Convergent Technologies: War Story 1 – Selling with Sports Scores

When I was a young marketer I learned how to listen to customers by making a fool of myself.

Twenty eight years ago I was the bright, young, eager product marketing manager called out to the field to support sales by explaining the technical details of Convergent Technologies products to potential customers.

The OEM Business
Convergent’s business was selling desktop computers (with our own operating system and office applications) to other computer manufacturers – most of them long gone: Burroughs, Prime, Monroe Data Systems, ADP, Mohawk, Gould, NCR, 4-Phase, AT&T.  These companies would take our computers and put their name on them and resell them to their customers.

Business customers were starting to ask for “office automation solutions” – word processing, spreadsheets, graphing software on a desktop.  This was just before the IBM PC hit the desktop so there were no “standard” operating systems or applications for desktop platforms. Computer hardware companies were faced with their customers asking for low-cost (relatively) desktop computers they had no experience in building. Their engineering teams didn’t have the expertise using off-the-shelf microprocessors (back then “real” computer companies designed their own instruction sets and operating systems.) They couldn’t keep up with the fast product development times that were enabled by using standard microprocessors. So their management teams were insisting that they OEM (buy from someone else) these products.  Convergent Technologies was one of those OEM suppliers.

Their engineers hated us.

I was traveling with the regional sales manager who had called on these companies, gotten them interested and now needed someone from the factory to provide technical details and answer questions about how the product could be configured and customized.

See How Smart I Am
As the eager young marketer on my first sales call, as soon as we shook hands I was in front of the room pitching our product and technical features. I knew everything about our operating system, hardware and applications – and I was going to prove it.  I talked all about how great the new products were and went into excruciating detail on our hardware and operating system and explained why no one other than our company could build something so brilliantly designed. (This being presented to another company’s proud engineering team who was being forced to buy product from us because they couldn’t build their own in time.)  After I sat down I was convinced the only logical conclusion was for the customer to tell us how many they wanted to buy.

The result wasn’t what I expected. The customers didn’t act particularly excited about the product and how brilliantly I presented it. I do believe some actually rolled their eyes.  They looked at their watches, gave our sales guy a quizzical look and left.

After the meeting our sale rep took me aside and asked if “perhaps I wouldn’t mind watching him on the next call.“

Sports Scores
The next day, as I drove to our next meeting the sales guy was intently reading the sports section of the newspaper and as I glanced over he seemed to be writing down the scores.  I wondered if he had a bookie.  When we got to the meeting he reminded me to be quiet and follow his lead.

We shook hands with the customers, but instead of launching into a product pitch (or better, letting me launch into the pitch) he started asking how their families were.  He even remembered the names of their wives and kids and some details about schools or events. (I couldn’t believe it, here we were wasting precious time and the dumb sales guy is talking about other stuff.)

Just as I thought we were going to talk about the product, he then mentioned the previous nights football game. (Damn, another five minutes down the tube as the whole room chimed in with an opinion as we talked about something else unimportant.)

The Customer is a Genius
Then instead of talking about our products he segued the conversation into their products. He complemented their elegantly designed minicomputers and made some astute comment about their architecture (now I’m rolling my eyes, their computers were dinosaurs) and asked who were the brilliant designers.  I was surprised to see that they were in the room.  And soon the conversation were about architectural tradeoffs and then how customers didn’t appreciate the elegant designs and how the world was going to hell in a handbasket because of these commodity microprocessors.  And our sales guy was agreeing and commiserating.  (And I’m thinking why is he doing all this, just tell these idiots that the world has passed them by and they need to buy our stuff and lets get an order.)

The engineers spoke about all the pressure they were getting from management to build desktop personal computers rather than their traditional minicomputers. And that their management wanted these new systems on a schedule that was impossible to meet. Then our sales guy says something that makes me stop breathing for a while.  “I bet if your management team would give you guys the resources you guys could build desktop computers better than anyone, even better than us.”  There’s a unanimous agreement around the table about how great they were and how bad management was.

The Consultative Sale
Our sales guy then quietly asked if there was any way we could help them.  (Help them?!! We’re here to sell them our stuff, why can’t we just present what we got and they’ll buy it.)  The VP of Engineering says, “well we don’t have the resources or time, and as long as you know we could build better computers then you guys, why don’t you tell us the details about your computers.”

I had just watched a master of the consultative sale.

Engineers as Salesmen
I thought (and still do) that this sales guy walked on water. He had spent 12 years at DEC, first as a hardware engineer designing part of the PDP-16, then as the marketing manager for the LSI-11 and then into sales.

Making sales calls with him taught me what a world class salesperson was like.  It also made me understand what kind of support sales people needed from marketing and what marketing programs were wasted motion.

It also made me realize that there are times you don’t want any sales people in your company.

Startups and Sales
If you read this post you can come away with the impression that every startup with a direct salesforce needs a consultative sales team.  Not true.

The answer depends on your answer to two questions:

  1. which step in the Customer Development process are you on?
  2. what Market Type is your startup?

Customer Development and Selling Strategy
If you’ve just started your company you are in customer discovery.  If you’ve tried to slog your way through my book on Customer Development you know that I’m insistent that the founders need to be the ones getting outside the building (physically or virtually) to validate all the initial hypotheses of the business model and product.  If you hire a VP of Sales with the idea that they can do customer discovery you violated the first principle of Customer Development – this isn’t a step the can be outsourced to a non-founder.

Customer Development DiagramHiring a VP of Sales in customer discovery typically sets a startup back. It’s only after you’re done with customer discovery and are in the final steps of customer validation (building a repeatable and scalable sales process) that you start hiring a sales executive.

The next thing you need to do is match your sales team with your market type.

Market Type and Sales Teams
If you remember from a previous post, startups fall into four Types of Markets. You need to hire the right type of sales people for the type of market.

market-typeIf you are in a New Market, (delivering what Clayton Christensen calls disruptive innovation) the market doesn’t even have a name and customers have no clue on how your product works or how it could help them.  This market cries out for a sales force that can help educate and guide the market to making the right choices.  Your sales team is an extension of your marketing department.  The same is true if you are in an existing marketing and trying to sell to a niche or a segment of the market based on your knowledge of their particular needs.  Both New Markets and Resegmented Niche Markets required a skilled consultative sales force.

