Category: Strategy

Tonight’s EO event featured the economist and TheStreet.com writer Roger Arnold pontificating on the macro economy. It was great. Here are a few of his thoughts, many of which are contrary to mainstream media opinions:

• ABCs of the world economies:
  As the the U.S. housing market goes, so goes the U.S. economy
  As the U.S. economy goes, so goes the world economy
  What’s good for the U.S. is good for the world
• Interest rates are going to go down to 2.5-3% for 30 year fixed mortgages in the next 2-3 years
• Interest rates in 10 years are going to be 10-20% to inflate away some of the U.S. debt
• China is over heating and will crash this decade
• China will require half the world’s oil in 10 years at their current 8% compounded annually growth
• The cost of shipping is put under overhead for many companies resulting is misunderstanding of costs
• Oil prices in 10 years will be so high that manufacturing jobs will return to the U.S. because it’ll be too expensive to ship things
• Quantitative easing part two is a good thing as the fed is lowering the yield on T-bills making it less desirable for banks to hold them and thus look for other ways to make money (e.g. loan the money to small businesses)
• Housing prices still need to come down as 30% of homes are under the value of the mortgage and people will keep walking away from them
• The current generation of kids watching their parents lose their homes will be more reluctant to purchase homes in 20 years resulting in a larger percentage of the population renting instead of buying
• A home should not be viewed as an asset but rather a lifestyle choice and liability
• Current income tax cuts should expire and revert to previous rates but then new tax cuts should be put in place for small business creation and growth that are even more favorable than what we have now
• Small businesses create the majority of new jobs in the U.S.
• All the uncertainty and change going on right now creates opportunity for entrepreneurs

As you can see, he covered quite a bit of ground in the hour and I enjoyed hearing him speak.

Technology startups, especially ones with strong technical skills on the co-founding team, have a tendency to overcomplicate their product and the necessary pieces to launch. There are several reasons why this is the case:

• As a developer it can be fun to experiment with the most fancy of tools, even when they are overkill (premature optimization is the root of all evil).
• There’s no code debt, so it is incredibly easy to add more features, even before a prospect has validated that there’s a need for the existing features.
• It is more fun to innovate and add functionality, due to the immediate sense of satisfaction, as opposed to doing sales and marketing with potentially little results.
• Without a deadline, or timeboxing the minimum viable product, there’s a normal perfectionist tendency as the product is a representation of the developers
• The minimum viable product often slips into the minimum respectable product, which is fine only in limited circumstances

My recommendation is to continually ask yourself if you are overcomplicating the product and necessary pieces to launch and start developing relationships with prospects.

What else? What are some other reasons startups overcomplicate their product?

Recently I was talking to an entrepreneur about 2011 goal planning. A few minutes into the conversation she told me that one of the more successful approaches she’s encountered is to set three SMART goals at the beginning of the year and do whatever it takes to knock them out of the park. Too often people set too many goals, or no goals, and then aren’t able to adequately measure their progress. Some tips for the three goals:

• Make the goals specific, measurable, achievable, relevant, and include a timeline (SMART)
• Ask advisors, friends, and family to hold you accountable on just these three goals (any more makes it difficult to focus and for others to remember)
• Put the goals on a post-it note on your bathroom mirror so that you see it every morning
• Set a recurring event in your calendar for the first day of every month to email you to review your progress against the goals
• Knock the goals out of the park and start thinking of your next set of goals

What else? How do you like to do annual goals?

Often times in the startup world there is what many refer to as the roller coaster of emotions that vary not only day to day but sometimes even hour to hour. One of the most unpleasant events, because it is potentially a waste of time, money, and energy if fought, is the cease and desist letter. The cease and desist has a few tell tale signs including arriving in a FedEx overnight envelope from a unrecognized law firm with a good bit of legalese. We’ve received several of these over the years for reasons like the following:

• Product names that were too close to a competitor’s name (2x)
• Price comparison page that ranked first in Google for the competitor’s name followed by “pricing”, which rankled the competitor
• Passing on information to prospects that was given to use by an employee of a competitor that was looking for a job with us, and volunteered it in her intro email

On a simple level it’s good to push the limits as it is almost always easier to ask for forgiveness than it is to ask for permission. When it comes to cease and desiste letters, nine times out of 10 it is better to make the adjustment and move on.

A few weeks ago I mentioned something similar but I think it is important to understand that value in a startup and established companies isn’t always obvious. There are many different ways to create value and the public perception of how money is made by a certain company can often be good to obfuscate the real value being created. Let’s look at a few examples:

• Someone once told me the market capitalization of airlines is equal to their frequent flier points. Meaning, one significant way airlines make money is by selling frequent flier miles to other companies like credit card issuers.
• There’s an Internet company that recently received a good deal of bad press about their selling social media data. One of the strongest ways they make money is by acting as a credit score of sorts for email addresses, even though you’d never know from their main website.
• In Atlanta there are several retail store fronts in expensive areas for a company that helps people find apartments. Of course, they pitch the service as free and make money by referral fees from the apartments. This one is a bit more obvious but it shows that there are non-obvious ways to build a business.

What else? What are some other examples of non-obvious ways companies create value?

Startup founders love to explain their vision, strategy, and rattle off all the product features. I’m a fan of offline analogies as well as creating mindshare hooks. Startups also fall prey trying to be all things to all people, but with such little resources it is best to do one thing and do it extremely well. One of the things I’d like to see more founders do is think through what their startup isn’t. Here are some examples:

• We don’t target companies with more than 300 employees
• We don’t target B2C companies
• We don’t sell with field sales reps

Yes, the opposite could be articulated but it’s easy to say “we focus on B2B companies” while also seeking out B2C companies. The key with explaining what the startup isn’t is that it makes it more clear where you stand, helping enrich your core focus.

My recommendation is to make a list of what your startup isn’t.

What else? What are some other benefits of explaining what your startup isn’t?

This afternoon I met with a local startup founded by two recent UGA grads. Impressively, they’ve had a great startup progression so far. Here’s what they told me:

• Spent three months working on a business plan only to realize it was a waste of time
• Spent the last three months building a fully functioning web app
• Didn’t know web design so they taught themselves PhotoShop, HTML, and CSS
• Hired a local programmer to build a working site with PHP and MySQL
• Raising a small seed round to launch their sales and marketing

There were a few items I didn’t agree with:

• Going to roll out the product to their main market and then focus on several related markets (I think they should stay laser focused on their initial market until the business is profitable)
• Going to invest in 10-30 hours of programming per month (I think they need to innovate faster than that)
• Don’t have a programmer as a co-founder (a technical co-founder is critical)

My recommendation is to launch early and often (within 60-90 days of start) and solicit feedback from the market. These guys are well on their way.

Whenever I come across a pricing page on a site I immediately think “Oh, OK, that’s how they make money and where they fit in the market.” Well, recently, I came across a company that I knew how many employees they had, how many customers they had, and saw their published pricing. After some simple mental calculations, and knowing they hadn’t raised money, I quickly realized the math didn’t make sense. They couldn’t support that many employees with that little revenue, even in Atlanta (great Fast Company interview of Alan Taetle).

After asking around I found the answer. The monthly fee for the web service is what everyone pays, and it is very competitive for what they offer, but if you choose to use their “free” payment processing option, they charge an additional 1% of the transaction fee as an additional commission. Yep, that’s right, they generate more annual revenue on that 1% transaction fee than from the monthly service for their product. Only, you wouldn’t know it from browsing their site.

My recommendation is to think through ways to generate multiple revenue streams, and consider ones that aren’t always as obvious as a monthly subscription fees (yes, recurring revenue is the best form of revenue).