Infectious

Patterns of Startup Success: Three keys to a remarkable product

(You can also read this post on Venturebeat)

I was sitting down with a seasoned angel investor last week discussing what really matters for startups when he summed up his thoughts by saying “I’ve come to the conclusion that having a remarkable product is what really matters most. It’s what I look for before investing.”

This got me thinking about my own experiences and asking, “What makes a product experience remarkable?”

In one of my first product roles I learned the importance of frictionless usage. I was in a product marketing role, supporting the sale of new IP-based telecom systems to carriers (like AT&T). It was a product that took several years to build and several years to sell into a carrier’s product offering.

One morning I came to the office and an engineer was making an IP voice call through something called instant messaging. By the end of the day most of the team had downloaded the product and were making IP-based calls on their PCs. I’d seen more people start using instant messaging voice that day than actual deployments of the IP-based phone I had been working on for over 2+ years. The ease of setup and first time use was so frictionless it made a lasting impression. Over the years, hundreds of millions of users have made the same assessment.

On another occasion I learned the impact of providing instant gratification. Several years ago I had the opportunity to work on one of the global roll outs of Yahoo’s front-page. In fact, it was the first simultaneous global launch for the front-page.

The team spent many hours talking to customers across the globe. They also spent a large amount of time watching users land on the product for the first time. The front-page had instant impact and provided immediate, relevant information to the user. Whether it was their mail, country news, or favorite property, it made an impression - which kept the front-page as one of the most vital assets for Yahoo! and most visited properties on the internet.

One of the most important lessons I’ve experienced over the years, though, is to build something worth noticing: A product that is the first to simplify a big problem or entertain a user’s important passion.

I’ve been working with Martini Media from its inception. It connects brands with passionate users and is the largest passion-based ad network on the web. But CEO Skip Brand wanted to extend the company into a property that advertisers and consumers would find remarkable. So, I worked with Skip’s team to develop a media product called Martini Life that would appeal to passionate consumers who work hard and play hard while enjoying the finer things in life.

So, why is a remarkable product so important? Because it can make all of the other parts of the business easier to manage – and it can compensate for a lot of organizational deficiencies.

For example, marketing is cheap and easy when you build a remarkable product. If you build something that influential people can’t help but talk about, then the product is the marketing. Having a remarkable product may not cause the product to become a viral hit, but it certainly helps its odds.

But building remarkable products is hard and it’s rarely done the first time around. As Steve Jobs once said, “A lot of times, people don’t know what they want until you show it to them.”

Remarkable is understanding your customer better than they know themselves. It’s the art of uncovering what the customer will notice and talk about. It’s the hook.

Once you’ve uncovered the hook then finding passionate users who influence the purchasing behavior of others becomes easier.

You’ll be able to talk about word of mouth marketing without needing a gimmick. Most importantly, you’ll be able to approach bloggers and influencers in your space who will talk positively about your product.

Image by Cyron via Flickr.

Patterns of Startup Success: Future-proofing your company’s vision

(You can also read this post on Venturebeat)

You’ve heard time and time again that vision matters. But ‘vision’ is a loaded word. Everyone thinks they know what it means, but everyone’s definition varies slightly.

In fact, I rarely use the word but instead ask the question: ‘What do you hope the future will hold for your company and customers?’ What’s so remarkable about this question is that it asks an entrepreneur to take a perspective on what the world will look like several years down the road. It also drives every decision thereafter.

Most startups have a hard time defining a vision because they’ve seen visions from larger companies that seem so abstract. For example, here is a vision statement from a Fortune 500 company that I’ll leave unnamed, “Powered by Innovation, Guided by Integrity, We Help Our Customers Achieve Their Most Challenging Goals.” Generic visions like this don’t inspire or drive action and inevitably get tucked away in an employee’s desk.

Successful visions bring a unique perspective and are delivered with enough clarity and conviction to ensure they stick.

Without clarity of vision, your company is on a journey with the destination unknown. I experienced the effect of unclear visions when I worked for Yahoo! in early 2000.

