Startups are an Experiment

The most interesting technology startups, in my experience, are those who are trying to do something new.

In Europe, prior to the Enlightenment, one group of people who tried to do something new were the alchemists. Classically stereotyped as people who sought to create gold from base metal, they were lampooned by Tim McInnerny as Lord Percy Percy with his nugget of purest Green. His depiction was of a group of people who attempted, seemingly at random, to apply treatments and actions in order to create change.

Picture of an alchemist

The alchemists were swept away, in part, by the propagation of the scientific method throughout Europe. The scientific methods remains with us today, informing the approaches we take to discovery – and arguably creating innovation cycles that are faster than any could have imagined a thousand years ago.

Do you want to be an alchemist or a scientist? I subscribe to the latter approach over the former – and I believe that those establishing startups should view them through the lens of a scientist, treating them as an experiment

What does this mean? To me it means following an ordered process in order to best understand what you observe and maximise your chances of proving your hypothesis.

Think back to school – hypothesis, methodology, results, conclusion (no, I cannot forget!) – and take the same approach. With reference to startups, I would summarise the scientific method as follows:

  • Question – how can consumers and/or businesses most effectively complete an activity?
  • Observe – what do they currently do, what are the deficiencies to the approach?  Coupons in magazines in 2008 – why?
  • Hypothesise – we believe that businesses / consumers would use coupons more if they were online, promoted on single days
  • Create a methodology – build a site, and promote it for those interested in saving money via coupons; get businesses to provide aggressively priced coupon deals on a daily basis
  • Analyse the results – are people using my coupon site?  Is the promotion right, are the coupons offering deals in the right industries?
  • Interpret – yes, people really like daily coupon sites
  • Create a new hypothesis – people are willing to pay a monthly subscription of £15 to access my daily coupon site

New businesses are created by inquisitive minds who ask questions and observe deficiencies. However, just having a great idea (or a hypothesis) does not mean automatic success.

Consider your business – are you sitting in a candle lit room in a pointy hat, creating nuggets of purest green? Or are you a scientist in a laboratory conducting a series of experiments to prove or disprove hypotheses about businesses and consumers? I know which I’d rather be.

How to think when building or reviewing your website …. 101

I want to turn the reader’s attention to websites – an object that evokes responses ranging from an obsessive-compulsive requirement to update, to that akin to a toddler who has seen a new pigeon in Trafalgar Square (with the old website being the previous pigeon).

I don’t sit at either extreme, but I do believe that for the vast majority of today’s companies the website is the ‘shop window’. Now everyone knows that a good shop window pulls in customers – provided it is seen – no matter what the size of the organisation behind the shop. The website provides the entrepreneur with the opportunity to present their wares on a level playing field (the internet) against much larger rivals.

“But I am no designer!” you might cry. Irrelevant; I am not talking here about the prettiest shop window aiming to attract the most conscious fashionista.  This is about getting the right message across to the intended reader.

Have a look here; did that site make any sense? Probably not. To its intended reader, it’s spot on – XP Power is one of the fastest growing companies of its type globally.

So, how can the entrepreneur make sure that they are hitting the (right) mark with the company website? I would advocate the creation of a simple grid – on one axis list your stakeholders (the people you want to communicate with), on the other axis list the reasons you believe people are going to come to your website.  Here are some examples of each:

  1. Stakeholders:
    • Investors
    • Specific customer sets e.g. middle aged men, human resources directors etc.
    • Journalists
    • Potential employees
  2. Reasons for visit:
    • To get contact details
    • Information for an business degree thesis
    • Find out about the company
    • Identify fit between product / service and need

Next, put a cross through each box on the grid that is clearly nonsense, e.g. the box which is at the intersection between the ‘investor’ column and ‘identify fit between product / service and need’ row.

Then review each of the remaining boxes. If you already have a site, match all the pages to the relevant boxes in the grid. Where a page appears in multiple boxes ask yourself ‘can I realistically service all audiences through a single page, or should there actually be multiple pages?’. In some cases, the answer will be ‘no’ – the homepage is the homepage; contact details remain the same for all audiences. In other cases, you might wish to consider creating multiple pages to reflect the differing information requirements of the audiences.

You will also find …. gaps. Be honest with yourself, identifying a gap is a good thing – it shows where you need to put in some work to give your stakeholders the information they need.

A final thought: make sure you are running and reviewing your Google Analytics data. I won’t accept any excuses on this one – Analytics will tell you where your audiences are going, and where you should be focussing your energies when producing content.

To VC or not to VC

My colleague Aaron came in this morning having attended a TechHub event last night.

Wow, and I thought some of my ideas were bad.  Aaron gave us a long description of a series of ‘companies’ he’d met (I put that in inverted commas because I’d call most of them ‘ideas’) – and some of them were truly depressing, and only one did not evoke the question “but…why would you want to do that?”

Most depressing of all is that the majority of these people are looking for venture capital (VC) investment.  Now, I’ve looked through a lot of VC portfolios and worked with a number of the businesses of which they comprise, and I am always shocked by the quality of some of the investments – and it leaves me asking the question “how?”

