A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

Did you read Ryan’s Journal yesterday? One of the things he talks about it the importance of starting with ‘why’, instead of just rushing in.

I get it, ‘because I’ve always been a ‘why’ person.

Founders would do well to ask ‘why’ more often, as in “Why are we building/doing this?”

The importance of that particular ‘why’ is data-driven, which is important, since the tech world especially believes that everything important is data driven.

I can cite dozens of sources, but I’ll use data from CB Insights, since it’s a startup and it’s product is data.

Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for failure, noted in 42% of cases. Or, as Treehouse Logic said, “We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but what we didn’t have was technology or business model that solved a pain point in a scalable way.”

A lot of people don’t like asking ‘why’, because, more than most, it is an uncomfortable question.

It usually requires introspection and frequently doesn’t return the desired answer.

Founders don’t like the why question for the same reasons, especially when it interferes with their beloved vision, let alone their worldview.

There are two ways of internalizing that data.

The obvious: Not asking ‘why’ increases my chance of failing by 42%.

The less obvious: Asking ‘why’ increases my chances of succeeding 42%.

If you subscribe to the less obvious approach, or want to, the simplest was to implement it is to embrace the Lean Startup methodology

Doing so may mean abandoning your initial vision, or, at the least, tweaking it, which could bruise your ego, but the payoff is huge.

And the bruising should be easier to handle knowing that you got a 42% boost on the road to success.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

Yesterday we looked at how dangerous it is to substitute what-we-wish for what-really-is and I promised you a look at startups that died as a result.

Which is what I’m going to do, but not by reinventing the wheel (there’s enough of that without a contribution from me,)

CB Insights put together a great list of 178 failed startups — why they failed as told by their founders or, occasionally, an investor — including links to the full articles.

I hope you take the time to read through, especially those that parallel your own markets, circumstances, etc.

Save the list as a reference; the lessons learned could keep you from stepping in the poo now or somewhere down the road.

Image credit: HikingArtist

For years I’ve interacted with entrepreneurs from the US and other countries. And while they have many traits in common, there is one that never ceases to amaze me — their approach to their users.

Maybe ‘approach’ is the wrong word; perhaps attitude or interpretation or wishful thinking is closer.

Your users are who they are, not who you want them to be.

That means it doesn’t matter if you/your friends/peers think it’s cool.

Or that you/your friends/peers like the style/fashion/etc.

That’s why Lean Methodology says to get out of your office, your comfort zone, and talk to your market.

Actually, rather than talking, you should listen to your market.

Truly listen.

Hear what they are really saying, instead of hearing what you want to hear.

Doing the latter has sunk many a startup.

Be sure to come back tomorrow for a look at some of them.

Image credit: Ky

Over the years, founders have asked my for my opinion and ideas on naming their company and/or product.

They ask, but they rarely listen.

Especially if they already have an idea — which they are usually in love with.

They aren’t looking for ideas, let alone an opinion that differs from what  they already think.

They are looking for agreement and validation.

Of course, I’m not an expert and don’t present myself as such.

That said, common sense and past flubs say that product names need to be relevant — to the product, the market and especially to the target country/language/culture.

Additionally, they need to be easy to remember and spell — particularly “created” words.

Lean methodology recommends MVPs for market validation and the same should apply to naming.

Proof of the importance of listening to market input is demonstrated by CB Insights’ CEO/Co-Founder Anand Sanwal, who recently told the story not only of how the company got its name, but also its logo.

When we started the company, we called ourselves ChubbyBrain.  We were always focused on private company data but we were trying to be hip and startup’y (or that is what we’d like to believe)

Anand says their wake-up call came from a potential client.

We love the product and the data and what you guys are doing.  But we can’t buy a product called ChubbyBrain.

Wow. Talk about wake-up call; more like revelry played five inches from your ear.

You can see how the logo changed, too, from this

To its current incarnation.

Amazing what you happens when you listen to the people who will actually pay you.

