Customer Mirage: Risks of Signing A Large Company As Your First Customer

Imagine you’re in a hot, dry desert and desperate for water. You’ve been walking all day and the thought of drinking nice, cool water makes you ecstatic. Suddenly, you see it! A pool of water in the distance. You hurry towards it, running as fast as your legs will carry you. But when you arrive, all you find is sand. Damn sand!

You’ve just experienced a mirage. And this is exactly what it feels like when you’re looking for that first customer and close a whale. You’re desperate for validation and revenue. If only you could get that big name-brand customer, investors would be tripping over themselves to give you money! TechCrunch would write about you! The cash would be rolling in and all your worries would be over!

After weeks or more likely, months of emails, calls, negotiation, and nervous waiting, you finally land a deal with a WHALE, a well known publicly traded company. Not just any deal – this deal starts with $100k+ in revenue and has the potential to bring in much, much more. This is the inflection point right? It’s all #winning and *crushing it* from here!

Unfortunately it usually doesn’t work like that. If your first customer is a large company, the deal is more likely to be a mirage than the start of a winning streak.

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The Art of Rejecting Startups

Corporate innovation people get pitched by startups All. The. Time. In theory, a startup may reach out or be introduced and they’re a perfect fit at the perfect time, leading to a quick deal. I’ve personally never seen a deal happen that smoothly and certainly wouldn’t bet on it. The far more likely scenario is you’ll be rejecting startups that reach out to your corporate innovation group.

Startups are rightly rejected by large companies for a variety of reasons. The startup may have misinterpreted the corporation’s existing capabilities or the corporation is already building a similar solution, internally or with an external partner. But many times, a startup with an objectively needed capability comes around – and yet, the timing isn’t quite right so a deal doesn’t get done. Sometimes the issue is budget. Other times, it could be an attention problem – decision-makers are focused on another, more important problem.

No matter the reason, the world is always changing and corporate needs are no different. Smart corporations (similar to VCs) are great at saying no while leaving the door wide open for future collaboration when a need arises. There’s a fine line between misleading a potential partner and clearly saying no but leaving the door open for future opportunities.

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The Five Questions Large Companies Ask When Evaluating Startups

I get contacted regularly by startups looking to partner with large, global companies who can give them scale. My work over the years has shown me a number of these deals from both sides of the table. While almost all of these relationships make some logical sense on paper, in reality they are way more difficult to implement than founders initially think.

On the surface, the logic for these relationships is straightforward – one party has a unique technology or product that can improve things for end users while the other party has global distribution and scale. What’s not to love? But there are several other factors that go into the decision making process for large companies which founders often fail to consider.

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Planting Seeds

I’ve been making a point to ask startup founders I hang out with for advice, particularly about management, priorities, and growth. I’m mainly trying to preemptively ensure we at Unlimited Brewing don’t fall into the same traps that others have already solved.

A few weeks ago, my friend (and East Village neighbor!) Sebastian Metti gave some advice which really stuck with me. I asked Sebastian how founders should spend their time. His response was super simple:

“You should spend your time planting seeds.”

This is brilliant advice. The idea of “planting seeds” loosely translates to building relationships, which applies to sales, business development, hiring, fundraising, press, and pretty much everything else. Some of these “seeds” will flourish and yield gigantic harvests. Most of them will go nowhere. And that’s totally fine.

planting seeds

When a business is just getting off the ground, the founder is the entire company. They need to build, sell, market, pick up the trash – everything. But as a company grows, there’s no way the founder will be the most skilled in every function. Nor should they want to be. That said, the founder will still be the only person with a high enough view of the company AND the ability to steer the company where it needs to go. And that’s where building the right strategic relationships becomes super important.

Back to planting seeds.

Thoughts on the 500 Startups Corporate Startup Engagement Report

500 Startups, one of the world’s leading startup accelerators, recently released a report on how large companies can best work with startups. Given their unique position in the market, 500 Startups surveyed executives at companies like General Motors, Simon Ventures, Embraer, and more to learn what they’re doing to drive collaboration with startups.

