Nesheim Online

SMART GRID MEANS STARTUPS: They are already surfing the fresh wave

Do you know what the "smart grid" is all about?

If not, you should. Someone is going to get rich doing smart grid startups.

The smart grid is a fresh wave already rising around the world. It will have lasting repercussions on how we live and work, how we make money, and a lot more. You can read further at Wiser wires, a short, comprehensive report on who is doing what about the smart grid. I liked this report because it was quick to read and included both new and established enterprises. 

What stood out to me was this: this new wave is already maturing! Learning what condition a new thing is in can save you a lot of agony, and open the door to opportunity. Here is what I mean:

For instance, startups are already actively working on products and services that solve several of the key problems to building the smart grid and reaping the benefits of its huge potential. Here is a short list of some of the startups mentioned:

• Trilliant Networks and Silver Spring Networks are focused on solving problems of the IT network that connects the smart points of the power grid.
• eMeter helps utilities manage the usage data and combine it with other information to set rates upon demand.
• Control4 and iControl offer "home area network" (HAN) devices that allow consumers to control almost everything in a house that runs on electricity.
• Tendril and GridPoint offer related web based services.

Then I read of the existing players and saw they ranged from recent IPOs to established giants, powerhouses to be greatly respected. Here are some of them:

• EnerNOC went IPO in 2007 in the demand response business, a new market category.
• Oracle offers software similar to eMeter.
• IBM helps utilities connect their disparate systems.
• Cisco is expected to enter the IT networks grid market, HAN solutions, and more. Siemens has its eyes on several of the market segments.
• Microsoft and Google offer products for consumers to track their power usage.

When you read of a pattern like this, where startups in a new field are being mentioned in mass media reports, and where giants are publicly declaring their intentions about it, then you know a new wave has arrived and is well on its way to growth and expansion.

Foundation Capital partners chose to focus on investing in smart grid startups. Other VCs have invested in related startups (simply Google "smart grid venture capital" and watch what you get.)

• GridPoint and Silver Spring Networks have raised $220m and $170m respectively.
• iControl recently raised $23m.
  

BOTTOM LINE: The trick is to realize that a new wave in this condition is already maturing rapidly, from the point of view of startups and venture capitalists. It is also nearly too late to be one of the startups that will lead one of the new market segments that are created as the early market grows and splinters. Instead you will have to spot a fresh splinter forming before one startup takes the lead (in becoming the dominant gorilla of a fresh market segment/category). When you can do that, you can time the launch of your startup and catch a ride of a lifetime! Such skill is part of the unfair advantage of the winning startups.

I wish you The Best on your Adventure!

WEAK STARTUP IDEA? Convert it to strength with the "Spider Web Strategy"

I've been listening to and reading about very weak startup ideas over the past week. Several first-timer founders expressed acknowledgment of their feeble beginnings. I know, I've been there, often.

So what do you do when in such a situation, when you have a weak idea?

I'll use an example to give you some practical suggestions that worked for some recent entrepreneurs. Study this article about successful startups known as "discount luxury e-tailers". They sell expensive, world-class brand gowns at very low prices, on-line. Then try to apply the related suggestions to your startup:

• Learn from startup winners. You need to understand what a startup gorilla looks like if you are trying to become a successful startup. Who is your hero startup? Why? (Example: Gilt Groupe, HauteLook, Rue La La, and Vente-privee.com)
• Sell pain medicine, not vitamins. Look for a pain being suffered by the end user and deliver what solves the pain. (Example: "designer goods online at discounted prices"). Quicker, better, cheaper is selling vitamins. Boring. Too competitive. No future. Easy copied.
• Add more value, more stickiness. Low prices are not the only allure of these discount etailers. They bring more to customers and thereby increase retention of buyers. (Example: Sites are open only to those who have received an e-mail inviting them to join from another member).
• Bring exclusivity to boost retention and buzz. Member-only access is compelling , people want to become a member. And it propels sending invitations to friends, thereby creating PR buzz at nil cost to your startup. (Example: this buzz also attracts designer brand marketers to the discount luxury etailer sites as suppliers and thereby strategic partners).
• Exploit sense of urgency. In our example, the etailers put designer goods on sale the same time every day for 24 hours a day.  And no buyer knows how many items of each size and color are available. That makes such shopping an urgent and competitive daily activity for many members.
• Bring compelling value to suppliers. Designers can use the sites to get rid of stock quickly and discretely. This spares them the disgrace of seeing their heavily discounted products lingering on sale racks in full public view.
• Deliver solutions to pain of suppliers. These etailers shield themselves from search engines, so they do not pop up in response to online searches for brands they offer. That encourages grand firms like Cartier to sell their wares through them.
• Build special social responses.Ben Fischman, the boss of Rue La La, which started in 2008 and expects to have $130 million of revenues this year, thinks the "theatrical environment" of his site keeps customers hooked.
• Exploit technology, particularly the latest, hottest. Rue La La recently launched iPhone applications.
• Expand the product line. Being careful to not confuse the market (that confuses people, slows sales and dilutes your brand), look for related items to add for sale to your growing customer base. (Example: etailers have added wine, spa services, travel packages and even yachts and apartments). This is tricky to do right, beware.

