Category: Strategy

Earlier today I was talking with an entrepreneur about how the marketing automation market today parallels the email marketing market of seven years ago. We were talking about some of the largest email marketing vendors and what decisions they made along the way to achieve their prominence. One of the vendors, ExactTarget, has an amazing success story, especially considering the relatively small amount of money raised in their first six years.

Here are some pieces of the theory as to how they were able to achieve such success:

• They had great market timing to be early but not too early
• Originally, the product started around $100/month, making it affordable for most businesses
• They employed relatively junior field sales reps in all the major markets who were able to sign up local companies as well as give it away to non-profits (like local technology associations) who would then have the ExactTarget logo at the bottom of every email blast
• The original low entry price forced ExactTarget to get good at customer acquisition, on-boarding, and product ease-of-use otherwise the business wouldn’t scale
• As employees of ExactTarget customers changed jobs they would help get ExactTarget implemented at their next employer creating a nice momentum effect
• Email marketing, charging based on number of emails sent or database size, provides significant head room to grow the size of an account (e.g. as a company like Groupon, which uses ExactTarget, started out paying a few thousand dollars a year in 2008 now pays millions of dollars annually)
• The product, marketing, and sales team became much more sophisticated allowing the company to move up market, and I’d guess that their average revenue per customer today is many times greater than what it was five years ago (moving up market is generally easier than moving down market)

Now, this is all theory, but ExactTarget has been an amazing success story regardless. Great timing, execution, and little luck goes a long ways.

What else? What do you think of this theory on the ExactTarget success story?

A few months ago I was talking to a friend of mine who owns several physical self storage locations. He was asking me about lead generation and ideas around online marketing. My line of questioning was trying to determine the value of a lead:

• How much is a lead worth to you?
• What’s the lifetime value of a customer?
• What are your gross margins?
• What are your net margins?
• What are your business goals?

It was when I asked the gross margins question that he threw me for a loop — he doesn’t pay attention to the gross margin but rather keeps track of how many customers each location needs to break even and views any customers above that amount as pure profit. So, for him, the value of a lead assuming the location had the magic number of customers was extremely high relative to the revenue generated from the incremental customer.

For his business there are dual goals: make money off the long term appreciation of real estate as well as profit from the short term cash flow of the different locations. I don’t have any experience with non-technology startups but this struck me as an interesting way to think about his type of business.

What else? What are your thoughts on this way of thinking about a combination real estate and cash flow approach?

Earlier today I met with the sole founder of a startup that will release their app in three months. Of course, three months from now after already working on it for a month being too long is beside the point. The entrepreneur did a great job of having specific questions and areas she’d like advice. Too often entrepreneurs ask to meet and then have broad questions like What do you think of my idea, How much money do I need, etc.

Here are some tips for goal directed meetings when seeking startup advice:

• Do your homework and read everything you can about the person on their blog, LinkedIn, Twitter, etc
• Prepare a list of five specific questions related to tangible issues you’re working through
• Ask for introductions to one or two other people that might be able to help

My recommendation is make the most of meetings where you are seeking advice by being prepared and thoughtful.

What else? What are some other tips for goal directed meetings when seeking startup advice?

In the past month I’ve had three different co-founders of digital marketing agencies approach me for feedback on their idea for a SaaS marketing product. All three product ideas have been different but the questions they ask were the same: what are some best practices for incubating a product in a service company, how should I staff it, and do you think I can raise money for the idea if I make it a separate business? My answer to the last question is always the same:

Don’t raise money for the idea until you have a repeatable customer acquisition process.

Now, this sets the bar extremely high but it gets people thinking in the right mindset. To have a repeatable sales process means you have customers and you have patterns as to how you acquired those customers. It also means that you figured out how to make ends meet before you take someone else’s money, which bodes well for delivering a nice return on a potential investor’s money. A big benefit of this approach is that if you’re an entrepreneur without a successful track record you’ll be able to raise money at a much better valuation. Also, if things go really well, you might be able to bootstrap indefinitely.

What else? What do you think of developing a repeatable customer acquisition process before raising money?

Today’s TechCrunch post Why Startups Should Raise Money at the Top End of Normal has a great segment in it talking about the startup valuation drivers over time. Every entrepreneur should study and understand these drivers:

• Product Risk – will the product work? how long will it take it to build?
• Market Risk – will the market adopt it? will they love it?
• Growth / Scale Risk – will the business scale? can the management team execute?
• Monetization / Competition Risk – are the margins sustainable? what are the barriers?

At each phase in the process the startup’s valuation increases substantially. Think through these when considering raising money and the potential valuation.

What else? What do you think of these startup valuation drivers?

The following is a guest post by my friend Chris Wegener, the co-founder of PaperStyle.com – cards and stationary. Chris attended the EO NERVE 2011 conference in NYC a couple weeks ago. Enjoy!

Some of these you will know, some are simple but are great reminders, but nevertheless, they all were things that I feel are important!