500 Startups Corporate

The 500 Startups Corporate report has tons of useful takeaways for both startups and corporate innovation teams. Here are their best practices for corporate innovation teams and my take below:

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How To Get Up To Speed In Any Industry…Quickly

Getting started in a new industry can be super challenging but in today’s world of shorter stints with companies, quickly building working knowledge of a new industry is an extremely valuable and essential skill. Becoming fluent in your industry quickly means you start providing value sooner to your team, customers, employers, investors – everyone.

Back in the day (2012), I showed up to a lunch meeting in Pittsburgh with Adam Paulisick unprepared to answer his questions about the economics of college admissions, the industry I was running a company in at the time. He gave me some advice that stuck with me ever since: To win, you HAVE to know more about your industry than anyone else – there are no excuses.

Since that embarrassing episode, I’ve tried to apply Adam’s advice to everything I’ve done and developed a step by step process that makes the challenging process of getting up to speed in a new industry a bit more methodical:

Step 1: Read as much as you can about the market 

There’s nothing to replace this step. Read EVERYTHING – articles, journals, books, forums, industry history, even tweets. Don’t judge anything you read yet – at this point in the process, you don’t know anything. If there’s some kind of overview book, start with that – if not, start with articles because they’re usually written in layman’s terms. You should absolutely be taking notes – the key here is to start building a knowledge base. Allow yourself to go down the rabbit hole.

One last thing on this topic: give yourself the time you need to read about the industry. Study for this like you studied for the SAT and make sure you block the time off on your calendar. This is just as important as any meeting.

Step 2: Find people who know a lot about the market and spend time with them 

Talking to knowledgeable people and asking questions is something that should be done mostly in parallel with reading but make sure you’ve at least read a little bit first so you can ask relevant questions. Don’t worry about forming opinions yet – just keep building knowledge. Asking someone for their time initially feels scary (why would they want to talk to me?) but you’ll find that smart people: a) generally want to be helpful and b) are generous with their time when they sense you’re genuinely curious about their life’s work.

A simple hack here that’s been magical for me: Ask each person you talk to in the industry for one other person they recommend you talk to. Even better, ask if they can introduce you. Very quickly, you’ll have a network of really smart people who genuinely want to help you learn. #winning

Step 3: Form opinions and test them 

The first two steps in this process are fairly straightforward – they require work but your ego isn’t at stake. The third step is what will require some courage. To figure out if your mental “picture” of your new industry is correct, you’ll have to form some opinions AND get a reaction on those opinions from knowledgeable people. Without getting a reaction on your opinions, you’ll simply be forming a (likely) incomplete/incorrect mental map of the industry. Feedback is what allows you to correct, iterate, and improve on your mental map to create something resembling reality.

One of the most amazing things about the discovery process is that this is the stage where tons of ingenuity comes from, likely because at this stage, you’re reasoning from first principles (as opposed to ingrained dogma). Cherish this point of the process even though it’s scary sometimes. The worst-case scenario is that you say something stupid – no big deal.

Step 4: Repeat, repeat, repeat!

This process isn’t something that should only be done when you first start working in a new industry. It should be done constantly so that you continually grow your knowledge base and keep your mental map up to date. The ultimate goal is to have what athletes refer to as “fingertip feel” of your industry.

Bonus Tip: Your ego is your worst enemy 

All of the suggestions above require leaving your ego at home. If you can’t do that, all the feedback in the world won’t improve your mental map of any industry. Remember, feedback isn’t an insult – it’s a gift and a huge competitive advantage. Allow yourself to accept feedback and you’ll find that you’ve learned more about your industry in 6 months than most people learn in 10 years.