The numbers are impressive in this example.  Gilt already has 1.4 million members after launch in 2007 and expects revenue in 2010 around $400 million. The French startup, Vente-privee.com has 8 million, growing 42 percent a year. And so on it goes (and grows).

BOTTOM LINE: As you can see, the initial idea has been expanded far, far more in ways noted above. Users and suppliers are drawn into relationships with the etailers that become stickier and stickier. As the spider spins her web, the buzz of the early arrivals attracts more and more participants. Soon the web is sagging under the weight of the rapidly growing number of buyers and sellers. Looking at this situation from a distance, I'd say the founders of these startups understand how to begin with a feeble idea and convert it to an amazing business that is propelled by an unfair advantage. Now it's time for you to try.

Tip of the WeeK: Spot the New Wave and Plan to Ride it

In this kind of economic situation, you need all the resources you can get to get all the capital you need.

One resource is spotting a new wave so you can ride its economic energy instead of paddling hard using more of your startup's scarce energy.

For instance, a new wave is forming that is all about organizing a web user's social information into a portable collection that can be easily moved between social networking sites and between proprietary clouds.

And example of paddling on your own is building an improved search engine.

The portable social information wave is just starting, is potentially huge and has room for lots of innovation and competitors. So start here.

The search engine improvement is competitively like shooting a bullet against a tank. Google has won. The battle is over. So move on.

Asian startups in the latest wave have shown solid signs of innovation that is creating new waves. Learn more by studying Netease and Shanda, and their competitors.

Here is another tip: Is your idea about doing something not done before? If so, you'll be able to ride a new wave.

BOTTOM LINE: Think about your idea. Is it going to benefit from the rising energy of the new wave? Or is it an improvement of a wave that has already arrived at the beach? When you know which to pursue, you'll have a powerful element to use to build your unfair competitive advantage.

SOCIAL ENTREPRENEURSHIP: Some comments and links

I am getting an increasing number of inquiries about "social entrepreneurship" so here are some good links and a few comments:

Start with a look at Ashoka and you'll learn a lot. They have been around since 1981 and have the experience to back up their programs.

Then read in The Economist May 23rd 2009 issue a story about a more recent, innovative social venture organization. It is Acumen Fund and is run by Jacqueline Novogratz, a market-minded development expert.

I've seen a growing  number of these groups forming during the last fifteen years. I think they are on the right track. We are in for a sea change of development funding from governments as part of the recent crash in global financial markets.

You may find more personal fulfillment working for a non-government agency such as the ones above. Give them a look before you sell your soul as a wage slave.

Or if you are an unemployed college or MBA graduate, how about doing something for a while with as a social entrepreneur?

 BOTTOM LINE: Social entrepreneurs have a lot of fun doing something different that blends development with entrepreneurship. Some experience there may change your life for the better. The experience will boost your unfair advantage.

Startup Thoughts While on an Adventure: Number 2 of a series

Today I am in Norway participating in a game conference, surrounded by a forest of green pines and white birches. The people are a diverse mix of youth and age, multi-national corporations and startups. There hot creativity has impressed me. I have been surprised. Here are some of my thoughts:

• Everything has become a game: I watched a prototype in action demonstrating how an oil company made a game out of an oil platform (safety, training, testing). Then a university professor described how education is now best delivered in game content form. The day was filled with discussions of strategy, modeling and more.
  
• There are no original ideas: Presenters showed real-virtual world progress that is only months behind Asia's best. Avatars and game faces were original and stimulating, as good as from Pixar. Business models were shown that follow American and Korean-Chinese monetization. Competition from giants equals that of agile startups. There is no safety in an idea. The issue is what you make out of your idea.
  
• Only innovators survive: StatOil is moving from delivering energy from oil and gas and inventing (via game + CAD simulators)underwater turbine systems that generate electricity from ocean currents. Agricultural and forest centric schools are moving to teach world-class courses in game technology, design and programming.
  