Yahoo’s vision had something to do with providing users with delightful web experiences. It’s pathetic I can’t remember the details and I bet you’d find very few who could in those days. (In fact, I did a web search and couldn’t find anything specific on the subject.) As a product leader at the time, this lack of clarity allowed me to operate in a silo that didn’t fully consider the company’s overall vision. It also opened up the door for everyone to act reactively to every new competitive threat.

Conversely, almost every Yahoo! employee at the time knew Google’s vision, “To organize the world’s information and make it universally accessible and useful.” You can make an argument that the current market cap of Yahoo! (~$20B) vs. Google (~$140B) tells a lot about the impact of this vision clarity.

But, now that I’ve told you how important vision is, I’m going to seemingly contradict myself. I’ve never started a company from a blank piece of paper with what I’ve defined as a vision.

Instead, every startup that I’ve worked on began with a ‘perspective’ that over time grew into an opportunity, which ultimately translated into a vision.

A perspective faces the realities of a market and defines an audience, problem and customer experience that opens up an opportunity in the market. When approached in an iterative fashion, where perspectives and opportunities are revisited, entrepreneur’s visions can morph to cast a wider net to inspire bigger and greater things. This is what I call the vision wedge approach.

Let me provide an example…

In early 2009 I started working with Robert Acker, the CEO of a new startup called Aha Mobile. Robert came with a perspective that was developed after years of working on consumer solutions for autos (like Dash and XM satellite radio).

His belief was that drivers had few (if any) tools that were designed for use at 65mph other than the basic car radio. Everyone was focusing on designing for the desktop (where you have a large display and keyboard) or a two-foot interface for mobile phones – both of which assume you have the user’s full attention (not a good thing when you are driving).

While some early attempts at voice recognition let you do some things hands-free, they often require extensive cognitive processing as users try to walk through menus in their minds and answer questions like “did you mean A, B, or C?” This takes their minds, if not their eyes, off of the road.

Thus, there was an opportunity to solve the problem of helping drivers safely receive important information about the world around them that no one else appeared to be focused on. Aha began by focusing on this initial opportunity, with a vision of making drivers “smarter.”

However, the company later realized that there was a potential bigger vision of becoming part of millions of drivers’ daily commutes or errands by improving their driving experiences. That’s a vision that’s big enough to build a company on - and big enough to attract enough investment to make it happen.

Both the opportunities and the related higher-level vision help drive daily decisions at a company. Continuously checking and tweaking the opportunities helps make sure the company is focused on solving a problem that customers care about.

Periodically checking the vision makes sure that capitalizing on the opportunities will lead it to a place the company and its investors still want to be.

Image by pablokorona via Flickr.

Patterns of Startup Success: The Delusion of the Perfect Product

(You can also read this post on Venturebeat)

I’m going to tell you something you may already know: There is no such thing as a perfect product.

While it’s a pretty obvious fact, it’s still something that any manager can (and often does) forget – and the results can be like quicksand for the company, turning your lean start-up into a lumbering beast.

I’m as guilty as anyone of not noticing this. Back in late 2003 I managed Yahoo!’s messenger client. When we conceptualized version 7.0 (v7), we knew it was going to be a ‘game changing’ release with over a half dozen major features simultaneously launched and localized in over 25+ countries.

It was also going to take 12 months to launch.

Still, a group of 20+ executives at the company bought into the release with very little pushback. At the time I considered this one of my best sales jobs.

Within six months, though, there was a problem. Skype, a software application allowing users to make voice calls over the Internet, began to go viral – and senior managers were concerned.

We had been tracking Skype’s user acquisition and engagement diligently since its launch a year earlier. But by August 2004, the growth and time spent was staggering, so we were forced to take notice.

The answer seemed simple at the time. We would add PC-to-PC voice to the overall release by adding additional resources. It would push the release out by several months but I was convinced that all of the other features were needed.

Turns out I was trying to build perfection by shoving 10 pounds of features into a 5-lb. sack.

Management signed off again and 18 months after conceptualization, we launched version 7.0, officially named ‘Yahoo! Messenger with Voice’ – a bloated product with a dozen major new features. We were proud and the press loved it, but by then, the battle over who owned voice on the web was nearly complete. By the fourth quarter of 2005, Skype topped 75 mil user accounts and 10.8 mil daily active users and was purchased by Ebay in a multi-billion dollar deal.

