Nesheim Online

STARTUP STALLED BUT GETS $41 MILLION: Learn from Foursquare's situation

When a startup becomes the news of the day in the popular press, you know something that stands out is going on.

It it good news or bad news for the CEO?

SITUATION

"Can Foursquare Check-In to Adulthood?"

"Foursquare Gets $41 Million Investment, Time to Grow"

Those are headlines from Bloomberg Business Week.

"Foursquare Finding Its Way" from the Wall Street Journal.

"Foursquare's Newe $41M Round Helps It Delay Tricky Questions About Its Valuation" chimes in Techcrunch.

THE STARTUP

Here is a 120 person startup, launched in 2009, nearly four years old, with $71 million of capital (4 rounds, including the recent $41 million round), who is recording just $2 million of revenue from ads.

Launched with rave reviews for its location based "check-in" feature, the novelty has worn off.

Now the company is pivoting, morphing, changing, to move into a business model that pushes its search feature which had been minimized to date. With only 10 people selling ads, founder Dennis Crowley plans on hiring many more with the new funding (Groupon has thousands.).

LESSONS FOR STARTUP FOUNDER CEOS

1. Tell your own story. Or your competition will tell it for you. Foursquare was pro-active, did a lot to diminish the negative rumors flying about.
2. Spin your story to the positive. Why? "To buy time to settle the valuation." That sounds more glass half full than "Startup survives, barely." or some other awful blogger's spin.
3. Listen to wise advice. The $41 million round was a sophisticated package, engineered to give the startup time to prove it can significantly boost revenue. Founders are wise to listen and not object when experienced board members (typically VCs) make bold business and financing suggestions.
4. Plan the details of the change before announcing it. Reporters are skilled at digging and will find out if you are winging it. Much more credible to a doubting blogger is your response to sharply penetrating questions about how the new business model is going to operate.
5. Bold is best. Tweaks of business models do not get attention.
6. Free PR generates priceless Buzz. Dennis sat in the hot seat, responded to interviews and generated huge attention (free broadcasting) on Foursquare. That makes life a lot easier for the new Sales Department personnel to sell ads.
7. Act sooner. Hanging on, hoping things will get better is dangerous. In the case of Foursquare, the bloom is now off the rose, the glory is now gone. The quest has begun. It's a slog from here on. Street-smart serial entrepreneurs run scared and make bold changes quicker than first-timers.

I certainly wish Foursquare people my very best. It's a story that could become an amazing success. So far there is no Gorilla in the location based business. The opportunity to be "first-to-get-it-right" still exists. But there is a huge Gorilla in search -- Google. That adds new risk to the new business model (search via Foursquare). Time will tell how it all turns out for Foursquare. Might be a great acquisition. Or might get a formula right that kicks ads into high gear that powers the company to IPO.

All this is about "Execution", that prized skill in startup leaders so sought after by world-class venture capitalists. It is central to why VCs say yes or no to financing your next round.

BOTTOM LINE: When your startup stalls, its revenue is mediocre, time has come to change its business model. That calls for courage and wisdom. Founders that know how to get advice, be creative and act boldly will emulate the skills of serial entrepreneurs who know how to execute a plan for a startup. When you can do that, the money people and talented employees will be pounding on your door, surrounding your car before you leave the parking lot. It is a very powerful part of building an unfair advantage.

I wish you The Best on your Adventure!

DISECTION OF A NOT-SO SECRET START-UP: Stanford success or folly?

Stealth start-up Clinkle got good press recently.

The reporter focused on the unusually deep Stanford roots of the new enterprise. While that is interesting, I found a lot more.

In this blog, I have focused on what can be useful to people like you who are keen to learn what happens in real start-ups, especially those whose founding core team is heavily composed of students.