Image credit: CB Insights

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Startup life, especially for founders, is notoriously fast-paced, with thinking time devoted to product development, funding, growth, funding, user acquisition, funding, hiring, funding, etc.

Add to that the need/desire to interact with family and friends, compulsion to keep up with social media and daily chores, such as eating, sleeping, bathing, etc. and many will say that carving out time for quiet reflection is a nonstarter.

That said, no thinking entrepreneur questions the enormous value of attending Steve Blanks annual Lean LaunchPad class — since it offers far more than any accelerator.

It’s the difference between buying fish and learning to fish — the latter provides a lifetime of value, while the former is short-lived.

Blank and his cohorts added a week to the course this year and the reason is of paramount importance — even to those not in the startup world.

This year we made a small but substantive addition to way we teach the class, adding a week for reflection. The results have made the class massively better. (…)

We realized that we had been so focused in packing content and work into the class, we failed to give the students time to step back and think about what they actually learned.

So this year we made a change. We turned the next to last week of the class into a reflection week.  Our goal—to have the students extract the insights and meaning from the work they had done in the previous seven weeks.

Reflection — (in this context) a fixing of the thoughts on something; careful consideration

Back in 2011William W. George, Senior Fellow at Harvard Business School, found that making time for self-reflection was critical for anyone aspiring to a leadership role.

Before anyone takes on a leadership role, they should ask themselves, “Why do I want to lead?” and “What’s the purpose of my leadership?”

The kind of thinking/reflecting recommended by both Blank and George can’t be done while scanning email, texting, listening to music or any of the myriad of distractions that constantly bombard you.

You need to set aside the time, turn off your devices and give yourself time to reflect and even do some deep thinking.

You and your organization will both benefit.

Image credit: HikingArtist

Today we welcome Janelle R. Alexander, a new voice at MAPping Company Success. Janelle is a successful entrepreneur and one of the smartest and most fun people I’ve met in a long time. (Click About Janelle to learn more.)

I had the opportunity to attend the 2015 Lean Startup Conference a couple of weeks ago. While I had read and embraced the writings in The Lean Startup years ago, this was my first occasion to attend the now-iconic startup event. The environment there was buzzing with startup geekiness and I loved every minute of it. My takeaways from the event are 3 key learnings and one confession. First the confession: I missed the point when The Lean Startup went from methodology to movement.

The Confession

It’s brave of me to admit this. I espouse passions for early-stage companies, inclusive innovation (a.k.a. diversity in entrepreneurship) and positioning New Orleans as a leading startup hub—Lean Startup methodology provides a clinical process to power all 3 missions. I’m not sure under which rock I was sleeping. I understand the genesis of the movement—the wisdom of Eric Ries’s continuous innovation, minimum viable product and validated learning warrants a loyal following. And yet I still marveled whenever I met yet another devotee who had flown from Australia or Sweden or Ireland, all speaking in a shared Leansian language (“…it’s a lean startup company,” “by then they’d developed their MVP,” “then we iterated,” etc.).

Realization #1: Lean Startup methodology could be a pivotal force in fostering diversity and inclusive innovation

There are real barriers to entry for startups founded by women entrepreneurs and those of color. One of them is a disproportionate lack of access to resources—e.g. capital, networks, influencers, anchor customers. When these resources are markedly low or missing entirely, the nefarious runway becomes shorter; the importance of eliminating uncertainty and working smarter not harder becomes decisive. In short, adopting Lean Startup methodology is obligatory for underrepresented entrepreneurs.

Realization #2: Data is the equalizer that makes innovation truly inclusive

I sat listening to Alistair Croll Lean Analytics talk. Nearly every seat had a laptop open, and, from what I could tell, every monitor was showing Slack. Mr. Croll’s talk drove home the measure and learn parts of the methodology. His Street Smart Tactics were distilled for maximum relevance and insight which rang true (and were a delight to hear).

At its core, Lean Startup methodology is powered by data. Data is the new abundant resource for diverse entrepreneurs, which will offset the historical obstructions to the old school forms of capital.

