Assessing Your Competitive Landscape…It’s a Forest Out There

It's easier to find the path when you see the whole forest.

It’s easier to find the path when you see the whole forest.

I’m finally going to get a business plan pet peeve off my chest and onto your shoulders.  I’ve decided that I’ve read my last business plan with a “Competition” section that blithely lists a few direct competitors and a factoid or two about them.  Statements like “We compete with Blackboard, a large, global, $600 million educational software company.  We feel they are too large to focus on our niche.” will no longer be tolerated in my office.

When I want to know about your competition, I don’t really want to know about individual trees.  I want to know about the whole forest ecosystem in which you’ll be competing.

There are several ways in which entrepreneurs fail to accurately describe and, therefore fail to understand, the nature of the market forest they’ll be facing at launch.  Most common among these is an inadequate understanding of their actual market segment.  You cannot understand your market segment by reading a market study.  My experience is that market studies prepared to cover large segments…data security, for example…are too oblique to have relevance for a teeny-tiny start-up.  The fact that a $6 billion market exists is good.  Knowing that it is generally growing at 11% per year is a little more meaningful.  But for the most part, I don’t care.  What I want to hear is the classic “bottom up” understanding of your target customer.  After all, data security is not a market, it’s a task that needs to be solved by a market. Markets consist of groups of customers that share certain characteristics; certain needs.  Banks have different data security problems than hospitals do.  Large hospital networks have different data security problems than small hospitals do. Small hospital finance departments have different data security problems than small hospital patient safety departments do.  And so on. The point is you can’t possibly know your competition until you have drawn a circle around the appropriate group of companies with similar needs and characteristics.

Telling me that Cisco is a competitor in the data security industry tells me nothing about how you should approach your target customer base.  It does not help YOU understand how to organize your sales process, operational structure, staff, product development roadmap, etc. to compete to win the first small hospital customer.  Or the tenth, or hundredth.

If you are going to tell me about individual company competitors in a market segment, be sure to tell me about the value propositions and benefits they offer to customers in your target segments.  Tell me about the customers with which you’ve already been in communication and what data security providers are doing for them now.  If you don’t already have first-hand knowledge of the your target customer segments…get some!  If you’re not already selling in a market, and even if you are, you had better have a serious depth of understanding how your target segment makes purchasing decisions and a compelling story of how you’ve built your product offering to address the specific priority needs they have.

The companies that you will have to compete with in your target market segment will only be understood if you are accurate in identifying and describing and quantifying your specific target market segment.  Existing competitors in that target market segment have had success there for a certain set of reasons.  Cisco isn’t successful in it’s markets simply because it is large…it is large because it is successful at competing for customers.

The final mistake that about 20% of new founders make when assessing their competition is the dreaded “we don’t have any competitors.”  You’ve lost my interest at that point.  When you tell me that, you’re saying “I don’t know what my customers are doing to solve data security now, and I probably don’t even understand who my customer is really, but no one else offers them my particular product configuration.”  From that point on, I’m probably spending most of my meeting with you challenging every one of your other assumptions about your business. Your product configuration is irrelevant unless it has been intentionally created to address a customer segment’s needs…and they are probably doing something to solve their problems now.  It may be suboptimal compared to your vision of the future, but some sort of competitor is currently doing enough to get their attention and money.

Be aware that your competition may not be a particular competitor at all, but rather a confluence of solutions that emerge from the competitive landscape.  Simply put, be sure to spend a lot of time focusing on current solutions being provided and less time telling me about how some giant competitor is to big to be agile.

Certain trees thrive in certain forests and not in others.  Most industries have market crevices where your new, little business tree has a chance to take hold, even next to the oldest old-growth tree there is.  To understand your competition is not to understand the competitors, but the ground on which they compete.

Posted in Business Planning, Entrepreneurial Advice, Seed/Venture Capital | Tagged , , , , , , , , , | 5 Comments

Please Do Not Take This Advice

Advice is cheap...remember that the next time you're given some.

Advice is cheap…remember that the next time you’re given some.

As a start up founder, you have a responsibility to yourself, your co-founders and your fledgling company to seek out the best advice you can about how to grow and manage your venture.