So let's take the story apart and see what it reveals:

• Leader's family's immigrant history typical. Lucas Duplan, "son of Croatian parents" fits the pattern seen often before in Silicon Valley start-ups: Immigrants and their children have unusually high drive and desire to excel. One VC's survey revealed 62 percent of their portfolio's founder CEOs were immigrants ("green cards"). Good news: This is one aspect of an unfair advantage that others cannot easily duplicate.
• Leader thinks big and bold. Lucas has the mindset sought after by VCs. He starts with a big idea. He is bold in forming his plan and raising seed financing. That's outstanding good news to the ears of winning venture capitalists. Bad news: Lucas could be dreaming about more than he can handle.
• Idea from personal frustration and emotions. Lucas was bothered that he could not use his smartphone like money. Personal needs often trigger the spark that grows into a hot start-up idea. Smartbook began as a college lark. Cisco grow out of frustrations of Stanford University people trying to cope with data storms on campus IT networks between a quagmire of different computers, operating systems and interspersed networks.
• Market category clear. It is the e-wallet market segment, already named, already emerging. Good news: It is clear. Bad news: It is already there, no opportunity for Clinkle to create and name it.
• Crowded market. Though new, the e-wallet market is already filled with different companies seeking the magic thing that gets millions of consumers going wild about using their smartphones to purchase things. Good news: A lot of people anticipate this could be a huge market. Bad news: Lots of competitors with a head start.
• Chance to be "First-to-get-it-right". So far, in the U.S. there is no Gorilla dominating the new market segment. Many are trying, small and large. Africa is the most advanced in the world at using phones to pay for things, but so far none of those competitors is headed for the U.S. That leaves the door open for Clinkle to be first to get it right. Good news: No danger of being "first mover" and thus getting pioneering arrows in Clinkle's back.
• Secret sauce. Clinkle has something hidden that is central to the specialness of their offering. While buried so far, we do know "Clinkle aims to let people pay at retailers using a smartphone without stores needing a major tech upgrade." So we'll have to wait to see what the secret is all about. I am willing to bet this will launch as a flanking strategy, into uncontested territory where Clinkle could quickly establish itself as the leader. Good news: Some very smart, IT savvy Stanford faculty liked the secret sauce enough to invest in the seed round. Bad news: Could be a dud, an idea that does not attract the millions needed for this kind of consumer enterprise to succeed. A great deal hinges in this secret whatever-it-is.
• Execution risk is high. "Execution of a start-up's business plan is everything" is a truism ingrained in the venture world. Doing well what you think you have to do is very demanding for start-ups. This new enterprise is run by students and recent graduates. It has nearly zero experienced managers and IT professionals. Good news: Youth that does not know better can do amazingly creative things, quickly. Bad news: Mistakes in execution, in a crowded market can lead to fatality.
• High early burn rate. With about 30 employees, Clinkle is burning a lot of cash already. The company has announced it will double the number shortly and move to new quarters in San Francisco. Veteran venture investors are reluctant about feeding fledgling start-ups with too much early cash, it is too often wasted. Good news: Bold thinking with confidence is evident. Bad news: Sounds like it could be either an amazing success or an amazing high profile dud.
• 2 years old. Sounds like progress has been made. Certainly in fund raising (read the article for who invested). And hopefully in building a working prototype and gaining a sharp focus on marketing the new product. Good news: Progress in several aspects builds momentum and grows reputations as successful. Bad news: No signals yet about first launch date.
• Rolling thunder launch. Plans are to start selling via college students ("like Facebook"). There are merits in that, one being that peer group is already hooked on using smartphones for as much as possible. The bad news: As an infrastructure play, starting tiny can simply open the door to giants eager to cover the U.S. with some sort of copy of Clinkle. Clinkle's business success depends on some sort of widespread network and related infrastructure coming together at the right places in the right time. That is daunting to any new enterprise. The secret sauce is probably about a solution to that issue. Good news: This issue is a big barrier to competitors. Bad news: There are a lot of un-controllables that have to happen, well, for Clikle's success.
• Enthusiastic culture. From photos and words, it is clear that Clinkle's company culture is full of energy and is very enthusiastic. This may be one of the central elements of the company's unfair advantage. Employees (with stock options) like that can do amazing, very creative things. Clinkle can just look out the window to see the giants who rode to success on their special company culture. That is only good news and is very valuable, too often overlooked by first-time entrepreneurs.
• Buzz has begun. Good news: The press is picking up "the story" about Clinkle. Bad news: The stealth start-up is no longer in a very stealth mode, perhaps talking publicly prematurely.