Some Quotes to Remember from his talk:

“Archimedes had taken a bath before.” Meaning: The old tale of Archimedes’ displacement discovery in the bathtub was used to show that it was the king asking the right question which led to the discovery, and more importantly, the new data.

“Business plans are a lot like drawing a map before you’ve gone exploring”

Realization #3: New Orleans is the perfect environment for Lean Startup methodology

New Orleans is quickly establishing itself as an emerging startup hub. Collision is coming here. Mega companies have relocated here. Forbes thinks we’re great. The energy surrounding entrepreneurship in this city is palpable, and New Orleanians embrace this new focus with their usual delight and fervor. I heard Steve Case say about New Orleans that it’s a model for community connectivity and inclusiveness. It is in such an environment that Lean Startup methodology can thrive. Here we support our entrepreneurs in a way this native New Yorker never anticipated when I first moved to the Crescent City. Here, the community organically does what it can to minimize the entrepreneur’s time through the loop that is the Lean Startup process.

I came back ready to spread the word, and excited that I had another tool in the toolbox.

As you all know, or will learn the hard way, you need be sure there is a market, before you build your product or service.

That is a basic premise of Eric Ries’ Lean Startup methodology, so I was very excited to be able to attend the Lean Startup Conference this week. It was a great opportunity to learn new ideas and refresh old ones.

I got to the conference early to hear Ryan Hoover from Product Hunt who had a great idea for community-oriented scalable startups
–  “Go where you are loved. Give it away. Build a community around it.”

Startups within companies are apparently catching on as well. Bennet Blank from Intuit suggests that for internal startups, the idea is to show people how to do it rather than tell them what to do, i.e lead by example.

Specifically for internal starups, the idea is to use the company culture but to do things slightly differently. The key idea is to avoid scaring anyone that something might break.

Startups within government have got to be a breath of fresh air. There are 2 parallel efforts in the US government to create better software and openness: USDS and 18F.
Leah Bannon spoke of how the FEC.gov is trying out open git repositories for collaboration at

A startup is a way to solve new problems. The best way to learn of problems is to talk to people.
– Unfortunately, people are nice.
– They will make up problems to make you go away.
– What people do on the other hand is interesting.
– They create inefficient work-arounds.
– This is where a product may fit in.
-There is a difference between Needs vs wants.
– Needs are well defined by behavior.
– Wants on the other hand are what people say they need. It changes.

So, how to find people ?
– Post on groups that have a concentration of users.
– Use surveys that take a maximum of 1 minute to answer.
– This can create fast learning.

So, what to build?
– Make it small and useful.
– It should take as little work as possible.
– And be easy on first time users.
– Give them something easy to do.

Amir Shevat spoke of how he initially built a meditation app.
It was initially hard to find the button on the app.
It’s also hard for first-timers to meditate for 45 minutes!
I reduced the meditation time for much better results.
Here is the meditation app.

At lunch I met Eric Leppo from the Silicon Valley Software Group, who told me about an MVP calculator he built, which estimates the cost of creating an MVP based on various features of the app.

There is a focus on marketing people these day. Amanda Richardson from Hotelstonight.com may have a point redirecting focus to problems instead. It seems more relevant since you can only solve problems. In other words, you need talent to solve problems and market the solutions to people.

They built an app that solves the problem of the last minute booker.
Its an easy to use interface to be used on mobile.
If they just worried about hiring stars, they’d not get anywhere!

But I keep feeling people-light in my startup. Lots of skills are involved in building things.
So I’m not really clear about the importance of finding the best people and getting a massive cast of characters.
Also, I learned that I should reward small failures because they enable learning.

One of the ideas from the closing conversation with Eric Reis and Chris Dixon from Andreessen Horowitz was that too much money is a major problem.
Money gets spent in the same 18 months no matter how much.
If you don’t have product/market fit, it’s a waste and can lead to big losses.
Startup movement is about building things.
The important change in this generation is that entrepreneurship is a viable career path.
Business has become more democratic.

