Go BIG Network Entrepreneur Blog

Bake the Cake Before You Slice It Up

Tue, 23 Jun 2009 10:38:00 GMT

Experienced entrepreneurs know that when it comes to slicing up the equity in their new startup companies, the longer you wait to hand out big slices, the better.

That’s because a startup company can create a ton of value in a very short period of time, and in many cases, with relatively little effort.

It’s exciting to get others wrapped into your new idea, and their willingness to bet on your idea may feel like something you want to reward with shares of the company. The issue isn’t whether or not you reward these individuals, but really when you reward them, and with how much of the company.

As a rule of thumb, the longer you wait to slice up the equity (assuming you’re growing the company) the less equity you’ll have to give up. Here are just a few milestones that you may be able to get to on your own, before you’ve begun slicing up the cake.

Get Incorporated

The fastest way to turn your idea into a company, at least legally, is to incorporate. You can incorporate yourself on-line in less than half an hour for a few hundred dollars at most.

The benefits of incorporating early are that you can force every discussion of stock into a legal matter, and not just a handshake deal. If I just tell you that I’ve given you 50% of a company that hasn’t even been incorporated, it’s not the world’s most binding document. But if I update the Operating Agreement of an incorporated company to show that you own 50% of the company, there’s no question that you’re a shareholder in the business.

The process may sound simplistic, but it helps create some value. People tend to take ownership of an incorporated company far more seriously than ownership of an idea you emailed them, which usually means it’s not as likely to get diluted as heavily.

Build a Prototype

The next step is to put together a basic working model of your idea. No matter how rough your prototype is, having an existing product to talk about is far more valuable than just talking about it in a PowerPoint presentation.

Your prototype can come in dozens of forms. It can be a barebones version of the Web site you want to build. It can be a service that you want to offer that you’re delivering to customers by yourself right now. It can be an artists’ rendering of the product you intend to build.

Regardless of its form, the prototype gives you the ability to switch from just talking about an idea and to start talking about an actual product. It’s also possible that an early prototype could even lead to a sale to a customer, which would be the ultimate value generator!

Building a prototype can be a challenging task, and one that you may find yourself needing to seek outside help on. If you absolutely feel that the only way to present the product to a customer or potential investor is to bring on another equity partner, then so be it. But if you can get by with just some sketches or a simple working model to convey the product idea, this would be a great time to keep that equity in your own pocket for a while.

Get Some Traction

If you can get past the prototyping stage yourself, without carving up much equity, and get on to selling even just one customer on your own, you’ll have achieved one of the greatest leaps in value creation.

Getting some traction with partners and customers completely changes the value of your company. Up until this point you had a company with an interesting product. Anyone could second guess whether your idea was useful. No one can second guess paying customers though.

It’s not impossible to get this far with your company idea without any help at all. You can incorporate yourself, piece together a working prototype of your product, and pitch it to some early customers that you setup meetings with. In essence, you’ve done the hard part by actually starting the company. The next step is to grow it from there.

Time to Slice it Up

Once you’ve put your company in a position that it simply needs to grow to create value, not just get started, that’s a good time to take on equity partners. At that point the value of having more employees, investors and partners will likely outpace the cost of giving up more equity.

In each step of the journey, you want to keep asking yourself “Is it at all possible for me to get to this next stage without taking on more help?” You may get past the incorporation stage and realize that any hope you have for growing your idea into a company is going to require a few partners. That’s not a problem, as long as you’ve agreed that unless you slice up the cake today, it’s not going to get any bigger.

Why Just Copying Someone Doesn't Work

Tue, 09 Jun 2009 18:04:05 GMT

About once a month I get a Google alert notifying me that someone is looking for a Web developer who can copy the functionality of my Web site.

The thinking goes that if they simply copy the Web site verbatim, they’ll essentially enjoy the same success. This sounds good in theory except for one truth - in five years across three different companies (Swapalease.com, Go BIG Network, and GotCast.com) no one has ever done it successfully.

That doesn’t mean people haven’t tried. Heck, people have gone as far as to literally copy our Web sites and just change a few of the colors and buttons. Yet time and time again, they fail.

The reason these companies fail isn’t because they didn’t make a good enough copy. It’s because they mistook copying the product for copying the business. As a business owner it’s important to understand the difference between what your competition can replicate and what they cannot.

You Can’t Copy Execution

Making a clone of a product is the easy part. The hard part is executing properly on a business in order for it to grow. In the case of our duplicate competitors, they usually die on the vine in a matter of months. They don’t seem to realize that even if you were to copy our product verbatim, using an identical logo and domain name, that the actual daily management and execution is what separates one company from another.

What we do day in and day out – marketing, branding, product development and customer service – is what drives the company toward success.

If your plan is to copy someone’s formula and use it for yourself, you had better have a much better plan for execution than they do. When Overture (now a part of Yahoo!) invented the model of putting paid text ads next to the results in your Web searches, Google flat-out stole the concept.

In Google’s case, however, they executed far better than Overture did on the very concept they stole. In this case, they were able to win not because they stole the concept, but because they executed on the concept better than Overture.

People Buy more than just Products

You’ll often find that copying the product alone, even if it’s an identical twin, isn’t enough. When people buy a product they are not just buying the item itself. They are buying the entire package it comes with.

In the case of a product like a Nike sneaker, they are buying the brand of Nike, not just the sneaker. You can build an identical pair of sneakers, charge half the price for them, and Nike will still outsell you. The product is only a fraction of the purchase. People are also buying the authenticity of the brand that they feel strongly about.

In other cases people are paying for efficacy. You may be able to copy the barebones format of the craigslist.org Web site, but you don’t have the traffic or the efficacy that craigslist does. You also don’t have millions of users who have successfully posted ads on craigslist and gotten what they wanted. That kind of activity requires an incredible amount of time and success to replicate, which copying a product verbatim doesn’t allow for.

Good Ideas will always be Copied

On the flip side, if you have a good idea you can pretty much guarantee someone will copy it. But your concern shouldn’t be whether or not you will be copied, it should be whether or not the person copying you is better at delivering your product than you are.

You can try to protect your idea with all of the patents, trademarks and copyrights you want, but at the end of the day if you’re not out-executing your competition, you’re going to get beat. Even patents will eventually expire!

Bad Competition is a Favor

To some degree you can think of bad competition as a favor. The more poor attempts your competitors make at copying your product, the better your original product looks by comparison.

Additionally, lots of bad competition makes the marketplace look artificially saturated to other would-be competitors. If someone performs a search for your product and sees ten other companies are offering the same thing, they may think twice about becoming the 11th. Little do they know that most of those companies are just cannon fodder in the war for customers!

What really matters is the competitor that enters the space fully loaded with the right management and experience to take you on. While having a good, original product is a great first step, it really is the people behind the product that make all the difference.

Be Where The Puck's Going To Be

Wed, 27 May 2009 11:06:00 GMT

The "Great One" said it best

Hockey legend Wayne Gretzky, when asked how he was always on the puck before anyone else, pointed out that he was by no means the fastest skater on the ice. Instead he explained that he always just focused on skating toward where the puck was going to be. Gretzky knew that if he couldn’t be the fastest in the middle of the game, he would have to figure out how to stay ahead of the game.

Sometimes trying to keep up in the middle of the game is a wasted effort, especially if you’re not necessarily the fastest company in your market. Instead of wasting your energy trying to keep up with the big boys, think like Wayne and get your edge by moving ahead of the game.

If you can't move faster, take a shortcut

Taking a shortcut really means getting a sense for where the market will be at some point in time and heading in that direction now. It’s a lot easier to defend a space before people start fighting for it, especially if no one else realizes it's valuable yet. Taking the shorter path allows you to get in early and pick up a lot of the low hanging fruit.

Fortify your position

Chances are you're going to have a limited amount of time before the competition realizes they also need to be where you are. You need to spend this valuable time fortifying your position as best you can with your available resources.

If your business involves intellectual property that you can potentially patent, even provisional patent can be a valuable tool to ward off the competition. Additionally, you may be able to land some early customers with exclusive agreements that provide an effective barrier to entry to later participants. Keep in mind that you gain a potentially huge advantage from building early relationships in your space before your competition or your customers even know how big it could potentially be. Definitely take advantage of this.

Stay ahead of the puck, not out of the game

There is a big difference between being ahead of the puck, and being out of the game entirely. When thinking about where the market is headed, it's important to have a reasonable expectation of when the rest of the action will catch up to you. Sure, someday we'll all be flying around like George Jetson in hover cars, but before you build the next Spacely Sprockets to manufacture them, you may want to have a good guess when the future is going to show up at your doorstep.

Often when you progress ahead of the existing market you get into a position where there few (if any) customers looking to buy. To avoid this, it's helpful to pick a point ahead of the game that gives you a first-to-market advantage but still leaves you enough room to do business in the with current customers. Startup companies are often strapped for cash, so being too far ahead of the curve without any ability to generate revenue while everyone catches up can be disastrous.

Keep your eye on the game

Like a hockey game, the business world is in constant flux. It's almost certain that the path of progress will change as time goes by. This is fine as long as you continue to adapt your position to fit the path. If you ignore the changes in the existing market you may find that the "market-leading" position you created for yourself is not ahead of the game, but rather in the wrong game altogether.

Promote your early position

A nice benefit to being "first to market" in a new segment is the ability to claim that title early on. Claiming your "number one" status early on will help you build your position among customers, investors and even competitors. Even later on when the market catches up you may still be able to use your "we were the first" claim to legitimize the forward looking position of your product and your business.

Take your shot

With the right timing and some careful planning you will find yourself in the right place at the right time, with a healthy lead on your competition. This means it's no longer time to "plan for the market" but instead to execute on all of the planning you have put in place. Don’t hesitate here. Your early lead is only valuable if you use it to not only get ahead of the market, but stay ahead of the market.

