Archive for the ‘Uncategorized’ Category

Sep 1st 10

I’m Founding a Startup

In case you missed my Tweet on Aug 13th “Burn the boats – I’ve reached the point of no return and finally admitting I’m founding a new startup. Details soon.”

I didn’t really intend to become a founder, but was hit with an epiphany of a huge opportunity that I was perfectly suited to execute. I actually tried to push it out of my find for several days (my consulting practice has been fun/lucrative) but I kept having a nagging feeling that it had to be done. I shared the vision with a few venture capitalist friends and they quickly offered to fund it. I then received strong need validation from potential customers, which wasn’t surprising since the original epiphany had been based on engaging many potential customers.  Momentum has been strong ever since (though surely there will be course corrections along the way).

I’ll be on a blogging vacation for the foreseeable future…

Posted in Uncategorized
14 comments

Aug 11th 10

Bringing a Network Effect Business to Market

Below are my slides from Lean Startup LA, where I introduced recommendations for bringing a network effect startup to market. There is still plenty to figure out, so I appreciate any feedback (positive and negative).  The presentation was also recorded on video here.

Posted in Uncategorized
8 comments

Jul 31st 10

The Startup Team

I completely agree with everything Paul Graham says in this short interview…   I’d want to invest in this type of team if they were using a lean startup approach.

Posted in Uncategorized
No comments

Jun 29th 10

My Mixergy Interview

The video from yesterday’s interview with Andrew Warner is now live on Mixergy.com (see embed below).   While Andrew initially characterized me as the “secret weapon behind start-ups that have had incredible growth” I explained that a lot of their growth was based on the pre-existence of great products that met important user needs. I helped these startups build a strong growth foundation around early users’ passion, but the continued momentum is the result of product/engineering teams that keep enhancing the products and great marketers accelerating customer acquisition. Startup success is truly a team accomplishment and if the team starts to focus on who deserves the most credit, success will likely evaporate.

As a successful entrepreneur himself, Andrew did a great job of steering the conversation to the topics most interesting/useful for entrepreneurs. It took me a while to get warmed up (it was a Monday morning after a weekend in Vegas), but there is a lot of new and useful information – particularly in the second half.

Successful startups are only possible with founders who have the guts to go for it so Andrew and I spent a lot of time at the end of the interview trying to analyze the qualities of the best entrepreneurs. Each of the founders I’ve worked with deserve to be on this list, so I regret not mentioning all of them. If the video isn’t loading below, try this link.

Posted in Uncategorized
9 comments

Jun 8th 10

Figuring Out Your Way to Startup Success

“Team.”  It’s the cliché response from VCs when asked about the most important factor in deciding to fund a new startup.

But what separates great teams from weak teams? I believe it’s the team’s ability to “figure stuff out.” Founders figure out potential customer problems that are worth solving.  Engineers figure out how to build a well functioning product that meets this need.  Marketers figure out how to reach people who really need the product and how to convert them into customers…

While natural talent is a big part of figuring stuff out, we can all benefit by improving our work environment.  There are two areas in particular that prevent creative problem solving.

1) Too much focus on financial rewards

It is obvious that the effort required to raise VC funds can be a major distraction from executing the business, but few realize that the repetitive discussions about financial outcomes can also shut down your ability to figure stuff out. In my 15 years in startups, I can’t think of a single breakthrough epiphany we experienced while fundraising.

Daniel Pink demonstrates the potentially negative effect of financial incentives in his new book Drive, The Surprising Truth About What Motivates Us.  He describes several experiments where people who were offered a financial reward to quickly complete a challenging task actually performed worse than those who simply did it for enjoyment.  An important part of figuring things out is getting into a state of flow (sometimes known as being in “the zone”) and a focus on financial incentives often prevents this state of mind.

The book mostly challenges the effectiveness of typical incentive structures inside more established businesses, but I believe the implications are even stronger in startups where survival is contingent on our ability to figure stuff out and the financial rewards of doing so are potentially enormous.

2) Too much pressure

I’ve also realized that I’m not good at figuring stuff out when I put too much pressure on myself.  A few months ago I had a beer with a friend and successful serial entrepreneur, Antony Brydon, and he zoomed right in on my problem.  I had put myself under so much pressure to help the startup with which I was working, that I had virtually shut down my creative abilities.  He mentioned that he’d been reading Andre Agassi’s autobiography where similar self-induced pressure had destroyed Andre’s ability to play tennis.  His career only recovered when he remembered to loosen up and have fun.   Every time I feel myself getting tense, I now remind myself to loosen up and immediately feel my creative problem solving abilities return.