BOTTOM LINE: This exciting start-up has a lot going for it, the envy of many other new enterprises. It's success is not yet assured. But it is an excellent case study for you. Review the elements and issues noted above, then apply them to your own business plan. That can boost your chances of success as you craft your unfair advantage.

I wish you The Best on your Adventure!

 

 

MODEL N GOES IPO: A tribute to a founder's determination

My congratulations to Model N's co-founder, Zack Rinat, and all its employees and investors.

On March 20, 2013, the start-up went IPO successfully.

In itself, an IPO event for a new enterprise is worth noting, but to me, this one has special meaning.

Certainly the participating co-founders are happy (CEO Zack Rinat, chief product officer Yarden Malka, VP Ali Tore and John Ellithorpe CTO). So are a lot of employees and investors.

But there is something more important to learn from this IPO of Model N.

My insights come from personal experience. I've had the privilege of knowing Zack Rinat since his arrival in Silicon Valley and have learned more about him over successive decades. He is a special person.

Here are my observations on why I think the Model N initial public offering is so special and what entrepreneurs like you can learn from it:

• 14 years. That's a long time. It's how long it took this start-up to rise to IPO. Did anyone tell you to expect five years for your start-up? Model N is not alone, but is on the long side of the years of march to IPO. Most start-ups disappear within their first three years. Few remain independent beyond five years, and are sold to other companies. Certainly after ten years the business would be folded into something else inside some other giant corporation. Model N got to IPO.
• 30 percent. That's the portion of Model N stock owned by founder Zack Rinat at IPO. He did not sell one share in the offering to the public. It is five times the average in my start-up IPO database. Zack started Model N with cash from his own bank account and never looked back. Few do that.
• 3 investors. Accel Partners, Accel-KKR, and Meritech Capital Partners were the only venture investors. Accel did $26 million in 2000 and Meritech $11 million in 2004. It is tough to attract any venture investors, it is an achievement to attract blue chip names (like those), and it's rare to get so much capital from just two. Extraordinary.
• Bold pivoting. From an original idea in 1999, Model N advanced, tried, changed, morphed, and altered as it marched forward. This included acquisitions of Azerity in 2006 and LeapFrogRX in January, 2012. As markets changed, competition arrived and opportunities rose, Model N made bold changes. The emerging enterprise thrived. Rare.
• Core team. Four of the co-founders are still with the company. Zack Rinat, the company's only CEO, as well as Yarden Malka, John Ellithorpe, and Ali Tore. Most would have been gone by this time. Unusual.
• Leader. Zack Rinat lead Model N through it all. He set out long ago to create a great company. He never gave up. Step after step he gained knowledge on the job, cp-founded and sold a start-up to Sun Microsystems, and then set off to do Model N. He knew where he was going and convinced others to follow. Together they went through good days and terrible ones, emerging as an exciting IPO lead by Zack. True leadership.
• Determination. To me, this is the Bottom Line of my story. Most of us mortals cannot dream of how hard it is to succeed as founder CEO of a new enterprise. Even fewer can conceive how to hang in there for more than a decade, struggling each day. And along the way Zack figured out how to supply the fledgling start-up with the capital, employees, creativity and determination needed to emerge 14 years later as an exciting IPO. Amazing.

Model N has gone through a lot over 14 years. It has been my experience (as an old Silicon Valley start-up geezer) that the history of start-ups like this includes dark days as well as great ones. A lot of painful decisions have to be made. People come, give their best and depart, some okay, others very disgruntled. More stay. Together they make history.