Keep Moving

Some companies make their legacy from making one move ahead of the market at the right time and reaping the rewards for a lifetime. Short of making such a lucky move, you’re going to have to keep looking for new opportunities to take shortcuts and play ahead of the game. Hey, it worked for Wayne.

Everything Follows The Pitch

Tue, 28 Apr 2009 17:57:00 GMT

If you asked me to point to the heart and soul of a startup company, I would not say it’s the people, the culture, or even the product. I would say it’s the pitch. The pitch is that one message that, when delivered, makes people say “wow, that’s a great idea!”. The pitch gets everyone in the room excited about getting on board with your product and your company. It’s the inspiration that carries everyone along for the ride.

The pitch also determines whether or not the company's offer has any viability in the market. For this reason the pitch should always precede any other developments or decisions. Your pitch is your divining rod that helps you make decisions on where to go next. So working on the pitch should always be the first step toward introducing any new concept.

Pitch Early

Pitching early is about as close as you can come to having your own crystal ball to see into the future. Getting a customer to say “yes” today, even though the product may not exist yet, is as important as getting them to say “yes” when it’s actually available. This process allows you to probe your customers’ objections early and understand where the fatal flaws in the model or product offering exist. Better to find out now that customers aren’t dying for your product than after you’ve mortgaged your house to finance your idea!

Pitch Everyone

For the pitch to work, you need to see how it resonates with all of the usual suspects - customers, investors, and employees, in just that order. Each of these constituents thinks about your pitch slightly differently and for good reasons. Customers are interested in how your service improves their life. Investors want to know that your idea can turn into a profitable enterprise. Employees want to know that selling your service will create a great (and steady) place for them to work.

The reaction of each member of this trifecta merits careful consideration. For example, if your customers love your product but investors don’t see how you’ll ever make money, you have a potential problem. You will need to successfully pitch all of these groups eventually, so pitching them effectively early on is critical toward refining your offering and insuring its later acceptance.

Build the Product With the Pitch in Mind

Knowing the pitch allows you to make much better decisions when developing the product. If what you're building doesn't add to the pitch, think twice about adding it at all. In a startup environment you have limited resources, so you need to concentrate your time and effort on features that will lead directly to the customer's, investor’s and employee’s decision to say "yes". Your product should always be built with the pitch in mind.

Sculpt the Pitch

French author and aircraft engineer Antoine de Saint-Exupery once said a designer knows he has achieved perfection not when there is nothing left to add, but when there is nothing left to take away. Sculpting your pitch is no different. Keep paring your pitch down to just the most critical elements that make or break a customer's decision to buy. Anything else is just excess waiting to be scraped away, or worse yet, confuse the customer. Your pitch has become a masterpiece when it is as short and to the point as possible. The faster it hits home, the more powerful it will be.

Keep it Flexible

A good pitch is like a chameleon – it adapts and responds to a changing environment. You may find that what you once thought were the perfect selling points get morphed into a message that sounds quite different but is more effective. Don’t sweat it. There’s nothing wrong with changing the pitch over time as long as it continues to be more effective. There are no points won here for “getting it right the first time”, but there are plenty to be lost for never fixing it. Some of the best pitch masters out there are not only great at speaking, they are great at listening to what customers say and modifying their pitch accordingly.

If They Won’t Buy the Pitch, They Won’t Buy the Product

It’s rare that you will be present every time your customers are considering whether or not to buy your product. That said, if you can’t convince someone to say “yes” while you are standing there giving your pitch in front of them, you can rest assured you’re not likely to get a “yes” when you’re away. A good pitch should be so tightly integrated with your offering that it’s able to sell itself without coming from you. And it should be so infectious that customers can’t help but sell it to their friends.

Remember - if you can’t sell it, it doesn’t really exist!

Act Like Number One

Tue, 14 Apr 2009 19:21:37 GMT

If you’re going to be a leading company in any industry, you need to start acting like #1, even if you are #151. In today’s market, even being number two is just not good enough.

Almost anyone can tell you who the world’s richest man is – Bill Gates. But when asked who numbers two, three and four are, people get confused. The reason is simply that number one garners all the attention, while number two (in this case the great Warren Buffet) gets easily swept aside from our attention.

Who Loves #1? Everyone!

Everybody that interacts with your business loves number one.

Customers make product choices all day long based on number one status. Think about how you make those very same choices in your everyday life. Imagine you are suffering from a terrible cold and walk into the pharmacy to get some cold medicine. You stand in front of two medicines that both effectively treat colds – the “leading national brand” and the “generic store brand”. Even though the leading brand costs three times as much as the generic you find yourself walking to the counter with the leading brand. You believe that number one is better even though you (and the FDA) are pretty sure they do the same thing.

Your customers aren’t the only people fascinated with number one. Investors are equally enthusiastic about #1 companies because they carry an air of legitimacy and success about them. Positioning a company to make more money as number one is much easier than trying to bring number thirteen to the top spot.

And don’t forget the media. The media is in the business of getting customer’s and investor’s attention. Number two products don’t get anyone’s attention unless they are unseating number one products.

Make Yourself #1

So you’re not number one in your category you say?

No problem – just invent a new category!

As a startup company being number one may seem like a contradiction. How can you be number one in any category if you just started your company? At Swapalease.com we were a small company just entering the automotive market. So how did we dominate our space? We invented a new category - lease transfer - and built our reputation as “America’s Number One Lease Transfer Marketplace”. We were number one because no one else at the time was in our market!

Just about any category can be sub-divided into a position that makes you the “market leader,” so use some creativity to claim your territory. This is a simple but effective tactic to begin building your brand and your sales presentation and it’s truly powerful in the minds of consumers.

Even though Warren Buffet isn’t the world’s richest man, he is certainly the world’s oldest richest man. It doesn’t take much to differentiate him and still provide a legitimate number one status.

You can get too granular here, so let me warn you. Telling the world that you are the number one realtor on upper Main Street that sells white houses probably isn’t going to attract the number one status you desire. But telling people that you sell houses faster than your bigger competitors (even if you sell far fewer houses) may get the type of number one status that brings you more customers. Your approach makes all the difference.

Your customers will respond much more positively to your number one status if it is properly placed in the context of their needs. Think about what they want you to be number one for and focus your brand there.

“Woo-hoo! I’m Number One! Now what?”

Great, you’ve just promoted yourself from “aspiring startup” to “industry leader”. Not bad for five minutes worth of effort. Now let’s talk about what to do with your newfound status.

Remember when you were convincing yourself to buy that overpriced cold medicine in the pharmacy? How did you know that the leading brand actually was the leading brand? You knew because they told you they were – all the time – whether you wanted to hear it or not. You heard it on radio commercials, watched it on TV, and of course read the brilliantly colored statement on the otherwise generic box. In short – because they told you over and over.

If you’re going to be treated like number one, you need to act like number one and pound your chest about it. Announce your number one status on every last piece of sales and marketing collateral that you own. Get used to giving your elevator pitch with the opening line “we are the largest stainless steel provider in Central Ohio” at every chance you get. Live your number one status in every aspect of your business.

After all, if you don’t claim your number one status your competition will.

Draft Your Competition

Wed, 01 Apr 2009 10:02:05 GMT

If you want to learn how to race with the big boys, watch NASCAR.

In NASCAR racing, each car leading another is the first to encounter and break through air resistance. As they do this, they create a pocket of air to the sides and just behind their car that pulls along any car willing to ride right behind. By drafting the car in front of it, the tailing car conserves fuel and power so that at the critical moment, they can pull to the side, punch the acceleration and rocket ahead.

You need to learn how to “draft” your competition to take advantage of their lead until you are ready to pull ahead.

Play Follow the Leader

Let’s say you have a brilliant idea for a new product or service area your company can exploit. After doing a little digging you find that plenty of other smart people just like you have had the same idea – and have already launched companies to take advantage of this opportunity. How do you use their first-mover advantage against them?

Remember that being the first requires far more energy and risk than being the second. There are plenty of corporate tombstones to remind us what happens when the leading company gets drafted by the next competitor on the block. Anyone remember Netscape (RIP)? Even though it wasn’t exactly intentional, Microsoft let Netscape bear the burden of being the first to market – finding out that there really isn’t a revenue model in giving software away for free. As such, they were able to enter the market much more efficiently by baking their product, Internet Explorer, directly into the Operating System.

There is also a good deal of risk your competition assumes by riding out in front. If they roll out a new feature and it bombs with the customers, they’re the ones that have to absorb the cost. If they’re introducing a service to an unproven market, it’ll be their bottom line that takes the hit if it goes bust. Let your competition take the immediate hits and focus your attention on capitalizing on the wins that they find by quickly introducing your product right behind it.

Getting to the Next In Line

The first step in business drafting is to take a baseline inventory of the competition’s offering. If you even want a shot at making their customers your own, you’ll need to make sure you’re taking them something comparable.

You’ll surely find that investigating your competition gives you great ideas for ways to enhance your own products. But remember, the point of drafting is to conserve your own energy by just keeping pace. Anything your competitors aren’t offering will give you an advantage later but isn’t a requirement to be a contender right now.

Once you have your baseline list, you’re ready to pull into position. To do so, you’re going to have to make some choices about the priority of your baseline features. While this baseline gives you a great to do list, you still have to decide what you can accomplish with the resources you have available. Also, just because your competition is doing something, it doesn’t mean that it’s so important to your customers.

Your single best source for evaluating baseline features is your customers. If they don’t need it, neither do you. This is a clear disadvantage to your competitors because while you keep energy in reserve by not implementing an unneeded feature, they get none back by removing it.

Pull Out Ahead

After you’ve dropped unneeded features and prioritized the remaining ones, you’ll be sitting behind your nearest competitor with a full tank of gas and ready to put the pedal to the metal.