This is very different from the sales team you would hire to sell in an existing market or a cheaper product.

If you’re in an existing market and you have a superior product, by all means tout your features and specifications.  However, your product itself will be doing a lot of the selling.  If it is demonstrably better as you claim your marketing department needs to communicate that competitive advantage and your sales curve should look linear as you take share from the existing incumbents.

If you are resegmenting an existing market a product with a cheaper alternative, by all means tout your price.  Your marketing department should be all over this.  In both cases you really don’t need a skilled/consultative sales force.  A sales team with a great rolodex will do.

Sales by Market Type

Sales by Market Type

Lessons Learned

  • Get out of the building (physically or virtually)
  • Sales calls aren’t your IQ test or PhD defense
  • Stop talking and listen to the customers problem
  • Hire a sales team at the Customer Validation step
  • Match the sales team to market type

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Elephants Can Dance – Reinventing HP

I was at the Stanford library going through the papers of Fred Terman and came across a memo from 1956 that probably hasn’t been seen or read in over 50 years. It had nothing to do with the subject I was looking for, so I read it, chuckled, put it back in the file and kept leafing through the other papers. About a minute later I did a double-take as it hit me what I had just read. (I’ll show you the memo in a second. But first some background.)

Things Change
In 1956 Hewlett Packard (HP) was a 17-year old company with $20 million in test equipment sales with 900 employees.  It was still a year away from its IPO.

Its latest product was an oscilloscope, the HP 150a.

HP 150a Oscilloscope 1956

HP 150a Oscilloscope 1956

In March of 1956, Fred Terman, the Stanford professor who encouraged Bill Hewlett and David Packard to start HP, wrote Bill Hewlett asking for help.

Terman, who now was the Provost of Stanford, had joined the U.S. Army Signal Corps advisory board, and the Army was going to acquire their first computer for research.  No one in the Army Signal Corps knew much about computers. (To be fair in 1956 not too many people in the world knew much either.) So the Army asked Terman for help.

Fred Terman wrote to Bill Hewlett asking if he or anyone at Hewlett Packard could help them figure out these “computers.”

Hewlett’s answer, in the memo I discovered in the Stanford library, is below.

HP Letter

I have no personal knowledge of computers nor does anyone in our organization have any appreciable knowledge.

We Changed Our Mind
In 1966, 10 years after Hewlett’s memo, Hewlett Packard’s revenue and headcount had grown ten fold; $200 million and 11,000 employees – all from test and measurement equipment.  That year HP introduced its first computer, the HP 2116A, as an instrument controller for HP’s test and measurement products. (Hewlett’s partner Dave Packard wanted to get into the computer business.)  It was priced at $22,000 – equivalent to about $140,000 in 2009 dollars.

HP2116B Computer

HP2116B Computer

Thirty-three years after introducing its first computer, Hewlett Packard split into two separate companies.  The original Hewlett Packard which made test and measurement products was spun-out and renamed Agilent.  The remaining company kept the Hewlett Packard name and focussed on computers.

  • Agilent is a $5.8 billion dollar test and measurement company.
  • Hewlett Packard (HP) at a $118 billion is the largest PC and notebook manufacturer in the world.

That’s a pretty long way from a company that admitted it knew nothing about computers.

Elephants Can Dance
HP’s complete makeover made me wonder about other large companies that reinvented themselves.

Intel was founded in 1968 to make memory chips (bipolar RAM) but 17 years later they got out of the memory business and become the leading microprocessor company.

IBM had a near death experience in 1993, and moved from a product-centric hardware company to selling a complete set of solutions and services.

After failing dismally at making disposable digital cameras in 2003 Pure Digital Technologies reinvented their company in 2007 to make the Flip line of camcorders.

Apple was a personal computer company but 25 years after it started, it began the transformation to the iPod and iPhone.

A few carriage makers in the early part of the 20th century made the transition to become car companies. A great example is William Durant’s Durant-Dort Carriage Company. Durant took over Buick, in 1904 and in 1908 he created General Motors by acquiring Oldsmobile, Pontiac, and Cadillac.

Elephant Graveyard
Reinvention of large companies, while making for great case studies are rare.  For the first 25 years HP’s business model was static. It got bigger by inventing new test and measurement equipment and it hired people who knew how to execute that strategy. Of course HP did ship new products and innovate, but their center of innovation was sustaining innovation, around the core of their existing business. (Clayton Christensen describes this brilliantly in the Innovators Dilemma.)

However, no markets last forever. Technology changes, culture changes, customer needs change, more agile competitors emerge, etc.  So what causes some big companies to reinvent themselves and others to remain static?

Creative Destruction
Most established companies fall into the seductive trap of following short term profits all the way into the ground – leaving only their t-shirts and coffee cups. It’s not the executives are stupid it’s just that there are no incentives (or corporate DNA) for doing otherwise.  General managers of divisons are compensated on division P&L not long term innovation. CEO’s and the executive staff are watching the corporate bottom line and earnings per share. Wall Street wants quarterly earnings.

It’s a pretty safe bet that left to their own devices most large corporations wouldn’t last more than a generation without major reinvention.  And venture capital and entrepreneurship has made life even tougher for the modern corporation. Over the last 35 years venture capital has funded nimble new entrants (on a scale never imagined by Schumpeter) who exist to exploit discontinuities in technology or customer behavior. Startups have forced an accelerated cycle of creative destruction for large companies that didn’t exist in the first half of the 20th century.

Cultural Revolution at Large Corporations – the Founders Return
Of the companies that do reinvent themselves it’s interesting that often its the founder or an outsider that has the insight and makes the radical changes. At HP the founders were still at the company and still running the business. It was David Packard who wanted to get into the commercial computer business – over the objections of his co-founder Bill Hewlett and most of the company.  Packard had the stature and authority to encourage the shift and the internal political acumen to acquire a minicomputer company and label the first HP computer as a “instrument controller.”