In the case of Model N, its history includes a lot (of as yet unwritten) stories that we start-up fanatics can benefit from, thanks in great part to the determination of its leader, Zack Rinat. In his own words he put it this way: "I believe that we were successful because of the culture of the company (Core Values = DARE) and our second core value is about our commitment to customer success."

BOTTOM LINE: Determination is required to do a 14-years-to-IPO new enterprise. Typically, the start-up founder CEO steps aside (or has to be pushed aside) around year 3. To lead a company to the achievements of Model N is rare. For me, the central lesson from Model N is how important determination is for founders of new enterprises. Yes, it is very important not to fall into stubbornness, that horrible behavior that keeps you trying when your company has been all but dead for a while. Serial entreprenurs get wise and serial by knowing when to shut down a loser and move on. But every beginning effort demands a huge amount of determination from Day 1. Zack Rinat is a prime, and rare, example. When you appreciate this, both investors and employees will see you as an attractive leader with an unfair advantage.

I wish you The Best on your Adventure!

STARTUP MARKETING: (10) End Targets Win = Center of market loses, either end is where the winners are

Management targets the center of the market.

Marketing targets one of the ends.

Where is the "sweet spot" for a startup? What portion of the market is best to aim at?

Most responses are "Aim for where the most customers are, that's the fat middle."

However, serial marketing minds know that is death. Instead they aim for either end of the market.

Do you remember the famous "bell curve?" The fat middle is what management thinks is where the startup should aim. But there is where most of the fights occur between startups who have copied each other and stand for nothing different.

Instead, think of that curve upside down with fat high ends and a sagging middle. That's how marketing minds see each new market. Here are some examples from a huge industry:

• Airlines: Singapore Airlines and Emirates battle for the high-end customers of the premium market segment, while the value market is lead by Southwest Airlines and AirAsia in Asia, and Ryanair in Europe, and Gol Airline in South America. All the rest (hundreds?) are in and out of bankruptcy each slugging it out for seats in the undifferentiated middle with profits determined by the price of jet fuel.

The temptation for first-time entrepreneurs is to think the middle is where the riches are. But there is only where commodities are, where startups fight among their undifferentiated selves.

It makes common sense that you cannot be both a premium airline ("luxury") and a value airline ("cheap") at the same time. Nor is it wise to try to be an "affordable luxury airline", or an "bit more expensive low cost airline". Those fight it out for the profit thin middle market.

All startups, including industrial grade new enterprises face this marketing dilemma: "Should we pick one of the ends, or fight it out in the middle with the mob?

That decision separates management from marketing. It is crucial to make the marketing choice, go for one of the ends?"

BOTTOM LINE: Marketing minds of serial entrepreneurs pick one end of their new market to dominate, leaving the rest to fight in a bloodbath of red ink in the middle. That calls for both a wise choice and focus. It makes sense to serial entrepreneurs who know that to win they must focus on executing well their plan to dominate a target market segment. That's how the company's product gets branded and stands for something compelling for the ideal customer. When you can figure that out for your startup, you'll be well on your way to building an unfair competitive advantage.

I wish you The Best on your Adventure!

================================

"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with the marketing challenges that confront first-time entrepreneurs.

This series on startup marketing follows the principles laid down in that book. I highly recommend the book to startup leaders.

 

STARTUP MARKETING: (8) "First-mover" dies - "First-minder" wins

Management strives to be the "first-mover."

Marketing strives to be the "first-minder."

"In marketing circles, the first brand that gets into the end users' minds is almost always the winner. Gatorade in sports drinks. Red Bull in energy-drinks. Activia in probiotic yogurt." Says Al Ries, about how  winning marketing works.

That's hard for first-time entrepreneurs to grasp. But it's no more difficult to comprehend than to realize the first runner off the line in a race rarely wins.

It is vital for all entrepreneurs to grasp because it is central to why too many otherwise winning startups fail. Too many startup board members think marketing is about first-mover wins all.

FIRST-MOVER EXAMPLE

What was the first successful MP3 player? Creative Technology's product, the Creative Nomad Jukebox.