How To Not Suck At Customer Development

Over the past ~2 years, I’ve been working almost exclusively on customer development and growth at Mom Trusted, with my consulting clients, and at Workhorse. In 2015 alone, I’ve had upwards of 100 customer development conversations. Along the way, I’ve learned a few lessons, some from personal mistakes and a few from observing others.

customer development

                                  All image credit goes to Scott Adams

 

Here are some of the pitfalls to avoid if you’re trying to learn something about your potential customers, instead of just paying lip service to the “customer development” buzzword.

Being Scared To Talk To Customers

This is, by far, the most unforgivable customer development sin. It’s impossible to get an accurate sense of reality without understanding, in extreme detail, the motivations and fears of your target customer. This fear of customer interaction lies in the fact that most founders (I’ve fallen into this trap in the past) have a mental picture of what their product/experience looks like and don’t want to burst that bubble. Maybe they also have a mental picture of what success will look like after they sell their company to Yahoo! for $100 million and don’t want to ruin that fantasy world by finding out that customers don’t want what they’re selling. Everyone has their own reasons for being scared to put themselves out there but this is the most dangerous sin on this list.

Putting A Layer Between You And The Customer

This is one I’ll never understand. I’ve come across founders, that for whatever reason, put a layer (or two) between them and potential customers. I don’t know if this stems from shyness or bubble bursting syndrome or what, but the net effect is that these founders always hear what their customers want or are frustrated with from some third party source. This is a great way to get incomplete or even plain wrong information, since the people who make up the layers (presumably employees or contractors) will try to tell you what you want to hear.

By not hearing any feedback directly, it’s easy to delude yourself into thinking things should be a certain way with no real evidence. In contrast, some of the best founders – including Jeff Bezos (Amazon), Steve Jobs, (Apple), and Tony Hsieh (Zappos) – correspond with their customers directly on a regular basis, even after their companies became multi-billion dollar Goliaths. Sorry, 10 person startup founders – there’s no excuse for not talking to customers directly.

Not Empathizing With The Customer

Empathy is such an underrated part of customer development. The problem with purely asking questions and using the responses to build your model of the target customer is that sometimes people don’t always verbalize the underlying emotional need they’re trying to express. For example, the success of Facebook can be very much attributed to people’s loneliness and desire to stay connected. But very few people would ever say that they use Facebook because they’re lonely. They would say they want to “stay in touch with family and friends” or “share important life events with people close to them”.

Customer development is all about building a complete model of the target customer. To build that complete model, you absolutely need to know the following:

  • What gets them out of bed in the morning?
  • What do they care about?
  • Who is their customer?
  • How are they measuring success?
  • What are they motivated by?
  • What keeps them up at night?

Empathy isn’t really something you can fake. Customers can tell if you’re just phoning it in and don’t really care about solving their problem. Be genuine and you’ll be pleasantly surprised by what they share with you.

Not Even Knowing Who Your Customer Is

This sounds dumb – how can you not know who your customer is? It’s actually a really common issue for B2B startups at the earliest stages. For example, imagine you have a software tool to help salespeople. If you’re taking a top-down approach where you sell to the VP of Sales and sign an enterprise contract, then your customer is not the junior salesperson, it’s the VP of Sales. If you’re taking the bottom-up approach and getting individual salespeople to use your tool and then drive adoption through their organization, your customer is the junior salesperson. You can see the end result of these alternative approaches by looking at the difference in UX between Salesforce and a tool like DocSend. To me (not a VP of Sales), DocSend looks awesome. Salesforce, on the other hand, does not. I’m not the target customer though – with the success Salesforce has had, it’s pretty obvious that their target customer likes them a lot.

By properly defining the customer, you can start to get accurate answers to your customer development questions, which is the first step to building a product that solves a problem for someone.

Closing Thoughts

 

Every company, whether it’s a startup or a Fortune 500 corporation, is 100% dependent on its customer. Having a thorough understanding of a customer, their life, and their motivations is the only way to create something they actually want. Remember: while potential customers usually have a fixed need they want fulfilled, which can be physical (for example, hunger) or emotional (loneliness), the form of the solution may change over time. The only way you’ll be able to understand the need and the form of the solution is by truly empathizing with your customers’ pain. It’s a skill that takes practice but it starts with something super simple: Ask questions and actually listen to what your customers tell you!