While self-induced pressure is common in startups, pressure can also be applied externally by the Board (or the CEO to the rest of the team).  Most leaders don’t realize how counterproductive this can be in a startup.  It is OK to apply pressure for better execution of things that have been figured out, but it should be applied very sparingly when trying to encourage the team to figure out the remaining unknowns.

The solution: loosen up and have fun

When breakthrough thinking is needed, a fun, collaborative and supportive environment will generally yield better/faster results than the pressure of sticks and carrots.  This is especially important in the early days of a startup while the team is still figuring out a viable formula for the business.

Also, given the likely negative effects of fundraising, I recommend fewer/bigger rounds of financing (if possible).  Run leanly on your first round while you figure out the key success elements of the startup.  Then raise another round while executing the formula.  This may result in more dilution, but a more valuable company should offset this dilution.

Finally, encourage the team to obsess about solving customer problems rather than their potential financial outcome from success.  The best breakthroughs initially come from immersion in customer problems and then later from understanding the customer experience and benefits of your solution.

Posted in Uncategorized
12 comments

May 17th 10

Key Elements of a Massively Scalable Startup

VC backed startups generally aspire to valuations in the hundreds of millions or even billions of dollars, but very few really consider all of the elements they’ll need to make it happen.  After analyzing several startups I’ve worked with that have reached or are approaching these valuations I’ve boiled it down to four interdependent commonalities that always seem to exist.  While they are easy to describe, they are of course very difficult to achieve.  Still your best chance of achieving them is to know what they are.

Element 1: Gratification engine

Your gratification engine is the repeatable process of turning cold prospects into highly gratified customers. Whether you are aiming big or small, an effective gratification engine is probably the hardest of the four elements for a startup to get right.   Tenacious execution works for a lot of things, but you can’t force customers to want, need or like what you have created.  Building an effective gratification engine is an iterative process driven by a lot of prospective customer feedback.  Once you get the basics right, your process of gratifying users can be optimized with tools like Performable for landing pages and KISSmetrics for full funnel tracking/improvement (I’m an advisor to both).

Element 2: Economic engine

Once you have figured out how to gratify prospects, your next challenge is creating a viable economic engine.  For your business to be sustainable in the long run your average revenue per user will need to exceed your average cost per user.  Beyond business sustainability, the right monetization approach will also be based on the value users get from your solution, the competitive environment and your ultimate growth strategy.

Element 3: Growth engine

Your growth engine is very dependent on your economic engine.  If you have relatively limited revenue per user, you’ll need to pursue tactics with a very low marginal cost such as PR, SEO or viral marketing.  With a higher revenue per user, you’ll also be able to effectively arbitrage growth through paid tactics like display advertising and SEM.  The most valuable companies generally choose an approach that allows them to capture the biggest share of the market in a sustainable way.  This often means a strategy with lower revenue per user.  They don’t invest too much time in one off gimmicks, instead they focus on growth drivers that can be repeatable and scalable.

Element 4: Huge addressable market

The best opportunities generally have the hardest markets to accurately size.  That’s because these are fast growing or whole new markets that are based on potential rather than existing customers.  Perfect accuracy on market sizing isn’t important here.  Instead creative scenarios that show how it will likely be big should generally suffice.  You also want to breakdown potential segments and people that are new to the market or coming from an existing related market.  Again, you just want to have approximations that are believable and big.

Start with a Hypothesis for Each Element

It is important to have a realistic hypothesis for each of these elements before you even get started with the business.  If you are having a hard time creating a realistic hypothesis for one or more of these elements, your vision probably isn’t viable.

I can often look at a business for less than an hour and decide if I believe it is massively scalable opportunity based on my hypothesis for each of these.  If I’m not confident on a specific element, I spend a lot of time vetting this with the CEO before committing to a project

Of course it won’t happen exactly the way you plan.  The best opportunities have multiple contingency plans in case your initial theory doesn’t work.  But if you can’t even creatively come up with a viable theory for each, you’ll likely have a very hard time raising VC funds.  Once you have a theory for each, start with the practical bottoms up execution described in the startup pyramid post.