At Apple the company reinvented itself on Steve Jobs return.  Howard Shultz came back at Starbucks, Michael Dell reengaging at Dell. Outsiders like Lou Gerstner at IBM and Jon Rubenstein at Palm were brought in to reinvent their companies.

Lessons Learned

  • It’s the founders that can reinvent a company by seeing market shifts that professional managers focused on execution can not
  • If the founders aren’t around, bring in outsiders with fresh insights

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Am I a Founder? The Adventure of a Lifetime.

When my students ask me about whether they should be a founder or cofounder of a startup I ask them to take a walk around the block and ask themselves:

Are you comfortable with:

  • Chaos – startups are disorganized
  • Uncertainty – startups never go per plan

Are you:

  • Resilient – at times you will fail – badly.  How quickly will you recover?
  • Agile – you may find the real opportunities for your company was somewhere else.  Can you recognize and capitalize on them?
  • Creative / Pattern Recognition – can you think “out of the box?”  Or if not, can you recognize patterns others miss?
  • Passionate – is the company/product/customers the most important thing in your life? 24/7?
  • Tenacious – can you keep going when everyone else gives up? Can you keep giving 200% despite all the naysayers who don’t believe in your idea?
  • Articulate – can you create a reality distortion field and have others see and share your vision and passion?

And I remind them that they should be bringing some type of domain expertise (technical or business) to the table.

This is the minimum feature set for founders.

Other Roles in a Startup
Generic advice given to entrepreneurs assumes that everyone is going to be the founder/co-founder. Yet for every founder there are 10-20 other employees who take the near-equivalent risks in joining an early-stage company.  If you’re not a founder (by choice, timing or temperament,) you may be an early employee or a later stage startup employee.

(And my advice to students who believe they want to do a startup but are unsure if they want to start one, is to join one that’s already raised their first round of funding. Founders know they want to start something.  If you’re unsure, you’ve just decided.)

I believe that founder, early and later stage employees require different risk/personality profile.

The Early Employee
If you’re a founder/co-founder all the attributes I mentioned above are needed in spades.  However, if you want to join a startup as an early employee (say in the first 25 employees,) you can modify the list above.

You still need to be comfortable with chaos and uncertainty, but by this time the major risk of where the first round of funding is coming from is gone.  However, you will be dealing with almost daily change, (new customer feedback/insights from a Customer Development process and technical roadblocks,) as the company searches for a repeatable and scalable business model. This means you still need to have a resilient personality, and be agile.

Early stage employees are “self-starters” and show initiative rather than waiting for other people to tell them what to do or how to do it. (You may be wearing multiple hats in one-day.) You have to be passionate about your work, the company and its mission to be working 24/7. But more than likely you don’t need to be as articulate or creative as the founders (they’re doing the talking, while you’re doing the work.)  And while you do need to be tenacious, you won’t need to be the last man standing if the ship goes down.

The Later Employee
If you want to join a startup as a later employee (say employee number 25-125, before the company is profitable) you can continue to modify the list above.

You still need to be comfortable with chaos and uncertainty.  And you will be dealing with change, but it won’t be the constant daily change the early employees dealt with. By now the company may have found and settled on a repeatable business model. And at this stage of the company rather than everyone doing everything, actual departments may begin to form. However, job responsibilities  and organizations will change regularly and you need to feel comfortable in embracing those changes and taking responsibility and ownership.

And you’ll still need to have a resilient and agile personality, as new customer and product opportunities will appear and change your work.  But it won’t be happening daily.  And while you still need to love what you do your passion doesn’t have to extend to tattooing the company’s logo on your arm.

The Adventure of a Lifetime
Take the time and think through who you are and what level of challenge you are looking for.

You’re not joining a big company.  Startups are the adventure of a lifetime.  But make sure it fits who you are.

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Faith-Based versus Fact-Based Decision Making

I’ve screwed up a lot of startups on faith.

One of the key tenets of entrepreneurship is that you start your company with insufficient resources and knowledge.

Faith-based Entrepreneurship
At first, entrepreneurship is a Faith-based initiative.  There is no certainty about a startup on day-one.  You make several first order approximations about your business model, distribution channels, demand creation, and customer acceptance. You leave the comfort of your existing job, convince a few partners to join you and you jump off the bridge together.

At each startup I couldn’t wait to do this.  No building, no money, no customers, no market?  Great, sign me up.  We’ll build something from scratch.

You start a company on a vision; on a series of Faith-based hypotheses.

Fact-based Execution
However, successfully executing a startup requires the company to become Fact-based as soon as it can.

Think about all the assumptions you’ve made to get your business off the ground.  Who are the customers?  What problems do they have?  What are their most important problems?  How much would they pay to solve them?  What’s the best way to tell them about our product?…

Ad infinitum. These customer and market risks need to be translated into facts as soon as possible.

You can blindly continue to execute on faith that your hypothesis are correct.  You’ll ship your product and you’ll find out if you were wrong when you run out of money

Or you can quickly get out of the building and test whether your hypothesis were correct and turn them into facts.

In hindsight, when I was young, this where I went wrong.  It’s a lot more comfortable to hang on to your own beliefs than to get (or face) the facts.  Because at times facts may create cognitive dissonance with the beliefs that got you started and funded.

Customer Development
This strategy of starting on faith, and quickly turning them into facts is the core of the Customer Development process.


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Vertical Markets 3: Reducing Risk in Startups

This post makes sense when you read the previous two vertical markets posts first.

Reducing Risk – Simulation versus Customer Development
If you remember the first part of this discussion, startups face two types of risk; invention risk and/or customer/market risk.  In either type of startup you want to put in place processes in place to reduce risk.