I would advise you to not follow any of it.

Well, I would follow that particular piece of advice…I mean, if you don’t follow advice that says don’t follow advice…I guess you’d be following it. Right?  Let’s try this again.

If you’re a smart founder, you will seek out, and you will find, lots of good advice for how to grow and manage your venture.  Just be careful as to what advice you take.

You may have noticed that as you’ve started your tech company, you’re missing a few things. Capital? Probably don’t have enough of that, right? People? You’re certainly missing access to enough human capital.  Access to customers! Yeah, you’ll never get enough of that.  However, notwithstanding your lack of all these ingredients, the thing you’re going to need more of than anything else is entrepreneurial skill.  Entrepreneurial skill is that combination of brain smarts and gut smarts that allows you to assess the stuff you’ve got control over and the stuff you don’t.  Entrepreneurial skill is what you use to figure out the best ways to get what you don’t have, mix it with what you do have, and then arrange it all in ways that make your business grow.  Put that way, it sounds kind of complicated.  And it is.  It sounds like you’re gonna need some help.  The good news is that there are hundreds of books on founding companies.  Maybe you should read a few of those books, or apply to one of the dozens and dozens of fancy 12-week accelerators and get all the advice you need to sort this all out.

Sounds logical, but my experience tells me it is more complicated than that.  I’ve actually had clients come and tell me how excited they were after a meeting with a potential supplier or vendor who is well-known in their industry. The important thing to remember is that without the context of knowing some details about your business,  advice from these strangers might be interesting…but should not be taken seriously!  You should consider listening to advice from advisors if ALL of the the following elements are present:

1) The advisor has a track record of success.  The advisor does not need to have launched, grown and exited a business to be a good advisor, although that history certainly helps.  The advisor may only be a successful investor or successful corporate executive or attorney/accountant.  Or incubator manager!  What matters is a depth of experience and track record of helping companies launch.

2) The advisor needs to know your business.  Getting a question answered on Quora by Steve Blank or David Rose does not necessarily make it good advice. It might be good advice, but it might also simply be 80% advice…that is advice that is probably good in 80% of the situations…and the chances of your business being in that 80% is only…what? Like 80%? Not 100%.  No matter how experienced the advisor, it is difficult to provide good specific advice if the advisor is not familiar with things like your balance sheet, your sales pipeline composition, the capabilities of your team (i.e., both your dedicated team and those team members you think are dedicated but may actually not be), etc., etc. etc.  I don’t believe any advice from a single one-hour meeting should be taken all that seriously…especially if the meeting came about from you asking something from the advisor…like advice from a VC with whom you’ve had your first meeting.  I can’t tell you how many clients have come back from that first meeting with a VC and tell me “They told me I’m not raising enough money”.  For the record, this is probably true…you probably aren’t raising enough money, but that has little to do with how much money you SHOULD raise!

3)  The advisor begins making his or her network open to you.  In my experience, when someone who fits #1 above, and begins establishing a relationship with you along the lines of #2 above, and THEN makes an earnest introduction to someone else in their network, that advisor is making a longer term commitment in you and your venture.  This is a sign that this advisor is not just thinking about the 80% advice, but is really thinking about your business and how this advice lays into it.

Good advice comes from good advisors who have at least an intellectual commitment to your business.  The smart entrepreneur knows how to sift through good advice, bad advice, well-intentioned advice and contextually relevant advice.  An entrepreneurial skill that can’t really be taught is how to mix all those together and pull out the threads of relevant actions for you to take.  After all the advice…actions are all up to you!

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American Independence…The Greatest Entrepreneurial Venture Ever (reprise)

I want you to think about something.

It is July, 1774.  You own about 600 acres of farmland.  You essentially run a medium -sized agricultural business and employ some 60 people.  You have 4 children and a pregnant wife.  Massachusetts, Pennsylvania, New Jersey, Virginia and others are discussing a multi-colony gathering to consider making a unified statement on behalf of all the colonies.  It’s basically illegal.  Some in your area are talking about joining them.  A friend tells you that your name was mentioned at a meeting last night.  The meeting was about organizing a local group of neighbors to be quickly alerted and prepared in the event of an armed attack by the British.