Posted in Uncategorized
10 comments

Apr 27th 10

Dropbox – The Power of a “Value Based” Startup

Drew Houston, CEO/Founder of Dropbox, gave an amazingly forthcoming presentation at the Startup Lessons Learned Conference chronicling his team’s path from idea to their current position as one of today’s hottest startups.

Because of the importance of protecting user data, they modified the “launch early, launch often” mantra to “learn early, learn often.”  And they aspired to gain the “best understanding of customers as early as possible.”

My favorite quote from Drew’s presentation highlighted the power of focusing on what is really important: “If you make a feature matrix of Dropbox versus all the other products out there, we’ll never come out in front.  We wanted to do a few things [really] well as opposed to a lot of things kind of well, presented in a way that’s confusing.”

Dropbox struggled to find effective paid marketing channels, but Drew states: “The one thing that saved us was that we put all of our effort into something that worked, that was an elegant solution.”  They then empowered extremely gratified users to spread the word about Dropbox.

The result: In 15 months, Dropbox attracted 4 million users.  In the last 30 days users have sent 2.8 million direct referral invites.  Watch the video, you’ll definitely learn something.  During my time with Dropbox, I learned how to build a sustainable startup (and business in general) the right way.


Watch live video from Startup Lessons Learned on Justin.tv

Posted in Uncategorized
5 comments

Apr 26th 10

Steve Blank’s SLL Keynote – It’s a “Must Watch”


Watch live video from Startup Lessons Learned on Justin.tv

Some of my favorite quote are:

Role of the Entrepreneur

  • Your job as an entrepreneur in a startup is to search for a repeatable and scalable business model. When you find it, your job is to build a company around that business model.
  • Search for a business model rather than write a business plan. Biz model is how a company makes money.
  • Customer and agile development is how you search for a business model.
  • You fail if you stay a startup – goal is to become a large company.  Search is bringing order out of chaos, pivoting all the time.
  • Goal is not to becoming the world’s most fun startup. Goal is to become a valuable company.
  • No business plan survives first contact with the customer.

Differences Between Startups and Established Companies

  • Startups search and pivot; companies execute.
  • Very different skills needed to execute a business model compared to those needed to search for a business model.
  • Customer development = hypothesis testing, minimum feature sets and pivoting.  Product management is very different than customer development.
  • You need to brainwash and deprogram product managers if you want them to perform customer development.
  • Key startup numbers are not: balance sheet, income statements and cashflow.  They are cash, viral coefficient, customer acquisition cost, burn rate, average transaction size…

Want more Steve?  Check out his blog.

Posted in Uncategorized
3 comments

Apr 25th 10

Early Detection is Key

Following the Startup Lessons Learned conference, I had the Founder/CEO of a startup tell me that she finally ran the Survey.io customer development survey. She was thrilled to discover that more than 40% of her users considered her product to be a “must have.” She had avoided running the survey earlier for fear of a disappointing number. But now that she has run it, she can confidently start planning the steps needed to scale her business (see Startup Pyramid post).

Her fear is common among many startup founders. We have so much invested in the vision (especially emotionally), that we dread an inconvenient truth standing in the way of our dream.

The fear reminds me of one of my personal life missions. Over the last five years I’ve strongly encouraged my friends to get physical exams – especially entrepreneurs consumed by their startups. I know how hard it is to make time.  At perhaps the most intense period of scaling LogMeIn I was putting off a routine physical exam. I felt healthy, so why worry? But I gave up half of a day anyway and finally got a complete checkup. It turned out that I had the very early stages of bladder cancer. A simple procedure removed the cancer and I haven’t had any signs since. But if I had waited just a few more months, my doctor explained that the prognosis would have been a lot scarier. If you haven’t had a physical exam recently, please make the time. It could save your life.

And on a much lighter note, if you haven’t run the customer development survey on Survey.io, just do it (it’s free). If too few people consider your product a “must have”, you’ll want to pivot/course correct as early as possible.

Posted in Uncategorized
8 comments

Apr 20th 10

Sneak Preview: KISSmetrics

I’m really looking forward to the Startup Lessons Learned Conference this Friday. If you haven’t bought your ticket yet, use the code SEANELLIS and save 20%

Posted in Uncategorized
No comments