The writing was on the wall for Messenger’s voice solution.

If I learned anything from my Yahoo! experience, it was the need to be more agile and customer focused. Since leaving the company, I’ve worked with dozens of startups. It turns out the startup world was the perfect learning ground, because it has always had to be more agile to survive.

But there is more to a startup’s success than just its agile approach to product and customer development. There is the entrepreneur’s clarity of vision – a customer driven approach to defining the market and simplicity to the business model. The best startups take a minimalist approach in creating their first product and have an omnipresent distribution philosophy and the ability to create passionate users.

When I starting working with Chris Lunt on the initial launch of Nombray, I’d worked on enough start-ups and products to start pulling the pieces together.

Chris’ basic vision was to develop a service that helped users develop their personal brand online. So, when others Google’d you for a job, date etc., you could control what they see.

The service was a new concept to the market so there weren’t any true comparables, meaning we could be as elaborate as we wanted with the initial build. Instead, we narrowed the first offering to two features: personal domains and content aggregation.

We then ran ads on Google that positioned the service and watched the clicks to determine what features had the best response. We also talked to potential users who supported our key assumption that users were already creating content throughout the web and didn’t want another content creation service. By staying small, we were able to launch the service three months after conceptualization.

This all sounds textbook but the rub is that you never really know if you’ve got the right product for the right market at the right time until you’ve launched the product. Getting to market quickly is the best way to start validating with real customer data.

But first releases are also the most difficult, because it’s so easy to convince yourself to put in another feature. Your data is likely limited, so you’ll have to rely on a combination of gut instinct and corporate vision.

What ‘getting to market quickly’ should mean is that you understand your customers’ needs and desires enough to narrow your offering down to the minimum set of features necessary to acquire and inspire.

Looking back at Messenger v7 I wanted to release the ‘perfect’ product and I didn’t fully understand that getting to the right product is an iterative learning process.

Getting to market quickly is one step in a continual strategy of iteration that can shape the success of a company.

Image by Eustaquio Santimano via Flickr.

Google Wave vs. Cc:Betty: Group communication & collaboration

If you’ve been keeping track of innovative products on the web than you probably saw the pre-launch of Google Wave last week at the Google I/O conference. If you didn’t see the demo take a look because it’s slick.

If you don’t have time for the demo (it's over 1+hours) let me wrap up Google Wave in a nutshell (explained by Google):

• A wave is equal parts conversation and document. People can communicate and work together with richly formatted text, photos, videos, maps, and more.
• A wave is shared. Any participant can reply anywhere in the message, edit the content and add participants at any point in the process. Then playback lets anyone rewind the wave to see who said what and when.
• A wave is live. With live transmission as you type, participants on a wave can have faster conversations, see edits and interact with extensions in real-time. 

Here is a Wave in action:

Cc:Betty's 'Mailspace' concept is like a Wave
One drawback to this innovation is that Google Wave won’t be launched for the next year. But, you don’t have to wait if you’re looking for a better way to communicate and collaborate with groups. Instead, you’ll want to look at Cc:Betty which is available today. Here is the demo.
Watch for the similarities between Google Wave and Cc:Betty.

In a nutshell, Cc:Betty’s ‘Mailspace’ concept focuses on many of the same use cases as Google Wave. They both are focused on the fact that email hasn’t innovated to accommodate group interactions. Here is a Mailspace in action:

What’s surprising to me is that these solutions haven’t come along earlier. Regardless, both of these projects are ambitious. But if they weren’t, what would be the point;)

Patterns of Startup Success: Vision Matters

Vision is a big word when your company is just an idea on the white board. In fact, I rarely use the word but instead ask the question 'What do you hope for your company and customers 10 years out?' What's so remarkable about this question is that it asks an entrepreneur to take a perspective on what the world will look like in the future. It also drives every decision thereafter.

Vision is driven by an entrepreneurs perspective

Every entrepreneur comes to the game with a different set of experiences. Those set of experiences determine how they see an opportunity. In fact, two entrepreneurs coming from different experiences will more times than not see an opportunity differently.

