In a previous post we discussed a lean startup philosophy vis-à-vis a typical VC-funded startup. Here lies the classic conundrum of an investor who is (supposedly) omniscient and omnipotent, and hence would direct the company in his/her supreme wisdom. There lies the challenge of many “funded” startups, since they are essentially at the mercy of a supposedly “know-it-all” VC whose goals are often at cross-purposes with that of a startup as we discuss below.
Recently, a trusted adviser (and an entrepreneur with a decent exit) mentioned that VCs often have very divergent interests from those of the average entrepreneur. A typical entrepreneur is happy with a 5x or even a 2x exit from a startup. An institutional investor– who is typically invested in several companies simultaneously - is looking for one or two big hits with little heed for the rest. To use a baseball metaphor, an entrepreneur is OK with a double or single, but a VC is looking for a walk-off home-run, and they want everyone in their portfolio to swing for the fences. To them, any startup in their portfolio is expendable in the hope of getting a large payback overall. They want to bet big and win bigger, if some fail “oh well! Too bad”. However to an entrepreneur, their one-and-only bet is their startup on which s/he has invested their blood, sweat and tears.
We think any entrepreneur should consider this proposition very carefully before considering any institutional investment.
Here is yet another fabulous slidedeck from Eric Ries that expounds further about “lean startups”
Showing posts with label small-business. Show all posts
Showing posts with label small-business. Show all posts
Thursday, May 21, 2009
"Lean" Startups
A friend and fellow entrepreneur recently sent along a fascinating talk about the “lean” model of entrepreneurship. The author describes applying the lean model – which was popularized in the manufacturing sector by eliminating “muda” (waste) – to startups.
The company showcased in the presentation IMVU.com proposes an idea we very much subscribe to: that startups must learn by experimentation. We believe “trial & Error” is the ultimate judge of any business-plan. To that we might add they are “useful”, inasmuch one actually learns from the experience.
As the author points out, with lean startups “the problem is unknown and the solution is unknown”, thence the need for a constantly adaptive approach. We posit that virtually all startups are in this situation, even the ones who have a so called well-defined problem-space and solution. We argue there is no such thing as a "well-defined" problem, much less a "well-defined" solution. Most entrepreneurs have a vague, fuzzy idea of what they want to tackle and look at it through foggy glasses. It is only through iteration that the problem gets into focus. As the classic adage goes “all plans are wrong, but all are useful”. The businesses that succeed are the ones who adapt and iterate constantly.
Eric points out startups must “learn to learn”, and do so constantly.
The Lean Startup
View more presentations from Venture hacks .
The company showcased in the presentation IMVU.com proposes an idea we very much subscribe to: that startups must learn by experimentation. We believe “trial & Error” is the ultimate judge of any business-plan. To that we might add they are “useful”, inasmuch one actually learns from the experience.
As the author points out, with lean startups “the problem is unknown and the solution is unknown”, thence the need for a constantly adaptive approach. We posit that virtually all startups are in this situation, even the ones who have a so called well-defined problem-space and solution. We argue there is no such thing as a "well-defined" problem, much less a "well-defined" solution. Most entrepreneurs have a vague, fuzzy idea of what they want to tackle and look at it through foggy glasses. It is only through iteration that the problem gets into focus. As the classic adage goes “all plans are wrong, but all are useful”. The businesses that succeed are the ones who adapt and iterate constantly.
Eric points out startups must “learn to learn”, and do so constantly.
Tuesday, February 17, 2009
What You Show Is What They Get!
Technology entrepreneurs, especially those who come from research backgrounds, often tend to make the mistake of assuming too much about potential customers’ interest in technology. Many tend to focus on the capabilities (innards) of the technology and neglect the user-story as mere detail. That assumption could not be more incorrect.
Having been through quite a few sales sessions, we believe that this is likely since technologists are accustomed to interacting in environments with people with similar skills, interests and backgrounds. Selling to customers with microsecond attention spans is worlds apart. The truth of this does not hit like a bucket of cold-water unless one sees much of the audience drifting off to sleep during a sales-pitch.
As the apocryphal saying goes, “perception is reality” and that could not be truer for a startup. Rare is the customer who is interested in the “how” something works, as opposed to “what is in it for me”. A “demo” that does absolutely nothing under the covers, but tells a very good story is a far superior sale than a superb technology that no one understands (read cares about).
While, much of this post might seem rehashed wisdom from other sources, turns out commonsense is very uncommon. An associate recently asked the question “will your mother understand what you do? And if she does…”
We disagree; family, friends etc. are victims of the infamous Hawthorne effect, and anything but proxies for a “customer”. Selling to your “mother” is about as far removed from selling in the real—world, as it is to a fellow researcher.
We have therefore coined a truism for entrepreneurs to keep in mind: What You Show Is What They Get! (WYSIWTG), or its cynical variant "What They See Is What They Get" (WTSIWTG).