Simulation to Reduce Invention Risk
If you’re in a vertical where “invention risk” is dominant, then you want to do everything you can to manage and reduce those risks. Simulation allows you to build test, fail, and iterate without actually building the physical device. (You can use static methods like Monte Carlo simulation, or dynamic methods using continuous or discrete simulation.) But however you do it, in companies with invention risk you want to simulate as much of process as possible, as early as possible. For some markets you can design a model of your product on a computer and conduct experiments with the computer model to understand whether it will work, long before you actually build it. For example, in the semiconductor business engineers spend enormous time, money and effort on simulation, the process of actually building the chip in software and running tests to see how well it will perform – well before they ever get to first silicon. And the holy grail of the biotech business is another simulation process called computer aided drug discovery, which someday might be used to streamline the drug discovery and development process. 

Customer Development to Reduce Risk
Conversely, if you’re in a startup where the greatest set of risks are about failing to find the right customers/markets you would look for processes to reduce those risks.  The Customer Development Process I teach and write about is designed to do just that.

Customer Development Diagram

The Customer Development Model

The Customer Development model says that when you start your company customer needs are unknown.  You may have a set of hypothesis about them but you really don’t know.  The Customer Development process puts you in continuous contact with customers to test your concept, fail, and iterate way before you actually ship the product. It allows you to systematically replace each business-critical hypothesis with facts.

(When I wrote the Four Steps to the Epiphany, the Customer Development text, I hadn’t yet thought about what vertical markets it might be appropriate for.)

Since my class was using the Customer Development text, I updated this diagram on to reflect in which markets the process was appropriate.  For example, I told my students doing life sciences projects it would be 5-10 years before they needed to worry about customers. However, for the Web 2.0 companies they needed to start the Customer Development process now.

Customer Development by Vertical - Click to Enlarge

Customer Development by Vertical - Click to Enlarge

(As a reminder, if you’ve slogged you way through the Customer Development textbook, you know the Customer Development process says your business plan is just a series of untested hypothesis (unless you’re a domain expert.)  So starting with the vision of your product, get out of the building, and see if you can find customers and a market for the product as specified. In contract to the linear execution via business plan, the Customer Development process is built on low-cost and continuous learning and iterating.)

Two Sides of the Same Coin
Simulation and Customer Development are simply two sides of the same coin.  They both have offer startups a path of getting it wrong often and early without go out of business.

The next Vertical Markets post will put all the pieces together.

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Vertical Markets 2: Customer/Market Risk versus Invention Risk

This post makes sense when you read the previous vertical markets post first.

Customer/Market Risk Versus Invention Risk
One day I was having lunch with a VC sharing what I learned from my students. “Steve,” he said, “you’re missing the most interesting part of vertical markets.  Our firm has a portfolio of companies across a broad range of markets and the way we look at it is pretty simple – the deals fall into two types: those with customer/market risk and those with invention risk.”

Markets with Invention Risk are those where it’s questionable whether the technology can ever be made to work – but if it does customers will beat a path to the company’s door. 

Markets with Customer/Market Risk are those where the unknown is whether customers will adopt the product.

Based on this insight, I updated my earlier diagram to look like this.  (The line is just a first approximation, nothing hard and fast about it.)

Invention Risk

Market Risk vs. Invention Risk - Click to Enlarge

For companies building web-based products, product development may be difficult, but with enough time and iteration engineering will eventually converge on a solution and ship a functional product – it’s engineering, not invention. The real risk in markets like Web 2.0 is whether there is a customer and market for the product as spec’d.  In these markets it’s all about customer/market risk.

There’s a whole other set of markets where the risk is truly invention. These are markets where it may take 5 or even 10 years to get a product out of the lab and into production. (Whether it will eventually work no one knows, but the payoff could be so large, investors will take the risk.)  If the product does work, and say we’ve developed a drug that cures a type of cancer, your only problem is how big is the licensing deal going to be – not about whether there will be customers. In these markets it’s all about invention risk.

A third type of market has both invention and market risk.  For example, complex new semiconductor architectures, (i.e. a new type of graphics architecture, or a new communications chip architecture) mean you may not know if the chip performs as well as you thought until you get first silicon.  But then, because there might be entrenched competitors and your concept is radically new, you still need to invest in the customer development process to learn how to get design wins from companies who may be happy with their existing vendors.

The implications for entrepreneurs is that each of these (market risk versus invention risk,) require radically different financing models, a different type of venture investor, different timing for hiring sales and marketing, etc.

I now advise entrepreneurs to add these questions to their checklist when they start a company:

  • Am I in a “customer/market risk” company?
  • Am I in a company with “invention risk?
  • Or does my company have both types of risk?
  • How would that change my company strategy?

We’ll talk about how to reduce risk in each type of market in the next post.

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Vertical Markets 1: Bad Advice – All Startups are the Same

In the past entrepreneurship was viewed (and taught) as a single process, with a single approach to creating a business plan and securing funding for a startup.  The best entrepreneurship textbooks and blogs assume that advice to startups is generalizable.  But as I learned from my students this “one-size-fits-all” approach does not work for all startups.  Different market opportunities present radically different startup risks and costs.

Capital Requirements
In my class students form teams and spend a semester building a detailed plan for a company. When I started teaching I launched project teams with this advice: All you need is a half a million dollars to start a company and at most a few million more to scale the company.” And the students nodded, OK, yes sir, and they wrote down, “a half a million bucks to start.”

The next week in class a project group raised their hands and said, “Hey, Professor Blank, we found out the common wisdom in the biotech business is that “we need $10-20 million just for the R&D phase and 100’s of million to get through clinical trials.”

“Of course,” I said, “Life science is completely different. The time to product and scale of investment is radically different than other startup markets.”

Intellectual Property
At the next class I said, “You all ought to get out and start talking to customers on day one, and get early feedback on your idea. You don’t need to worry about any Intellectual Property (IP) issues. Just get out of the building.”

The next week another team, working on a new type of solid oxide fuel cell, remarked, “Professor Blank, in our industry there’s a ton of patents and stuff and people tell us we shouldn’t be out there unless we start patent protecting all our IP.”

“Oops,” I said, “you’re right.  In clean tech nanomaterials you guys need to be talking to patent attorneys.  Don’t share the details of your manufacturing process with customers until you’ve locked up your intellectual property.”