Lyft was initially Zimride for a long time. They had a carpooling app for long distances.
What they learned from that car-share experiment was that it had to be:
-On demand.
-Dramatically increased supply.
-Community: there is the idea that taxis were disgusting.

General startup algorithm is to find the best problem to solve.
– Develop the technology to solve it.
– A lean startup keeps risk low with fast iterations.
– Accurate bad news is better than inaccurate good news.
– Valuation is not a KPI.

Find the thing needed to be successful.
– Innovation-options.com
– Brady Nagel had a great talk on using LinkedIn (the free part)
– Google is not bounded by LinkedIn’s rules that restricts search size.
– When you want to find problems you’ve to talk to strangers.
– LinkedIn is a database of strangers. It’s free!
– The goal should be to define the problem.
– So, don’t talk about the solution.
– Take out details about past positions in LinkedIn profile.
– to avoid biasing peoples answers.
– Find a group on LinkedIn.
– Promote events.
– Talk about problems.
– Look for relevant groups.
– Say that we are doing research if the group is moderated.
– Create a group on LinkedIn
– Invite people to participate.
-Other useful sites for meeting strangers:
–Emailbreaker.com
–Intel-sw.com
–Voilanorbert.com
–Connections
– Find alumni networks

Here is an idea on how to start a conversation with a stranger:
Send an opening email saying:
– I’m involved in a program or am a researcher on X.
– You are knowledgeable about topic Y
– Can I have few minutes of your time or someone you know.
– How about such time on Tuesday?
– Follow up 3 times. That is persistence, more than that and you’re a pest :)

Andrea Hill from ReadyTalk on spoke about internal startups:
The key here is to find early customers who are stakeholders, then measure the importance of stakeholders in terms of:
– Contribution. Legitimacy. Willingness. Influence.
– Contribution: have valuable info.
– Legitimacy: are they affected?
– Willingness to engage.
– Necessity of involvement.
– Understand their needs.
– What does success look like to them? For example with the CFO, the idea is “Don’t break existing cash flow!”
– Find a sponsor to support and be the face of the project to the rest of the organization. This makes it easier to work on the product rather than explain all the time.
– Create a clear 2 way communication channel with management; in exchange, be honest when something is wrong.
The tradeoff with internal startups is that you take less risk and get less reward.

I went to this interesting talk about an experiment in a kitchen. The talk was called: Caution Live Subjects: by Lauren Braun
It was about an experiment to test if a sub-menu of possible substitutions on a menu added value.
They created real “looking” experiments for data and measured real behavior.
The conclusion from the test was that the list of substitutions added too much friction to add value.

In conclusion, the Lean Startup Conference was an interesting place to me as an entrepreneur. I met a lot of great people and heard many new and interesting ideas.

I’m a quant, so when I started Quantprice I tested the market, because it seemed the logical thing to do.

Since attending the Lean Conference, I look forward to using more lean methodologies as I build Quantprice.

And in case you are wondering, Quantprice improves Shopify’s e-commerce store margins over 30% in the same way that larger retailers and airlines do by enabling them to manage their offers in real-time based on factors that are automatically learned from past consumer behavior using big data and AI techniques.

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Granted you want to change the world, but whose world?

“If we live in a world where the technologies we’re talking about are for rich white people in Silicon Valley then we’ve failed. The idea is to try and distribute this technology as broadly as possible.” –Bill Maris, founder, Google Ventures

So true.

But what else would you expect when entrepreneurs follow the advice to look inward to identify the problems to solve.

 

And then there is the question of what purpose our economic growth actually serves. The most common advice V.C.s give entrepreneurs is to solve a problem they encounter in their daily lives. Unfortunately, the problems the average 22-year-old male programmer has experienced are all about being an affluent single guy in Northern California.

 

Unfortunately, the traits common to entrepreneurs in the US aren’t particularly diverse.

