You're Not So Special. Are you?

In 1997 I started shopping ChiliSoft’s idea of ASP anywhere. Dave had developed SlipScript at PSU, and joined us in December 1996.

Microsoft’s ASP was uncannily similar–and later than–SlipScript, but the opportunity was clear: you could build VBScript/Javascript server applications on any server with SlipScript if Dave made a few modifications.

But selling against an existing market is hard.

It was a nascent market; Netscape had its very unreliable LiveWire, but Microsoft came out with ASP in Fall of 96, and there were others like NetDynamics, Allaire, etc that were all evolving toward different ends of the market. And we were just three guys with no money (aside from the credit card).

So how were we different? What was the special sauce? Why did we think we could beat Microsoft? Or Netscape? Or any of the server software vendors competing for the same space?

Ultimately I was able to convince enough people that this was the game changer. At the time, there were relatively few Java and C++ developers, which were viewed as high-skilled programmers.

But there were an estimated 5 million Visual Basic developers, none of whom could develop for UNIX, Linux, or variations, and most corporations were running some OS other than NT for their web apps.

So we made it about access to available developers. Sure, you could build a Java server application–if you had Java developers. This was well before there was so much offshoring and hiring of foreign developers (there was some but not at today’s scale, which has both helped and hurt the US market).

That selling point landed us Morgan Stanley, a major partnership with IBM, and countless accounts. We made VB developers relevant to Sun, Netscape, HP, IBM, etc. That was the promise, anyway, and we largely delivered.

I’m talking with several local startups about joining them in some capacity. I love coaching, but I’m wired to lead, so I’m talking to VCs and startups around the MidAtlantic area, but there’s no place like home.

As I research each of them, I find existing competitors. No, they’re not the same. No, they aren’t quite as slick, or have the same approach, etc.

But they have customers, mindshare, case studies, infrastructure, etc. And websites. Investors looking into you will find them, and they’ll start to think the opportunity isn’t so clear, or wide open, or easy, or obvious.

You have to figure out what your key differentiators are. Why would I invest in AirBnb.com when there’s Expedia and Hotels.com? Really–will people rent out a room in their homes to me for a night? That’s nuts. Imagine what I could do. Or they could do.

But it works, and they raised a ton of money for it. They were able to show why they were great: they enable people to monetize their excess capacity of their house or apartment. Or boat.

So why are you different? What makes you so special?

I have a tough time with this myself. This is the kind of conversation where self-doubt creeps in, because frankly it’s really, really hard to nail it.

But you can do it 🙂

The Hardest Part of Startups: Getting Past Zero

Josh Koppelman rightly pointed out a few years ago in “The Penny Gap” that the distance between 0 cents and 1 cent is greater than the distance between 1 and 2 cents.

Cars use more energy to start moving than to continue moving; overcoming that initial opposing force takes energy. That’s why the Prius uses electricity to start instead of gas; the electricity is free, generated by braking.

The same principle applies to going from concept to beta in use, and from beta to an early base of customers (pricing aside).

Once you’ve landed a few early customers, the next few are a bit easier to land, and at some point–if you’re diligent about quality, price and product-market fit, customer service, and brand development–you’ll no longer have to provide nearly the amount of energy to keep rolling: your customers supply most of that energy.

It’s as though you’ve gone from 0 to 60 (which might take years), and at 60 the friction disappears and the wind swings behind you. You can coast. You shouldn’t coast, but you can.

The toughest part of building a startup–including the early failures, the self doubt, the lack of support from friends or family, the news of competitors beating you to market–the toughest part is getting from zero to 1 mph. It’s much tougher than going from 1 to 2, and far, far tougher than going from 10 to 30.

In other words, establishing a functioning business is the hardest part of building a startup. Not product, not capital, not partners, not press. Going from theory to practice, from piecemeal to repeatable, sustainable revenue.

I worry about some of our Startup Lancaster companies. I worry that they focus too much on perfect product-market fit before meeting the market to know what the product fit should even be. I worry that they don’t test the business model by actually trying to sell something, and focus too much on UX, anecdotal feedback, fundraising, and research.

I worry they’ll give up or fail without even having tried to sell something. And if I’m worrying about it as an outsider, they should be worrying about it because it’s pretty clear from the outside that they aren’t moving from 0 to 1, which is the hardest and most important part of establishing a business.

You can get to 1, but you have to commit to selling.

Call 10 prospects. Call 100. 100 will take you two days. Can you close 1 out of 100? No? Can you ask each what it would take that you don’t have to get them to buy? Can you close 1 out of 200? Yes, you can. And then work it down to 1 out of 100, 1 out of 50, 1 out of 30. Mission Research closes 1 out of 3.

