Nesheim Online

STARTUP DUD: Find a new use for the engine/technology

"What do you do when you launch your app and end up with 100 users?" That's the central discussion point of my talk this morning with a budding, bright entrepreneur.

What should be done next seems obvious at first to many observers: Stop.

• But if you've put in two years of no-for-pay work with two other guys, giving up is not easy.
• So when should you stop?
• What should you do with what you've built?
• What can be done to succeed in spite of the dud on launch?

Yes, even the best, the world-class pros launch products that are duds. Dead on arrival. Go nowhere. Get slammed by the bloggers. Get Twitted to death, mercilessly.

For a touching example, so you get the picture, look at a story about the film Conan the Barbarian (dud). It was sent to me by a serial entrepreneur I greatly respect (Thanks KT). Read and think a moment about how the lead writer went through the post-launch-blues. Download Conan Writer Describes His Emotions to a Boxoffice Failure.

1. So the first lesson is: Expect less than a spectacular win. Remember, startups are statistically going bankrupt (i.e. over 60% of venture backed new enterprises go out of business). Good news: you are not alone. There are a lot of others you can learn from out there, they'll help you step on fewer startup landmines. Start talking to them.
2. Next: Start thinking about what you could do different (VERY different) with what you have built. Here is a metaphor I often use with techies: "Okay, let's admit the idea is a dud. So what do you have to work with? Technology you say? Well,think about it as an engine. Then start looking for what vehicle you could put that engine into: passenger sedan, SUV, light truck, spare generator, green machine, and so on." Here is where you have to have guts, think boldly, take whacks on the sides of your heads, brain storm, do out of the box. Often the Second Time Around produces something Great.
3. After this, test each New Idea for how much "WOW!" it has (compelling reason for the end user to use/buy). This is classical startup work fron here on. I'll not dwell on it here.

My point for the day is simple: Even the Hollywood greats launch duds. So do serial entrepreneurs. You can use such events to make a decision about what to do next.

Sometimes it's best to close shop and find a job (e.g. wife expecting second child, parents aging needing closer attention, have less than 6 months rent in the bank).

More likely it is time to intensely search for something very different, something to apply what you have built, something to solve a Really Big Problem (that others have overlooked - see my August 22 blog on Flanking).

All of this is part of being lost in The Wilderness of Undistinguished Startups. Your Core Team now has to have the courage to know you are lost and screw up the guts to think boldly to find a way out.

BOTTOM LINE: Launching a dud is common. When it hits you, get through the emotional process of accepting reality and depression and recovery. Then you can start to get creative and figure out what to do with what you have built. That's how serial entrepreneurs think and behave. It's part of their DNA, what they use to build unfair advantages.

I wish you The Best on your Adventure!

WHO OWNS WHAT? Stay clean stay simple

I hung up the phone Friday afternoon and sighed. I have begun to coach the Newco startup. A world-class VC wants to lead the next round of funding of Newco but there are intellectual property complications and so instead the VC lead now wants to finance the XYZ company. It owns a minority share in Newco but Newco does not own any share of XYZ. There are contracts between the two startups that state who can do what with technology from XYZ. That technology is being invented by Newco engineers who are paid cash  by XYZ who then gets the technology rights worldwide licensed to XYZ. Geographical limitations have been contracted from XYZ that restrict Newco from using the technology owned by XYZ for the first product of Newco. However, the second product from Newco is exclusively an invention by Newco engineers. Both companies need cash from a round of financing. The lead VC wants to finance XYZ and trust that the investor's influence will get cash to Newco. But Newco founders want to continue fulfilling their dreams and remain independent of XYZ.

Does that sound complicated? If you said yes, I say you are right and the VCs will agree with you. Avoid such complications and keep your business simple. Before thinking about creating some very close and involved partnerships with other companies, talk to a lawyer who is experienced with VC deals. Unfortunately, Newco only got a great lawyer after the complexities were in place.

I don't know how it will turn out for Newco. But I do know the current sounds of the deal are not encouraging for that startup.  That is unfortunate. The founders are superb people and very able. They were just naive entrepreneur when they got started.

BOTTOM LINE: Investors want to put money into companies who own the technology. They want all of it in the company they finance, without any strings or complex contracts and limitations. Keep your startup simple. Get a great lawyer. Respect that the risks are high enough without a mess involving your intellectual property. A simple startup is easier to finance than a complicated one, no matter how tempting the other company is that you might do a strategic partnership with.