• Creative people are everywhere: Last week in Scotland I found game artists graduating from schools next to Highland whiskey stills. Today I encountered PhDs applying multi-disciplines to game creations in startups and giants. Ages ranged from 20s to 70s, all excited about creating cool games in some fresh form.
  
• Socialism sucks: Think about running a race with an extra 60 pounds on your back and crutches under your arms. That is what entrepreneurs have to endure in Europe. I am amazed they even try. China looks great, South Korea wonderful, and America a dream. As President Ronald Regan said, "The most terrifying words you can here are 'I am from the government and I am here to help you.'"

Time to get back to the conference with all the blondes with blue eyes (male and female) and excited people.

Keep thinking!

Tip of the Week: Recession startups find one big problem to solve

Are you thinking of starting a new business during a recession?

If you respond with a yes, then look for the biggest problem you can find. Build your plan around how you will solve a very big problem.

Avoid "Quicker, faster, better, cheaper." That will not get you the money or top talent you need to succeed. A myriad of me-too competitors will crush you.

Instead, be bold and look for a giant to slay.

Here is one very good historical example (from Investor's Business Daily, March 30, 2009). John Deer, founder of Deere & Co, the giant agricultural equipment supplier, was a blacksmith by trade. In 1836 he set up shop to capitalize on the growing population -- and its horses.

He heard from his customers about a serious problem that Eastern farmers found in the Midwest: Because the soil was denser and richer, it stuck to their cast-iron plows. The constant stopping and starting while farmers cleaned off their plows made the work much slower and endangered their livelihoods.

Deer researched the problem and came up with a possible solution: a polished steel plow with a reshaped mold-board that would let the soil slide off of it, what is called scouring.

it worked. Deer's plow was a watershed moment that helped make the Western prairie viable for settlement. He went on to create a world-class enterprise whose culture continues to think bold and thrive today.

BOTTOM LINE: John Deere's focus on solving a big problem changed the world. That is what great startups are made of. They do not count the odds against them, instead they focus on delivering a practical solution, quickly. That is not "better." It is bold and big, with a watershed moment goal. When you think that way, you will be adding a rich fundamental to your personal unfair competitive advantage.

STARTUPS RIDE WAVES MADE BY COUNTRIES: Spot the wave rising in your country and surf it to success

I was reading about green energy this week and spotted strong waves in three countries. If you had seen them earlier, you could have surfed them to startup success.

Wind power via windmills is one example. While tiny in comparison to overall energy needs, nonetheless it is a useful source for special situations. And it is growing around the world.

So who is the windmill energy market leader? That depends on what part of the windmill energy solution you are talking about. A windmill requires a propeller, turbines (with special gear boxes), a line transmission system, tall mast, anchoring in the ground, construction, erection and of course the original design. That is a lot of sub markets for entrepreneurs to choose from for their focus.

What has happened?

Simple: some countries have emerged as leaders of wind energy. The big three are Germany, Spain and Denmark. In the U.S. the giant General Electric supplies wind energy solutions around the globe and you probably have read of the central role of wind in The Pickens Plan . India's companies are among the largest in propeller blades for energy windmills. Utilities in the leading countries are in a strategic struggle for increasing share of the global wind energy market. You can read more here about the competing wind energy companies.

Alert entrepreneurs spot rising waves such as wind energy. They start by quickly figuring out how to create a business model to make money. Remember, alternatives to oil have to get fat government subsidies in order to survive. With that figured out, they next choose a sub market to focus on. Perhaps it will be gear boxes for the wind turbines. Or giant propellers made of aircraft grade composite materials. Next comes choices that will make up the elements of a powerful competitive advantage: the "unfair advantage" that I write about. That starts with the core team for the startup. You can read about the rest of what you need to get the money and succeed in my second book, The Power of Unfair Advantage.

Investors who are also alert will be open to such alert entrepreneurs when founders show up with their business plans. There are also more money people you can talk to. Investors in green energy will include existing corporations as well as governments. With that expanded pool of capital, founders have a better chance of getting the breed of long term thinking investors (that they have found they need. It has taken decades of wind power selling to get the market to its current levels of sales).

As the pieces of windmills are created, the countries where the most are of the new thing are emerging (first from fresh startups) are where you want to be. That is the same reason for on-line games you should be in South Korea, for semiconductors in Silicon Valley, and so on. Go where the talented people who you need are living, where the local press is buzzing about this next great thing, where the government is supporting (with real action with real cash) the new wave.

