Posts tagged ‘Minimum viable product’

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March 4, 2013

Startup Risk

Cover of "Fooled by Randomness: The Hidde...

Cover via Amazon

I usually get really worked up when I am speaking with some employees in a bank about Startups and Entrepreneurship, they immediately say that it is Risky. I always ask them could they please tell me why they believe Startups are risky? Their usual answer is well 90% of all startups fail, which is anecdotal evidence because there is no way anyone has documented all the startups in the world and calculated the failure rates. I have written a lot about how we as humans are wired to be fooled by statistics and we just underestimate the risks associated with many things. What is even fascinating is that those same people from the bank were still working in the bank when the entire financial system in Iceland collapsed. I think banks are bigger risks than startups, atleast with Startups you know the risk of failure will only wipe out what you invested, whereas with Banks it can wipe out the entire equity base of Iceland. No wonder, Warren Buffett called Banks sit of Weapons of Mass Destruction. The risk on banks are exasperated by leverage, were as Startups run on equity which means what you put in is what you loose if the company goes under. Typically Startups that I have been pounding the table on require very little capital to validate, build a Minimum Viable Product and get market traction.

I have written about the books that really changed my perspective on Risks and I have Nasim Nicholas Taleb to thank for. I listen to audio books all the time and I think this is the 100th time that I am listening to his classic book “Fooled By Randomness“. There are so many pearls of wisdom in that book that I discover something new every time I listen to it. The only positive aspect of risk taking is in the Startup world because a black swan event ie. the chance of finding a Google or Facebook or Twitter or Amazon is very low but when it does happen it usually results in such a positive impact I don’t know why not everyone invest a small portion of their investment egg in this asset class. The monstrous returns that are possible can only be achieved if one takes enough bets but the size of the bets are usually very small and thats the point of doing this.

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January 25, 2013

Transitions in a Startup

Seth Levin of the Foundry Group has a very good post on the transition of a startup from the product focused company to a sales and marketing focused company. I can truly relate to this, I have been associated with a couple of startups that are going through this process. It is a difficult transition, because it is quite easy to hunker down and get into the maker mode i.e Design, Build, Test repeat cycle. Most founders come from the Product side and it is easy to see they struggle with the transition. But it is critical to get out of the Product mode to Marketing and Sales mode, it defines the survival of a startup. I have written about Sustainability, getting cash into the business is a economic sustainability necessity. All the hard work of building something beautiful and useful amounts to hill of beans if you are unable to get it into the hands of people to use it and get paid for it.

The last 7 months have been very interesting for me because I have never been a CEO, this is my first time on the job (for those reading this blog for the first time, I took on the role of CEO of GreenQloud the worlds first cloud computing company that is powered entirely by renewable energy). I can see the challenges of the product team looking at the marketing and sales team as this Evil that is polluting the pure thing that was created by them. It is understandable, we even refer to the Marketing team as the Evil Marketing team for fun in the team standups.

I have been on both sides of the table, i.e built products and solutions and sold products and solutions. There is nothing harder than convincing someone else that what you believe is worth their time. It takes a lot of effort, positive attitude and chutzpa. There is a reason why very good sales people are paid top dollars because they can bring cash into the business. I once heard from Gunnar Holmstein the CEO of Clara, that “Sales is not Rocket Science but it is much harder”.

In addition, people confuse the difference between Marketing and Sales. Even Fred Wilson wrote a very controversial post and changed it with a Bug Report. Fred has a post from Rand Fiskin (who BTW was suppose to participate in Startup Iceland 2013 but due to schedule conflicts could not make it, maybe we will get him next year :) ), about Marketing and the Bubble where Rand has a great picture.

Source: avc.com

This picture illustrates the need for focus, what happens in early teams is that you are strapped for resource so you basically need to put all your emphasis in finding the Product to Market fit and to make it a Minimum Viable Product, once there is a glimmer to light in that direction you need to have someone else focused on the Sales and Marketing focus. This is hard if you are one man team, unless you know how to do it. I have also written about building killer startup teams. The trick is always to make sure you surround yourself with the people with the right focus to execute. Knowing when to swing the pendulum within your team is an Art, but the signals are usually very clear.