Having been through quite a few sales sessions, we believe that this is likely since technologists are accustomed to interacting in environments with people with similar skills, interests and backgrounds. Selling to customers with microsecond attention spans is worlds apart. The truth of this does not hit like a bucket of cold-water unless one sees much of the audience drifting off to sleep during a sales-pitch.
As the apocryphal saying goes, “perception is reality” and that could not be truer for a startup. Rare is the customer who is interested in the “how” something works, as opposed to “what is in it for me”. A “demo” that does absolutely nothing under the covers, but tells a very good story is a far superior sale than a superb technology that no one understands (read cares about).
While, much of this post might seem rehashed wisdom from other sources, turns out commonsense is very uncommon. An associate recently asked the question “will your mother understand what you do? And if she does…”
We disagree; family, friends etc. are victims of the infamous Hawthorne effect, and anything but proxies for a “customer”. Selling to your “mother” is about as far removed from selling in the real—world, as it is to a fellow researcher.
We have therefore coined a truism for entrepreneurs to keep in mind: What You Show Is What They Get! (WYSIWTG), or its cynical variant "What They See Is What They Get" (WTSIWTG).
Saturday, January 24, 2009
Recruiting at Startups (follow-up)
In a previous post we discussed the challenges of hiring at Startups. Recently we interviewed a candidate who is an exemplar for all that is not to be expected from a candidate applying for a job with a startup. This experience has led us to re-evaluate some of the criteria we applied earlier and add news ones. We share our insights here in the hope that it helps some fellow entrepreneurs in similar situations.
We received the resume of a candidate, who on paper, appeared to have some decent qualifications. But in the very first interview serious doubts were raised about this candidate's abilities, despite several attempts to smile and hand-wave through. So we asked this person to take a simple computing challenges test, loosely modeled along the challenges we had encountered.
Our doubts were more than confirmed - this candidate's responses were along the lines of "company so-and-so has done it ...", "so-and-so is researching it"; and we kid you not, even a response to the tune of "this is a well known problem and no need to explain".... yadda....yadda....Imagine taking an test and responding "... this is already solved, hence no need to answer it here". What grade would you have received in such a test? :-)
Not one of the responses were anything even close to being acceptable. When the obvious was pointed out in no uncertain terms, the applicant threw a hissy-fit: the details are unimportant but needless to say the applicant knew "game over!" .
Not one of the responses were anything even close to being acceptable. When the obvious was pointed out in no uncertain terms, the applicant threw a hissy-fit: the details are unimportant but needless to say the applicant knew "game over!" .
This example brought up a number of questions in how we evaluate candidates, so we added the following points to evaluate applicants:
1. Originality Very Welcome: Most startups are looking for some innovative and original thinking and not copy-paste warriors. To be clear, we are not looking for theories of relativity to be developed, however we are looking for the beginnings of some out-of-the-box thinking. The proposed approach might not be workable at all, but it must demonstrate creativity and innovation. Startups need that kind of thinking to develop a competitive advantage wherever and whenever they can.
2. Prima Donnas Unwelcome: A startup is a very, very rough and tumble game. if one cannot handle being tackled and tackled hard, they are best advised staying away from the field. A fellow entrepreneur pointed out being in a startup is like being a quarterback without a defensive formation, and that is not far from the truth. Any employee with a chip on their shoulder is likely unsuited to work in entrepreneurial organizations.
Working for a startup requires more often than not, the ability to take some hard hits and remain standing. If that doesn't sit well with some.....oh well! Sorry!
Sunday, January 4, 2009
Recruiting at Startups
Hiring good talent is a challenge at the best of times and at the most glamorous of companies, but it is orders of magnitude harder for a startup. At a small company you are typically looking for a very specific skill-set . However, it is very hard (even impossible) to find exactly what you are looking for, so a company has to compromise. Therefore, we have followed an approach where we look for the right aptitude - where a person has the background to build-on and the right attitude.
As they say, Aptitude = (Right) Attitude + P(erseverance) - T(antrums)
There is a great post by Joel Spolsky. The bottom-line is when you are applying for a position in a startup or small company , it is doubtful anyone is interested in your skills in managing 100s of people, or CRM/SAP skills etc. You should focus on your multiplexing skills: your ability to churn out code, while communicating with customers, and yet playing a good sales/marketing person, while offering technical support. Most startups and small-businesses need exactly that kind of "all-rounders".
p.s. Anyone applying to positions at Cognika ought to pay significant attention to these factors.
As they say, Aptitude = (Right) Attitude + P(erseverance) - T(antrums)
There is a great post by Joel Spolsky. The bottom-line is when you are applying for a position in a startup or small company , it is doubtful anyone is interested in your skills in managing 100s of people, or CRM/SAP skills etc. You should focus on your multiplexing skills: your ability to churn out code, while communicating with customers, and yet playing a good sales/marketing person, while offering technical support. Most startups and small-businesses need exactly that kind of "all-rounders".
p.s. Anyone applying to positions at Cognika ought to pay significant attention to these factors.
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