You’re a business man for Heaven’s sake.  You’ve got supplies to buy.  You’ve got buildings to build and fences to repair.  And crops!?  You’re a farmer after all…the only entrepreneurial venture where not only is your product commoditized and prices are completely out of your control and all your neighbors plant the same things you do, but even the insects and the rain and the heat and the cold and the dry work against you in ways you can’t possibly control.

But, the stamp act was expensive for you.  It was completely unreasonable, frankly, and hit at a time you were buying land and promoting your goods.  It added 15% to your costs and the British were finding ways to cope without buying as much from you.  The talk in the Phelps Tavern was that you should organize a group of the area’s farmers and tradesmen to share news and information with each other about other potential taxes being considered by Parliament.  There was considerable consensus that YOU should consider becoming a Connecticut representative to the Continental Congress in Philadelphia to make sure that your and your neighbors voices were included in opposition to recent British decisions regarding port and commercial activity.

Because of your business success, you had always been consulted on issues of commerce and governance in your area.  But leaving for Philadelphia when your business needed you most in the summer is not well-advised.  And there is your wife saying, “Of course, it is flattering that they’d ask you, but I’m just glad you’re not considering it.”

Certainly, she’s right.   I mean, after all, it’s one thing to evaluate whether a new stone bridge across the Farmington River would make sense for the community.  But you’re needed here.  And it’s basically illegal to discuss ignoring laws from Parliament.

Independence Day is as good a day as any to look at yourself in the mirror.  As an entrepreneur, you make 100 decisions every day that have an impact on your business, employees and your family.  TechonomicMan understands that you need to make decisions that are in the best interest of your business.  But what would you do if you were confronted with the dilemma of 1774?  Is it possible that sometimes the long-term interest of your neighbors and countrymen become the best interest of you and your business? Remember, outright insurrection like occurred in Boston Harbor could get you arrested.  It could get you shot!  Or hanged!  Then how would your farmstead and family fare?

Still, it seems reasonable to be prepared to defend the town, perhaps even from mischievous local boys.  And a few weeks away in Philadelphia would provide a better perspective on what’s happening outside this colony.  Perhaps there will be a chance to exchange ideas for seeds.  Or new techniques…new markets.

It was an enormous decision among dozens of other enormous decisions that many colonists made in those years.  TechonomicMan feels it is important on Independence Day to remember that those decisions weren’t just some abstract theoretical points of debate.  They were decisions made by individuals that would change their lives and their businesses regardless of what outcome occurred…good or bad.  Enormous sacrifices for an unknown outcome.  Perhaps, it is reasonable then, to consider the push for American Independence the biggest entrepreneurial undertaking ever, before or since.

Happy Independence Day!  Huzzah!

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Venture Tips Update….Make Your Business About Your Customers, Not Your Technology

It's your customers!

It’s your customers!

I originally published the majority of this post back in January, 2012, but I was reminded of the issue again today…twice.  So I updated the post on why you should think of your business in their terms.

A founder came to see me yesterday to give me an update on how 2011 went and to bounce some ideas off of me for where to take the company next.  The company is a small business that is approaching $1 million in revenue.  Their software serves a very narrow market niche currently and has generally been an installed piece of software until the last 12 months or so when they offered up a web-based version.  In looking at their market and segments within it, we figured they’d probably landed about 10% of the target customers.  And they’ve sold the boxed version of the software to about 3,000 customers and the online version has now been sold to about 200 more.

Their software application, with a bit of investment and a new hire or two, could be adapted to a couple of other niche industries.  And the founders love their little application.  Their potential new market niches seemed to get the founders pretty excited and they had basically defined their fundraising needs so that they could build the new product and start marketing it to the new customer base. A customer base they know nothing about.

I asked him why he would want to do that.  He said it was because “the application is just so darned flexible.”  I told him that I thought his 3,000+ customers deserve more from him than that, and so do the next 3,000 customers!