Remember all of those ideas you had about your competitor’s shortcomings and all of those suggestions the customers gave you? These are the new features that you implement with your reserves to catapult you around the business you’ve been drafting. You’ll use this strategy to climb feature-by-feature, customer-by-customer all the way to the front of the pack.

Your most important move will be the one that puts you out in front of the competition. You’ll be the one encountering all of the front-end resistance and risk, and if you don’t put enough distance behind you, you’ll be the one that’s drafted.

Cross the Finish Line

Now that you’ve pulled out to the front of the pack and crossed the finish line you’ve won, right? Not exactly.

In business there is always another race to be won. Once again you’re at the end of another line and it’s time to draft your way up to the lead position. This time you know the drill. You know you need to conserve your energy and only pull ahead when the time is right.

And don’t forget to look back, either. Your competition is quickly trying to figure out their own drafting strategy, but for now, it’s time for them to eat your dust.

Identify The Growth Factors

Wed, 18 Mar 2009 16:38:54 GMT

In “The Incredible Hulk”, mild-mannered scientist Bruce Banner discovered that when he was exposed to “gamma rays” he was transformed into a massive beast that could ferociously muscle his way to victory in any situation. Other than being disfigured, green, and in nothing but his boxer shorts, the Hulk discovered that a single growth factor could drastically change his ability to handle his problems.

Unfortunately, gamma radiation is in short supply at most startups, so entrepreneurs need to find their own “growth factors” to make their businesses huge. The growth factors of your business are the key drivers that, if tweaked properly, can give your company the boost it needs to grow faster and stronger.

Get Your Gamma Ray On

Chances are you already have an idea what the growth factors in your business are, but aren’t yet isolating them like you should be. For example, if minimizing the cost of acquiring a customer is critical to your growth strategy, it’s a growth factor. If converting a certain number of visitors at your Web site to actual sales makes huge differences in your financial model, it’s a growth factor. And if buying supplies cheaper and reducing your cost of goods sold enhances your ability to go to market, it’s a growth factor. Your business is filled with growth factors just waiting to be discovered.

It’s important to note, however, that a growth factor is the cause of an outcome, not the outcome itself. For example, “making more money” isn’t a growth factor, it’s the outcome of growth factors like converting more sales leads or reducing operational expenses.

If you don’t know right now what the top three key drivers of your business are, it’s probably a good time to start defining them and burning them into your brain. Most companies succeed or fail based on just a few growth factors, so identifying them early is extremely important.

Focus, Grasshopper

Knowing your growth factors is just the beginning. Once you realize what elements of your business drive the growth and overall success of your business, the next step is putting as much of your time and energy as possible into focusing on those opportunities.

“Most entrepreneurs have very limited resources and their time is critical” says Kelly Perdew, winner of NBC’s The Apprentice. “I’ve found that there are vital areas of every business that need the founder’s direct attention the most and that you will get the most value from spending your time there.”

It’s easy to get distracted from driving your growth factors when you’re busy finding office space, hiring staff, and addressing all the problems of a growing corporate culture. Keep in mind that while these duties are necessary, they aren’t necessarily doing an effective job driving the company forward. It’s a matter of priorities and your growth factors should be at the top of your “to do” list every day.

If It’s Not Core to the Business, Outsource It

Outsourcing isn’t just for large companies. It’s also for startups that need to focus on their growth factors.

Kelly adds “It is important to know what you do well and what you don’t do well. Surround yourself with people who are experts at what they do and can augment your capabilities. If it isn’t one of the critical aspects of your business have an expert take care of it. Software development, accounting, HR, legal and many other aspects of your business take up a significant amount of time and don’t add significantly to your growth. Outsourcing firms are experts at what they do, can scale to meet your needs, and free you up to do the things you should be doing. Use them!”

Promote the Growth Factors

If you find it personally difficult to stay focused on the growth factors of the business, it will be nearly impossible for the rest of your team to stay focused, especially if they don’t know what the growth factors are.

Take advantage of every opportunity to promote the growth factors of your business and how important they are to your success. Make them as ubiquitous in the company as possible, from the CFO to the receptionist. Post them atop every meeting agenda, on everyone’s mouse pad, at the bottom of every company memorandum and even on people’s paychecks if you don’t think you’re getting through to them.

Look! I’m Changing…..

Once you’ve begun to put focus on the growth factors, you may sense a change in the way things look. All of a sudden you’re getting strong and faster, and things feel like they are coming together for once. Don’t fret, you’re not about to turn into a savage building-bashing beast! The only green you should be seeing is in your bank account!

Focus is the Key to a Successful Startup

Wed, 04 Mar 2009 18:04:44 GMT

The definition of a startup means you have very few resources to employ and little time to get them to do something valuable. The clock is always ticking, and the money (if you even have any) is running out by the day. With so little to leverage, you need to make sure that the focus of your company's product offer is as razor sharp as possible.

Don't be all you can be. Be as little as you can be.

Most startup companies fail because they try to be too many things to too many people right from the onset. They think of every possible option they could load into their product offer. While this may give them the feeling of being one of the “big boys,” the grim reality is they are not. In fact by trying to be too many things from the start, these companies often end up delivering no real value at all.

Instead of trying to be all things to all people, try being one thing to all people. Think of PayPal, the highly successful startup that allowed users to e-mail money over the Internet to each other. PayPal could have chosen a million options for their offer. They could have become an on-line credit card company, an auction site, a loan provider and so on. But what made the company successful was their focus on only one offer – e-mailing money from one person to the other.

PayPal did one simple thing so well that the industry giant eBay purchased them for $1.5 billion in 2002, even after eBay had already built the same service themselves. PayPal is a great example of a company keeping a sharp focus one doing on thing right even when so many great opportunities could have easily distracted them.

Bite off less than you can chew

Delivering your product to market is an amazing feat to begin with. Even still, a common problem among small companies is their inability to predict what it will take to actually support a product once it has gone to market. It’s easy to conceive complex products with lots of features. But actually bringing that product to market and supporting its use with customers is a whole different story.

Instead of trying to roll out everything and the kitchen sink in your approach to market, just roll out the sink. If you find that you can support your product just fine after it’s been successfully selling in the first year, then go ahead and add to it. It’s a lot easier to add features along the way than it is to support features you don’t have the resources for to begin with.

You have ten seconds to get it right

Your customer has a life, even if you do not. They are being constantly bombarded with marketing messages from the latest movie releases to the newest type of shampoo. They don’t have the time or energy to stop their entire day to focus on just your product. So if you are lucky enough to have ten seconds of their attention, you had better make good use of it.

The exercise of developing your value proposition in ten seconds is a great way to distill down your feature set to those items that will get people’s attention right away. If it’s not going to add value to the ten second pitch, it’s not critical to your product’s success. If you can’t get your customer’s attention with the one key benefit to your product, the rest of your features will never see the light of day to begin with.

Stay on target gold leader

Your product launch is just the beginning of keeping your focus. Once you have brought your product to market and enjoyed some early success, it may become even harder to stay focused. Now you have customers calling you and recommending (or demanding!) features to be added and services to be provided. All of these distractions make it even harder to keep you and your team focused on a single goal.

Fortunately the process of keeping your resources focused post-launch is entirely the same. You need to pick your battles and allocate your resources toward the few initiatives that will be best served to do the one thing right that is truly driving your company. Serving the needs and whims of every customer sounds great, but it can also be a terrible detour when trying to keep the forward progress of your company moving.

If at any point during your journey you’re unsure whether or not you’re spending your time and resources effectively, just ask yourself one question, “Is this driving the core benefit of our product?”. If the answer is “yes”, you’re headed in the right direction.

Compress Time

Wed, 18 Feb 2009 10:52:11 GMT

In the popular 1980’s movie “Dune,” man learned that by “folding space” the distance between two points shortened and he could cover those distances faster. Around 1995, we found a substance that could bend time in the business community -- it was called Venture Capital. With enough of it, we could compress the evolution of a startup company from a few decades to a few years. Companies like Amazon, eBay and most recently Google showed us that billion dollar companies could be built in years, not decades.

What was more interesting is that these companies began growing faster even as the venture capital markets dried up completely. They found a better approach to growing at a dizzying rate – by compressing time.

Compression in Action

Compressing time in a business means reducing the time between two salient points of development. For example, reducing the amount of time it takes to acquire a customer. Or reducing the amount of time it takes to service that same customer. Or even better, reducing the amount of time it takes to get paid by that customer!

The bane of most business plans is that they quickly fall into the rut of doing what seems obvious, creating a sequential and time-intensive approach to growth. Amazon could have started out with one small store and then built that store out over time. Instead, they conceived (and built) the world’s largest book store from the get-go, and then spent the rest of their time keeping that store in business. They essentially built their company backwards.

Google and eBay took a different approach. They realized that in order to grow fast they would have to acquire customers at an alarming rate. They also realized that they would need to acquire millions of free customers in order to get hundreds of paying customers. Their models essentially gave the services away for free in order to compress the timelines of customer acquisition. With a huge network of customers in hand, they can now spend their time servicing the paying customers that shook out along the way.

Squeezing out the Empty Space

When I talk about squeezing out the empty space, I’m not talking about getting rid of the BizDev guy. I’m talking getting rid of the bloated, sequential processes that keep companies from growing faster. Let’s start with a problem that just about every business faces – the time it takes to acquire and service a customer.

With an eye on compression, the first thing we should do is agree on the goal. The goal is to get the customer to pay for your service. Everything else is just a means to that end.

For our own purposes, we’ll say we are a consulting company that sells it’s time to clients for a fee. We may decide that we can condense our sales cycles by picking up work that other companies have sold and providing our people on those projects. Instead of spending time soliciting clients, we could spend our time billing them.

