Principle One: It’s All About the Markets

Cover of "The Four Steps to the Epiphany&...

Cover of The Four Steps to the Epiphany

This is the first of my Nine Guiding Principles.

About 10 years ago Tom Churchwell, a VC in the Chicago area, said to me, “I’ve never seen a technology company fail because of the technology.” I’ve come to really understand this statement since I’ve now seen first hand, time and again, technology startups that manage to get their technology to work correctly yet still flame out.

What happens is that the founders, who are often technologists, are focused on making sure they can get the technology to work, but the businesses fail because they didn’t take the time to really understand the needs and motivations of their target customer audience. I won’t call this a “build it and they will come” phenomenon because I think that’s insulting (even though it happens). Rather I’ve learned first hand that its hard, make that REALLY hard, to understand how customers will respond to new technology…especially if the team doesn’t have anyone with domain expertise from the customer industry. The list of products that get to market, but which aren’t positioned properly, priced correctly, promoted through the right channels or provided with the correct customer support are legion.

This is such an ever present problem, that a whole new way of thinking about startups is emerging. I am excited and proud that a company I am starting was just accepted into the new National Science Foundation I-Corps (Innovation Corps) program. The program is based on the Lean Launchpad curriculum created at Stanford by Steve Blank and others. I haven’t read Steve’ book yet, The Four Steps to the Epiphany, but as I understand it, the central thrust of the lean startup methodology is about getting out of the office and learning from your customers what they need. Then you develop a framework for getting customer feedback and cycles of learning so that you can adjust as needed (i.e., pivoting) until you find a business model that works. I heard Eric Ries speak the other night in Chicago about his new book, The Lean Startup, which is already a bestseller and it hasn’t come out yet. I was blown away at how he has articulately put structure and process around many of the things that I’ve learned through 12 startups. In just about every one, the real pain we experienced was failing to understand our customer’s buying criteria. And we weren’t ignorant of this. Its just damn hard. And it makes or breaks your company. That’s why this is my first guiding principle.

The point is that I realized (but unfortunately didn’t write a book) what Steve Blank, Eric Ries and many others are now espousing and that its all about the markets. Technology companies rarely fail because they were unable to get the technology to perform as advertised. But they often fail because no one wanted to buy their product at the price point offered through the channels they chose. I predict that a renaissance is about to occur, somewhat catalyzed by Eric’s book which everyone will be talking about soon, that the art of doing a startup is about understanding your customer.

Even though I’ve learned these lessons in the school of hard knocks, I’m expecting to learn a ton when I go to Stanford in a few weeks to attend Steve’s class. I’ll blog about the experience. Please subscribe to this blog (there’s a box in the right column) if you’re interested in getting automatic updates.

Nine Guiding Principles for Starting a Technology Business

In June of this year I gave a talk at the TAPPI conference in Washington, D.C. on the guiding principles for building a nanotechnology company. In my mind I was clear about what I wanted to accomplish with my talk. Enough has been written/discussed about the mechanics of starting a business (type of corporate form, how to allocate an option pool, etc.), and I didn’t want to rehash information that was already widely available. But what’s not talked about enough is how do you build a business? What happens after you incorporate and the legal/admin/financing is out of the way? How do you make it happen?

To keep the message digestible and brief, I came up with the Nine Guiding Principles for Building a Nanotechnology Company. In my talk I was able to amplify each one, and I will do so here in future posts.  For now, here’s the list:

  1. It’s all about the markets
  2. Get the manufacturing right
  3. Leverage private money with government and corporate development grants/contracts
  4. No matter how great you think your technology is, you’re much farther away from success then you think.
  5. A few vocal reference customers is much better than a bunch of “beta testers”
  6. Make sure you understand what your customers will do with your “products”
  7. Find board members who know your industry and understand your company
  8. To survive you’ll need to transition from a “founder-led” startup into a dependable supplier of products to a defined set of customers.
  9. Sooner or later, the business people need to take over. Understand that from the beginning.

 

Job Security

Arthur Andersen

Image via Wikipedia

It seems appropriate on Labor Day to think about job security. Is it just me or does it seem as though these days the only true job security is when you’re an entrepreneur? I heard several stories in the past few days about people who were laid off or fired from their jobs with no notice, in some cases after being there for over 15 years. I have relatives whose ages range from their late fifties to mid seventies who are not financially secure and who need incomes. One of them just lost their job. Another one’s salary was just cut in half.

When recruiting people into start-ups, sometimes candidates make comments indicating that they’re worried about the “risk” of working for a young company. I’ve asked them whether working for IBM, Motorola, Enron or Arthur Andersen would give them more comfort. At one time or another all of these companies were the paragons of security and prestige with your financial future and retirement all but guaranteed if you worked there. Not any more.

With real unemployment above 9% and the apparent unemployment (if you count the people who are no longer looking or the under employed) much higher, it seems to me there are only two ways to get any peace of mind. The first is to already be independently wealthy and financially secure enough to not have to ever worry about needing an income (or health insurance) ever again. Congratulations if you’re already there.

The second way is to have confidence enough in your instincts and talents to know that so long as we don’t have a nuclear meltdown, you’ll be able to summon your resources and provide products or services that people will need…regardless of the environment. Having this independence–the ability to belief in yourself–to me, is the only true security. Believe.