Secrets to STARTUP SUCCESS

EXECUTE ON YOUR MARKET OPPORTUNITY

In his 1987 book, Moments of Truth, Jan Carlzon tells the story of how he reinvigorated his ailing company, the Swedish Air Service (SAS), by focusing his 20,000 employees on the customer experience. His logic was straightforward: The airline served 10 million customers a year. Each customer came into contact with approximately five SAS employees during the year, and each contact lasted an average of 15 seconds. He wrote, “The SAS is ‘created’ 50 million times a year, 15 seconds at a time. These 50 million ‘moments of truth’ are the mo­ments that ultimately determine whether SAS will succeed or fail as a company.”11

More than twenty years later, this notion still cuts to the heart of what makes any business viable and enduring. Carlzon was operating a large service organization, but the idea that businesses are the sum of their customers’ experiences perfectly applies to founders of seed - stage startups, whether they are hawking websites, widgets, or ac­counting services. The global economic crisis of 2008, and the fact that it was caused by bubbles and run-ups largely empty of assumed value, returned us even more squarely back to fundamentals. Under­neath all the noise and clutter that can accompany your startup process, it’s helpful to remember a simple truth: If you create enough value for enough paying customers, much of your initial risk melts away.

When your product or service is ready for prime time, here are five guidelines for gaining an early edge in the marketplace.

1. Invest to acquire customers. By “invest,” I don’t mean spend wads of cash, unless you’re a well-capitalized founder with a clear-headed plan calling for that. I am suggesting that you put other assets to use, including the most precious resources available to you: your focus, time, and energy. Are you di­recting these toward generating prospects, converting them into paying customers, and stoking the sales engine to build a longer-term revenue stream? Or are you hoping that cus­tomers will flock to your better mousetrap simply because of its magical, magnetic pull?

I sought much advice when I started out as an independent consultant. One piece that stuck with me came from a legend in my field, who, in an interview, was asked to name the secret that distinguishes successful consultants from the rest. He thought for a moment, then he replied, “clients.” Although most new founders understand the importance of building a healthy pipeline of clients, they also routinely underestimate what’s required to do it, even with a well-targeted offering.

Revenue is a lagging indicator. Your customer count will be a function of how much time, attention, and, as necessary, money you put into your marketing and sales efforts. The look and feel of your particular approach will depend on your business model and plan, who you are targeting, through what channels, etc., which I’ll discuss in more detail in Chapter Five. Whatever your plan for acquiring cus­tomers, be sure not to take short cuts in this vital area.

2. Go for game-changing partnerships. A common theme among successful entrepreneurs is that they don’t attempt to do it all themselves. They create early alliances that bring stability, customers, connections, capacity, or promotional support. Whether it’s that first monster client account or a highly traf­ficked website that features your product on its home page, big-ticket partnerships can radically alter the growth trajec­tory of your business. Microsoft was essentially born through a deal to provide the operating system for IBM’s first per­sonal computer. Modality’s first big break came as a result of Mark Williams’s hard-earned partnership with Apple.

As David Thompson notes in his book, Blueprint to a Billion, these alliances are often highly asymmetric, with the larger, more established partner holding all of the power.12 Such partnerships bring challenges and risks. You can become overly dependent on a single mammoth partner, for example, or lose direct contact with your end user. Making the right alliances work in your favor will call for boldness, creativity, persistence, and strong relationship skills.

As you look across your market, use these questions as guidelines for identifying and landing game-changing al­liances:

■ Who currently has relationships with your target customers?

■ Who do you currently view as a competitor that, if approached differently, could be a useful partner?

■ What early customers would instantly connect you with other prospective customers or elevate your business profile in a positive way?

■ What can you offer each prospective partner and vice versa? Where are the win-win opportunities linking your business concept and theirs?

■ What specific steps can you take to explore and strengthen the most promising relationships?

3. Understand your user’s experience. There’s nothing like the feeling of making that first sale and serving that first cus­tomer. Your effort and sacrifice have borne real fruit. So cash that check, whether for $16 or $16,000, and pop the cham­pagne.

But, after the celebration, remember that early sales don’t always equate to satisfied customers. First-time buyers may flock to you because of the novelty effect of your new prod­uct (think of how much traffic most restaurants attract in their first few weeks). Now that real customers are involved, you can begin to answer some vital questions: How effec­tively are you solving your customers’ problems? Are you creating real value for them? Are they the right customers for you? If so, will they buy from you again and refer other customers to you? Answering questions like these will help you build a sustainable market presence over time.

4. Focus and go deep with the right opportunities. The early stages of a startup are all about opening up, experimenting, and generating possibilities. It’s the time to throw your best stuff out there and see what sticks. But as leads turn into viable market opportunities, many startups reach a point where ex­perimentation is no longer necessary or helpful. To propel the business forward, you must choose, focus, and execute in a few core areas. This often means saying no to some exciting options, a fact that can severely test founders accustomed to saying yes to any potential revenue source. If the yes-habit isn’t broken, you’re likely to stretch yourself too thin and fail to make a major impact with any one initiative.

The challenge is in knowing which opportunities to pur­sue more deeply, and which ones to avoid. Here are a few guiding questions:

■ How well does the opportunity align with your purpose, your plan, and your passion?

■ How will it impact cash flow? Will it yield an immediate return of cash, or will it function as a short-term investment with lagging return?

■ What is the degree of difficulty? How well does it match up with your strengths?

■ What will you have to give up to successfully take it on? To what will you say “no” to free up capacity for this “yes”?

■ What are the costs/risks to you if this opportunity doesn’t work out as planned? Are these acceptable and manageable?

5. If you face a revenue crisis, treat it like one. Falling short of early sales goals is the rule rather than the exception among startups. Usually, these initial shortfalls are not as dangerous as another common phenomenon: the unsettling tendency of founding teams to deny that things may not be going well, to avoid talking about it, and to rationalize away the possible implications. This well-worn path of denial, most acute

Among passionate, true believers, often delays or obscures critical learning, choices, and actions. In the interest of “stay­ing positive,” founding teams allow the enterprise to sink more deeply into a hole.

Here are a few guidelines for monitoring and reacting to early sales news.

Don’t:

■ Avoid looking at financial data (this is surprisingly common, like leaving personal 401K statements unopened during a market free-fall).

■ Shield key partners, investors, or co-founders from disappointing news, as this only ensures they will not be able to help.

■ Implement a knee-jerk response without understanding what is causing low sales.

■ Wait for changes in some external circumstance over which you have no control, such as economic recovery.

Do:

■ Look at sales information frequently and closely.

■ Take bad signs seriously, before they grow into crises.

■ Discuss any deviations from your game plan openly with key partners and investors.

■ Investigate and analyze until you understand why sales are low (see Appendix B for Eric Ries’s simple but powerful process for finding and addressing root cause:

“The Five Whys”).

■ Take appropriate action.

When assessing causes, try to distinguish internal process issues that can be corrected (such as product errors, communication gaps, or distribution snags) from more fundamental issues that cannot be summarily fixed (such as significant, unanticipated shifts in the mar­ketplace). The former circumstance calls for quick, focused action, whereas the latter calls for a big picture reevaluation of your overall business model and approach. In some cases, early sales shortfalls are a canary in the coal mine, an advance signal that the market for your idea is too weak to support a profitable business. If you can grasp this possibility early enough, you’ll have a healthy head start on redirect­ing your assets and capabilities to a more welcoming opportunity.