Government Regulations
I turned to the class and said, “The rest of you can keep building your company and shipping your product because you don’t need to worry about government regulations. You’re a startup, just get your product out the door.”

The next week another group raised their hands, “Professor Blank, we’re building a medical device and there’s something called the 510K that the FDA requires, and that’s a two-year process.”

Verticals Are Different
I began to realize that entrepreneurs (and their professors) act like every vertical market and industry has the same set of rules. The guidelines I had originally proposed to my students worked for enterprise software or Web 2.0 startups, but medical device, biotech and cleantech startups required radically different approaches.

So the first heuristic is: do not assume the startup rules are the same for all vertical markets.

Now when my students begin their team projects, I list 13 vertical markets on the whiteboard.  Just for discussion, the markets I chose were:

  • Web 2.0,
  • enterprise software
  • enterprise hardware
  • communications software
  • communications hardware
  • consumer electronics
  • games software
Vertical Markets

Vertical Markets - Click to Enlarge

  • semiconductors
  • Electronic Design Automation (EDA)
  • clean tech
  • medical devices
  • life sciences
  • personalized medicine

There’s nothing special about this list other than it represents a diverse set of markets.  If your market is missing, just add it as we go through this discussion.

Entrepreneurs who have experience in the vertical market they’re entering do this analysis automatically. If you don’t have deep knowledge of the domain you are about to start a business in, you need to begin by understanding the answers to questions like these:

  • What vertical market are you in?
  • Do you have domain expertise in your market?
  • Do you have advisors who are domain experts in your market?
  • Do your potential investors understand your market?
  • What is it that’s unique about the market I’m in?

We’ll talk about the implications of what vertical market you’re entering in the next few posts. 

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Going to Trade Shows Like it Matters – Part 2

I wrote this “Going to Trade Shows Like it Matters” memo as a board member after I saw our company at a trade show. Part 1 of this post offered some suggestions on going to trade shows to generate awareness. This post offers suggestions if you are going to a trade show to generate leads.

Ignore This Post
The same caveat applies as in the first post; If you’re selling via the web, and trade shows seem hopelessly anachronistic, ignore this post.  If you’re in markets that still exhibit at them (semiconductors, communications, enterprise software, etc.,) this may be a useful read.

————

To: Marketing Department
From: Steve
Subject: Going to Trade Shows Like it Matters

Generating Leads

Ownership
If your company is going to a show to generate leads, then sales owns the showMarketing is at the trade show as a support organization. Marketing may be physically “staging” the booth, and may even it “man it,” but don’t be confused, this is the VP of Sales party.  While one could argue that a trade show is just another demand creation activity akin to advertising or PR, trade shows are the closest eyeball-to-eyeball contact you’re company is going to have with customers, competitors and partners.

While the industry average says only 20% of show leads are followed up, that only happens in other companies, not yours.  Going to a show to get leads is a sales function, if the leads aren’t followed up marketing won’t be supporting these kinds of trade shows out of their budgets.  Period.  This is worthy of an open and honest discussion with sales up front.  Just as marketing needed sales agreement that it was worth going to shows to generate awareness, sales needs to commit to marketing that leads will be followed up.

The Goal
Remember your goal is to get qualified leads into the sales pipeline. You want to maximize the number of people who give you their contact information, and gather enough information so a sales person can prioritize who to call first.  This can’t happen unless you sit down with your sales team before the show and agree on who are the likely prospects.  What companies should they booth team be looking for?  What titles? Will there be a salesperson manning the booth so important prospects can talk to them immediately?

Promoting Your Presence
The best trade show planning will fail if nobody knows you’re there. Three-quarters of show attendees know what exhibits they want to see before they get to the show. Strong pre-show promotion will let your customers and prospects know about your exhibit. Are you twittering your appearance at the show?  Did you create a Facebook page for the show? Are you buying Google adwords and adsense for the show? Direct email or snail mail to the pre-registered attendees is essential.  Companies that don’t do this are the same ones who would have a party without sending out any invitations.

Many people arrive at a show with a schedule of what they want to see and have little or no time for other booths, so it’s important to get on that schedule. If sales is committed to the show, they will be contacting prospects and suspects reminding them you will be there.  And inviting to the booth/dinner/private demo. While marketing can help, if sales isn’t fully engaged in this activity it’s a bad sign. 

Follow-up as a Priority
While 80% of show leads aren’t followed up in other companies, it doesn’t happen in yours. Lead follow-up is your number one priority after a show, taking precedence over just about everything else — including catching up on what you missed while you were out of the office. Rank your leads by level of importance and interest, and base your post-show efforts on these priorities. Make sure that sales is emailing/ phoning/ texting the hottest prospects within a week after the show ends — the longer you let them sit, the staler they’ll become. 

Send everyone else who gave you a lead some kind of follow-up email/paper mailing. Your post-show email or mailing can be as simple as a thank-you note or a brochure with a cover note. Write it before you leave for the show, so you can send the mailing immediately upon our return. Send PDF versions of brochures and product sheets as soon as you get back to the office. Have enough dead-tree brochures and product sheets on hand before the show so you can snail-mail out the information after you emailed it. You’d be surprised how effective sending a paper followup to a PDF can be.

Measurement
We measure everything.  Particularly leads.  It’s pretty simple.  a) How many overall leads did you generate, b) how many leads ended up in the sales pipeline, and c) how many leads ever turned into an order.

To close the loop between leads and orders, always offer a sales commission bonus for orders that came from leads followed up from a show. It’s amazing how effective how a bonus can be. If leads from this show do not turn into orders, why are we going again next year?

General Comments for both Awareness and Lead Generation
Demo’s
I don’t care how small the booth or trade show is, do a canned demo every 20 to 30 minutes regardless of whether anyone is at your booth or not.  The demo repeats the one or two key messages you decided were most important. Assume everything you’re showing will be seen by every one of your competitors, so this is not the place for showing the “secret new release.”  You can do that in a private hotel suite for important prospects.  