But you can’t do it if you don’t develop your target list and pick up the phone. Sounds anachronistic, but if you think tweeting, friending, liking, placing Facebook ads or Google Adwords, or email marketing will get you your first customers, well let’s just say I think you’ll learn a lot more faster and develop a strong initial base by picking up the phone.

You need supporters. You even need complainers–especially, in fact. You need people who see the promise and are aggravated that you haven’t delivered yet. They’re loyal–to a point. You need backers. People who cheer you on and believe in you, people who’ll be forgiving as you try to find your way through the darkness.

A great way–perhaps the best way–you get early supporters is through personal contact. Send the personal email and ask for a time you can chat. No, I don’t care that you’re only charging $30/month, or $10/use, or that you’re selling ads to eyeballs (ouch). The early wins are easier to get through personal contact.

I’m hoping some prove me wrong and show me the A/B testing using Google Adwords that link to a form or video or landing page that converts into an active user, but active users don’t make you a sustainable business, revenue does, so take the next step and show the transactions.

“We’d love to have you as a customer.” It’s inviting. Tell them it’s early and you only have a few other customers. If they’re not moving yet, give them the second 3 months free. Or the second month free. Or the second year.

Don’t make the product free, or discount, but it’s ok to give up some per-customer revenue early on just so you can say to other prospects that you have other customers like them. Reward your early adopters.

You can do it. But you have to get past zero, so pick up the phone and work it. Discover what works, then refine it and repeat. But don’t wait for product perfection–you’ll never get there anyway.

Optimism

I was reckless and irresponsible by any measure at the time. We had software that didn’t work, minor interest, and I was stacking up personal debt at an amazing level, largely on the good credit of my family.

But I had hope. I was optimistic. And that optimism combined with obligation to my family created a tenacity in me that made me a relentless, passionate evangelist for our software. 
And man, it was hard. Like driven to tears hard. Sleeping on the floor of a friend’s when I traveled because I had no money for a room hard. Rejected-60-times-by-investors hard. 
But I believed in the vision of both products, which were both the first of their kind. That was 1996 and 1997. It took a full year of going all in to raise the first round of capital. 
Every month, tech product startup founders meet as part of Startup Lancaster. And each of these founders bring an optimism with them that’s inspiring. They see a problem and want to fix it. Or an opportunity and want to develop it. 
They have few resources, little experience, and all kinds of personal challenges because most are older and have developed obligations younger entrepreneurs don’t have. 
But they persist. They seek out help. They research. They push through. 
Only a few have found any level of funding, so the rest are working nights and weekends, running up some personal debt, and would choose to work full time on their visions if they could raise the money. 
And that’s the last component in our little ecosystem of 43 Startup Lancaster founders–capital. 
Add seed capital to optimism, obligation, tenacity, and passion, and you’ve got a rocket ship. It doesn’t answer all questions. It doesn’t solve all problems. But it creates the context for creating success at a basic, low level of sustainability. 
Tomorrow night we’ll talk about sources of capital, aside from customers, because we very frequently talk about business models and revenue as the best source of capital. 
This time it’s about venture capital, angel investing, credit cards, friends and family, accelerators, Ben Franklin Technology Partners, and others. 
I love the optimism of this group, and it reminds me of the power of my own optimism, which often moves me to do unreasonable, hard things that make life very fulfilling, and without which make life quite dull and empty outside of the relationships I value. 
One more time: Optimism, obligation, tenacity, passion, and capital can make great things happen. 

Customer Service: Courtesy

I have a few beefs that have culminated in a bit of a frustrating morning.

I rented an apartment after selling the house last year. Withint a week the 50-year old oil furnace burned out, so the landlord had to replace it. That was in December. It took something like 6 weeks to get it done–I really can’t remember though. It was a long, cold time.

Oil at the time was near 4 bucks a gallon, and the apartment has 4 outside doors without insulation. Heating it is an expensive prospect. Luckily there’s natural gas in the building and one of the units uses it.

So when the landlord chose to replace the old oil furnace with another oil furnace because the furnace was cheaper for him, and without talking to me about it first, that bugged me. Given the price of heating oil vs natural gas, as well as the relatively minor increase in furnace cost, I would have been happy to have made up the difference to avoid excessive heating costs if stuck with oil.

I’m stuck with oil–or electricity. In June I ended my pre-payment deal with Leffler Energy, and, I thought, the automated deliveries.

I’ve had my furnace off since April, and this year I’ve decided not to turn it on at all. Instead, I’ll insulated the doors and use electric heat, which isn’t ideal but it’s adequate and a lot less expensive than oil.