The One Thing They Don’t Tell You About Growth Marketing

True or False: Accomplishing your goal 30% of the time is good.

The answer: It depends. If you’re in school and only getting 30% of the answers correct, it’s probably time to stop reading this post and go hit the books. But if you’re a baseball player and have a batting average of 0.300, then you’re one of the better players.

Growth marketing, especially for startups, is more similar to baseball than it is to school. You’ll try tons of different tactics and strategies to grow – the phrase we use is “Throw s**t against the wall” – and most of it won’t improve your growth rate at all. Of the few things that do work, most of them won’t be scalable and allow you to grow 10X. Finding a scalable growth tactic that works is a bit like trying to find a needle in a haystack, except in this case, you don’t even know if there is a needle hidden in the haystack.

So if most things don’t work, how do you find the things that do? By doing lots of customer development and experimentation, which requires a completely different mentality than schoolwork. This was the most difficult leap for me – realizing that my answers were going to be wrong more often than they were right – and being OK with that. It’s hard to overstate the difficulty of this mental switch. We go to school for 12 years and then years of college and/or grad school with the “I should always get the right answer” mentality, which is counterproductive to being a good growth marketer.

The best way I found to handle this leap is to think like a scientist. I start with a theory, for example a new pricing strategy, and then develop an experiment and hypothesis to test that theory in the real world. Testing can only be done by putting your idea in front of customers/users. I try to pick a big enough sample size to make the experiment relevant (sample size depends on what you’re doing/selling) but keep it small enough to where I can speak with the customers individually to learn why they are saying yes or no. Unfortunately, thinking like a scientist is not taught in high school or undergrad, even if you major in science or engineering. It’s something you have to develop on your own.

The last piece of advice I’ll give on this is that successful growth requires thinking outside the box to find something that clicks (terrible pun…). At Mom Trusted, we experimented with phone, direct mail, email, fax, social marketing, SEM, SEO, conferences, and many many more tactics (with lots of iterations in each of those categories) in order to find the channels that worked. Other companies, like Eat24, have gone even more outside the box by advertising on overlooked web properties (including porn sites). All of these tactics were figured out through data-informed (not data driven) experimentation.

Thinking about growth marketing like a scientist is a skill and like any skill, it can be developed through practice and study, with practice being more useful than study. If growth is something you’re interested in, I strongly recommend getting real world experience as soon as possible.

 

Staying Mentally Stable On The Startup Rollercoaster

Lately, there’s been some much needed talk in the startup community about the mental health effects of the constant ups and downs that come with being involved in early stage companies. The toll can be especially taxing on founders – take a look at the notes Brad Feld received from founders after he wrote his illuminating “Founder Suicides” blog post earlier this month.

The media usually portrays famous founders as Supermen/Superwomen – which makes “regular” founders feel inferior and inadequate. This is very much related to the “crushing it” culture that has gotten so rampant. When founders are asked how things are going, it’s incredibly rare to hear an answer other than one of the many variations of “crushing it”. With more people like Brad Feld talking about mental health, I’m hoping that honesty will become more common, but maybe that’s wishful thinking.

Having been involved in a couple startups over the past few years, I’ve been through some awesome experiences and also through shitty, terrible things that I wouldn’t wish on my worst enemy. Staying mentally healthy in a rollercoaster environment like that is a huge challenge and to be honest, is something I’ve struggled with at various times in my life. Over the past few months, I’ve taken a more active approach to keeping a healthy mindset. Below are some scientifically untested techniques I’ve been using with success so far to keep my work problems in perspective:

 

Read Books:

I read a lot of books growing up but for some reason I pretty much stopped once I got to college. In 2014, I rediscovered my love for reading and it’s been great. Most importantly, I’ve found it’s a perfect escape for my overactive work brain. When I watch TV or a movie, my brain doesn’t have to do any work and continues drifting towards work. When I’m reading a book, my imagination gets involved and my brain stops thinking about work for awhile.