Demo’s are the heart of the booth. Without one, you’ll be having your booth staff standing in the aisles mournfully waiting for someone to walk up to them.  Or worse, your salespeople will be talking to each other looking like they’re too busy to be interrupted.  In both cases, that means you’re broadcasting “nothing interesting is in this booth folks, keep walking.”  A continual demo lets you act like you have something important to share. Your sales people can gather the crowd, work the crowd and use their sales skills to see if prospects in the audience have interest.  The difference between booths offering a demo and those without one is striking.  One of them is a loser.  It isn’t going to be your booth.

Competitive Analysis
Unless you are at the wrong show your competitors will be there as well. Someone from your company has to be designated the official competitive intelligence officer for this show.  They are in charge of coordinating collection of competitive data, and preparing a summary report which contains facts as well as analysis. Get competitors literature, press packets from the press room, sit through their demos, and don’t come home until you know everything they’re saying. At the same time keep an eye out for competitors at your booth, (they may not be wearing their own company’s badges.) Welcome them loudly and openly. Put your arm around them and walk them around your booth. Make sure the staff is trained to never disparage a competitor. (Either at the show or anywhere else.)  

Partnership Opportunities
At any show you are attending there has to be tons of opportunity for business to business relationships you hadn’t thought about.  Everyone should have a chance to walk the floor looking for deals, technology, distribution, customers, etc. Someone from your company has to be designated the opportunity monitor, responsible for coordinating potential partner information and disseminating it in writing after the show.

No Literature at the Booth
Fancy brochures are expense, and most trade show literature ends up on the hotel room floor.  Have sample literature under Lucite and chained to the booth.  Take imprints of badges in exchange for paper literature requests.  Each imprint is now a lead.  (Keep a stash of literature for real live prospects under the table, but they should be pulling out their wallet to buy before you let go of it.)

Booth Staffing
You can’t do it alone. Even if it’s a small 10-foot booth you will need at least one person to “spot” you when you leave the booth to take a break or to check out the competition. For bigger booths a good rule of thumb is to have two to four staffers for every 100 square feet of exhibit space.

Even for the smallest trade show, no one shows up without booth training. (Messages, themes, demo’s. Everyone should be articulate and agile in describing and demoing the products.) And if you don’t show up for booth training, work somewhere else. (I’ve always visibly sent someone home from a tradeshow for missing training or booth duty.  It makes the point and becomes company lore.  You’ll never have to do it again.) Everyone should understand your goals, your messages, your demos and your theme and know their role. If your don’t have enough employees on the payroll, hire relatives, friends, or part-timers and train them.

Trade Show Post Mortem
Evaluate the experience.

  • Physical booth: What worked? What didn’t?
  • Demos/Equipment: What worked? What didn’t?
  • Messages/theme: What worked? What didn’t?
  • Staffing: What worked? What didn’t?

Write it down and keep it in a tradeshow handbook for those who will follow.

Go to trade shows like it matters.

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Going to Trade Shows Like it Matters – Part 1

Ignore This Post
If you’re selling via the web and trade shows are something your grandfather told you about, ignore this post.  If you’re in markets that still exhibit at them (semiconductors, communications, enterprise software, medical devices, etc.,) you know they’re expensive in time, dollars and resources.

I wrote this “Going to Trade Shows Like it Matters” memo as a board member after I saw our company at a trade show. My observation was that they had the “Going to Trade Shows” part down, they just needed to add the “Like it Matters.”

————

To: Marketing Department
From: Steve
Subject: Going to Trade Shows Like it Matters

Setting Clear Trade Show Objectives
There’s no use going to a show if you don’t know why.  Answers like, “because our competitors are there,” or “because it’s on our calendar,” or even “because I think we should,” don’t cut it.  (Remember your department has a mission.) There’s a plethora of reasons why a company would want to exhibit at a show:

  • write sales orders
  • generate leads for future sales
  • research the competition
  • spot trends
  • generate awareness and visibility within the industry
  • build our mailing list with quality names
  • find better or cheaper suppliers
  • build rapport with current customers
  • get press
  • generate excitement around a new product introduction
  • get additional partners
  • recruit staff

The problem with this list is that every company can find at least five things they like on it.   For a small company this is like throwing your tradeshow money on the floor.  A company must pick the one or two top goals or nothing useful will happen. The number one reason a small company is going to a tradeshow is to generate awareness.  As the company gets larger and a large professional sales organization kicks in, its second priority is to generate qualified leads. This doesn’t mean that there aren’t tertiary goals, but they are just that – not the top one or two.

Before you go to a trade show sales and marketing need to agree to measurable goals. Everything you do before, during, and after the show should be evaluated in terms of whether it contributes toward reaching these goals.  While marketing can decide they are going to the show to generate awareness, marketing can’t decide they are going to a show to generate leads – unless the VP of Sales says that they believe those leads will be valuable and sales has a plan to follow up on those leads. 

If sales doesn’t think the show is worth going to for the leads, and marketing isn’t going to generate awareness, remind me – why are you going to this show?

Generating Awareness
Ownership
If your company is going to a show to a tradeshow to generate awareness, then marketing owns the show, and sales is there for support.  Do not assign any sales people to the show who feel they “have something better to do,” 1) they might actually do (like closing an order) and, 2) bad sales attitudes are contagious.

Budget
A test for whether a show is worth going to generate awareness, is to total up the show budget.  Then offer those budget dollars to the VP of Sales.  They have a choice; they can tell you not to go to this show and they can use your show budget for anything they want in sales; or they can let you go to the show to use those dollars to create awareness for them.  If the VP of Sales doesn’t think that generating end user awareness and ultimately demand for them is worthwhile, then one of you is an idiot.  Hope it’s not you.

Once you know which show you’re going to and what your goals are, draw up a budget. Without a budget, costs can quickly spiral out of control (last minute impulse purchases to jazz up your booth, for example) and defeat your best laid plans. A rule of thumb is that your space costs represent about a quarter of your total show budget. So when you know what you’ll be paying for space rental, multiply it by four, for a rough idea of your expenses.

