I keep waiting for startup activity to slow down, but it remains strong. Several new VC intros to portfolio companies continue to roll in every week.  Still the best new source of interesting startup introductions is from the CEOs of the companies I’ve helped take to market.

Given the breadth of opportunities, I’m very focused on trying to pick winners.  Beyond the obvious benefits of more valuable equity, the other rationale is that I’ll get a bit more credit than I deserve for each success – but suffer more blame than I deserve for the failures.  Of course if I had the ability to take a company that would have failed and make it a massive success, I’d be asking for a lot more than $40,000 for a six-month go to market project.  The reality is that I’m trying to find startups that already have strong potential for success and help them reach even higher levels more quickly and with less burn.

While Series A VC funding is still flowing into startups, everyone recognizes that success is going to be tougher as businesses and consumers cut back their spending.  I became so concerned in recent weeks that I began passing on projects I’d have been happy to take only 8 weeks ago. 

It’s pretty easy to make a case for why startups will fail, but the winners find a way to succeed anyway.  Success is based on a combination of access to financing, market need, exceptional product and marketing execution, tenacity, and let’s face it – luck.  All these success factors are impossible to evaluate over a couple of lunches; and a full six-month go to market project is a big commitment on both sides. 

So a few weeks ago I decided to start offering a mini starter project I call an Exploratory Project. For a quarter of the cost of a full project and no equity I assess marketing progress to date, conduct some research into target customer needs/product satisfaction and run an all-day executive workshop to draft the startup’s ideal go to market approach.  This Exploratory Project gives both parties the opportunity to assess chemistry and determine the potential fit for a full six-month go to market project.  If we decide to move forward, the entire Exploratory Project fee is credited toward the cost of the six-month project.  And since there is no equity on the Exploratory Project, the contract is much simpler. 

I’ll probably go forward on a full six month project with less than half of these exploratory projects.  But even if we don’t move forward, startups still receive substantial benefit.  In this short assignment I essentially hand over the keys discovered through 11+ years and millions spent marketing successful startups (and help them avoid the many costly mistakes we made along the way).  While the six month project offers a more customized plan and guidance with execution, the exploratory project still provides a very actionable plan and defines metrics systems needed for the startup to focus time and resources on the highest impact projects.  The ultimate result is stronger momentum with less cash burn – which is well worth the $10,000 investment. 

But for those projects we do decide to extend to six months, I’ll be able to offer more focused execution guidance.  And because of the selective filtering, I’m confident these startups will be the most successful. 

If you are interested in discussing an exploratory project, contact me at sean (at) startup-marketing.com. Please note that the startups I work with have a full time person who’s sole focus is customer development (rookie OK, I can train), at least 1000 users, funding to last 12 months (about $500K for companies with cash flow, $1m for companies with no cash flow) and are still relatively early stage in customer development.

The most obvious reward is the financial upside of equity in a successful company.  But there are less tangible benefits like the thrill of being part of a team realizing the potential of their vision.   Probably the most important long-term reward is that each startup success enhances my reputation and opens doors to additional startups with strong potential – while improving the skills I need to maximize these opportunities.  This allows me to continue doing the most enjoyable “job” of my life.

But the risks are very real.  A startup in a bad space with a bad product won’t be much fun to market – and I’ll probably fail.  And when the company flops, it will damage my reputation.  Enough damage to my reputation and I’ll have to figure out a new pursuit.  Of course most people recognize that it’s impossible to have a perfect startup record, but the opportunity cost of committing to the wrong startup means I won’t have the bandwidth to take on a potentially hot company.

Given these rewards and risks, I increasingly find myself evaluating opportunities with a VC-like diligence.  I’ve created an opportunity assessment worksheet that identifies key risks in the business. The standard format makes it easier to compare opportunities.  One of the biggest risks of any business is the inability to raise capital, so early on I set the requirement that I’ll only work with companies that have recently raised a series A or large seed round.  A very good VC can also help improve the odds, as they’ve achieved a better track record with their historical picks (and many would argue their “added value”).

Beyond general business risks, I obviously need to be confident that it is a marketable business and one on which I can make a meaningful impact.  The ideal category is what I refer to as a “disruptor” startup.  These are businesses that enter an existing category with a breakthrough feature or very disruptive pricing model.  My iterative, metrics driven marketing approach is perfect for helping these types of businesses discover their ideal market, differentiate appropriately and identify viable customer acquisition drivers.  Generally these businesses can get substantial traction just by harvesting the existing demand for the category.

Another startup category I often consider is what I call “innovator” startups.  These are much more challenging to take to market, but under certain conditions they are very marketable.  If they solve a specific important problem for a large addressable market and the potential customer lifetime value is high enough, it is generally possible to fund the full demand generation process.   Still, it takes a lot of time to discover the right target users.  Not only do they need to suffer from the problem, your product needs to effectively solve the problem.   Your next big problem is finding a profitable way to reach these target users and messaging they’ll respond to.  These are difficult go to market assignments, but they definitely improve my skills. 

For now I find myself alternating between these types of startups and avoiding those that don’t fall into these categories.

http://www.newsweek.com/id/117050

Xobni co-founder Matt Brezina has some great quotes throughout the article, but this one is the best “We’re at the front of the pack.  And we’ve got a target on our back.”

The article points out that Bill Gates called Xobni “the next generation of social networking.” Relationship based email management is going to be a huge space and this Newsweek article should help ensure that Xobni leads the conversation as the category picks up steam. 

Below is a link to the portion where he demos Xobni:

http://www.youtube.com/watch?v=Mr5zOxG7wbU