In reality the answer is all too obvious: many ‘ideas’ chasing too much cheap capital, brought about by low central bank interest rates.  The sad fact is: most of these companies will fail.  Why?  Because a) they should never been offered investment in the first place, and b) the ‘entrepreneur’s’ motivation for taking investment is misguided.

The first problem I cannot solve – if investors make obviously poor investments, and have access to the money with which to do so, then it will continue to happen.  However, I’d rather that entrepreneurs’ energies were put towards creating useful outputs.

The first mistake is for an entrepreneur to take an idea then go out looking for VC investment in the misguided belief that it is the end-state they want to achieve.  It doesn’t exist to boost egos – it’s there to support company growth.  It is no more than the enabler.  Your idea may not even need VC investment – and let’s face it, it may not need the strings that a lot of modern VCs attach to their investments in order to de-risk them (although you could question why they’d need to do this if they, as an industry, hadn’t had their fingers burned making stupid investments in the past).

VC investments in London these days often constrict the very companies they are supposed to be helping through capital.  They use debt instruments and clauses to take over companies and make the entrepreneur do what the VC thinks is right.  Do entrepreneurs really need / want that?  The only time you should be taking VC investment is when you do not need it.  I was taught that lesson by a very impressive US entrepreneur called Tim Wallace.  You don’t need the money, but it will enable you to do things faster than without it.  At the end of the day, if you need something – you are going to get screwed.

A properly planned business will take account of the trials and tribulations it may face – ‘courses of action’ and ‘actions on’ – it will consider all possible options before piling around the local VC community boring the good investors to death with rubbish, or convincing the incompetent investors to part with (what is often) someone else’s cash.

Choose your competitors

If you want to appear tall, stand next to someone shorter than you.

Choosing who to compete against can be just as important as choosing who to sell to. Below are three areas highlighting why this is the case:

1. Positioning against a judicious choice of competing solutions / processes is the most meaningful way to explain to a potential customer exactly what it is you do and how you do it better than alternatives. Every purchaser makes his/her choice based upon comparisons; it is in your best interest to provide them with those comparisons. It enables your prospect to define to themselves what it is you do and how you do it – this is absolutely something you should control.

2. Shortening your sales cycle through market education. When customers buy a solution, they can be considered to have gone through a learning journey regarding their needs. Monica Nicou et al break the steps down in their book ‘Sell Your Knowledge’:

  • No awareness of need
  • Senses threat / possibility
  • Observes insufficiency
  • Makes a diagnosis / identifies a need
  • Expresses demand

Imagine your favourite pair of jeans – you are going to reject a salesman’s offer to sell you a new pair because as far as you are concerned, you don’t need any. Now imagine your wife tells you she hates the jeans. You sense a threat – there could be trouble unless you sharpen up your act. You notice that your jeans are ripped – you’ve put your finger on the insufficiency. You make your diagnosis and identify a pair that satisfies requirements.

In the same way, selling to a company that has made a diagnosis will be a far quicker (and cheaper) process than selling to companies with a less developed understanding of their needs. When entering a new market, if you choose one with the right competitor that has begun the ‘educational’ process with its marketing efforts, you are likely to be faced with a much shorter sales cycle.

3. Creating a compelling argument. One of our clients had beaten a competitor at every pitch they had gone head to head with them on. Relaying this information on at subsequent pitches against this competitor subsequently turned out to be the most effective way to win the business.


Choose your customers

One of the topics I like to discuss with prospective RIG-ers at interview is what the first steps are that they would undertake to plan the demand generation (i.e. marketing) strategy for one of our typical earlier stage clients. I describe this ‘typical’ client as having the following characteristics:

  • A market ready B2B SaaS offering
  • One paying customer
  • A recent angel investment with the objective of driving sales and marketing

There are numerous mechanisms, processes, and strategies in planning the initial stages of an effective marketing effort for such a company. However, I try and guide the discussion to the central tenet of any successful plan – the fact that you need to begin by choosing your customer. This becomes remarkably obvious to the candidate when I tell them, but it is non-the-less a vital step in any marketing strategy.

The key of course, is how to invest limited resources to maximise chances of market traction. In order to do this, you want to sell your solution to an organisation which has:

  • A problem / opportunity which your product solves / enables them to exploit better or cheaper than alternatives
  • An awareness that this problem / opportunity exists
  • Available budget

Now you have chosen your customer, in which markets do you find them? What is the best way to reach them? How are you able to articulate your proposition in such a way that it is most compelling? How do you make it more compelling than going with a competitor, doing nothing at all or doing something in house? How should you price the solution and what is the anticipated return on investment? How do you navigate the complex sale?

Once you have found a way to do it, how you codify this process to drive both repeatability and visibility for the purposes of revenue predictability? What are the key hires and what can be done to ensure the optimal candidate is recruited and able to perform? When is more investment required? Would growth objectives be better met if partnerships were formed in certain areas? How are the best partners found and what management processes are needed to reduce the risks of failure?

These are all the challenges we not only advise our clients on, but actively execute for them, and they are all areas that I will cover in future posts.

At this stage in the interview, the candidates are always suitably fired up about our business!