So imagine my surprise when this morning I find a receipt for $602 on my door for an oil delivery. No notice, no warning, no courtesy call.

It’s 68 degrees, and no, I had no intention of ordering oil, and I have no intention of paying for the delivery. I’ve asked them to come back and extract the oil they delivered, and I won’t be paying the $602 for 156.4 gallons.

Instead I’ll be using that to buy storm doors and electric heaters, for a total cost of maybe $800, plus about another $400 for the season, as opposed to the $4,000 it cost me last year. That’s right, $4,000.

A simple courtesy call would have avoided this. The gentle reminder. Cooperation with the customer. Letting the customer know after 4 months without communication that you’re about to stick them with a $600 bill.

As it is, I’m about to have to waste some time and likely some money dealing with their insistence on unseasonably early delivery without notice, which I’m going to guess has something to do with their cash flow.

And if I ever do go back to oil, it’s unlikely I’ll go back to Leffler, unless they propose something reasonable, like taking their oil back and closing my account.

It also makes me wonder what adding a little courtesy to my daily practice could do. I’m not longer running a company; mostly I support other founders, the school district, the gardens, and some alpha testers. How can I improve upon that? I’m certain I’ve been assumptive and discourteous at some point (and almost always with Palmer of Locengine–yeah, you buddy!).

So what about you? How can we improve our customer service through simple courtesies? What do you feel your customers expect, and how can you improve upon that?

A little forethought, a little sensitivity to your customers’ world views and situations can develop into a rich source of good will and long-term loyalty.

Are You Building A Feature or a Company?

A couple of things are bouncing around in my head today.

FEATURE OR A COMPANY?
First, I’m working on another tool because I’ve experienced significant pain over the past year and have heard from others that they too have this problem. I’m pretty sure it’s a feature and not a business, but it’s a feature I need so I’m building it in my own slow, error-prone way.

Which leads me to this question: are you building a feature or a company? A company is comprised of one or more people (unless it’s a Romney shell company) organized around products or services, with the intention of generating revenue–hopefully enough to keep the company alive. (See Fred’s post today on sustainable companies).

A feature could be one or more features that you build and release into the ether for the benefit of anywhere from zero to countless people, but with no sustainable revenue or people organized around it.

I think I’m building a feature in this case.

INVESTOR DAY at STARTUP LANCASTER
Next, I’m reviewing applications for the first Startup Lancaster Investor Day later in October.

Man, I can’t believe it’s October. So much I haven’t finished. 

I hate the startup application thing, like for accelerators or pitch contests, or funding from govt programs. But after reviewing responses to my light-weight application form for Investor Day, I have new appreciation for a more involved filtering process.

Of the (only) 7 applications, maybe 3 of the companies are ready to look for funding. When I say “ready”, I don’t mean in terms of product, but in terms of how they communicate about their companies, products, and markets.

The goal of the Investor Day is to learn from each other and from the panel of investors and founders. Our group has a lot to learn–even the experienced founders can learn something.

I’m encouraged, though, but the obvious passion from some of them. Three are mostly ready, but I’l add two to the list because they can really use the help, and that’s what Startup Lancaster is all about. One of the applicants doesn’t belong there at all–no product at all.

Next week at the normally scheduled meetup, we’ll talk about raising capital and practice our pitches. Most of us aren’t really suited for venture capital, so part of the discussion will be about other sources of investment.

It’s a beautiful day, and as much as I love working on this feature (complete with streaming!) I’m going to jump out there with the Bear and go for a hike while it lasts.

Maybe as I walk I’ll sort through some thoughts about the feature and see if there’s a business there, but my passion is around search, social, and community, so this little feature is not likely to make it past the completion stage.

5 Questions You Should Ask Yourself Before Raising Capital

Paul Graham posted a long perspective about “going big”, raising capital, growth etc. It’s worth reading, even though he was off base about what constitutes a startup:

A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. 

That’s pretty much BS; it’s the definition of a startup in the Graham Bubble. In the real world, a startup is in fact something newly founded with the intention of getting to sustainability.

How you want to define sustainability and the process of getting there is up to you, but pay no attention to pronouncements like Graham’s. He’s a very smart guy with a lot of great things to say, which is partly why it’s disappointing to hear this sort of thing from him.

Marc Suster had a good post in response that is, again, worth reading in its entirety.

But I believe that without presenting the other case to my definition of startup entrepreneurs who want a different path and who are young & impressionable they might read into Paul’s post a certain religion of going for instant, rapid growth. 

I agree with Marc.

He references another post of his in talking about whether to raise money or not, and that’s what I’d like to talk about today.