Now I’ll be honest.  Many of the clients I work with have, well, zero clients.  So my rather dull eyes immediately focused on all those shiny customers.  I felt it was obvious that he was in danger of ignoring the most important asset his business had accumulated over the years…his customers!  The first version of the software he built was built on an ancient platform and very difficult to use, as evidenced by the support document which was a 500 page, photocopied, ring-bound tome. And this unsophisticated mess was released not 20 years ago, but in 2003!  And guess what…?  People were buying it!  And now he has managed to begin converting his customer base to the online version of the site, which they’ll have to visit every single day their businesses are open.  He landed one of the largest companies in the industry as a client at the end of 2011.  And yet, somehow, he was fixated on the other potential markets for the software and not the customers.

There are certainly opportunities to pursue the development of other market applications with their platform.  However, these should be opportunistic at best and will not likely involve his company directly, but perhaps through some licensed version of the code.  Without a doubt, for some other companies, pursuing new niches is a good idea strategically…especially when your current niche ain’t buyin’.  So every company is different.  But when you’re having the kind of success mining a mountain that this company is having, and you’ve only mined 10% of the gems, why would you go looking for a new mountain?

Another client and I had a conversation today about a strategic decision he is facing. His business has entered a bit of growth phase and has been approached by a foreign company about a strategic relationship…possibly an investment to allow the foreign company to enter the US market with a line of products that are similar and complementary to my client’s products.  For a variety of reasons, it is a tempting option, but one with risk. We spent about an hour discussing the other company and its product line and finally we got around to discussing the target market of my client where he is beginning to gain increased traction. I said “have there been companies in your targeted industry and size range that you lost but might have won by including this foreign company’s products?” When he said “maybe, but probably not,” the decision regarding the foreign company got easy.  If you think in terms of your customers and not your technology, it becomes easier to make clear decisions with no regrets.  There is always the chance that the road not chosen could have led you to the promised land.  But you have to play the percentages…and I’d bet on my existing customers every time.

Also today, I met with a brand new start-up and we were going over their investor deck.  It was pretty good, but just didn’t sit well, overall, with me until we went back to slide 3 where the company had their one-sentence elevator pitch.  It said something like “Our company is a cloud-based, crowdsourced platform that generates new sources of funding by leveraging…something, something, something…for medium sized companies in the publishing industry”.  When we went back to that, I realized what was wrong…the first words they used to describe themselves were about their technology, NOT their customers! PEOPLE! If you want to develop cool technology, go to a hackathon.  If you want to build a business, solve a customer problem!

The outcome for all of these companies is still uncertain.   But my advice to you as you build your business is the following:

1) If you are a relatively small business (<$5 million in revenue) and can evaluate your customer base and see that a meaningful majority of it can be described in a certain way (eg., medium-sized US clinical laboratories) and you haven’t even landed half the businesses in that segment…go dominate that segment! Don’t start changing your product or service to chase an unknown segment yet. 2) If you’re starting to penetrate an easy to define market segment, evaluate every strategic decision about product development, partnerships, new hires, etc. with the eyes of that customer segment in mind. “How will this help me dominate this customer segment?”  3) If you’re just starting out and don’t have any customers yet, pick a target and define your business as one that serves that target, not as one with a particular type of technology.

Posted in Business Planning, Entrepreneurial Advice, Seed/Venture Capital | Tagged , , , , , , , | 1 Comment

Why I Loathe Tumblr.

No caption necessary.

No caption necessary.

I loathe Tumblr.

But not for the 1.1 billion reasons that you think. Sure, I’m a little professionally jealous that I’ve never had a client sell themselves for $1.1 billion. But it’s not like I had a chance to invest in them and passed. Heck, I had hardly ever heard of Tumblr until about 18 months ago when they raised $85 million on an $800 million valuation and had no customers. I admit to scoffing then…probably even blogged about valuation bubbles. But I didn’t loathe them then…like I do now.

I loathe Tumblr because they made me feel stupid.

