#1 Failure of Idea-Stage B2B Startups

Last week I was talking to an entrepreneur about an idea-stage B2B startup. After a few minutes of casual talk I asked for the pitch: tell me about the idea. Now this wasn’t a technology idea, so I didn’t have much experience, but it still didn’t sound right. I wasn’t clear why a business would pay for it and how it would be distributed. A few minutes into the idea I went for the hardest question that represents the #1 failure of idea-stage B2B startups:

What did 10 potential prospects of this product say when you asked them about it?

Crickets.

The entrepreneur hadn’t talked to prospects yet. It’s much easier, and more fun, to get feedback from other entrepreneurs compared to talking to prospects. There’s a fear that the idea isn’t good enough and needs to be refined before talking to prospects. Unfounded. The number one failure of idea-stage B2B startups is not talking to prospects immediately and pursuing customer driven development.

What else? What are some other mistakes idea-stage startups make?

Costco and Amazon Prime are More Similar than you Think

What if you were a retailer that operated like a Software-as-a-Service company whereby you barely marked up your products and you made the bulk of your profits off the recurring revenue subscriptions? Costco does it. Amazon Prime is doing it. Think about it for a second: would you rather break-even selling products and make good money off of predictable, high margin recurring revenue or make varying margins off products with less predictability?

Amazon Prime is really Costco delivered to your doorstep.

If Amazon Prime has 5 million subscribers (probably high) that pay $80 per year, and they mark up products barely enough to cover the expedited shipping, inventory, operations, etc, that’s $400 million per year of profit (assume the $80 per year is nearly all profit). $400 million per year of profit is solid. And they’re just getting started. And they’re giving consumers more reasons to sign up, like free streaming movies and TV shows.

Look for more services with an annual fee that sell their product or service near cost and make all their profit off the subscription fee.

What else? Are Costco and Amazon Prime more similar than you thought? What are some more examples of this model?

The Four Questions for Every Startup from IBM’s CEO

A few days ago the NY Times had an article titled Even a Giant Can Learn to Run about the retiring CEO of IBM, Samuel J. Palmisano. Amazingly, the CEO admits that they sold their PC business to Lenovo to gain favor with the Chinese government, which is a big buyer of IBM stuff through their state-owned companies. People won’t be happy about that.

When asked how he helped IBM grow, Samuel said he got together with his top 300 managers to answer four simple questions:

• Why would someone spend their money with you — so what is unique about you?
• Why would somebody work for you?
• Why would society allow you to operate in their defined geography — their country?
• And why would somebody invest their money with you?

Four straightforward, simple questions that every startup and Fortune 500 company should answer.

What else? What are your thoughts on the four questions?

Stages of a Startup’s Lifecycle

Six months ago I purchased the book Corporate Lifecycles: How and why corporation grow and die and what to do about it by Ichak Adizes and I’ve been slowly making my way through it. The book reads like a college textbook, so plan accordingly, but the author does hit on key insights that I’ve experienced first-hand, lending credibility to the other theories in it.

Here are the stages of a startup’s lifecycle according to the author:

• Courtship – excitement, reality tested, realistically committed founder, product orientation
• Infant – risk does not evaporate commitment, negative cash flow, hard work nourishes commitment, no managerial depth, no systems, no delegation
• Go-Go – arrogant founder, decisions based on intuition, centralized, too many priorities
• Adolescence - conflict between decision makers, temporary loss of vision, founder accepts organizational sovereignty, yo-yo delegation of authority, policies made but not followed
• Prime – firing on all cylinders, insufficient managerial training, limited in-fighting, cash is improving
• Stable – lower expectations for growth, focus on past achievements instead of future, reward “yes men”, more interested in interpersonal relationships than risks
• Aristocracy – money is spent on benefits and facilities, emphasis on how rather than what and why, formality in dress and tradition, low internal innovation, cash rich
• Early Bureaucracy – emphasis on who caused the problem rather than what, much conflict and infighting, paranoia freezes the organization, focus on internal turf wars and not customers
• Bureaucracy – many systems with little function, focused inwardly, no sense of control, customers must develop elaborate approaches to work effectively
• Death – no one is committed to the organization anymore

The early chapters though Aristocracy are useful for most entrepreneurs and the book is worth skimming for connoisseurs of corporate lifecycles.