What was the giant MP3 winner? Apple's iPod.

First-mover loses to first-minder. iPod was first to get into the consumers' minds. End of game. Over. The gorilla has arrived.

Now read what Ries sees as Creative's marketing mistakes (so you don't repeat them):

• Line extension. Creative had two other players in the market, the Creative Nomad II and the Creative Nomad II MG (magnesium case). They had small amounts of flash memory to store a few hundred songs. Creative Nomad Jukebox had a six gigabyte disk drive to store thousands of songs. It was in a new category.
  
  Using the Creative name in the new category caused confusion, which undermined the brand-building process.
• A generic name. "Creative is a description, generic name. You can't build a brand with a generic name. You need a brand name.
  
  What's a brand name? It's a manufactured name like iPod, or a generic name used out of context (Apple doesn't sell apples).
• A long complicated name. "Creative Nomad Jukebox" (seven syllables) versus "iPod" (two syllables). Short and simple become brand names.
  
  A first-mover should always ask itself, "Does my name have a chance to become the generic name for the new category?" No one calls the category "hard-disk-drive MP3 players." They call them "iPods".
• A lack of focus. Creative made a host of other products, digital cameras, graphic accelerator cards, modems, CD and DVD players, and more. They should have done what Nokia did. Drop everything in order to focus on a hot product, the hard-drive MP3 player. What did Creative do? They kept doing business as they were, lost the market and sued Apple (the consolation prize was the collection of a $100 million technology licensing fee from Apple).
  
  Such leaping, abandoment, switching is what winning entrepreneurs do. Call it morphing, looping, changing, leaning, whatever the tag, it takes guts and confidence to do. Great startup marketing minds thrive on doing it. And it makes startup board meetings get very heated.

This is a message management doesn't want to hear. They think it downgrades the importance of the rest of the startup. They think it implies that knowledge, skill, and effort don't matter. They think that's all you need to be successful.

Left brainers are verbally oriented. They think of marketing as communicating a laundry list of benefits and features. How do you verbalize the benefits of consuming a caffeinated drink containing herbs, B-complex vitamins, and amino acids? (You don't. You build a brand for a new category, energy-drink, with the name Red Bull).

Right brained marketers often have patience. It can take a long time to change minds. Some say marketing is "psychology in practice." It took Lexus 12 years to overcome Acura's lead as the leading Japanese luxury-car brand. That's another reason it's tough to go to board meetings of startups.

BOTTOM LINE: Aim to be first in the mind of your end user. Being first-mover will be near certain death. Being first-minder secures leadership in a new category, setting the foundation for building the unfair advantage that propels your startup to become the gorilla of the new market. Then your brand will stand for the category. Like Google for search, Facebook for social networking. They did it, so can you!

I wish you The Best on your Adventure!

================================

"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with the marketing challenges that confront first-time entrepreneurs.

This series on startup marketing follows the principles laid down in that book. I highly recommend the book to startup leaders.

STARTUP MARKETING: (6) Startups win with a narrow line -- not with a full line.

Company management favors favors a full line.

Startup marketing favors a narrow line.

There is where too many founders of new enteprises make a move that proves fatal. They choose to widen the product offering rather than focus it narrowly. The result is the end of greatness for the startup.

Selling more is appealing to left-brained people (on your board of directors, from large corporations). So it is obvious you will sell more with a full line of products and services.

So why do the great startup right-brained startup people want a narrow line?

Because selling is the second step in a marketing program. The first step is building a brand in the mind. And with a full line that can be difficult.

Consumer brand guru, Al Ries points out that we no longer know what a Chevrolet is. The brand sells more than seven car models. That makes it hard for the brand to stand for anything.

I know what a Porsche is (Germany's sports car). But watch out, it is widening its line of models and that's going to diminish its brand image. Will it go the way of Chevrolet? Porsche is now owned by the management that owns Volkswagen. The board of directors wants the company to become the largest in the world. Full line. Watch Porsche the brand. Stay tuned.

