Category: Strategy

Whether you’re trying to sell a product or recruit a new team member to you join your team, there are five steps to action. These have been talked about for decades in marketing textbooks and were first made popular by Madison Avenue firms.

Here are the five steps to action:

• Unaware – the person doesn’t know the product exists
• Aware – the person knows the product exists but doesn’t understand it
• Understand – the person comprehends the product but hasn’t established a position
• Believe – the person has bought into the product but hasn’t pulled the trigger on it
• Action – the person buys the product

Thinking through these five steps, especially with regards to sales and marketing, helps increase the effectiveness of your team. Sales and marketing messages (e.g. email communication) should be tailored to the respective stage of the prospect.

What else? What do you think of these five steps to action?

Earlier today I was talking with a successful entrepreneur about competitive differentiation. As with many markets, there’s 500-pound gorilla that’s slowly moving into his space and he’s working hard on a long-term competitive differentiation plan. His business continues to grow nicely but there’s the persistent threat of this significant competitor seriously affecting his startup.

Here are some ideas when thinking through competitive differentiation with startups:

• Build a competitive matrix listing everything possible comparing the different companies, even if it isn’t a software product
• Consider softer items like quality of customer service, contract terms, and variety of options
• Look to adjacent parts of the value chain that are less likely to be entered
• Analyze marketing and lead generation options that are too difficult or too niche for large competitors

Competitive differentiation is hard, especially in commoditized markets. Startups should focus on staying close to the customer and making decisions quickly without overly focusing on the competition. It’s prudent to regularly think through competitive differentiation and make sure all team members are aligned.

What else? What are some other ideas when thinking through competitive differentiation with startups?

Keeping goals aligned and top-of-mind in a startup helps increase the likelihood of success. Too often company-wide goals aren’t understood by team members and aren’t discussed on a regular basis. In addition to common best practices like an LCD scoreboard in the lobby here’s another, most subtle technique: set the personal and shared startup passwords to goals. The idea is that there are a fair number of accounts that need to be shared amongst team members as well as used personally and these can be used to reiterate goals (make sure and change them at least quarterly).

Here are some example startup goals encapsulated in passwords:

• 10NCin2011 (10 New Customers in 2011)
• 500kMRRinQ3 ($500,000 Monthly Recurring Revenue Q3)
• 50SQLinSept (50 Sales Qualified Leads September)

The great thing about this approach is that it forces team members to think about the goals more often, much like the new advertising services that use CAPTCHAs to engage with brands.

What else? What do you think of using startup goals in passwords?

As part of the Dreamforce Executive Summit there was a private lunch with the famous HBS professor Clayton Christensen. Christensen, best known for the book The Innovator’s Dilemma (at Duke I had economics classes with Matt Christensen, Clayton’s son, and remember him to be very sharp). A year ago Clayton Christensen had a stroke and has since gone through rehabilitation to learn how to speak again. His talk was sharp, funny, and insightful.

Here are a few notes from Clayton Christensen’s talk:

• Decentralization is disruptive, and is hard to catch
• Pace of performance improvement outpaces ability to use improvements
• Entrants typically win at disruption
• Disruption generates repeated upside surprise
• Decentralization follows centralization (think about what has happened with computing and how that will happen with healthcare)
• The right product architecture depends upon the basis of competition

Clayton Christensen told great stories, anecdotes, and really drove his point home that innovation is disruptive. The most common story followed the pattern that a big company doesn’t want to compete in a smaller, less profitable market and an upstart figures out how to be successful in the smaller market slowly moving up market until the big company is defeated.

What else? What are your thoughts on Clayton Christensen and disruptive innovation?

Pivot entered the startup vernacular a few years ago when Eric Ries popularized it on his blog with Pivot, don’t just jump to a new vision. Previously, I’ve espoused the benefits of iterating and believe it’s important to differentiate between the two. Each term has its place in the startup world and should be used accordingly.

Here’s how I look at pivoting and iterating:

• Pivoting – A wholesale change of the current business model in an attempt to capitalize on a different market opportunity
• Iterating – A minor change of the current business model in an attempt to capitalize on a closely related market opportunity

Pivoting is simply a much more drastic form of iterating. When I talk to entrepreneurs and they tell me how they’ve pivoted recently, most of the time they actually mean iterated. Iterate is something you can roll out quickly and casually. Pivoting is a wholesale change to the business and typically takes much longer to execute.

What else? What do you think of the differentiation between pivoting and iterating?