What else? What are your thoughts on the proposed stages of a startup’s lifecycle?

Thinking About Tech Trends in 2012

Christmas 2011 is a great time to think about tech trends in 2012 what with all the gadgets found under the tree. Around our house, the Amazon.com Kindle Fire was a highlight as highly functional and relatively affordable. The Kindle book reader on the Fire was almost as good as the dedicated Kindle device. Reflecting on the Kindle Fire, there are a number of promising tech trends in 2012:

• Continued growth of cloud computing – Large networks of on demand computing resources continue getting cheaper and more approachable. Amazon Web Services leads the way by constantly lowering prices, expanding services, and adding locations.
• Continued growth of mobile devies and apps – “There’s an app for that” has become so pervasive that I’m no longer amazed when someone shows me an awesome app I haven’t encountered yet. With the debate between native apps and HTML5 apps, I believe HTML5 will win out for most apps.
• Continued growth of big data usage and awareness – Big data is the idea of using distributed computing to analyze large amounts of data in a more efficient and cost effective manner than what was previously possible. As an example, imagine crawling the internet and processing large numbers of web pages to automatically find compelling event sales reps need to know about (see SalesLoft Sales Intelligence).
• Continued growth of specialized sharing and social networks – One of the main topics at Christmas Eve dinner was Pinterest, the popular online pinboard to share content, pictures, etc. Several gifts under the tree came from Etsy, the specialized marketplace and social network for homemade goods (yes, it’s more than just a marketplace). The number of specialized sharing and social networks with a critical mass keeps growing.

We’re only scratching the surface of how the internet and mobile devices are fundamentally changing our lives. It’s a great time to be a technologist and I’m excited for 2012.

What else? What are some other tech trends for 2012?

Painted Pictures for Startups

World -class athletes, when training for an event like the Olympics, spend considerable time mentally preparing and visualizing their performance. Startup founders should do the same thing, only mentally thinking about their future success and documenting it via a painted picture. A painted picture is not a visual, photo-oriented representation of goals but rather a vivid written description of what things look like three years in the future.

Tony Robbins advocates writing your goals down on sticky notes and putting them on your bathroom mirror so that you see them first thing every morning. Cameron Herold advocates making your painted picture the autoresponder email text when someone applies for a job at your company so that they are either excited or repulsed by what you want to do.

Here are some tips for your startup’s painted picture:

• One or more founders should write it on their own
• Don’t make it group think with every word massaged by different team members
• Describe every aspect of the company, team, product, office, business model, etc so that the three year vision is completely clear
• Shoot for one to four pages in length
• Laminate the painted picture and hand it out to every employee, vendor, partner, etc

Painted pictures for startups are a powerful way to visualize the future and align expectations for everyone involved. Once the mind knows the future it automatically starts working backwards to get there.

What else? What are your thoughts on painted pictures for startups?

Who, What, Where, Why, When, and How for Startup Pitches

At the Flashpoint mentoring session today we helped with the six minute startup pitches for demo day. For an hour I worked one-on-one with an entrepreneur. I explained that the goal with the pitch isn’t to share everything you know about your startup but rather to get the investor excited enough to want to setup a meeting. The investor isn’t going to invest on the spot. When the entrepreneur asked what should go into the investor pitch I said it helps to have an offline analogy as well as answer who, what, where, why, when, and how:

• Who – who are the entrepreneurs behind the startup
• What – what does the startup do
• Where – where in the market does the startup operate
• Why – why did the founders start the company
• When – when will the next milestones be met
• How – how much money are the founders looking for

There are other topics like competition and market size that should also be addressed. Answering who, what, where, why, when, and how for startup investor pitches gets you most of the way there.

What else? What do you think of this approach to startup investor pitches?