Or we may decide that our sales cycle is efficient, but it takes too long to hire and train people. In this case we might decide to outsource the work we bring in, saving ourselves the time and expense of recruiting a team of our own. Once again we are able to compress the time it takes to collect our fees (and reinvest them) which ultimately grows the business faster.

Don’t Squeeze Too Hard

Every lesson comes with a caveat, and this one is no exception. Compressing timelines just for the sake of going warp speed isn't always in your company's best interest. Some aspects of your business, like your corporate culture, benefit from developing over time. With each decision to speed things up, you must recognize which aspects of the organization may be strained as a consequence.

Keep the Pedal to the Metal

If you want to stay competitive your company simply cannot afford to waste time. Faster, more nimble companies are always breathing down your neck. Compression is a requirement, not a luxury. The reason the fastest growing companies have earned their positions is because they are concentrated on being fast growth companies. Their success comes from getting the most bang for the least amount of time.

As your business evolves, new opportunities to condense your timelines will continually arise. Constantly challenge your team to look for new ways to compress their own activities. Each person that attacks their tasks with compression in mind helps accelerate the evolution of the entire company.

Time keeps on slipping into the future

If anything is in short supply for an entrepreneur, it's time. The beauty of compression is that it eliminates time wasted on tasks that aren't moving you toward your goal quickly. Compression reclaims all of this time and leaves it for you in a nice package at the finish line – ready to use for your next business challenge.

A Startup Never Closes

Wed, 04 Feb 2009 10:56:04 GMT

When it comes to a startup, the luxuries shared with established companies are few and far between. Chief among them is the luxury to close at the end of the day. Big companies have the benefits of capital, customers and receivables. Startups, on the other hand, have jack squat. They need to work twice as hard to make half as much, and even then they’re not working nearly enough.

If you had any delusions going into this new venture that things were going to be easy and you were going to be on your own schedule then let me serve as your wake-up call. A startup runs like a casino – it’s all about making money, it’s a huge gamble, and no matter what, a startup never closes!

Your new business hours: every waking moment

Working like a slave is the norm in a startup company, not the exception. When I started my first company, Blue Diesel, I didn't see my family, celebrate Christmas, or take a weekend day off for three years. After a while I forgot that people go home on the weekends and sick days shouldn’t be considered a vacation. Sure, I was demented, but I wasn’t alone.

Startups realize that in order to get ahead they need to trade their time (and their lives) for the good of the company. You can only accomplish so much by working smart – the rest just comes down to lots and lots of hours.

Even if you’ve go the stamina to put this kind of time in, it doesn’t necessarily mean the rest of your team does. Make sure that everyone is well aware of what is expected of them and what they’re signing up for.

Set Clear Expectations, And Live by Them

It's always helpful to let people know what they are getting into before they get started. Inform potential employees during the interview that the demands of a startup are far and beyond anything of a regular 9–to-5 job. Let them know that you don't think twice about working weekends or into the evening and that you expect the same of them. You'll find that the clock-punchers won’t return your phone calls and the truly insane will show up on Monday with a case of Red Bull. It’s a twisted form of “natural selection”.

And remember, the pace of a startup starts with you, so it's important that you set a tone by consistent example. Don't expect your team to show up before you and leave after you. You need to demonstrate that if sacrifices are going to be made, that you are as willing to make them as anyone. Action speaks a whole lot louder than words.

How to know you're working for a startup

Let me give you some indicators to let you know when you're truly working for a startup. I'll give these to you Jeff Foxworthy style. If you really don't know what day it is, you're probably working for a startup. If you know the number for pizza delivery to your office by heart, you're probably working for a startup. If you look forward to holidays because you'll miss traffic and get to work ten minutes sooner, you're probably working for a startup. Welcome to your new life.

Send 5:01 home

Not everyone will be on board with this “every waking hour” schedule. In fact, you'll inevitably hire the guy who will quickly become known as "5:01". We call him 5:01 because when the clock strikes 5:01, his stuff is already packed up and he’s heading out the door. This is a problem because startups don't close at 5:00 - they leave when the job is done.

When the rest of the team is working around the clock and forgoing all sleep, 5:01 is going to be about as popular as cancer. This isn't to say that 5:01 isn't a good guy who can do good work. There's plenty of room for him - just not in a startup.

The Star that Burns Brightest Burns Fastest

There’s a real downside to this schedule and that’s burnout. You can only run the engine at red line for so long – eventually it’s going to explode. Knowing this, you need to give you and your team a well-deserved break from time to time. When your performance slows down all the extra hours in the world won’t make up for it. Don’t be afraid to take a pit stop from time to time and refresh. Get as far away from work as possible and just unwind.

It better be worth it

Needless to say, if you are going to make a sacrifice this great, you had better feel extremely passionately about what you are doing. In the end, when you make your dream a reality, the payoff will be worth it. Until then, put this column down, chug another Mountain Dew, and get back to work!

Get Customers First and Then Write a Business Plan

Thu, 22 Jan 2009 09:55:00 GMT

If you’re thinking about starting a company, please don’t write a business plan. Stop, put the keyboard down, and step back. You’re wasting valuable time.

Don’t get me wrong, I’m not suggesting that you run aimlessly into the startup abyss. What I want you to avoid is the black hole of planning that most entrepreneurs get into when starting a company. They get sucked into a time warp where a formerly great idea gives way to months upon months of “thinking” about the idea instead of just making the damn thing happen.

If Nobody Buys, it’s Not a Business

The first step, before writing a plan, is to validate the concept. If nobody will ever buy your product, it’s unlikely that a business is ever going to form. Focusing on the product first, and more specifically the customer’s willingness to buy that product, is by far the most valuable time you can spend early in your business.

In addition to validating your concept, selling the product early allows you to prove some key assumptions in your plan before you begin writing it. For example, wouldn’t it be helpful to know what someone would pay for your product before you built it? You would be surprised how much information you can gather from potential customers just by asking them what they would pay for a hypothetical product. “If you build it, they will come” might have worked for Kevin Costner in the movie Field of Dreams, but it’s a formula for disaster in a startup.

The Prototype Company

Sometimes finding out early that your idea isn’t as viable as you thought is a blessing. Instead of spending months writing an elaborate business plan on a completely unproven idea, try putting together a “pre-business plan” that consists of only about five pages that quickly communicates your idea and focuses on the key assumptions that drive your business. These key assumptions are often questions like “Will people buy the product as I’ve defined it?”, or “what will they pay?”, or “how much would it cost me to sell this product?”.

Imagine that the first few months of your business are really more like a great big “prototype company”. Focusing strictly on the sale of the product and proving your assumptions, even on a small scale, will allow you to write a far more comprehensive and viable business plan when you are ready to formalize your thoughts. Additionally, you will be able to make much more accurate forecasts on the business when you get a sense for what it really takes to market, sell and deliver the product.

Your Business Plan is Not an Application for Capital

It’s a common misconception that investors want to see a business plan before they will consider investing in a concept. That’s not entirely true. What investors want to see is that you can demonstrate your ability to sell the product to paying customers. Ask anyone (even yourself) who you would rather invest in – a startup company that is making money without a plan or a business plan that isn’t making any money? Writing long, elaborate papers might have impressed your instructors back in college but it won’t win you any points with investors. They want results, not ideas.

Keep the Plan Simple (and listen!)

Despite what you may have heard, most of the best business plans are as simple as possible. It’s far more important for you to demonstrate that you can solve one market need incredibly well than being able to show you’ve thought of every possible market niche and have included it in your plan. Think quality over quantity.

The process of writing your business plan isn’t to show off how much you know about a concept. The most important aspect of writing your plan is to become a voracious listener. Listen to what your potential customers are telling you they want in a product. Listen to what they are not getting from the existing products. Listen to what investors are looking for in the companies they put money into. Your business plan should read more like a record of all the valuable information you have heard, presented in a meaningful way that makes the case for your company’s potential success.

Put Down Your Pen and Pick Up the Phone

You’re much better served to do your business planning by picking up the phone and asking customers to buy than you are in writing an elaborate plan. In fact, the more you speak to people about how they will respond to your idea the more likely you will write a much different plan that is based on real world findings.

Great companies are born from action. Now go sell something!

Turn People Into Money

Tue, 06 Jan 2009 10:49:48 GMT

Turn People into Money

For any startup, raising money to hire people is always a problem. There’s a lot to be done, and inevitably it takes people – who are very expensive – to do it. But how do you get the money to hire the people if you don’t have the people to create the money in the first place?

The key is to reverse the trend – turn people into money.

Finding out how to bring staff members on board before you have a chance to pay them in real dollars will allow you to convert their time into money. In order to do this, you need to understand just how elastic the cost of people really is.

The Elastic Cost of People

The interesting thing about the cost of people is that while they are the most expensive resource you can buy, they are also the one resource that has the potential to cost nothing at all. A startup company has a unique currency – potential – that is used to convince people to trade their valuable time for little or no up front compensation.

If the 1990’s taught us anything, it’s that sometimes the potential of what a company can be tomorrow is worth far more than what a paycheck is worth today. Companies like Amazon, Yahoo and recently Google have reminded us that trading a steady paycheck for a potential jackpot can be a great bet.

These companies and the people that worked for them recognized that taking a risk in the form of lower compensation in the formative years of the company would be worth it if the company took off. Even if you aren’t planning on creating the next billion-dollar company, a modest plan that affords a healthy return for the time your people will put into your company is still a great payoff.

How to Win Friends and Influence People

Dale Carnegie’s popular book “How to Win Friends and Influence People” provided one of the most important lessons for entrepreneurs looking to recruit talent who will work for nothing but potential – find out what motivates them. I said them, not you!