Right out of business school (1999) I worked for a startup called Sylantro Systems which was started by a group of entrepreneurs from the Telecom space. Pete Bonee, the CEO, wanted to deliver hosted IP telecommunication services to businesses. Pete's vision came from his experiences delivering hosted voicemail solutions (Octel) and hosted conferencing solutions (Latitude) to service providers. He saw the world through a lens that was heavily carrier-centric. This ultimately led Sylantro down a path that required it to play in the carrier world. This also led Sylantro down the path of tying its success to service providers. Regardless of the outcome every entrepreneur comes to the table with a set of experiences that drive their truisms.

Vision does not come by sitting in a room

Because vision is about having a perspective it shouldn't be built sitting in a room. It should be built by triangulating as many inputs as possible. Looking at the current mega-trends (i.e. aging population), meeting with potential customers, scoping competitors and industry experts should all go into a vision's crafting.

Vision matters

In the end, vision has an enormous impact on the bottom-line. There is no more personal example for me than looking at the current outcomes of Yahoo! and Google. When I worked for Yahoo! in early 2000 Yahoo's vision had something to do with providing users with delightful web experiences. It's pathetic I can't  remember the details and I bet you'd find very few who could in those days. In fact, I did a web search and couldn't find anything specific on the subject! However, almost every Yahoo! employee at the time knew Google's vision, "To organize the world's information and make it universally accessible and useful." The current numbers tell the rest of the story.

Patterns of Startup Success: Customer Development using Test, Rinse, Repeat

Chris Lunt is currently the CEO of  Nombray, a startup that helps you to own your name on the web. Simply...Get a domain, collect your content, control your destiny. In the following guest post, he elaborates on some of his experiences at Friendster during it's meteoric growth. Read on for his facinating thoughts around Customer Development and the value of "Test, Rinse and Repeat".

Friendster was the first modern social network to gain a large audience, very quickly growing to 3 million registrations in the summer of 2003.  Jonathan Abrams hired me to help with the scaling issues that appeared with such rapid growth.  Beyond the scaling issues, there was a broader question of "what is this site for?"  Jonathan had conceived of the site in a dating context, but his VCs encouraged him to think more broadly.  What followed was both a tragedy and a comedy.  And I share the blame and the acclaim for the strange journey Friendster began at that time.

Jonathan had a grand vision of the site as a portal that would frame all of your web interactions, encompassing music, instant messaging, blogging, etc.  He laid these ideas out immediately after the 2004 New Year's Day.  At the time, the traffic to the site was completely performance bound, and Jeff Winner (the VP of Engineering) called for a complete rewrite of the site.  As we began that exercise, the question was raised, how do we prioritize these new features?  Which begs the question, what on earth are people doing on the site now?

Friendster had the advantage that most small startups don't have: traffic.  Blogs everywhere extoll the virtues of A/B testing.  Which ad is better?  Just run them both and measure!  That's great if you're at Google, or you're running a $10,000 ad campaign, but here's the uncomfortable truth for most of you reading this:

You do not have enough traffic to A/B test

Statistical significance happens when you have scores of people signing up for your product.  In the very beginning, you're going to have to rely on something else.  Direct interaction with people.  You can run web surveys, you can run focus groups.  You can do user testing in a lab.  At my next startup, WisdomArk, we did exactly that.  The only trouble there is:

The plural of anecdote is not data

"One of the users in the focus group said that they'd pay a lot of money for our service!"  You'll find that people say they'll do things that they won't follow through on (run a consumer product long enough, and you get a very dim view of the human attention span).  And you'll find that the very process of finding people who are willing to give you feedback colors the results you get.

Regardless of the scale of use you have, by all means use the data you have.  You have 100 active users?  Talk to them directly!  Narrow in on a couple of key questions.  I'll hazard that this is true:

The seed to success is within your first 100 active users

Rarely do companies get it right on the first try with their product, but the really rewarding problem to solve is probably known by one of your early users, who came to your product in the hope of solving it. 