The Message
Sitting around a conference room table brainstorming messages that might resonate with customers, or worse having a PR agency doing that for you, is a firing offense in a small company.  You should be brainstorming messages with current and potential customers.  Your messages should have been pre-tested with prospects and existing customers way before you go to a show.

Say it Loud
Attendees are looking at hundreds of booths each screaming messages at them.  Why are your messages going to stand out?  Show-goers can’t sort through a pile of inarticulate or barely whispered thoughts. 
Pick just one or two key ideas that you want to get across at the show and train yourself and your staff to “stay on message”.  Then that message needs to be translated into a theme for the booth, the staff and the show.

Then shout the messages out (virtually) at the top of your lungs. Visually, demo’s, wild colors, etc.  If you think you are going to offend your customers or embarrass your engineering organization, get out of the marketing department.  IBM doesn’t have to shout to get noticed, but you do.  Design your graphics, pre-show promotion, literature and show directory advertising around your focused message and theme.  However, scantly clad women, children and animals (in any combination) are still in bad taste.

Promotions attract booth traffic
Promotions and give-away’s drive traffic to your booth. Offer a free bestselling book in your industry (can you have the author there to autograph it?); Hold a contest, (If you’re giving away a big prize make sure your most valuable prospect wins.) Have a loud product demo; give away pieces of candy; hire a masseuse and offer free back rubs. While the promotion needs to fit your company’s image and the demeanor of the attendees, I’ll tell you that I’d be giving away dating-service T-shirts at the bereaved widows’ convention. 

Location, location, location
A small booth is no excuse for being stuck in the corner.  Don’t tell me “that’s where they put all the small booths.”  I know that, so why do I need you?  Get yourself into the booth selection meetings and get to know the manager.  Call often and early and try to upgrade your location.  Shoot for a high-traffic location.  Be sure to look at a floor plan before you choose your site. Foot traffic is heaviest in certain areas of a typical trade show floor. Look for locations near entrances, food concessions, rest rooms, seminar rooms, or close to major exhibitors. Try to avoid dead-end aisles, loading docks, obstructing columns, or other low-traffic regions.

Partners Booths
While your booth may be small, some of your potential or existing partners may have much larger ones, in much more visible locations. Figure out how to get your equipment into every other big booth we can. But it has to come with one of your people to talk about the product. If you tell me we can’t find any established exhibitor whose products or services complement ours to let us in, I question why you are going to this show.

Tradeshow Seminars           
Almost all tradeshows have conferences and seminar sessions; is your company keynoting any?  Leading or speaking at any? No is the wrong answer.  If there aren’t any that match your company, create some.  You ought to know who the conference or seminar chairman is a year a head of time, and they certainly ought to know you.  I can’t imagine your company going to a tradeshow to create awareness and not being a speaker.  (That means neither can you.)

Preshow Publicity
Does your company have any new announcements to make at the show?  Are you twittering your appearance at the show?  Did you create a Facebook page for the show?  Are you buying Google adwords and adsense for the show?  Did you issue any press releases targeted at the trade publications and local papers that will be covering the show?  Has the company talked to key industry analysts/press pre-show to ask them to stop by?  Did the company send out direct mail (email or postcards) to potential or pre-registered attendees reminding them to stop by the booth? Do you have press kits for the show, (electronic and paper) and have you posted them on-line and dropped them by the physical and on-line press room?

Key Influencers
Does the company have press/industry analysts scheduled for demos?  Does the company have demos or dinners/lunch scheduled for key industry influencers?  Is the company hosting/co-sponsoring some event?  Why not?  

Customer Discovery
Sitting inside of your company you’ve made a whole bunch of assumptions about who your customers are and why they will buy.  Now there are thousands of real live customers walking around the show floor with facts.  You need to get those facts back inside our building.  What are all the questions you’ve ever had about customers?  What do they read?  What other shows do they go to?  How would they reach them?  Have they ever heard of you?  Do they believe your key messages?  Do they believe the problem you are solving is important?  Who would buy your product? 

Measurement
How do you measure success at a tradeshow where the goal was generating awareness?  Ask the potential customers who actually came to your booth and call them after the show.  Take all the leads you got at the show (yes you are collecting leads even though you’re at the show to generate awareness) and follow up.  Ask them what they thought of your company/product before/after the show.  What message did they take away?  Did this help them to understand your company/product

Part 2 of the memo, to be posted tomorrow: using a trade show to generate leads. Plus tips on overall trade show strategy.

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Founders and dysfunctional families

Startup CEO Traits
I was having lunch with a friend who is a retired venture capitalist and we drifted into a discussion of the startups she funded. We agreed that all her founding CEOs seemed to have the same set of personality traits – tenacious, passionate, relentless, resilient, agile, and comfortable operating in chaos. I said, “well for me you’d have to add coming from a dysfunctional family.”  Her response was surprising, “Steve, almost all my CEO’s came from very tough childhoods.  It was one of the characteristics I specifically looked for. It’s why all of you operated so well in the unpredictable environment that all startups face.” 74HGZA3MZ6SV

I couldn’t figure out if I was more perturbed about how casual the comment was or how insightful it was.  What makes an individual a great startup founder (versus an employee) has been something I had been thinking about since I retired. My comfort in operating in chaos was something I first recognized when I was working in the Midwest.

The Rust Belt – (Skip this Section if I’m Boring You)
Out of the Air Force, my first job out of school was in Ann Arbor, Michigan, in the mid-1970’s installing broadband process control systems in automotive and manufacturing plants throughout the Midwest. I got to travel and see almost every type of Rust Belt factory – at the time, the heart and muscle of American manufacturing – GM, American Motors, Ford, U.S. Steel, Whirlpool.  Our equipment was installed in the manufacturing lines of these companies, and if it went down sometimes it brought the entire manufacturing line down.