Everyone believes they are worth far more than they are being paid. We want to believe that one day we will finally get properly rewarded for our hard work and become fabulously wealthy. Unfortunately very few of us have a distinct and obvious path to get there. As a startup company you have the potential to fulfill that dream and many others. The currency of “potential” and the opportunity to change the world is a fantastic motivational force that you absolutely need to leverage in order to convince anyone that they should work for free.

Although a big payout is a great start, remember that people are motivated by lots of things, not just money. The right title, job responsibilities, or terms of employment such as flexible hours can be just as much of an attraction as money. You must understand the needs of your people in order to create a startup opportunity that makes sense for them.

Keep the Drive Alive

Bringing people on board to work for your new startup without paying them is only half the battle. The other half of the battle is keeping them there while their bills keep tumbling in and a regular paycheck isn’t. A savvy entrepreneur knows that in order to keep everyone on board, he needs to keep the drive alive. The entire team must be constantly reminded that they are making forward progress, especially when times get tough, as they always do.

The “startup euphoria” felt by new team members is incredibly powerful, but also quite fleeting. Eventually people will want to see a tangible return on their time investment and it’s your job to make sure that happens in a very short period of time.

Celebrate Small Victories

Not every payback needs to be a paycheck. Sometimes recognition for a job well done is a good start. On a larger scale, let everyone know about the forward progress of the company as a whole. Celebrate every small victory as though you just won a Superbowl title. Emotional payback is one of the greatest returns you can provide to your team without spending any cash at all!

Convert to Cash Quickly

While the clock is ticking, your goal is to convert the time and energy invested into actual dollars to keep the company growing. When the pixie dust wears off (and it will) you want to be sure that you’ve got real dollars to pay your team with. The true realization of the dream would be to build a great company without having to sacrifice a great deal of personal income along the way. If you can satisfy both of these goals in the minds and hearts of the people that work for you, you’ve crossed the finish line.

Treat Your Options Like Organs

Thu, 11 Dec 2008 11:21:41 GMT

The equity in your startup company, often distributed in the form of stock options, is the most valuable asset you will ever part with. They are like the organs in your body – you only start with a limited amount and at first they seem like they are free. But like the organs in your body, you only get one chance to give them away, so you had better be real careful about giving them away.

It all starts innocently enough. We have a great idea. We need people to implement and support the idea, and since we don't have a ton of actual cash we start to divvy up this funny money called “equity”. After all, what does it really cost you to give away 20% of a company that isn't worth anything right now?

It costs a lot more than you think, and determining the real value of those options is critical to your (company’s) good health.

Valuing Your Great Idea

When an idea is nothing more than an idea, many would say it has no value at all. Admittedly, a company with no revenue is worth zero. However, when determining what the value of your company will be in the years to come you need to arrive at some sort of baseline.

Consider what your company would need to be worth in the next few years in order for you to make it worth your while to create anything at all. Obviously if the company was only worth $150,000 in three years you probably wouldn’t be dividing up equity today among partners to get there.

My litmus test is a value of $2 Million. An idea that can generate $2 Million dollars in a few years is one that is worth my time and energy now. We all know that the price of a failure is zero, so we're far better served by focusing on the value of success.

If you’re having trouble convincing others that the value is $2 Million, get used to it. The one certainty is that you will spend the rest of your career at this company convincing people that it is worth more than they think it is! It’s good practice.

Stick to Dollars and Sense

If a man showed up at your office with a great idea for a company that he was willing to give you 0.125% of, would you leave your day job and work for him for free?

To most of us, an eighth of a percent sounds like an awfully small number.

But if that man is Bill Gates and that company is Microsoft then its $179 Billion market cap makes your 0.125% worth a little over $223 Million.

The percentage that you're offering your employee, your attorney or your accountant will always sound small and for good reason – while you can give someone a piece of a company worth millions, you can never give someone more than 100 percent. And that's a pretty puny number by comparison.

The company you're planning to build may have a target of $2 Million, and while strictly speaking it may work out that you want to give an employee 10% of that you're far better to present it as a $200,000 value for their contribution.

Talking in dollars also begins to give you an exchange rate for valuing someone's contribution to the company. Someone who would otherwise be paid $50,000 in cash for their services shouldn't be paid $500,000 in equity. You should certainly consider bumping up the amount to compensate for their risk (after all, we are selling future value here) but a $450,000 increase would be quite extreme.

Get Some Traction Before You Open the Floodgates

Before you're considering the dollar value of other people's contributions to the company, you should be busy increasing your own. Even if your idea is terrific, if you approach others too early their perceived contribution is greater and they're likely to demand a bigger piece as a consequence.

Each piece of infrastructure you build from incorporation to securing customer commitments creates more tangible value for your company and therefore makes the contributions of others slightly less valuable to the whole of a company which is good when you are paying for everything in equity.

Sell Your Kidney To The Highest Bidder

Before you surf over to eBay, let me explain that I'm talking about one of the most important reasons to hold on to your equity.

The early stages of your company may appear to be resource intensive, but often times it's the later stages that require even greater resources and therefore massive amounts of investment capital.

When this time comes, if you have little equity left a single round of investment dilution can be devastating.

Your stock options, like your organs, are only free until your realize how badly you need them to operate and grow. Treat your options like organs and you’ll realize how much healthier you and your company will be in the long term!

The Magic of Float

Tue, 25 Nov 2008 11:10:46 GMT

The Magic of Float

If you’ve ever received a service today and paid for it in 30 days you’ve experienced the concept of “float” – the time difference between when you receive a service and when you paid for it. In most cases this time period is a convenience to you as a customer, but in the world of business marketing it can absolutely transform your business.

The reason you can grow your marketing budget so actively is because of a whole new breed of on-line marketing tools that allow you to actually make money faster than you spend it. Thousands of companies are taking advantage of new on-line advertising models that are driving millions of qualified buyers to their respective sites on a shoestring budget. Let me explain the models and then we’ll get back to leveraging the float.

Google Rocks

Yes, they have a huge market cap, but that’s not why Google rocks. It’s how they got there. Google helped pioneer a concept called “cost per click” (CPC) advertising. Google displays a handful of ads on each of its search results pages. Advertisers only pay for those ads when someone actually clicks on their ad (hence cost per click, get it?). Companies of all sizes have jumped on this incredibly targeted and efficient ad model to drive millions of visitors to their sites, and turn those visitors into cash.

The beauty of cost per click is that you can start small (a Google campaign can start at only $5) and grow your budget over time. More importantly, you can use your credit card to pay for the service. At Swapalease we got thousands of qualified visitors per month that we turned into cash. Then we got a bill at the end of the month which we had 30 days to pay. The time period between when we got a paying customer (and collected our fees) and when we actually paid to acquire the customer is our float, and it makes all the difference.

Google isn’t the only company that provides such a great opportunity. Yahoo, MSN, and Business.com have nearly identical services that can drive even more traffic to your site and employ the same model. I would recommend that you leverage all of them. Collectively they can drive a massive amount of business to your website virtually overnight.

Marketing Shangri-La

Cost per click is just one example of the “buy now, pay later” model. An even better example is “cost per acquisition” (CPA). CPA is the panacea of marketing. Instead of paying publishers for the click, you get the click for free. Only when someone actually makes a purchase do you pay the publisher a commission for that sale. Smart marketers will sign up for this business every day of the week.

Companies like Commission Junction serve as proxies to connect interested advertisers to publishers looking to make commission revenues. Once again you have the ability to pay your fees by credit card and create a small float between the time you earn cash and the time you write a check.

Your Mileage May Vary

Each of these models, while wonderful, will only work if you have a business model that can turn site traffic into customers in short order. At Swapalease.com we collected fees immediately when customers visited our site and signed up for our service. This allowed us to put money into our bank account faster than we paid it out. Ultimately we had the ability to roll the increased profits into each additional month to aggressively grow our marketing budget. Every business model is different and your mileage may vary.

Grow Baby, Grow

You can profitably sustain your business by leveraging these and other on-line models to make money. But just sustaining your business is boring. To really grow your business you’ll need to continuously re-invest a portion of the profits each month into your next month’s marketing budget. The process works best when you allocate the additional cash into your next month incrementally, reserving a portion of the additional profits for potential mistakes.

Beware, though, there is some risk in doing this. Spending too aggressively before you truly understand what works and what doesn’t can absolutely sink you. The best approach is to start small, understand what works, and scale accordingly. The good news is there is enough traffic out there to keep you busy for a long time to come. Now just sit back and watch the checks roll in (boy that would be nice, wouldn’t it?).

Why Just Copying Someone Else Doesn’t Work

Wed, 29 Oct 2008 14:58:00 GMT

About once a month I get a Google alert notifying me that someone is looking for a Web developer who can copy the functionality of my Web site.

The thinking goes that if they simply copy the Web site verbatim, they’ll essentially enjoy the same success. This sounds good in theory except for one truth - in five years across three different companies (Swapalease.com, Go BIG Network, and GotCast.com) no one has ever done it successfully.

That doesn’t mean people haven’t tried. Heck, people have gone as far as to literally copy our Web sites and just change a few of the colors and buttons. Yet time and time again, they fail.

The reason these companies fail isn’t because they didn’t make a good enough copy. It’s because they mistook copying the product for copying the business. As a business owner it’s important to understand the difference between what your competition can replicate and what they cannot.

You Can’t Copy Execution

Making a clone of a product is the easy part. The hard part is executing properly on a business in order for it to grow. In the case of our duplicate competitors, they usually die on the vine in a matter of months. They don’t seem to realize that even if you were to copy our product verbatim, using an identical logo and domain name, that the actual daily management and execution is what separates one company from another.

What we do day in and day out – marketing, branding, product development and customer service – is what drives the company toward success.

If your plan is to copy someone’s formula and use it for yourself, you had better have a much better plan for execution than they do. When Overture (now a part of Yahoo!) invented the model of putting paid text ads next to the results in your Web searches, Google flat-out stole the concept.