Granted, it isn’t the stupidest I’ve ever felt. I mean, there was that time when I volunteered to clean our oven…Step 1) spread newspaper over the oven burners; Step 2) thoroughly spray the inside of the oven with the spray-stuff; Step 3) turn oven to “high” to activate the spray-stuff; 4) See smoke coming from the oven and rush the forgotten (and now smoldering) newspapers across the kitchen to the sink and douse the flames. Tumblr doesn’t make me feel THAT stupid.

No, Tumblr makes me feel stupid because I now realize that all the business advice I’ve ever suggested… is wrong.  Not sure how my clients feel about this, but I’ll apologize now for the following stupid pieces of business advice I’ve probably given you over the years:

Bad Advice Step 1) “Start a company that delivers a product or service that solves some problem that a large set of customers has.” It’s good that Tumblr didn’t take that advice. If they had taken that advice, they never would have come up with such an incredibly useful social media platform that allows me to gaze at pictures that people share with each other, even the borderline pornographic ones. Of course, there were several dozen other platforms out there already allowing this to occur and I would have been wrong to keep blabbering on to them about “I think you need a better customer value proposition”. So identifying a customer problem and then building technology to solve it was bad advice. I should have suggested developing technology to solve no known problem.

Bad Advice Step 2) “Obtain customers.” Pretty naive. I definitely would have told founder David Karp that since he didn’t at first follow my Step 1 advice above–solve a customer problem first, build the technology second–that he should now find a customer base where his nifty, scrolly technology might be useful. Look for a revenue model that would allow you to build a business. Instead, he simply went out and let users, (by the way, users are the exact-opposite of customers), pile on the site and jack up hosting and serving and support costs. Business model, schmizness schmodel.

Bad Advice Step 3) “Don’t raise more money than you need.” Duh. Nearly as stupid as leaving the newspapers inside the oven when trying to clean it! Tumblr raised somewhere in the neighborhood of $125 million on ever-higher valuations. Increasing valuations, mind you, for a company that basically burned increasing amounts of cash for every new user at the site. Apparently the old joke about the CEO who lost a nickel on every dollar of sales but who would “make it up on volume”…wasn’t so funny after all.

Bad Advice Step 4) “Yahoo’s offer is just the tip of the iceberg…I’ll bet AOL will pay $1.3 billion” Ok, I probably wouldn’t have given that last piece of advice. Of course, I also wouldn’t have advised Yahoo to pay $1.1 billion. They basically paid $10 for each of the 108 million Tumblr tumblebloggers on the site. But that includes my Tumblr blog, even though I haven’t visited my Tumblr blog in many months. I think that clearly proves they overpaid by about $10 at least. The good news from the acquisition is that I hope, soon, my Yahoo! home page will have the ability to scroll a news feed for crying out loud.

So, I loathe Tumblr because they’ve proven I have little in the way of good advisory powers. How am I ever again going to be able cast a skeptical eye at a prospective client’s customer growth curve? How am I ever again going to dare suggest a “bottoms up” approach to revenue projections? And how can I ever again offer up my conservative capital-raising sensibilities in answer to the question “how much money should I raise?” (See related post “How Much Money Should I Raise…$29,542?)

No, Tumblr has ruined not only my outward reputation but also my inward self-confidence. Tumblr (and Instagram while we’re at it) have shown the entrepreneurial community the way the new economy works and clearly showed that this old-school incubator manager only ever really got one thing right…that Color Labs never should have taken that $41 million in 2011! Wait a minute…it can’t be…that car that just pulled up in front of Color’s office…isn’t that a Google car full of Google-Glass-wearing Google guys??

Oh, the loathing!

Posted in Commentary/Editorial, Entrepreneurial Advice, Just Kidding | Tagged , , , , , , , | Leave a comment

The Search for Serendipity…And Why It Matters To Your Venture

tsfshd0630

Kirk, Scotty and Sulu…the pre-Google Star Trek crew searches inefficiently, but serendipitously.

I turn 48 this week and like most people passing from one year to the next, I find myself a bit nostalgic for the way things used to be.  One of the things I miss…a little at least…has gotten extremely difficult to find.  Ironically, the thing I can’t find is a good search.