At the end of next month, four or five startups will present at Startup Lancaster’s Investor Day. That’s the one day of the year we open the doors to non-founders; this is the first time. So the rest of this post is addressed to them and startups like them.

Should you raise capital? No. Yes. It depends.

First, there are different kinds of capital–personal investment, friends and family, angel, SBA loans, credit cards, and arbitrage of various sorts. Venture capital is what everyone talks about; I suspect there’s a certain allure to raising capital from a venture firm–it gives the company credibility along with a pile of cash to apply productively toward growth (hopefully).

Should you raise? It depends on your business model, traction, market size, capital needs, time, risk tolerance, ability to commit to others, etc.

But business model is really the key to when you should raise–if you should raise at all. If your business model depends on ads in front of eyeballs, you’re going to need to find a way to pay the bills while you grow enough of an audience to drive ad revenue.

If on the other hand your model depends on customers paying an average of $250/month, your burn is $10,000/month, and you’ve just sold 10 new contracts in your second month, you can likely hold out because by the fourth month your expenses are covered.

At that point, you’re developing your customer base, learning from the market you’re actively addressing, and scaling to grow revenue. If you keep that growth up you’ll have 120 customers paying $250/month, which is $30,000/month. Not bad.

You might need to add sales staff, or increase marketing to increase your rate of growth. To do that, you could try to grow from cash through operations, which you’re accumulating if you haven’t increased your burn.

Or you could raise capital. And then the question is from whom and how much.

Five Questions (in service of the gratuitous headline)
But let’s step back. 1) Why are you building the company? 2) What outcome do you want? Do you care about a big exit? Do you love your team and just want to show up every day for the next 10 years serving your market with your great team? Do you like discovery and development, but hate managing people?

You really have to understand why you’re doing this before your raise capital. 3) What do you care about? 4) What are your values and principles? 5) And how much is enough?

It’s ok to be partly driven by money, but it should not be the core reason you’re building your startup or you won’t make it through the rough stuff, and believe me, if this is your first time there will be some rough stuff. If you’re reading this you’ve likely already experienced it or are mired in it.

You don’t need to be a huge company. Or a fast-growth company. You just need to be the best company you can be within the framework of principles you care deeply about.

One of those principles might be fast growth and a big exit, or fast growth and a large growing company that makes everyone a ton of money. That’s fine.

That’s when you want to narrow the source of capital to VC. But you should understand this: the VC job–their convenant with their investors–is to deliver a return on capital, typically in the 30% to 35% range, annually over a 7 to 10 year period.

To get that return, they need you to create a liquidity opportunity. That means you have to either 1) sell your company, 2) go public, 3) buy back stock. There might be more options, but those are the big ones.

So are you up for that? Are you up for managing relationships with investors? Are you ok with allowing growth to be a driving force behind decisions about people, product, and customers?

These aren’t easy questions, but you really need to try to imagine what it’s like when your stakeholders include investors, and by extension, their own investors.

So yes, you’re a startup even if you don’t meet Graham’s Bubble requirement. Yes, you should raise money if you need to and can deliver growth as a result. No you shouldn’t raise capital if you can avoid it early on through sales, like Greg Gianforte talks about in Bootstrapping.

But yes, if you are building a consumer-facing application that depends on tens of thousands of non-paying users to get to any kind of revenue, yes you will need to raise capital to fund you while you’re growing. If you can get someone to fund your R&D, you just might want to say yes.

In the end, you’ll be better off obsessing about serving customers and growing your company than obsessing on funding, especially venture capital. And pay no heed to the messages coming out of the rare air of Graham’s Bubble.

And now it’s your turn…below the fold.

Build Your Own Economy

That was the tagline for the CRM we developed but never got off the ground (ironically). And that’s the message from Brad Feld, entrepreneur and parter at The Foundry Group, and one of the Tech Stars early mentors/backers.

Fred blogged about Brad’s new book today. I started reading it yesterday, and so far it’s spot on and very helpful.

If you’re wondering how to make something happen outside the Valley or other US tech centers, you must absolutely get this book. It’s available on Kindle today, and through atoms next week.

Check it out over at http://www.startuprev.com

Sell What You Have Today

From my first tech business through the last one, I cared about serving customers. Some people call that sales, but to me it was matching the customer’s needs with something affordable that would serve them well. 