In Google’s case, however, they executed far better than Overture did on the very concept they stole. In this case, they were able to win not because they stole the concept, but because they executed on the concept better than Overture.

People Buy more than just Products

You’ll often find that copying the product alone, even if it’s an identical twin, isn’t enough. When people buy a product they are not just buying the item itself. They are buying the entire package it comes with.

In the case of a product like a Nike sneaker, they are buying the brand of Nike, not just the sneaker. You can build an identical pair of sneakers, charge half the price for them, and Nike will still outsell you. The product is only a fraction of the purchase. People are also buying the authenticity of the brand that they feel strongly about.

In other cases people are paying for efficacy. You may be able to copy the barebones format of the craigslist.org Web site, but you don’t have the traffic or the efficacy that craigslist does. You also don’t have millions of users who have successfully posted ads on craigslist and gotten what they wanted. That kind of activity requires an incredible amount of time and success to replicate, which copying a product verbatim doesn’t allow for.

Good Ideas will always be Copied

On the flip side, if you have a good idea you can pretty much guarantee someone will copy it. But your concern shouldn’t be whether or not you will be copied, it should be whether or not the person copying you is better at delivering your product than you are.

You can try to protect your idea with all of the patents, trademarks and copyrights you want, but at the end of the day if you’re not out-executing your competition, you’re going to get beat. Even patents will eventually expire!

Bad Competition is a Favor

To some degree you can think of bad competition as a favor. The more poor attempts your competitors make at copying your product, the better your original product looks by comparison.

Additionally, lots of bad competition makes the marketplace look artificially saturated to other would-be competitors. If someone performs a search for your product and sees ten other companies are offering the same thing, they may think twice about becoming the 11^th. Little do they know that most of those companies are just cannon fodder in the war for customers!

What really matters is the competitor that enters the space fully loaded with the right management and experience to take you on. While having a good, original product is a great first step, it really is the people behind the product that make all the difference.

How to Kick Butt in a Down Market

Mon, 13 Oct 2008 17:58:00 GMT

Anyone who’s survived the last down market knows that there are diamonds in the rubble of a broken economy. While everyone else is fleeing for the hills, a smart, lean startup company can find its greatest fortune.

In order to understand why a down market creates so many opportunities for a startup company, you first need to understand why a bull market makes it so difficult to succeed.

In a bull market the cost of everything skyrockets. As more capital becomes available, so does more competition. New startups spring up everywhere, competing for talent, marketing opportunities and of course, customers. At one time you were the only game in town – now you’ve got three guys pretending to do exactly what you do – all the while increasing the cost of running your business.

Conversely a bear market drives the cost of everything instantly downward. Companies go into a panic, losing sight of their growth goals and in some cases falling into bankruptcy altogether. The sudden drop in demand forces the prices of everything sharply downward, creating a perfect storm for a well-prepared company to create unprecedented gains.

Get Lean Early

Before you get your offense together, you need to get your defense lined up, which means getting very lean very quickly.

The problem with coming off of a bull market is that we’re not used to pulling back. We’re used to knowing that the next year will be even bigger than the last, so we plan and spend accordingly. This time around we’ve got to create a very different plan.

This plan is about reducing staff, reducing marketing, and reducing every possible operating cost you have, before you have to. Make no mistake, this is going to suck. No one is ever excited about downshifting, especially after a good run, but it’s better than sending the entire company home because you weren’t ready to make changes.

A healthy approach is to plan for a very long winter. Assume you’ll lose more sales than you can possibly forecast. Think of your business in terms of “what is the least we can operate on and still keep the lights on.” You can always add more resources if you need them later but you won’t be able to make up for overshooting your income forecasts.

Attack the Competition

Kicking butt in a down market isn’t just about crawling up in a hole and waiting for Spring. It’s about getting lean so you can get focused on hunting again.

Your competition may not react as quickly as you did, which is great news for you. Chances are their lack of planning is putting the company in a tight spot. Their senior management is more concerned about making payroll than making acquisitions. Their foot soldiers are more worried about whether or not they are going to have jobs than whether or not their customers are as happy as they can be.

And that’s where you swoop right in.

There is never a more cost effective time to attack the competition and take over their customers than in a down market. The cost of advertising plummets as the competition pulls back. The challenge of getting media attention dwindles as fewer companies are vying for attention. And the cost of wooing customers drops as sales reps go into a defensive tailspin.

In some cases you may not even have to attack their customers. As your competition pulls back or goes out of business altogether, you can let your customers come to you. Try that in a bull market!

Pillage Cheap Resources

Think of the aftermath of a bear market to be like a “startup company liquidation sale” where everything is 90% off. In some cases, I mean this quite literally.

Companies that fail to plan for a down market get hit so quickly that they are forced to sell off valuable assets at fire sale prices. We’re not just talking about Aeron chairs here. We’re talking about valuable intellectual property, customer contracts, and even talented employees.

The value of an asset is virtually nothing to a bankrupt company and the deal of a century to a healthy one. Just ask any surviving banking institution right now.

Take inventory of the assets your competition has and what you would be willing to do to acquire them. Like a bargain shopper at a flea market, get aggressive and pillage any and all assets you can get your hands on at the right price.

Preparation and Patience

The key to kicking butt in a down market is being prepared and being patient.

Being prepared means taking measures to get very lean long before anyone else realizes that a storm is coming. Being patient means planning for a long, cold winter but knowing that when spring comes, you’ll be one of the few companies that made it through.

With the right planning, this bear market could be the greatest opportunity you’ve ever had.

The Truth About Pricing

Tue, 30 Sep 2008 13:04:16 GMT

Any Entrepreneur that’s ever tried to bring a new product to market has had to deal with one frustrating fact – no one knows what to charge for it! No matter how well you think you can predict the market or how much research you’ve done, until people start paying for your product you’re still just guessing.

Even then, when people are actually forking over their hard earned cash for your product, you still don’t know if you’ve optimized for the best possible price to generate the greatest number of sales.

Fortunately there are some simple strategies you can employ to quickly arrive at a happy medium and give yourself a little piece of mind.

The Binary Nature of Pricing

The first pass you’ll want to take at pricing is to eliminate all of the people that weren’t going to pay you to begin with.

What may shock you is that when it comes to a consumer’s perception of pricing, it’s not always the actual amount that scares people; it’s whether or not they have to pay at all. Pricing is more or less binary for consumers – they are either going to pay or they won’t – the actual price is incidental.

Having launched ten companies myself, all in different industries ranging from automotive to financial services to television casting, I’ve found that in each case you get a group of consumers that are willing to pay just about any reasonable price for the product, and a group of consumers that won’t ever pay a penny.

There’s something that goes off in a customer’s head when they have to pull out their wallet. Up until that point the value you were providing may have gone relatively un-noticed. But when the customer has to break out their credit card and start typing in those 16 magical numbers, they think twice about the value of your product.

Instead of developing your pricing to lure the group of people that just aren’t willing to pay for your product, focus on maximizing the yield of the customer who will pay for your product. It’s a lot easier to get someone to pay 10% more for your product than it is to reduce the price of your product and get more people to pay for it.

The “Freemium” Model

Next you’ll want to figure out how to separate the paying customers from the non-paying customers, without alienating either.

Leave it to the overzealous Internet nerds like me to invent a word like “Freemium” to explain a basic price gateway model. Freemium is a word used to describe giving a portion of your product away for free in order to attract interest, then charging the most passionate customers for premium benefits.

I’m not entirely sure, but I think this model was pioneered by Baskin Robbins every time they handed me a free sample of chocolate ice cream in order to convince me to buy an entire cone. These days the freemium model appears when I want to sample a song on iTunes but have to pay to download the whole song onto my iPod.

The beauty of the freemium model is that allows you to test two pricing strategies simultaneously. You get to see how many customers would be interested in your product for nothing at all to gauge the overall interest in your product. It then allows you to learn exactly what about your product people are most interested in paying money for.

Try every Possible Price

Once you’ve separated the paying customers from the non-paying customers, you still need to settle on the right price to charge them. There’s one simple answer here: try every possible price.

I’ll give you an example. At Swapalease.com, a site that allows people who want to get out of a car lease to connect with people who wanted to get into a car lease, we charged people to post their car leases on-line. The problem was, we didn’t know how much to charge them, so we tried every possible price.

Our early estimates figured we would probably get around $24.95 per posting on the site. We constantly tried new pricing strategies to figure out what would be the right price that consumers would accept.

Wouldn’t you know that after six months of testing we found out the number was over $100 per post!

The only thing that kept us from simply making four times as much per sale was our willingness to test the sensitivity of price. Had we gone with our gut instincts we would have vastly undervalued the product and left a whole lot of money on the table.

It Pays to Try Everything

The only thing you can rely on when picking the price of your product is having to change it – a lot.

If you can develop a system to test as many possible price points with as many consumers as possible, you can hopefully uncover that hidden gem that is your perfect price. Until then, keep trying something new. It’s the only surefire way to win.

If You’re so Smart, why are you Working for Someone Else?

Wed, 17 Sep 2008 16:30:53 GMT

Recently I sat down with a financial manager who wanted to pitch me on using his firm to manage my finances. He gave me a laundry list of reasons why his firm should be the group that makes the key financial decisions for my money. I waited quietly for his pitch to finish so that I could ask the one question I’ve never gotten a good answer to.

I simply asked him “If you’re so smart with capital, why would you have time to manage mine?”

This wasn’t a caustic or sarcastic question. I wasn’t trying to give the guy a hard time. I honestly wanted to know why smart people who have the skills that can create wealth would use them for anyone but themselves.

This question isn’t unique to financial planners looking to pitch wealth management strategies. It’s salient to every would-be entrepreneur that at one point realizes they are actually losing money by working for someone else.