When I tried recruiting people in 2003, engineers would say, "People tried this before, what changed that's making it work now?"  It took me a long time to figure that out.  I created a visualization of our traffic that made it apparent.  I took all the data for a specific day of traffic, and for each page on the service, I drew a circle, sized proportionally to the amount of hits it had.  Then I drew arrows between the circles, showing where people went from one page to another.  The thickness of the arrow matched the amount of traffic.  When I laid it out, it was apparent what people were doing.  They came to the site, went to their friends' pages, and then looked at all their pictures.  People were coming to the site, to look at pictures of their friends.

At the time, we allowed people to have 3 pictures on the site.  I went to the CEO, and said, "make it 6".  Immediately, our traffic went up.  So we raised it to 12, and then finally made it unlimited.   (For those of you who don't understand why we didn't just go directly to unlimited, remember at the time that even eBay didn't let people store photos--the cost of disk storage was just starting to plummet, and it was becoming economically viable for the first time.  Myspace didn't even do their own photo storage, they dealt with PhotoBucket.)  There's another key lesson here.  Figure out a cheap and fast way to figure out if your hypothesis has merit.  If it does, keep doubling down:

Find a small test, and if it works, iterate until it doesn't

I then did some digging around, and realized why Friendster (and more broadly, social networking) took off in 2003.  2003 was the first year that digital cameras outsold analog cameras.  Social Networking is a phenomenon triggered by a new technology: cheap digital cameras.  How much of Facebook's traffic today still centers around photos?  (As an aside, this also was an omen for the then coming irrelevance of Friendster: photo pages do not monetize well.)

This was all important because we always felt that the people search was the most important feature we had, and it's the one we spent most of our resources on--it's the feature our brightest engineers worked on.  You could search Friendster for "Women, between the ages of 25 and 30, within 2 degrees of me, and within 25 miles of my house".  That's great when you're a dating site, but what if people are really just at your site to ogle all the pretty people, and see the silly pictures their friends had put up?  Did we blow our opportunity by working on the wrong problem?  (I have my own argument about that: Friendster succeeded, but with the wrong audience, but that's a story for another time.)

The whole exercise was a positive example of Friendster working well as a company.
1. Ask the right question.  "What feature is really drawing people to the site?"
2. Get the data.  "Time to parse the logs."
3. Synthesize the data.  "How do I understand this?  Can I turn it into a single diagram?"
4. Draw the conclusion.  "People really come here to look at photos."
5. Make the change.  "Let's offer 6 photos."
6. Measure and repeat.  "Hey, that boosted traffic, let's offer 12!"

Get your credit score for free? Mint money? Get a personal loan?

 

What do all of these questions have in common? Well, I spent yesterday attending the Finovate conference finding that out. The conference has a similar format to DEMO but for the ‘financial technology’ space. Overall, 30+ companies presented for 7 minutes each. While there were more ‘features’ than companies there were some intriguing services. Interestingly, there was a void of companies in the B2B payment space and vertical payments space.

In case you're interested, here were the highlights:
-There were 3 types of companies that presented at the conference (personal finance, p2p lending and lead gen variants).
-There were several personal finance companies that have sprung up over the last year after Mint received so much publicity. Other companies in the space include Wesabe, Rudder and Green Sherpa. Basically, this space seems overly crowded at this point. Mint says they are signing up 25k users per week purely on word of mouth. Will it last without some major distribution partnership?
-The P2P lending space (Lending Club, Pertuity Direct, Prosper) is also crowded. The big news at the conference was that Prosper emerged after a six-month quiet period to register their platform with the SEC. Prosper has re-opened to borrowers in all 50 states and lenders in California. Currently, Lending Club and Pertuity Direct are the only two p2p lending platforms available to most investors throughout the United States. Prosper's model is different because, among other things, loan rates are determined by an auction among lenders.
-Lead gen models were prolific amongst this crowd. Interesting companies using this model include Mint, Credit Karma, and BillShrink. The interesting thing  is that these companies have created products that offer value to the user. They have turned the slimy lead gen model on it’s head by thinking about the user first.