Similarly today we no longer know what HP stands for (printers, PCs, IT consulting, and more). The brand stands for an American electronics company. Not very exciting.

Do we know what Google stands for? Today yes, search. But its customers know it as the gorilla of online advertising, with a 55 percent share of market. Facebook has 9 percent. As management continues to broaden the line of services and products (the company is now in the hardware business via smartphones), the brand image is diminishing. Driverless cars are cool, but what then does Google the brand stand for? The direction is familiar: startup success (narrow line) is followed by gorilla expansion, desperately searching for revenue growth (broaden the line).

Same thing happend with Microsoft (the PC operating system). And with Volvo (was the "world's safest car").

Startups that get focused and remain focused can get branded. After that they can shift to selling more by expanding the product line. Until then, the product line must remain narrow. Expanding it dissipates the power of branding, it weakens the new enterprise.

Last evening I was in a coaching session typical of work with first-time entrepreneurs from large corporations. Their initial idea had been crafted and focused well after weeks of hard work. But our working session that evening was triggered by a dispute between the founders. Some wanted to add additional services and generate more revenue. Others wanted to remain narrowly focused. They decided to focus for the first three years on a single online service, adding follow-on lines after the company became branded. And even three years is early for adding a new line. A strong brand requires around ten years to be branded.

For some of you left-brainers, this thinking might seem wrong, adds risk, reduces sales. If you believe that, you don't understand startup marketing, how right-brained thinking works to create what generates rocket speed growth in sales. Turn over the marketing to your marketing people and enjoy the wild rise to branding success from your chair on the sidelines.

BOTTOM LINE: More seems better, less seems poorer. But savvy marketing people know startup success is founded on narrow, focused branding. Once branded, the product line can be expanded. But by then your  startup will have gone IPO. Brands take a long time to establish. Wars with your investors tell you your opponents are left-brained thinkers. Instead of fighting them, deliver success stories of prior startups that stayed focused and won. Remind them of famous brands that no longer stand for anything because they expanded their product and services too widely. When you grasp how to do this, you'll be well on your way to building an unfair competitive advantage.

I wish you The Best on your Adventure!

================================

"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with the markeing challenges that confront first-time entrepreneurs.

This series on startup marketing follows the principles laid down in that book. I highly recommend the book to startup leaders.

STARTUP MARKETING: (7) Startups win by contracting the brand -- not by expanding it (and thus killing it)

Management tries to expand the brand.

Marketing tries to contract the brand.

=================================

Your first product has to stand for something important to the end user. That is how its name gets branded. Red Bull is branded as the energy-drink. Say the words "energy-drink" and "Red Bull" pops up in your mind, it is branded.

EXPANDED EXAMPLE (how not to)

Here is the story of what happened to the Red Bull brand when it was expanded:

• 1987 Red Bull launches in Austria, in 250 mL (8.4 oz) cans (small).
• 1998 - 2002 Competitors enter energy-drink market (larger 16 ounce cans for RockOn 1998, different flavors for Monster 2002).
• Red Bull adds 12 and 16 ounce cans.
• Competitors aggressively attach Red Bull can energy-drink market with new channels of distribution and links with powerful beverage distributors.
  
• 2002 Red Bull adds Red Bull Cola (different category).
  • Founder Dietrich Mateschitz predicts in three to five years, his cola sales would equal his energy-drink sales.
    
• 2009 Adds Red Bull energy shot in versions regular and sugar free (different category).
• 2009 German health department warns traces of cocaine found in Red Bull which is banned in dozens of Europe's countries (due to use of "all natural" materials).
  
• 2011 Red Bull discontinues cola and energy shot products.
• 2011 Adds zero calorie version of energy-drink.
• 2012 Introduces blueberry, cranberry and lime flavors.
• 2012 Introduces tall 12 oz can.