Like many people over the age of 40, my parents spent a boat-load of money when I was a lad to buy me a set of encyclopedias.   I had the Encyclopedia Brittanica and the sales guy convinced my parents to buy another set of books called the Annals of America, an outstanding set of 20+ books, chronologically bound, with writings from authors of the day, on the issues of the decades of America’s existence.  Unfortunately, like many things in American life, the series ended with the Nixon Presidency. I distinctly remember casually flipping through the encyclopedias when searching for information about some piece of homework or term sheet I was completing.  I can’t tell you anything specifically that I learned, but I credit these wasted hours browsing  and searching for my success at answering questions from Trivial Pursuit and Jeopardy.

The same was, and occasionally still is for me, with the dictionary.  Geekily, I was in the habit of highlighting good words I found while I was looking for some other word.  My vocabulary is definitely better than that of my dog, Jethro, because of this “wasted” time looking for a particular word but perusing the plethora of others in the lexicon (see what I mean?)

Phone books, those marvels of small font sizes and garish ads on extremely thin paper,  provided an opportunity to make chance findings of new repairmen and home improvement specialists. I’m not sure that any modern digital attempts have been as successful at helping businesses “get local” as the yellow pages were.  There was tremendous knowledge to be gleaned about your neighborhood and community from flipping through the pages on the way to the little business you were seeking.

Without question, the internet gets us where we’re going faster than paper ever did.  It’s like the express train to your destination.  The internet allows us to search and find the precise thingy we’re looking for.  Click-Click-Pow—Knowledge.  All of the companies formed in the Google generation are fortunate to skip the time wasted while tracking down precisely what they’re looking for.  Today’s web based companies can certainly get up and running quicker than companies from the 20th Century, mostly because the software is easier to build and deploy and distribute than in the era before Google.  But there are also fewer dark alleys of knowledge and connections…LinkedIn alone must save dozens of sometimes fruitless hours searching for the right contact to make.

Google-era tools are obviously also making communication more constant allowing more entrepreneurs to believe they can build a company virtually. When I challenge the strategy of some recent college grad insisting that he can build a company with buddies in various locations…I see that look.  That little sideways glance at the gray in my goatee.  That subtle raise in the eyebrows that says “Oh…you’re older than I thought you were, because you probably don’t spend 7 hours a day on Google Hangout.”  It’s ok.  Not your fault kiddo…you just didn’t understand the serendipitous power of Encyclopedia Brittanica.  In a virtual team you miss too many opportunities to accidentally discover your next opportunity.  There is solidifying value to spending 40+ hours per week together with your new venture ship-mates.  Humans are wired with sensory perceptions beyond what can be accepted over the internet miles. No latency issues.  No crappy pixelated choppy images and “hold on, let me text John and see if he can help us get Sam access to the powerpoint”.  Just a couple of founders in a room, with a whiteboard and chemical-odor-emitting markers…hashing their way to a solution and discovering serendipitous knowledge while doing so. Like the bridge of the Starship Enterprise…we’re all in this search for intelligence together.

Soon, very soon I think, kids and an entire generation of entrepreneurs under 25, will not know the pleasure of accidentally learning “stuff” while roaming their way to their destination.  If apocalypse comes, will they know how to forage for food?  Or will they be lost without the ability to wikigooglezon.com for it?  Will they ever try some restaurant they’re walking by in New York, without checking it out first on some website?  Will their life be pointed and direct with all their routes carefully mapped and presented by pleasant digital female voices telling them where to go?  Or will they allow themselves to be exposed?  Will one thing just…lead to another?  Will they be vulnerable to things that aren’t quite what they were looking for but… just adjacent to them?   We’ve tried to teach our kids, and now I teach young entrepreneurs, that the adventure is partly in the journey…but I don’t know if we’ve been strong enough to overcome the inexorable power of a precisely delivered digital vastness.

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My Podcast with SSTI – Ben Franklin wins National Entrepreneurial Capacity Builder of the Year 2012

 

ssti award with Dan Berglund

We were delighted to win this award last year and had a chance to talk about it with Phillip Battle of SSTI.  SSTI is a national nonprofit organization dedicated to improving government-industry programs that encourage economic growth through the application of science and technology.

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