It’s been a great week for venture-back companies filing to go public, especially in the SaaS category. After talking about Eloqua’s S-1 and Jive Software’s S-1, I want to talk about BazaarVoice’s S-1. BazaarVoice provides technologies to help companies manage user reviews and associated content like photos, videos, stories, etc. Think about what Amazon.com provides to build a community of content around their product listings, but now supply everything but the actual ecommerce engine and you end up with BazaarVoice (Amazon.com develops their own social commerce technology and doesn’t use BazaarVoice, but 587 other companies do use BazaarVoice).

Here are some notes from the BazaarVoice S-1 IPO filing:

• Revenues (pg 2):
  2009 – $22.5 million
  2010 – $38.6 million
  2011 – $64.5 million (net loss of $20.1 million)
• Estimate that there are 10,000 companies with at least $50 million in online revenues that can be served by the platform (pg 3)
• A team of people moderates content 24/7/365 in 27 different languages on behalf of clients (pg 4)
• Growth strategy: expand sales force, up-sell clients, greater customer insights, expand internationally, innovate with the platform, selective acquisitions and partnerships (pg 5)
• Accumulated deficit of $40.8 million (pg 5)
• Many potential clients are hesitant to use the software because they don’t want to display negative reviews about products or services (pg 11)
• Client retention rates ranged from 84.4% to 89.4% for 2009 to 2011 (pg 12)
• Largest 100 clients represent 57.3% of total revenue (pg 13)
• 494 full-time employees and 132 part-time content moderators (pg 15)
• Some product development, QA, and system operations are outsourced to Ukraine and Costa Rica (pg 19)
• Only consumed $11.1 million of capital since inception (raised $23.6 million) making them very capital efficient since they are able to use unearned income from clients pre-paying annually to fund the business (pg 42)
• 2008 cohort of new customers acquired represented $2.3 million in 2008 revenue and $17.4 million in 2011 revenue — extremely impressive up-selling (pg 43)
• $10 million line of credit (pg 57)
• VCs and investors own ~63% of the company (pg 124)
• Founder owns 14.3% (pg 124)

The BazaarVoice S-1 was straightforward and detailed without any surprises regarding their business model.

What else? What do you think of BazaarVoice’s S-1 IPO filing?

Yesterday I went through a few notes from the Eloqua S1 IPO filing. Today I want to look at the Jive Software S1 IPO filling that came out this week. Jive provides business collaboration, community, and social software in both on-demand and installed offerings. The easiest way to describe it is as community forums for places like ESPN.com as well as private Facebook-like communities internal to companies.

Here are some notes from the Jive Software S1 IPO filing:

• Revenues (pg 6):
  2008 – $16.9 million (losses of $11.3 million)
  2009 – $30 million (losses of $4.8 million)
  2010 – $46.3 million (losses of $27.6 million)
  2011 first six months –  $34 million (losses of $30.6 million — an impressive amount for six months)
• Growth strategy: Add customers, up-sell customers, add products, extend eco-system (pg 4)
• Q4 is strongest quarter for billings and renewals (pg 11)
• January 2011 hosting outage that affected some customers upwards of 14 hours (pg 13)
• 9-12 months for a new sales rep to be fully trained (pg 17)
• Debt of $29.6 million (pg 31)
• Renewal rates are over 90%, but only measured for customers paying at least $50,000/year (pg 40)
• 15% of billings over the past 18 months have been for contracts greater than 12 months (pg 51)
• OffiSync was acquired for $23.3 million (pg 55)
• Proximal Labs was acquired for $1.2 million (pg 55)
• Filtrbox was acquired for $1.7 million (pg 55)
• Employee count breakdown as of June 30, 2011 (pg 78):
  358 regular, full-time employees
  15 in hosting
  27 in support
  51 in professional services
  122 in research and development
  105 in sales and marketing
  38 in general and administrative
• VCs own ~40% of the company (pg 109)
• Co-founders own 15.8% and 15.8% (pg 109)

Overall, the IPO filing was as expected providing great detail about the Jive Software business.

What else? What other thoughts do you have about the Jive Software S1 IPO filing?

Yesterday I talked about some of the pros of having parallel startups including shared back-office, cross pollination of teams, and more opportunities to time the market. Doing multiple startups at the same time is difficult, and it’s important to address the unique challenges. Today I want to talk about some of the cons of doing multiple startups at the same time.

Some cons of doing parallel startups:

• Potential lack of momentum on any one idea to get the point where it’ll be successful
• Insufficient resources to make the biggest possible impact with any one startup
• Perceived lack of focus and direction

Talking through these challenges and understanding the drawbacks of doing parallel startups is important in the quest for success. There are many different pros and cons of having parallel startups with most successful parallel startup organization being Idealab in Pasadena.

What else? What other cons are there to doing parallel startups?