way to reduce cancellation of projects late in the process is to cancel everything but absolutely dead certain successes. That is not in the best interests of the company but the metrics can drive you in that direction.

You can only get this right by understanding the requirements of the organisation at the strategic level and then cascade these down as criteria into the decision making process.

This should include understanding the man day and resource costs committed to each point in the innovation pipeline.

Then you can start to assess different projects both against one another and in relation to the existing portfolio.

If you have 20 projects relating to one part of a production process then accepting a 21st is probably a mistake. If all your projects have very high technology and market risk, then you probably need to start some 'safer' ones.

© Copyright Richard A D Jones 2005

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How do you make better decisions? Get senior management out of the process!

When your project has reached a decision point, do you really want to wait until the management team can assemble? Are you sure they will have time to get to your part of the agenda? You've probably been in a project that gets bounced from at least one meeting and has to wait.

HP did some great research on the cost of delaying projects and their return map shows how time really is more important than money (more of that another time).

The key here is to remove senior management physically from the decision making process. I'm not talking about burying them under the patio (tempting though it might be). What I mean is that you need to create criteria that can be used in deciding whether a project can continue. These criteria essentially 'represent' the company's strategy and senior management approach without them having to be present.

A simple example might be that projects should only enter the development portfolio if they have an Internal Rate of Return over 20%. It might also be that a project must have sign off from an internal client, a complete business plan etc.

Putting these criteria in place will achieve two things.

Firstly you can progress projects without the delays associated with requiring senior management attendance and agreement at every stage.

Second - decision making is far more consistent as you avoid the vagaries and inconsistencies of decision making you get from some managers.

It's not perfect, but it works for many decision making points that projects need to pass.

Note - individual project milestones are not the same as these decision making points. Projects (and hence milestones) are unique whereas a process is something that is repeated over and over.


© Copyright Richard A D Jones 2005

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