1. David Rosenblatt (Formerly Double-Click CEO) – For your Board to be effective, they need skin in the game. Trust your gut and don’t be greedy.
2. Maurice Ashley (Intl. Chess Player – Strategist) – Mercata in 2001 vs. Groupon in 2010 – Late movers often can build a product for less and more effectively… learning from all of the front runner’s mistakes. Groupon switched the ‘move order.’ Meaning, they told the retailer, no deal until a certain # of customers sign up… guaranteed sales or it won’t happen. In the past, hadn’t been done that way.
3. David Rose (Investor, Big thinker and really bright guy) – Is anything secret anymore? Everyone knows a lot about everyone. Discussed theory of ‘Singularity’ by 2045. http://www.singularity.com/ and http://singularityu.org/
4. Tony Hsieh (Zappos Founder) – Most of his presentation is from his book, Delivering Happiness. The Zappos way of marketing is to spend your resources/time on your current customers and let them advertise for you. Much cheaper and more effective. With a billion in revenue, I’m not going to disagree!
5. Tony Hsieh (Zappos Founder) – Hire and fire based on your Core Values. If you can’t, you might want to re-think your Core Values. Commit to transparency and you have nothing to fear. His desk, like Zuckerberg’s appears to be in the center of a sea of desks. Hard place to hide!
6. Tony Hsieh (Zappos Founder) – Played this video about his recent book tour. Evidence of his inspiring vision, story and cult… I mean culture! Like it or not, they are drinkin’ the Zappos juice…. and getting it done! Looks like they had quite a time.
7. Tony Hsieh (Zappos Founder) – Chase your vision, not the $. Find your passion and goal in life. What would you be passionate about and do with no pay for 10 years? Be part of something bigger than yourself.
8. Jeff Hoffman (Priceline Founder) – Does ‘Blue Sky Sessions’ 20 minutes a day. Let your mind wander and blurt out whatever it is you are thinking. No rules. No gravity. No editing. Uses post-it-notes on the wall of his office. By themselves, they may not mean much, but over time, all the ‘dots’ as he calls them, can form an idea. If you are saying things like “Wouldn’t be cool if ___________?” You’re on the right track.
9. Jeff Hoffman (Priceline Founder) – Validate your idea in the marketplace before building it. Work backwards and ‘get out of the conference room and into the marketplace.’ Said he got kicked out of a lot of grocery stores following customers around asking for their opinions. Learned that future Priceline Customers were not as originally thought… cheap-skates, but rather people who only had $100 to spend on an airline ticket a cousin’s wedding, didn’t care what time they left and how many connections they had to make.
10. Jack Daly (Sales Coach) – Was sitting on front row and Jack was the most passionate and entertaining speaker I have ever seen. No joke. Awesome. Major take-away was that companies who have great cultures beat the crap out of companies who don’t. Revenues, Stock Prices, Net Income and Job Growth flourish by huge percentages if you’ve got the culture right. Take care of your employees and allow them to grow. They are like plants that need to be watered he said. If you get it right with them, they get it right with your customer.

Thanks again to Chris for taking these great notes.

Recently I was meeting with the co-founder of a fledgling SaaS business and we were catching up about the progress of the startup. After talking for a bit it became readily apparent that the skill sets of the co-founder weren’t aligned with the startup’s approach to the market. What I mean by this is that the co-founder had a background in high-end enterprise sales (think million dollar plus deals) but was now building a company where the average deal size was much less than $10k/year.

The co-founder was using his excellent consultative sales skills with clients, building comprehensive proposals, going through long sales cycles, and getting much less revenue per client as compared to his previous company. I asked the stereotypical question: Can you charge significantly more per client? He thought about it for a minute and said he wouldn’t get as many clients but he could charge more per client, work with fewer clients, and generate more revenue. That was the answer.

My recommendation is to consider your co-founder skill sets when thinking about the market approach and align the strategy appropriately.

What else? Have you seen examples of co-founder skill sets not aligned with the startup’s market approach?

Yesterday’s post on The 9 Building Blocks of a Business Model prompted a comment by Denis Baranov recommending The Startup Toolkit. I was first shown The Startup Toolkit and their Business Model Canvas a couple months ago at the TiE VISTA Conference by one of the attendees. The Business Model Canvas is the 9 building blocks of a business model broken out into a one page view facilitated by a point-and-click webapp.

I’m a fan of frameworks to think through and plan different strategies. Two popular one include the One Page Strategic Plan from Mastering the Rockefeller Habits and Porter’s Five Forces Framework for Analysis. There’s no silver bullet for thinking through strategy but these two combined with the Business Model Canvas provide a good starting point for different purposes.

What else? What do you think of the Business Model Canvas and what are your favorite strategy frameworks?

A few months ago I ordered the book Business Model Generation on Amazon.com after seeing it mentioned on several blogs. Memorial Day weekend makes for the perfect time to dive into the book and I’m just getting started. Straight from the book, here are the nine building blocks of a business model:

1. Customer Segments – An organization serves one or several customer segments.
2. Value Propositions – It seeks to solve customer problems and satisfy customer needs with value propositions.
3. Channels – Value propositions are delivered to customers through communication, distribution, and sales Channels.
4. Customer Relationships – Customer relationships are established and maintained with each customer segment.
5. Revenue Streams – Revenue streams result from value propositions successfully offered to customers.
6. Key Resources – Key resources are the assets required to offer and deliver the previously described elements…
7. Key Activities – …by performing a number of key activities.
8. Key Partnerships – Some activities are outsourced and some resources are acquired outside the enterprise.
9. Cost Structure – The business model elements result in the cost structure.

What else? Is there anything else you’d add to the building blocks of a business model?