The Nugget:
One of the most difficult problems amongst all of these startups continues to be distribution. In a space that isn’t viral and SEO/SEM is very difficult, startups are looking at ways to build traffic. Hence, there were several announcements of white label solutions and integrations with larger players. I doubt most of these companies will be able to build up enough traffic...fast enough...without these traffic partnerships.

Patterns of Startup Success

Over the last decade I've worked with dozens of startups and even participated at the inception of 7 of them from initial concept to funding. So, I've been meaning to capture some of my thoughts on 'patterns of startup success' as I've seen similar tactics that work across companies. Here are a list of items that I plan to write or tap entrepreneurs I've worked with to write about:

1. Have a perspective...vision makes a difference
2. Get to market quickly...that’s your market research...the product might initially be crappy...fail fast
3. The business model is critical...don’t overlook this exercise...but keep it simple
4. Know where you will get distribution, distribution, distribution
5. Marketing on the cheap...market to passionate users...build loyalty through community management
6. Hire carefully...keep it lean
7. Iterate quickly...customer development and data driven development
8. Focus initial product on instant gratification and frictionless first-time usage
9. There are always trolls...listen to your heavy users
10. Forget the 60 page business plan...develop a pitch...tell a story...10 slides...20 min long
11. Achieve key milestones that reduce risk before seeking funding

Calling the series 'Patterns of Startup Success' is a bit of a misnomer because a lot of the posts will be about missteps that led to an understanding of what works. Also, even knowing these patterns doesn't mean you won't make the same mistakes in the future. Building a startup is inherently difficult and you're bound to make mistakes but having experience hopefully reduces the chance of missteps.

I'd be interested in hearing from you if you'd like me to touch on any particular topic. I'll try my best to accommodate requests if I feel like I can do the subject justice.   

Big Company Innovation needs to Look Externally

There has been a tremendous amount written about 'How to Innovate at Big Companies' but internal development of successful web services are hard to come by. Take Yahoo! for example. Over the last decade, what was the last successful consumer service developed internally? You might say, Flickr or Yahoo! Groups but you'd be wrong. Both of these services came from acquisitions. In fact, the only internally developed service that can be considered successful in my mind is Yahoo! Answers.

This reminds me of an article about Yahoo and product innovation where Caterina Fake, co-founder of Flickr said:

“There are tons of amazing ideas in big companies, and no innovation deficit. But the obstacle to getting things built is mostly process. There is one kind of process developed for building and maintaining large-scale products… And the development processes for that are very different from what it takes to build a new product in a short amount of time.”

Caterina tried to foster the start-up process in an internal incubation lab called the Brickhouse which was recently shut down because it just didn't work. Internal innovation labs are tough because they can never really foster a meaningful lineup of entrepreneurs which I believe to be 'the' critical success factor in a start-up. Additionally, it's very difficult to provide a lot of 'skin in the game' for internal entrepreneurs. So, for the many big companies that are unable to create a culture of innovation and unable to adopt new processes, perhaps they should focus most of their innovation energy outside their four walls by fostering/investing in external development.

There are many ways to do external innovation and I'd be interested in what you've seen as successful and not so successful practices.

Legal Nirvana for Startups

If you're like most entrepreneurs, dealing with legal firms for issues like company formation, financing and business contracts is like visiting your dentist. You cringe just thinking about it because you know it's going to hurt. I'm talking about your pocketbook. Hiring big law firms these days will cost you $400+ per hour and you're often handed a junior attorney that's learning the ropes. But entrepreneurs in the know have found great alternatives in a new breed of firms like Paragon Legal.

Paragon provides startups with senior level attorneys (10+ years experience) who have worked at the best law firms in the country at 50%+ less than the average associate from a large law firm. How do they do it? Paragon has striped out the overhead. Instead of operating under the traditional law-firm pyramid, they have removed the bulk of the costs associated with that management structure. This allows them to offer services at greatly reduced rates but still attract the best attorneys. Like many internet businesses they are just stripping out most of the middleman costs.

For most startups looking at cutting every cost possible, you'll want to look at Paragon.

*For full-disclosure I have to admit that my SO is the managing attorney at Paragon..but this has only made me more aware of the issue and alternatives;)