You can see the pattern: In response to arrivals of competing products, the first brand is incrementally expanded (can size) by management hoping to ride the momentum of first hit product and to respond to competitors. But by then Red Bull is branded as the THE energy-drink, the one in the red and blue and silver small 8.4 oz can. Thus dilution of the brand began via expansion, in tiny increments.

But shortly after that, big trouble hits (cocaine scare), reducing sales and what does management do? Continues expansion of the brand (adds products in two new categories).

What happens to the Red Bull cola and energy shot expansions? They sell weakly and are eventually pulled from the market.

With 40 percent share and leadership of the energy-drink market declining (Monster gaining), what does Red Bull marketing do next? Contracts the brand, focusing on the can market for energy-drink. Will that save the brand? (Yes.) Will it stimulate growth that gets Red Bull into a stronger leadership position? (Might improve sales leadership a bit, certainly will improve profits.)

How is Red Bull doing? It has 33 percent share as of 2011.

How is Monster doing? Up to 29 percent share and gaining.

How is Rock On doing? It has 10 percent of the market and comes in 43 versions.

STARTUP EXPANSION LESSONS

1. Startups that have great success with their first product must continue to be marketing-wise when picking the next product. Incremental and modest versions of the first product can keep it branded but are dangerous and tricky to do well. Adding other categories (as Red Bull did) by using the original brand name will dilute the original brand, confuse the market, and result in profit-loss-leaders for the startup. Adding features is very tricky business. It's easier to surf forty foot swells at Mavericks.
2. Great founders are seldom great startup marketing minds. Finding great right-brained startup marketing people is mandatory to avoid product expansion brand death.
3. Founders need to learn to follow their marketing people, denying the instinct to expand a brand when the inevitable trouble starts.
4. When it is time to add a new product, do it with a new name (that will seek its own branding). Startups win by using new names for each new product, not by using the name of the first branded product.
5. Exapansion error avoidance is very difficult to grasp for managers who succeeded in giant public corporations. Giants extend everything in their determined attempts to add billions of dollars of sales to already successful brands that grow 3 percent a year. But for startups such line extensions quickly lead to death for an infant brand.

BOTTOM LINE: Serial entrepreneurs know they must stay focused on making the first product the big winner so it becomes branded as the winner of the new market category. That is what generates the buzz, the wave of excited end users and then paying customers. When you figure out how to do that for your startup, you'll be well on your way to building an unfair competitive advantage.

I wish you The Best on your Adventure!

================================

"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with the marketing challenges that confront first-time entrepreneurs.

This series on startup marketing follows the principles laid down in that book. I highly recommend the book to startup leaders.

STARTUP MARKETING: (4) Startups win by owning the category

To build a great brand like Facebook is the dream of entrepreneurs. The stuff of legends, dreams, visions.

Yet building a great brand is not what wins the giant startup race.

Instead, it is owing the new category that produces the winning giants, the next gorillas. And believe it or not that is how you build a great brand.

The brand is the tip of the iceberg. Marketing wants to own the iceberg. For instance, look at social networking. Facebook owns social networking. That's what won the race for that startup. Now social networking means Facebooking.

That's not easy for management to comprehend. They focus first, instead, on what to do to build the brand, typically grow more sales.

But marketing minds of serial entrepreneurs are consumed by efforts to own the new market category. That in turn produces a brand that stands for the category. Google means search. Ergo the verbial phrase "google it. That's what produces gorillas.

The resulting brand can be almost invincible if it is narrow and deep. Broad and shallow offers greater sales potential. Narrow and deep offers greater profit potential and greater brand stability. Here are a few brands that fit this description.

• Rolex in expensive watches
• Intel in microprocessors
• Twitter in micro news
• Band-Aid in adhesive bandages

BOTTOM LINE: Serial entrepreneurs understand the prime objective of a new enterprise is to dominate, to own, a new category. Once accomplished, the startup's brand will take on the meaning of that new market category. That distinguishing focus leads to clarity and points the way to the top of the new mountain. Once there your competitors will complain about your unfair advantage. Your startup will be branded forever.