The average U.S. entrepreneur is educated with a college degree, closer to mid-career in age, from a higher income household, and more likely to be male. He is likely to be opportunity-motivated and comparatively likely to be operating in the knowledge-intensive sector (business services).

Most of the under-thirty entrepreneurs whose startups have a strong social side found the problem while traveling or doing some kind of volunteer work and used ingenuity and tech-as-appropriate to solve it.

Other places to find young entrepreneurs focused on solving serious problems are at any of the major science fairs, such as Google’s, and the Society for Science and the Public’ awards to the under 13 crowd.

The Federal Government, in the guise of the National Science Foundation started Innovation Corps, essentially an incubator using the Lean approach to commercialize academic research with the help of Steve Blank; those entrepreneurs are definitely older.

The opportunities to change the world are numerous, all you need to do is open your eyes — if a 13-year-old can think of way to change the world, so can you.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Did you see the story of Drizly Bear by founder/CEO Nicholas Rellas on LinkedIn?

Rellas wanted to disrupt the way liquor is purchased.

The idea was pure and incredibly simple: Alcohol delivery, connecting consumers to local retailers at the touch of a button to have alcohol delivered in just 20 to 40 minutes.

The problem is that liquor regulation makes the taxi industry look unregulated.

The question, given the amount of regulation and the fact that it differs state-to-state and even city/county-to-city/county within each state, was where to start.

Where many would have chosen to start in the least regulated market to get traction Drizly took the opposite approach.

We started Drizly in Boston, MA, a city steeped in alcohol lore and one that is so tightly regulated that there are no happy hours.

If you think he was crazy, then he was, as they say, crazy like a fox.

The definition of a tough (or hard) question is one of the the most critical things that everybody needs to know.

And it’s incredibly simple, too.

It’s something that every salesperson learns immediately, but it applies to any industry, field, situation or effort.

A tough question is any question that can draw a response of ‘no’.

Rellas believed if Drizly could address every regulation in Boston, then they could address regulations anywhere — and he was right.

What we formed was a cookie cutter model of adding supply to our network that now scales with minimal capital and human investment and has allowed us to expand to over 18 cities in as many months.

Rellas wraps your take-away perfectly.

So ask the hard questions. Answer them upfront. Be truthful about your answers. There are reasons why great ideas won’t, or didn’t, work. We fight those every day. Some are insurmountable, others are not. Knowing which mountain to climb is as much of the challenge as the climbing itself. But by not asking and answering the hard questions, for a new business or a new line of business in an existing one, we’re doomed to fail from the very beginning.

Image credit: HikingArtist

 

TiEcon has become a huge event for entrepreneurs all over the world. It helps educate the entrepreneurs and connect them to clients, mentors and capital.
They have many good programs for entrepreneurs like Mentor Connect, where people meet potential Mentors who are people with a lot of experience starting companies. They also have a Founder Connect program where people speak of their ideas and look for either founders or capital.
I met people and reporters from Australia, Japan, Nigeria and Brazil, apart from the usual countries. This has become a global event, because TiE serves a big need.
Saying “TiE is for South Asians” (Indians/Pakistanis) is like saying “the US is for Europeans”. The successes TiE and the US have accomplished require being open and inclusive.

Just like the underlying value of the US is the preservation of freedoms, TiE’s value is to nurture entrepreneurs and grow its community.

TiE’s organizers realize the value of being well connected to achieve its goals. They have succeeded in attracting large volumes of the right kind of attention.

At Mentor Connect, I met Seshan Rammohan and Siren Dutia, both veterans of the field. Typically Mentor Connect puts a single mentor with 5 founders looking for advice. Fortunately I got two mentors’ time and minds for the price of one.

The discussion was interesting because we heard about the problems that different founders face. The advice was very useful.

I went to a few talks, but I’ll cover three to keep it short.

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One superstar at TiEcon was Steve Blank, who originated the methodology that launched the Lean Startup movement as described in Eric Ries’ “The Lean Startup.” The core message is to start small, get out and talk to your market and build what customers actually need and want.