Stay Physically Healthy/Exercise/Go Outside:

When you’re already not in a great mental state and then something goes wrong physically, you’re just asking for disaster. Re-committing to my health after some issues in early 2014 has helped my mental game so much.

Going out into nature is really helpful to me as well. There’s something about being in nature that just gives perspective and makes problems feel insignificant.

Get a Hobby:

Doing something outside of work gives you two things:

  1. Your brain gets a break from thinking about the same problems – which actually helps you solve them.
  2. You make friends outside the startup bubble

I started taking acting lessons in April and it’s been great. I’ve met people who live in a completely different universe from the startup community, which is enlightening. It’s also given me insight on my own emotions and habits that I wasn’t previously aware of. I started this hobby so randomly: I took a four week Acting for Non-Actors class to improve my sales skills and ended up liking it so much that I started training more seriously. Most importantly, it lets me shut off the analytical part of my brain for awhile and do something different.

Stay Close With Your Family and Friends:

This is listed last but it’s by far the most important one for me. In most industries (including startup world), things work like this: when things are going well, you have a ton of people contacting you and it feels like you’re the most popular person ever. But when things are going badly, no one wants to talk and you feel like an outcast.

The good news is that relationships with your true friends and family don’t change when things are going great or when things are going terribly. They will be there for you. This is why it’s so important to not let your relationships die out of laziness or lack of time – something that happens too often. Friends and family are your mental safety net. When I’m having a crappy day, nothing cheers me up more than gchatting/texting/Snapchatting with friends or having a long phone conversation with my mom, dad, and brother. Invest time in your relationships and you’ll never feel alone.

 

Lastly, I just want to say that having struggled with some of these issues myself in the past, I’m always here if someone needs to talk or get things off their chest.

 

Disruption Is Counter-Intuitive

Question: Pre-Uber, how many startups were trying to disrupt the transportation industry?

Answer: No clue but way fewer than there are right now. Transportation was always viewed as an old school, unwieldy, high investment dollar industry that only fools invested in. The closest we came to transportation disruption was Zipcar and even that seemed like an uphill battle the entire time. However, they paved the way for Uber to come in and fully disrupt transportation and potentially other industries as well.

Today, with Uber being valued at greater than $15 billion, transportation is viewed as a “hot” industry and startups are popping up all over the place.

Never mind that everyone has known taxis were awful since the first time they ever rode in one. It was always just one of those things we lived with:

“Oh man, I gotta carry enough cash for the cab”

“It’s impossible to get a cab in this city” (not in NYC or Chicago but everywhere else)

“I hope this cab takes credit card”

Most of us probably thought, “well this is the way taxis are and have always been”. It’s only in hindsight that the disruption seems so obvious and inevitable.

I can’t see the future but here are some “old school” industries that may be ripe for disruption in the next few years:

Government Services

Arguably, Uber fits in this category since part of the reason for their explosive growth has to be because government has done such a terrible job with public transportation services. Think about how low the bar is with bus or subway service. I’m happy with my BART trip as long as there aren’t any bodily fluids on the seat I’m sitting on.

Parking

Similar to above – how is it that cities have tons of available parking but since they are on private property, no one can park there? That’s lose-lose for both the property owner and the person trying to park. Win-win is so much better and I guarantee one of the parking startups out there (or maybe one that has yet to be created?) will gain mainstream adoption and completely change city parking for the better. As someone who hates (and is terrible at) parallel parking, I hope this happens soon.

Accounting

This one is self-explanatory. Taxes and compliance SUCK for individuals and businesses. Great pain = great opportunity.

 

There’s probably dozens more that aren’t even on my radar because I just think of them as existing and not as industries to disrupt. More likely than not, the next industry to be disrupted won’t come from my list at all. These things usually aren’t logical. And that’s part of the fun.