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February 7, 2012

Metrics that matter

Building a business is hard, running one while you are building it is harder. No wonder there are all these metrics on the failure rate of startups. Try juggling 5 balls while you are on a mono-cycle on the freeway, that is what it feels like when you are in the early stage of a startup. So, how does one navigate this mine field? Well, if we go back to basics, we absolutely need to have defined metrics that matter to building the business. Eric Ries in his book Lean Startup talks a lot about this but none of the stuff that he his talking about is new, just like what Warren Buffet says he does in the investment process is simple, but doing what he does is very hard. I want to make one small change to Eric’s method of Build-Measure-Learn, I want to change the order a bit Measure-Build-Learn. This idea goes back to the times when I was in software development, I actually got pretty good at it when I started writing Test Code before I actually wrote the Code for the Use Case, I saw that I was making rapid progress in how well I could write the actual functionality in the system. For all those people writing software, read the Refactoring, Test Driven Development method and Continuous Integration by Martin Fowler, Kent Beck and others. The Lean Startup book refers to this as well.

Lets define some metrics that matter, this also depends on which stage of the development the startup is:

Idea: You have a brilliant idea that you have shared with your friends and family and they think that this could be the next best thing to sliced bread. The things that you absolutely need to instrument at this stage are:
  • Is your potential customer really hurting so bad that they are willing to pay you to solve it? how do you know?
  • How will you find your customer? or more importantly how will they find your solution?
  • What is the size of the market? how do you know?
  • Is the market growing? how do you know?
  • Will the customer continue to buy from you? how do you know?
The important thing in instrumenting your idea is to automate it, i.e just like a dashboard in your car build some gauges. The age of the Internet has bought all this to your doorsteps. There are many resources that are available that provide you with a wealth of data that you can read and make an instrument out of.
Startup: You have validated the above 4 things and you have also build a Minimum Viable Product (MVP), you have your first customer and you are excited that this thing is actually going to make you afford a cafe latte. Great! so what are the metrics that you absolutely need to have here?
  • All of the above +
  • What feature of the solution that you have sold to the customer that the customer absolutely cannot do without? how do you know?
  • How do you plan to scale your business? i.e. how are you going to sell more stuff? how are you going to support the customers?
  • How do you collect your payment? have you automated it?
  • What is your Average Revenue Per User? (ARPU)
  • What is your turn around time for customer issues?
  • How many “features” read “bugs” that need to be addressed right away?
  • How many people visit your website? (although the above ideas can be for any type of business, this metric is critical, if you are not being found you are not going to scale the business… Period)
  • What is your conversion rate? i.e % of those visiting your site want to try your product/service
  • What in your website attracts the visitors? this is nothing but which links they click on.
  • How is your bookkeeping? are you accounts in order? have you automated it? again no excuse for not using tools that are available today to automate this important metric.
Once again measuring all of this is trivial in the age of internet. There are many tools available to do that Google Analytics, KISSmetrics, etc so no excuses for not having built instruments into your solution.
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December 15, 2011

Strategy execution – Reboot Iceland

I have written about My vision for Iceland and why some of the current strategies being explored in Iceland will not work. How do we restart the entrepreneurial system? I have been doing a lot of thinking about this since I started working with Entrepreneurs in Iceland. So what do Icelandic entrepreneurs need?

  1. They need organized Seed/Angel investors and capital to help them through the valley of death
  2. They need active Mentoring
  3. They need a bridge to a bigger market
I have been making the rounds trying to convince institutions in Iceland that in order to reboot Iceland we need new companies that are solving the problems of the future. We need an active privately funded Venture Capital company that helps entrepreneurs through the above stated 3 challenges. I have been working with the two incubators in Iceland Innovit and Klak, to partner with and launch a Tech Stars model through them. The biggest problem has been making people/institutions believe that something like this can be done here in Iceland. So what is new? every entrepreneurs goes through many nay sayers until the nay sayers are wrong.
The private VC company will fund the running of the Tech Stars program, and will fund 10 startups each year for a period of 3 intense months of mentoring, training and getting their idea formulated into a Minimum Viable Product (MVP) or an invest-able business plan. At the end of the 3 months, each company will pitch to an audience of accredited investors and get funded.
Image representing TechStars as depicted in Cr...
Image via CrunchBase

Why Tech Stars? I believe it has the right ingredients for making this model work in Iceland. Tech Star is a mentorship driven accelerator that brings the local community into the fold. The track record of companies coming out of the Tech Stars program is incredible and odds defying. The mentors are volunteers and they are solicited based on their experience, success and on being entrepreneurs. I have spoken to a bunch of people in Iceland who qualify to play the role of mentors and most of them have shown a lot of interest to participate. A Tech Star affiliated program provides the network needed to bridge the gap from Iceland to the rest of the world and the company will also have a stamp of approval to the VC community at large.

Here is the presentation that I had made about why a VC company in Iceland would work.

http://prezi.com/bin/preziloader.swf

Posted in Accelerator, Entrepreneurship, Investment Thesis, Strategy | 3 Comments »

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