Startups are not small versions of large companies. They are in search of business models that work. Large business on the other hand execute strategies.

Steve mentioned a book with pictures called “Business Model Generation” for people who want to build a startup. I’m curious.

In a startup you build things that get you the maximum learning. Before you fire execs, it is a good idea to fire the plan and try another.

Startups are under a lot of pressure. They think in terms of their burn rate and their runway.

Startups should ideally plan on discovering a businesses that works. An exit should be the last thing on their mind.
The reasons people acquire a startup are:

• An existing product, e.g., whatsapp
• P&L and good cash flow.
• Technology: Oclulus
• Acquahire — when they want the developers, but for something different.

Startups have a different culture. Assimilation into an existing business can wash out the productivity because the processes in place for execution are different from innovation, i.e., Key Performance Indicators (KPIs)

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A panel discussion: How not to mess up the cap table

The cap table is the definition of who owns the company and their rights. It typically defines the stock holders, the debt holders and the liquidation preferences (who gets cash before whom).

A VC mentioned an interesting incident where he killed a company by asking who owned it. The founders got into a fight and decided not to form the company!

It is also a good idea to have a vesting schedule so that one of the founders doesn’t “… go to Brazil with his wife with his share of the company while the others work for their equity.”

20% of allocation of stock is usually based on role of people in past; the rest is about future.

Standard vesting for employees is 4 years.

Investors get preferred stock, because they want to get their money back first. This is changing with Y-Combinator’s SAFE and Founder Institute’s Convertible Equity ideas. Another reason to be careful is that option pricing would be set by investors if they take preferred.

The things to worry about in a funding round are:

Valuation: No one forgets this. Clearly, the higher the better.

Control: Who controls the board seats and voting rights. This is tricky because rights and seniority affect the way people think.

Rights: What special right do investors get, such as a board seat.

Seniority: Who gets their money first.

Founder rights: How can founders be removed from power? Typical statement is a felony., but you could ask for “willful and persistent gross negligence.” It is also important to negotiate severance as a part of this deal.

There is a difference between preferred and non-preferred stock. Preferred allows double dipping. Investors get their money back and then some more of the stock.

Usually investors own 25% after first round.

The difference between negotiation and begging is leverage. Get a few investors to land at the same time and you are in a much better negotiating spot.

An important decision is to file the 83b election within 30 days of getting equity. The founder will be required to pay taxes on the portion of equity that vests if this is not filed. This likely involves a cash flow mismatch because the founder may not have liquid cash when the equity vests. 

For more information read Founder’s Workbench 83 (b) Election

Other common mistakes startups make include:

… not having a clear focus.

… compensating people and getting clear ownership of code written for the company.

There are two options: the pain of disappointment or the pain of discipline.

~~~~~~~~~~~~~~~~~~~~~~~~~

EXITS

The best time to plan to exit is as early as possible.

Early thought can include, Are there going to be a lot of companies that will be interested. Is it a good IPO idea?

Ashmeet Sidana says there are two exit scenarios.

… Approached for an exit.

… Or things don’t work out.
A banker or a business relationship usually leads to an intro for these.

Lots of teams are typically involved in exits. The deal team will work on the deal. CPAs, lawyers and wealth managers are usually involved.

Then there is the question of what happens to the cash. Typically people use trusts to allow continued investment and avoid a steep tax. This also allows for a tax shelter for money designated for charity.

Exits are most intense periods. Cases where board meetings happen every 3 hours are common.

Think also of what to do next after the vacation at the end of the deal.

Where does the money get wired?
At the time the M&A term sheet is signed the probability of acquisition is 40%.
In contrast the probability of funding is 80% in VC rounds.

Time can kill deals in M&A. However clarity is important as well. A CEO once took time to work out every detail and the final deal was very close to the term sheet.

Ask what is the reason people are acquiring the company? Alignment is important. Avoid conflicts of interest at this critical time. Try to create a separation from noise in the markets.

Founders should negotiate to get some liquidity early to pay for costs.

Image credit: Alpha Sangha