It’s the salesperson who realizes that they are responsible for more of the companies’ revenues than the CEO is. It’s the recruiter that does the math and realizes they are giving away 66% of their income because someone else is paying the phone bill. It’s the marketer that concludes that without their marketing acumen, their client’s product would have never sold a single unit.

Stop Selling the Map

At some point we all need to ask ourselves what’s keeping us from owning the pie instead of just taking a bite out of it. If our guidance among clients, colleagues and partners is so spot-on that we truly are incredibly valuable, then aren’t we doing ourselves a huge disservice by just giving that all away?

I asked myself the same question when I was running an interactive ad agency named “Blue Diesel”. For years I would run into client’s board rooms with big ideas for how to take advantage of the Web. We’d drag our clients kicking and screaming onto the Web, only to see them build incredible businesses on-line.

Yes, we got paid a fee along the way. But at some point I had to be honest with myself – if I knew so much about creating opportunities on the Web, why was I selling them to someone else for a fee? That’s like knowing where a huge pot of buried treasure is located and selling maps to other people to go find it.

Try before you Buy

Of course deciding to start your own business isn’t just a simple mathematical equation. There’s a great deal of risk involved with any new endeavor. But the true risk that entrepreneurs are most worried about are the risks associated with not trying their hand.

Fortunately there are ways to test your skills before you take the plunge.

One way to test the waters is to look for opportunities to swap your fee for a piece of the equity in the venture you’re working with. This is truly an at-risk proposition that provides some of the risk and reward of starting your own company without quitting your job to do it.

Another way is to launch a side project, assuming it doesn’t conflict with your current obligations. Many great startup companies have started as side projects that employees dabbled with until the side job became their main job.

However you test the waters, the goal is to truly test yourself. No matter what the outcome is, you actually win.

If the new venture takes off, then you’ve proven to yourself that you truly have what it takes to own your own destiny from top to bottom. If the new venture flops, you can feel confident that you are maximizing your value inside of your existing organization (although if you’re really meant to be an entrepreneur, you’ll just keep trying until one of those ventures succeeds!)

The Ultimate Test

This isn’t to say that running your own company is the only way to test your skills. Jack Welch ran GE as their CEO for 20 years and I’d say he was a pretty capable guy. There are lots of opportunities to prove your skills that don’t involve launching your own company.

Yet in many ways, betting your own fortune based on your own skill set is the ultimate capability test. A financial planner that can take a small pool of their own capital and turn it into a mountain of wealth has clearly proven not only their capabilities, but their belief in themselves.

Perhaps that’s the reason it’s so hard for me to hire professional services people. I’m always looking for the person who doesn’t need me as a client!

Why the First Million or less makes all the Difference

Wed, 03 Sep 2008 09:55:00 GMT

Any entrepreneur or stockholder that’s had a chance to cash out their stock has had to ask themselves one question – is it enough? We wonder if we held out longer for a bigger offer whether that larger sum would make a much more significant impact on our lives.

The truth is, it’s not the multi millions that will change your life forever – it’s the first million (or less) than really makes the difference.

You see, most of our lives are spent trying to get ahead in this world financially. We all seem to make just a bit more than we spend, and we save those extra pennies to buy the things that we want. So in the event that we can get a big check in our hands that can finally get us ahead of the game, it’s a very big deal, even if it’s not a very big check.

It’s not about Retirement

Don’t think about cashing out in terms of having enough money to retire on. Heck, don’t even think about retirement. Retirement used to mean more when the average person had to toil in the fields or work in a mine shaft. These days the biggest physical hazard of your job is that you’ll get carpal tunnel syndrome.

Cashing out isn’t about never having to earn money ever again, it’s about earning enough money that you’re not worried about money ever again. There’s a very significant difference.

It’s nearly impossible to survive without some form of active income in your life, so it’s safe to assume that no matter how much money you save, you’ll always have to deal with earning more money to stay afloat. Cashing out rarely fixes that problem eternally.

Not worrying about money simply means that you have enough in reserves to address a financial crisis should it arrive. Knowing that you can survive a downturn is really what financial security is all about.

A Million buys most of your stuff

Think about what a million dollars buys you in this country - it’s quite a bit. We spend the first couple of decades of our working life struggling to pay for the basics – a house, a car, our education, and some furniture. At some point in our lives, usually when we’re closer to retirement, we get ahead of the curve and pay for all that stuff. Only then can we start saving some serious money or giving it away.

Yet if you could be so fortunate as to be able to pay for all of that stuff all at once, without having to spend the next 20 years saving for it, you’d be way ahead of the game. You could spend your discretionary income on things like taking long vacations and giving to charity – a luxury most young people never truly enjoy.

Reducing Debt is all that Matters

If a lump sum of cash can do one thing that will truly change your life, it’s reducing your debt. The average American lives in a constant cycle of earning their way through each month to pay off their bills. The most responsible of us may even save enough money to get pay down some of their debt. The rest of us will be servicing mortgages and car payments for a really long time.

Changing this equation – paying off all of your debt – changes your life considerably. When you’re not struggling to service debt, your options change.

Would you really be doing this job if you didn’t have certain bills to pay? What would you do if your expenses were next to nothing? What chances could you afford to take?

Reducing your debt gives you an amazing amount of leverage in your life. For the first time you can actually afford to say “no” to the things you don’t want to do. Very few people ever have that luxury because in the end, we’ve all got bills to pay.

If the Money is on the Table, Take it!

Every person in a company struggles with the “right amount” to cash out with. The founders, the employee stock holders and certainly the investors. But thinking about the deal in terms of the maximum amount of cash you can pull out isn’t necessarily the best approach.

Instead, think about the deal in terms of whether or not it may go away. There is a long line of forgotten entrepreneurs who wish they would have taken the money – in any amount – when they had the chance. There’s a very short line of entrepreneurs who actually pulled the trigger, cashed out, and never thought about it again.

That’s because once you’ve cashed out, no matter how incredible the sum, you’ve created the opportunity to significantly improve your financial means in this life. If that opportunity comes your way, no matter what the price, take it.

Bake the Cake before you Slice it Up

Thu, 21 Aug 2008 09:58:19 GMT

Experienced entrepreneurs know that when it comes to slicing up the equity in their new startup companies, the longer you wait to hand out big slices, the better.

That’s because a startup company can create a ton of value in a very short period of time, and in many cases, with relatively little effort.

It’s exciting to get others wrapped into your new idea, and their willingness to bet on your idea may feel like something you want to reward with shares of the company. The issue isn’t whether or not you reward these individuals, but really when you reward them, and with how much of the company.

As a rule of thumb, the longer you wait to slice up the equity (assuming you’re growing the company) the less equity you’ll have to give up. Here are just a few milestones that you may be able to get to on your own, before you’ve begun slicing up the cake.

Get Incorporated

The fastest way to turn your idea into a company, at least legally, is to incorporate. You can incorporate yourself on-line in less than half an hour for a few hundred dollars at most.

The benefits of incorporating early are that you can force every discussion of stock into a legal matter, and not just a handshake deal. If I just tell you that I’ve given you 50% of a company that hasn’t even been incorporated, it’s not the world’s most binding document. But if I update the Operating Agreement of an incorporated company to show that you own 50% of the company, there’s no question that you’re a shareholder in the business.

The process may sound simplistic, but it helps create some value. People tend to take ownership of an incorporated company far more seriously than ownership of an idea you emailed them, which usually means it’s not as likely to get diluted as heavily.

Build a Prototype

The next step is to put together a basic working model of your idea. No matter how rough your prototype is, having an existing product to talk about is far more valuable than just talking about it in a PowerPoint presentation.

Your prototype can come in dozens of forms. It can be a barebones version of the Web site you want to build. It can be a service that you want to offer that you’re delivering to customers by yourself right now. It can be an artists’ rendering of the product you intend to build.

Regardless of its form, the prototype gives you the ability to switch from just talking about an idea and to start talking about an actual product. It’s also possible that an early prototype could even lead to a sale to a customer, which would be the ultimate value generator!

Building a prototype can be a challenging task, and one that you may find yourself needing to seek outside help on. If you absolutely feel that the only way to present the product to a customer or potential investor is to bring on another equity partner, then so be it. But if you can get by with just some sketches or a simple working model to convey the product idea, this would be a great time to keep that equity in your own pocket for a while.

Get Some Traction

If you can get past the prototyping stage yourself, without carving up much equity, and get on to selling even just one customer on your own, you’ll have achieved one of the greatest leaps in value creation.

Getting some traction with partners and customers completely changes the value of your company. Up until this point you had a company with an interesting product. Anyone could second guess whether your idea was useful. No one can second guess paying customers though.

It’s not impossible to get this far with your company idea without any help at all. You can incorporate yourself, piece together a working prototype of your product, and pitch it to some early customers that you setup meetings with. In essence, you’ve done the hard part by actually starting the company. The next step is to grow it from there.

Time to Slice it up

Once you’ve put your company in a position that it simply needs to grow to create value, not just get started, that’s a good time to take on equity partners. At that point the value of having more employees, investors and partners will likely outpace the cost of giving up more equity.

In each step of the journey, you want to keep asking yourself “Is it at all possible for me to get to this next stage without taking on more help?” You may get past the incorporation stage and realize that any hope you have for growing your idea into a company is going to require a few partners. That’s not a problem, as long as you’ve agreed that unless you slice up the cake today, it’s not going to get any bigger.

Are you Winning the War at Home?

Thu, 07 Aug 2008 09:40:27 GMT

Take a look around your office right now and ask yourself – is everyone happy? You may think so. People may be working hard, putting in long hours, and cranking through project after project to get your new startup company launched.

You may feel like you’ve got the entire team energized and ready to go at the office. But the real question is – are you winning the war at home?

Startup company managers need to realize that attracting and retaining key talent isn’t just about peppy sales talks and big pitches. It’s about fighting the war for talent on two fronts – in the office, and especially at home.