I always made a habit of getting a tour of whatever manufacturing plant I was visiting. Most plant foremen were more than accommodating and flattered that someone actually was interested.  I was fascinated to learn how everyday objects (cars, washing machines, structural steel, etc.) that ended up on our shelves or driveways were assembled.

My favorite factory was the massive U.S. Steel plant by Lake Erie. On my first visit the foreman walked through this enormous building, not much more than a giant steel shed, where they had an open hearth furnace. We came in time to see the furnace being tapped, pouring steel out into giant buckets. (Years later I realized I watched the end of an era. The last open hearth furnaces closed in the 1980’s.)

We stood on a platform several stories up and light streamed diagonally through windows set high on top of the building cutting through the black soot particles created when the incandescent steel hit the bucket. It was too loud to talk so I just watched the steel pour through the clouds of soot backlit by the blinding bright liquid metal. It looked like an update of the iconic image of Penn Station writ large.

And as I stared through the billowing clouds of soot flashing between black and white took on fantastical shapes as tiny figures on the factory floor scurried around the bucket. I could have stayed there all day.

Automobile plants were equally fascinating. They were like being inside a pinball machine. At the Ford plant in Milpitas the plant foreman proudly took me down the line. I remember stopping at one station a little confused about its purpose. All the other stations on the assembly line had groups workers with power tools adding something to the car.

This station just had one guy with a 2×4 piece of lumber, a large rubber mallet and a folded blanket.  His spot was right after the station where they had dropped the hoods down on the cars, and had bolted them in. As I was watched, the next car rolled down the line, the station before attached the hood, and as the car approached this station, the worker took the 2×4, shoved it under one corner of the hood and put the blanket over the top of the hood and started pounding it with the rubber mallet while prying with the lumber.  “It’s our hood alignment station,” the plant manager said proudly.  These damn models weren’t designed right so we’re fixing them on the line.”

I had a queasy feeling that perhaps this wasn’t the way to solve the car quality problem.  Little did I know that I was watching the demise of the auto industry in front of my eyes.

Operating in Chaos
Repairing our equipment could be time critical. One day, I was at the Ford Wixom auto assembly plant training my replacement and I was at met at the door by an irate plant manager.  He welcomed us by screaming, “Do you know how much it costs every minute this line is down.” As I’m troubleshooting our equipment scattered across the plant, (in the computer room, above the steel, in NEMA cabinets next to line, etc.,) the manager followed us still yelling.  My understudy looked at me and said, “how can you deal with this chaos and still focus?”  And until that moment I had never thought about it before.  I realized that what others heard as chaos, I just shut out.

A Day in the Life of A Founder
For those of you who’ve never started a company, let me assure you that it never happens like the pleasant articles you read in business magazines or in case studies.  Founding a company is a sheer act of will and tenacity in the face of immense skepticism from everyone – investors, customers, friends, etc.  You literally have to take your vision of the opportunity and against all rational odds assemble financing, and a team to help you execute.  And that’s just to get started.

Next, you have to deal with the daily crisis of product development and acquiring early customers.  And here’s where life gets really interesting, as the reality of product development and customer input collide, the facts change so rapidly that the original well-thought-out business plan becomes irrelevant.

If you can’t manage chaos and uncertainty, if you can’t bias yourself for action and if you wait around for someone else to tell you what to do, then your investors and competitors will make your decisions for you and you will run out of money and your company will die.

Great founders live for these moments.

Creating the Entrepreneurial Personality – A Thought Experiment
Fast forward three decades back to today.  The lunch conversation was an interesting data point to add to a hypothesis I’ve had.

I’ve wondered, just as a thought experiment, how would we go about creating individuals who operate serenely in chaos, and have the skills we associate with one type of entrepreneurial founder/leader?

One possible path might be to raise children in an environment where parents are struggling in their own lives and they create an environment where fighting, abusive or drug/alcohol related behavior is the norm.

In this household nothing would be the same from day to day, the parents would constantly bombard their kids with dogmatic parenting, (harsh and inflexible discipline,) and they would control them by withholding love, praise, and attention. Finally we could make sure no child is allowed to express the “wrong” emotion. Children in these families would grow up thinking that this behavior is normal.

(If this seems unimaginably cruel to you, congratulations, you had a great set of parents.  On the other hand, if the description is making you uncomfortable remembering some of how you were raised – welcome to a fairly wide club.)

Over the last 5 years I’ve asked over 500 of my students how many of them grew up in a dysfunctional family (participation was voluntary.) I’ve been surprised at the data. In this admittedly very unscientific survey I’ve found that between a quarter and half of the students I consider “hard-core” entrepreneurs/founders (working passionately to found a company,) self-identified as coming from a less than benign upbringing.

Founders as Survivors
My hypothesis is that most children are emotionally damaged by this upbringing.  But a small percentage, whose brain chemistry and wiring is set for resilience, come out of this with a compulsive, relentless and tenacious drive to succeed.  They have learned to function in a permanent state of chaos.  And they have channeled all this into whatever activity they could find outside of their home – sports, business, or …entrepreneurship.

Therefore, I’ll posit one possible path for a startup founder – the dysfunctional family theory.

Throwing hand grenades in Your Own Company
One last thought. The dysfunctional family theory may explain why founders who excel in the chaotic early phases of a company throw organizational hand grenades into their own companies after they find a repeatable and scaleable business model and need to switch gears into execution.

The problem, I believe, is that repeatability represents the extreme discomfort zone of this class of entrepreneur. And I have seen entrepreneurs emotionally or organizationally try to create chaos — it’s too calm around here — and actually self-destruct.

So What?
Lets be clear, in no way am I suggesting that growing up in a dysfunctional family is the only path to becoming a founder of a startup.  Nor am I suggesting that everyone who does so turns out well. And in particular I’m not suggesting that every employee who joins a startup fits this profile, it just seems more prevalent in the founder(s).

And this hypothesis might be a good example of confusing cause and effect. Yet I am surprised given how much is written about the attributes of a startup founder, how little has been written about what “makes” a founder.

Let me know what you think.   Does any of this match your experience or people you know?

Comments and brickbats welcomed.

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