As for wind power, I must conclude by pointing out that any country could have started an entrepreneurial wind energy wave. Anywhere on the planet. It could have been in your back yard. You might find it interesting to look around for where the water energy generation industry is beginning a new wave (turbines in rivers and oceans). My bet is on Norway to take the first round of leadership in that new category. Time will tell.

BOTTOM LINE: Look for waves beginning to rise in countries around the globe, especially in your homeland. Try to ride one, using it to energize your startup. If you spot a wave you think you can ride in another country, get there right away. Everyone important to your idea will speak English. Expatriates will already be living there and you can join them and get some to join you, along with outstanding locals. It's a mobile workforce world we live in during these changing times. Investors will not be far away, including the new wave of global venture capital firms. After that, it's up to you to pick the moment to launch your new enterprise. Be sure your plan is to build a great company on a foundation of an unfair competitive advantage. That's how the next great startups get going.

I wish you The Best on your adventure!

That is how you ride a wave rising in a country.

OUCH! SOMEONE ELSE IS ALREADY DOING MY IDEA: What to do next?

Yesterday I listened to an entrepreneur explain his cool idea. Then a guy next to him opened his mobile phone and showed the entrepreneur that the idea is already available on mobile phones.

What should you do when you Google and discover your idea is already in the market?

I recommend that you go on, go farther, see where the path leads you. You many discover a better, related idea. As I have written before, it is not your initial idea that determines your success: it is what you do with the first idea that counts.

For instance, your idea for a GPS service to find fast food restaurants from a moving vehicle with a mobile phone is discovered to be available. Don'g give up. Go on from there. What would a more specific demographic group of consumers want beyond that? How about hikers wanting GPS access to walking trails in remote resort areas? That could lead to a web e-commerce business that uses free access to such trails, attracts hikers, and sells them products, including high carbohydrate energy bars, and clothing. It would also be a place for related advertising.

BOTTOM LINE: Expect your initial idea to already be in the works somewhere on this planet. Go on from that starting point until you discover something unique. Then begin to build your unfair advantage. That is how serial entrepreneurs do it.

WORD OF THE DAY: COMPELLING

YOUR WORD TO PONDER TODAY IS: "COMPELLING"

With it, you can excite your critical stakeholders: Ideal Customers, Employees, Media and Investors.

Without it, You = BORING.

Boring does not attract stakeholders. It repels them, sends them to competing solutions.

Compelling is the perfume of the flower that attracts the bees. It has appeal so powerful it turns stakeholders from important work and redirects them to your service or product.

Faster, better, cheaper are not compelling. They are momentary distractions. They are not lasting, for any company. After you make such claims, a competitor will jump into the competition and make the same claims. You cannot defend your proposition to your ideal customer. You become a part of a commodity business, with no one differentiated from each other.

Compelling gets your ideal customer very excited. Emotions are immediately triggered when stakeholders hear what you propose. They want to hear more, right away.

How do you know if your cool idea is going to be compelling? That is simple: Go ask customers. They will tell you. First ask some people in person, or at least on the phone. Follow what you learn with a simple survey of a ten or twenty people. Keep going until you are confident (1) you know the exact demographic profile of your ideal customer and (2) you are sure what you are going to build will be very compelling to your ideal customer.

BOTTOM LINE: Do not guess. Be sure. Test on real people what you believe will be compelling. That will confirm that you have a very cool idea. Stakeholders are very dubious of startup ideas because so many they have heard are so boring. A compelling proposition to customers is a very powerful addition to your unfair advantage.

IDEAS CAN START FROM THE TOP DOWN: But get it focuses as fast as possible

Today I spoke to a team of entrepreneurs who wanted advice about what to do with an idea to sell biologically degradable packaging made from agricultural byproducts. After listening to them talk a bit, we examined the following:

• Can the customers use the more expensive packaging to gain new market share? That could be possible for a giant corporation who decides to jump on the "green wave" and change its image to attract a new segment of buyers. In food, Nestle has been brilliant at that recently.
  
• Should you be a sales agent organization for a new market segment? In new markets, often customers do not know where to go to find what they want. A startup can make money if it collects the rights for selling such products to such customers.
  
• Could you become a distributor of the best products of the new market? If the first products are arriving, but the customers are hard to find, you can become a distributor of the best and buy wholesale and sell directly to the customers.
  
• What do you have that can give you a manufacturing edge? If you have fresh technology, you can then manufacture (or outsource) and sell to customers. That will work well if the market is beginning to already take shape and start to grow.

BOTTOM LINE: As you spot a new market emerging, examine what you can do to exploit it. That may be easier than you think. The clearer the market is, the more you will have to make something and sell it. Picking the right business model makes all the difference. Debate it carefully.