People don’t think of startups like regular jobs. At regular jobs you think about whether you’ll get a 10% raise and a good review. At startups you wonder whether the risk, time, and (usually) lower pay are worth the benefit of a substantially bigger payout someday.

For this reason it’s worth thinking about the world of your employees through the eyes of their friends, spouses and families. Is their job still as exciting as you thought it was?

Spousal Support

Whether you realize it or not, more than 50% of the decision to stay at your startup lies with the spouse at home. Happy spouses equal happy employees. If you think about it, you’ve really got to keep two people happy at all times.

The decision to join your startup probably wasn’t made by the big pitch you gave in your interview. It was made by the big pitch your employee gave to their spouse later that evening.

As you can imagine, their pitch probably didn’t include the long hours and endless stress you’re undoubtedly enduring. Instead, it likely focused on the potential for a big payout someday that could change their lives forever. If that pitch isn’t holding up at work any longer, you can imagine it’s probably not holding up at home either, which is a problem.

Comparison to Friends

Even if a spouse isn’t in the picture, you can bet the employee’s friends are. When an employee is buried in work at a startup, it often becomes the first topic of conversation among friends. At the very least, it’s because they are explaining why they’ve been so absent lately!

If you’ve ever listened to someone describe how things are going at work, you can usually tell within the first 15 seconds whether they are thinking about leaving the company. Excited employees will brag about their accomplishments. Disinterested employees will only complain about their struggles.

It only gets worse if the employees’ friends are enjoying more free time and making more money at the same time.

Your employees want to brag about what they are doing and create envy amongst their friends. There’s no reason your startup company shouldn’t give them that opportunity, as long as they feel confident that the big dream you’ve sold them is alive and well. Even employees that are missing time with their dearest friends will be proud to say they were at least building something great instead.

Think about the Children

If your employees have kids, you can add yet another group to the list of people you need to keep happy. Every minute that your staff stays in the office is a minute that they are not spending with their children, and those minutes cost a lot emotionally.

Those late nights when your employees don’t get to put their kids to bed and every long trip that guarantees missed baseball games and piano recitals puts them one step closer to the door. No one ever feels like they’ve spent enough time with their children, and when a job pulls them away even more, it’s a powerful breaking point.

When your employee gets off the plane from yet another business development trip and sees their kid waiting for them, the only thing running through their mind is “was this worth it?” When they walk into the office tomorrow, if there isn’t some justification for the time they’ve lost, they’ll be spending their time updating their resume, not working harder.

You can’t Win ‘em All

Lets’ face it – you can’t make everyone happy all of the time. Any job is going to put a certain amount of stress on employees lives and relationships. The difference here is that people in startups tend to think of startups as dreams waiting to be fulfilled, not just a regular job.

When the dream starts to fade, people often go along with it. That’s why as the Manager of a startup company, the only way to keep people excited is to keep the dream alive. Remind them why they risked what they did to start with you in the first place.

Attracting and retaining talent is about fighting the battle on all fronts. Your ammunition is the motivation and desire to build something big. If you don’t give your team the ammunition to stay, you’ve already lost the war.

Can you Afford Not to be an Entrepreneur?

Wed, 23 Jul 2008 11:00:00 GMT

There's an old adage that says "Entrepreneurs do what other people won't in order to do what other people can't."

The suggestion there is spot on - that the entrepreneurs who get to live the life people dream about did so because they were willing to make the sacrifices it took to make that life happen.

So the question really is: can you afford not to be an entrepreneur?

If the answer is “yes”, your life will probably be just fine doing whatever it is that you enjoy doing. But if you really want a taste for what it means to control your own world and reap the benefits of taking risks, starting off on your own is really the only option.

A Paycheck versus a Pay Out

Most people equate starting and growing a business to the financial rewards of being the business owner. That's because business owners enjoy the difference between earning a paycheck and earning the bigger reward - a pay out.

You may think those with a big paycheck, like the Celtics' Kevin Garnett's $25 million pay stub, are the big winners. Not at all. It's the guy who can write that check, like Celtics owner and Highland Capital Managing Partner Wycliffe Grousbeckand, who paid $360 million for the entire team.

Even if Kevin Garnett continues to be the highest paid player in the NBA for the next decade, he still won’t be writing the checks that his boss can.

The real cash comes from either the profits of the business on a regular basis or the eventual sale or IPO of the business down the road. Until your earnings are tied to the performance of the company, not your position, you’ll never be in a position to enjoy the real rewards.

Give Yourself a Raise

As big as they can get, paychecks are inherently limited to what someone else is willing to pay you. If you can’t stand the idea of someone else determining what your pay scale should be, then starting a company is the fastest way to change all that.

The day you start your own company, the only person that will ever determine your income is you. If you’re as good as you think you are, the sky’s the limit.

Most entrepreneurs are financially stifled in their current jobs, particularly among younger workers. Since salaries are often dependent on age and experience, not raw capability, your earnings may not at all reflect what you are truly capable of.

Consider the fact that Bill Gates, Michael Dell, and Steve Jobs were all around 30 when their companies went public. Can you imagine how little they would have been paid (by comparison) if they had stayed in their salaried jobs? Clearly their ages had nothing to do with their capability, and starting their own venture was the only way to prove that.

Don’t Leave Money on the Table

When you’re working for a paycheck, you’re making yourself a bit of money, but you’re also making the company a bit of money. Every hour of your time is putting a dollar in your pocket, but it’s also putting a dollar in the owner’s pocket as well, which is good for him, not so good for you.

The fastest way to double your money is to put both of the dollars in your pocket for the same amount of effort! Of course as the owner yourself you may have more overhead than you would as an employee, but long term you’re not only maximizing the payout on your time, you’re creating a business that will one day exceed your own value.

Cumulative Value

Even if you’re incredibly well paid in your current position, it doesn’t change the fact that you’re only one person. You can only earn as much as your own time and contribution will afford you. At some point, in order to get to the next level, you need the company working for you, not the other way around.

That means taking on employees and leveraging the economies of scale. As the employer, you can infinitely scale the size of your income by adding more business and more employees. At some point the cumulative value of their contributions will far exceed what you could possibly earn as a W-2 employee.

Stop the Bleed

No one is ever surprised to hear that you can make a great deal of money as a successful entrepreneur.

What is surprising is to consider how much you’re losing by not being an entrepreneur yourself. When you add up how much value you’re losing by taking a paycheck every week, you start to wonder what was keeping you from taking the plunge in the first place.

In many ways, starting your own company is the only way to eliminate the risk of not being paid enough.

Your First idea is only the Beginning

Wed, 09 Jul 2008 09:37:47 GMT

Your First idea is only the Beginning

Like everything else in this life, the plan for your new startup company will almost certainly change beyond anything you could have contemplated.

We would all love to think that we can have one new product idea that is so brilliant we never need to change a thing, but that rarely happens. In fact, many successful companies launch with one idea in mind but become fabulously successful by shifting directions completely.

Google started out just powering keyword searches before they realized they could become a massive advertising platform. The founders of PayPal thought they were going to build a company that beamed payments between Palm Pilots before they shifted focus to power payments on eBay.

Ideas, even the ones that are the basis for your entire company, were made to be changed. It’s important, however, to understand why those ideas change and how to feel comfortable reacting to them.

You don’t have a Customer

A big part of the reason startup companies have to change product strategies early in the game is because they are only guessing at what the customer really wants.

Sure, you may get some focus groups that tell you what they’re willing to buy, but until someone actually writes a check for your product, it’s still an educated guess at best. Only when the product hits the shelves and people react with their wallets can you truly evaluate the idea.

Prior to having real customers, it’s fair to assume that your product idea is only in “beta mode”. Assume that the product will likely change dramatically based on true market testing with real customers on a sustained basis. In the event that your initial idea is spot on and no changes need to be made, you’ve become the exception, not the rule.

You don’t have any Scale

Even if the first few customers do purchase your initial product just as you had envisioned, the product still isn’t truly tested until you’ve sold enough of it.

You may think that just because the neighborhood wives have all bought your fancy homemade hand lotion that you’ve got it figured out. But until the product can sell next to dozens of others on the shelves at Wal-Mart, you really don’t know how great it is.

It’s easy to get excited about the success of a small market test or an initial reaction to your product, especially if people are buying. But that doesn’t mean the idea and its success will necessarily scale to a bigger company. Like not having any customers to begin with, not having any great amount of scale in your sales relegates you to still having to guess whether your product is ready for the big leagues.

You may find that the approach that works for your local market only makes sense for that audience. Once again, you’ll have to be prepared to consider drastic changes to your product if you want to reach a much more substantial audience.

You don’t have a Company

There’s a big difference between solving a problem on paper with your business plan and building a successful company with that same idea. Until you’ve tried to build an entire business around your idea, especially one that employs lots of other people, you still don’t know how well that idea translates into a growing company.

Many ideas work great to support just one person, and that’s OK too. However if the business idea only works if you’re the person creating all of the work, it may need to be modified to scale. Some ideas, like offering consulting services based on your personal wisdom, will need to change significantly if you’re going to scale them past just yourself.

The goal of a business is usually to solve a customer’s problem, not to solve the problem of building a company. So it’s no surprise that in order to support the growth of the company, you may have to broaden or change the focus of the product accordingly.

Prepare for Change

No matter what your cause for change, and truthfully it will probably be all of the items mentioned above, you need to embrace that things will inevitably shift, maybe even dramatically.

With so many unknown factors going into your startup company’s launch, it would actually be a miracle if you were to pick the perfect product without any real market testing. For those of you that are truly the prophets of product development, we salute you and your wisdom.

For the rest of us poor schleps that aren’t as all-knowing, it’s back to the drawing board over and over until we find a fit that works.