I wish you The Best on your Adventure!

================================

"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with the markeing challenges that confront first-time entrepreneurs.

This series on startup marketing follows the principles laid down in that book. I highly recommend the book to startup leaders.

STARTUP MARKETING: (3) Startups concentrate on the brand but management concentrates on the product.

"We build great products!" is what I hear every startup leader tell me. From Apple to Z Corp everyone is doing it. Why? To build a great company, of course. That's the response from management.

Yet the great marketing minds instead concentrate on the brand. It is the brand that distinguishes one car from another, one social networking site from another. Lexus is branded as a luxurious Japanese car. Facebook is branded as social networking. Names that stand for things are brands. Chevrolet has lost its meaning and thus its brand means nothing anymore. Competitors for Facebook are mostly forgotten.

Once Heinz means ketchup, what would you do, make a better-tasting ketchup?

It is not a better product that makes a strong brand. It is market share that tells you the brand is strong.

Does Starbucks make better coffee than McDonald's (Consumer Reports said no). Does Rolex make better watches than a dozen other luxury-watch makers? Perhaps. Perhaps not. But the tangible differences noticed by the consumer are rarely in the product quality. Instead, they are noticed by what is in the brand.

BOTTOM LINE: Startup marketing minds focus on brands. They aim to build a brand that stands for something in the mind of their ideal customer. That will distinguish the brand from competitors. It will give lasting meaning to the brand. It is a strong brand that leads to the winning startup, not better products. When you understand that, you'll be on your way to building an unfair competitive advantage.

I wish you The Best on your Adventure!

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"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with issues that confront first-time entrepreneurs. This startup marketing series is based on that book. It is highly recommended reading for startup leaders.

STARTUP MARKETING: (2) Marketing has become separated from management

"Marketing is too complicated to be left to management people who have little experience in marketing and who don't understand its principles." wrote Al Ries.

Rated by Advertising Age as one of the Top Ten living legends of marketing, Ries's findings and related implications in the book "War in the Boardroom" are spot on with a Big Deal Problem that confronts first-time entrepreneurs.

In a nutshell, startups lead by marketing-thinking, marketing-driven founders too often become quickly ensued in a battle with investors on the board of directors. Why? Because the investors think more like management, not like marketing, but insist they understand marketing and insist their marketing is superior to that of the founders'.

Also, hiring "managers" into your startup can become a similar source of unnecessary conflict. Leaders reporting to the startup CEO mainly come from great public corporations driven by great managers. When they join a new enterprise they find themselves up their ears in marketing and its complexities. Everyone is surrounded by marketing decisions, tasks and events. Unfortunately few managers have learned much about what makes startup marketing succeed or fail.

"Management deals in reality."
"Marketing deals in perception."

Serial entrepreneurs agree with Ries and see the conflict all too often.

An example can make the point clearer: A startup's growth slows and people are gathered to decide what to do to boost revenue. Management's response is to grow more, get larger, spread out, expand the business. Marketing's response is to narrow the focus more. Why? So the brand can be built that stands for something. So the brand can isolate a single service the startup can dominate or an attribute it can own. Management leaps to cut costs. Marketing leaps to focus the customer's mind to perceive the startup's brand and identify it with a word or two.

BOTTOM LINE: Become ready to pick your people for their understanding of startup marketing rather than management. Sure, everyone needs people to manage people and execute a plan brilliantly. But the plan must be a marketing-driven plan, lead by people who understand marketing and its complexities. Great startups are lead by a company of leaders who understand that. It's your job to find those people, starting with your initial core team and extending it to investors and employees. They can have expertise in accounting, engineering, human relations, customer service and so on, you need such skills and experience, but you have to have a group of leaders near and at the top who respect marketing and let you lead as you perceive best. When you get that, you'll get a vital core concept that will keep you out of most of the wasted conflicts between marketing and management. Then you'll swiftly launch your new enterprise with the speed and efficiency needed to build an every more unfair advantage.

I wish you The Best on your Adventure!