Category: Entrepreneurship

Over the past few years I’ve invested in a number of lean startups and a few heavy startups. As it sounds, a heavy startup is nearly the opposite of a lean startup: a high burn rate from the beginning and an assumption that the original idea will be successful. While the heavy startups are making progress, the lean startup model has been superior.

Here are a few lessons learned from investing in heavy startups:

• No matter how great the idea sounds, it always hard to build a product that customers love and where customers can be repeatedly acquired
• Every successful business requires multiple product iterations, and sometimes full pivots, before arriving at the product that takes off (thus, it’s important to plan accordingly with financial resources)
• Regardless of how much cash is in the bank, it will be burned within 12 months, so the more cash in the bank, the higher the monthly burn rate — entrepreneurs love to spend money to get things done (myself included)
• Many aspects of the customer discovery and product/market fit process take time no matter how many people are on staff (similar to the idea that adding software engineers towards the end of a project actually makes the project take longer — see The Mythical Man Month)
• Laying people off is much more painful to morale compared to running on limited staff and waiting to hire until the requisite revenue growth

Heavy startups, while more limited now, are still a part of the startup ecosystem. My recommendation is to go the lean startup route and delay raising a large amount of money and hiring a big team until product/market fit is in place and a repeatable customer acquisition process has been proven.

What else? What are some other lessons learned with heavy startups?

Last week I was talking with an entrepreneur about their new product focus. After digging in, he volunteered something that really stuck with me: their new direction connects the product with the wallet in a way it never was before. Similar to the idea of candy, pain-killers, or vitamins, products that can clearly demonstrate an increase in revenue for the customer are more desirable.

Here are a few thoughts on connecting the product to the wallet:

• Something that saves time is less compelling compared to something that makes more money (more bonuses are tied to revenue growth than decreasing costs)
• Products that provide value closest to where money is made are easiest to show value (e.g. a sales tool is easier to attribute to revenue growth compared to a tool to manage meeting rooms)
• Case studies and ROI calculators are more compelling when it’s clear how the value is generated

Entrepreneurs would do well to connect the product to the wallet, whenever possible. Products that help generate revenue are more compelling than products that save time or money.

What else? What are some other thoughts on connecting the product to the wallet?

Recently I was talking with an entrepreneur about his startup and the concern about potentially not being able to hire fast enough. After asking a few questions about product-market fit, repeatability in acquiring customers, burn rate, and more, it became clear that the business wasn’t close to the scaling phase. The entrepreneur was worrying about a non-issue.

Here are a few thoughts on nailing the basics:

• Ensure product-market fit is in place (see 5 Happy Customers With No New Bugs)
• Prove that the customer acquisition process is repeatable (see The Four Stages of a B2B Startup)
• Develop an Internal Meeting Rhythm and ensure everyone is aligned with a Simplified One Page Strategic Plan
• Create a strong corporate culture (see 23 Corporate Culture Ideas for Entrepreneurs)

Entrepreneurs would do well to nail the basics before worrying about scaling the business. Scaling brings on an additional set of challenges best handled with a strong foundation.

What else? What are some other thoughts on nailing the basics first?

Back when Adam and I started Pardot in March of 2007, the original idea was to build a lead generation as a service product where we’d generate leads for technology companies and sell them to multiple vendors. For the business model, the goal was to spend $100 on Google PPC ads to generate one qualified lead (e.g. someone searching for the term “email marketing”) and we’d in turn sell that lead to five companies that fit the buyer’s needs for $50 each (so, turn $100 into $250).

Within six weeks we’d built a prototype system that managed simple landing pages and had light business rules to forward leads to different companies. Google happily took our money for AdWords ads and we ended up spending several thousand dollars to get our first batch of leads in the system. With leads in hand, we then went to technology vendors and said we had a few qualified leads for them at no-charge and that we’d like to setup a conversation to talk about our new business. Quickly, within a few conversations, it was clear that the technology companies were much more interested in the system to generate the leads than to buy leads from us. After much internal discussion over the course of a week, we decided to change the business to focus on building a marketing automation platform.

While we shifted our business to go from selling leads to selling software, we stayed in the same area of B2B lead generation. To me, this was an iteration in the startup and not a pivot since we could use the core of our existing technology and we continued to go after the same buyer (marketing managers). Here, the key takeaway is that the right strategy often reveals itself as more time is spent in the market, especially when getting honest feedback from customer interactions.

What else? What are some more examples of better strategies emerging after customer interaction?