There were nights when I didn’t get home until 11, because I was at a PC customer’s house trying to fix a computer I sold them that was running on the highly unreliable Windows 3.1, on top of hardware that might have been unreliable. 
I cared about the outcome. The money mattered, but my customers deserved stuff that just worked, and I was selling stuff that at the time didn’t just work. 
With ChiliSoft, I was dying to get the first sale. Saloman Brothers bought Chili!Reports when it was still in beta. It was so satisfying–a large company wanted our stuff, we had made the right call, we were getting paid for it, and the customer was forgiving enough to pay during beta. 
And that wasn’t even the product that would change everything. 
With Mission Research, we spent a few years researching while selling software services to the United Way of New York City, and used that to build out our framework. 
There was always another deal around the corner if we could find the interest and try to match the need with a solution. 
It’s basic stuff. 
Then we released GiftWorks 2005 in fall of 2004 (using the auto-industry naming cycle). The product wasn’t great–not really ready for primetime. But we were running out of investment and services cash, and it was time to show that we could attract customers and prove the theory.
We sold what we had to sell, and worked toward a better product. 
It was slow going the first year; we ended with maybe 250 customers, some of which actually paid. Since we were the low-cost alternative to much more expensive, poorly designed crap, we didn’t really make very much. 
But we sold what we could at that time. 
Then we came out with a much better product based on feedback from those early customers and jumped to close to 2000 customers over the following 18 months. I can’t remember the numbers exactly. 
The point is, sell what you have today. 
I’m looking around my apartment and thinking about that. I haven’t finished writing the book. I haven’t finished the software; two years ago I was way ahead of the curve, and now I’m slightly behind it with that. 
So what can I sell today?  
Well, we’ll see. Sometimes you have to sell people on the promise, and then work like hell to over-deliver. Sometimes you just sell yourself. 
This came up for me because one of the founders I’ve been talking with has this crazy notion that he should turn down investment, which is pretty much on the table, from known investors no less. Few startups have the luxury to have their R&D funded.
But he has some nutty ethic that he should sell what he has today. And I disagreed with him, and still do to some extent. I think you should do both. If you can take the heat off by taking investment at a reasonable valuation, and build a small team to kick ass faster, you say yes. Make it happen. At least get the commitments in writing.
But either way, start selling what you have today, and if you don’t quite have it, see if you can sell the promise of it. There are ways to structure selling promises so that it’s almost a no-brainer for your customer, helpful to you, and not an impediment to selling to other customers down the road. 
That early revenue and customer is really key for creating a foundation for your business. 

Networks & Communities

I weighed in with this over at AVC today…

________________________________________

“community” and “network” are not quite interchangeable, but the strongest networks are also communities.
If your service doesn’t provide more value to a user than she contributes, it will not become a network. I give a dollar and get 3 back, I’m going to come back the next day.
Add your music library to Napster, get access to thousands of others.
Comment on AVC, and get value from interaction with other commenters, from comments themselves, and relationships.
Join Facebook and connect with friends, get access to their endless stream of manufactured memes 🙂 (oh and they joy of sharing their life experiences, photos, randomVille).
And if your service doesn’t allow me to share content and opinions with other users, it will not become a community. The strongest networks are also communities.

What's Buggin' Me on a Blue-Sky Day

It’s a beautiful blue-sky day here in Lancaster, and I have plans to shop at market then head to the gardens to get in a late fall planting.

But I ran into some bugs over the past two days after upgrading every component in my node stack. Of course.

The one thing about open source is that while the source might be open, you really have to pay attention to the discussions and updates–at least in the case of Express.js–to track changes. The primary author is incredibly smart, but he’s also highly opinionated about what makes good programming and good programming languages.

It seems as though he’s constantly trying to optimize, which is great. But after looking at the migration docs for Express 2.x to 3.x, I’m pretty certain he’s not optimizing for the developers who have built dependencies on the earlier versions.

In particular, it appears as though he’s ditching partials in favor of includes and mixins. And I’m not going to get into that, but I can see I’m either going to have to stay with the current versions of  all modules I’m using–because each module will likely be improved or adapted to 3.x–or I’m going to have to rip and replace code.

I’m not a great coder. I hate configuring stuff more than once, and am not a real fan of having to worry about the dependencies. This reminds me a bit of Microsoft in the 90’s, when it would break APIs in software updates, rendering thousands of applications unusable until a patch came out.

It’s different, but the effect is the same.

So this morning I got things running again. I’m not sure where it broke down exactly, but I cleaned some things up and it’s fine.

Except that it also made me wonder why I’m bothering at all.

I’m passionate about the work I’m doing, but I’d rather manage developers toward a product vision than develop the product myself, for exactly the reasons you can see above.

I was sick most of the week. Most of the week sported blue-sky days like today, and I missed those mostly, too.

today at 11:20

I’m not going to miss more of today futzing around with the app, and will save it for rainy days and nights.

It’s time for me to get back to running something.