Nesheim Online

STARTUP TALENT SHORTAGE: Number 1 reason startups fail to execute their business plans well

"What should I most focus my efforts on when executing the plan for my startup? is a great question, one I frequently receive.

Its importance jumped out at me this morning when I read the following note from Mercy Ships, a Christian sponsored non-profit organization that brings free medical services to the poor around the world, notable from ships docking along the coasts of Africa.

As a non-profit organization Mercy Ships is constantly seeking talented seafarers to meet the demand for qualified crew in our ship. Our recruiters attend job fairs and recruitment venues looking for Deck and Engineer Officers, Able Sea-farers and Ratings, but the reality is there is a worldwide shortage of qualified ships workers, and shipping companies who can pay big salaries are also looking for them as well.

In the article entitled The Next Agenda: The War to Develop Talent, Jeff Schwartz offers a description of the current shortage of qualified workers (talent) in the business world. He says: “The concern is not about the availability of workers; it is, rather, about the shortage of critical skills, experiences and specialized capabilities of leaders, managers, creators and producers required in changing industries.” For Schwartz the real issue is not a lack of workers, but a lack of workers with the necessary skills to succeed in a changing market place.

So you are not alone! Unfortunately.

The point for founders of startups is simple: Line up, recruit, entice your best people before you begin your startup. They will form your Core Team. They will do the bulk of the recruiting, so be sure they are able and experienced at finding, attracting and retaining the finest talent. You will need every sharp brain you can find if you are to deliver on your business plan.

You will be competing intensely with vast numbers of hiring organizations. We live in a global economy. Recruiting startup talent now routinely crosses borders to find talented people with passports, mobile phones, laptops, each confortable flying to whatever job sounds interesting. We live in the era of the most mobile labor force in history, even for startups.

Knowing how to find and keep the top, the best, people is a skill set eagerly sought in founders of startups financed by the best venture capital firms. They see you and your core team as a recruiting machine, able to at least double the number of great people each year added to your new enterprise, year after year. So if you are not yet at that level, start working on it. Get social, get in contact, get going, right now. Investors will pound on you about your recruiting abilities during your presentations.

Assemble a group of people to support your recruiting efforts. Find recruiters, contact them, get them thinking about your startup even before you have begun. Locate contract human resources experts who work with startups during the earliest stages. Add angels who have been there before, who know how challenging your first two years will be when you are seeking to add critical skilled talent to your startup. And start talking to other startup people, especially other founder CEOs. Listen to their stories and learn how to recruit to win.

BOTTOM LINE: People are what you need to build your startup. Top skills, great talent. So you have to build an organization of amazing people who can recruit and win against the world's most intense competition for talented people. When you respect the importance of this mandate, you'll add a key element to building your unfair advantage.

I wish you The Best on your Adventure!

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!

WHAT IS IN A GREAT EXECUTIVE SUMMARY FOR A START-UP? Tips and tricks from serial entrepreneurs

"Why do venture investors want an Executive Summary?"

"What should I do to write a super Exec Summary that attracts great employees?"

Those are two important questions from start-up founders that deserve good answers.

Let's start with the first: Why do the people with the money want an Executive Summary?

Here is a quote from one of the most experienced venture firms, Canaan Partners. It is from their document explaining their investment process:

Canaan Partners has created a set of guidelines that we use to consider an investment opportunity. To determine whether an investment fits within these guidelines, we can review a written business plan or open a conversation with one of Canaan’s investment professionals. When possible, you should contact us through a personal referral. If you are not affiliated with the firm, you can send an executive summary along with your plan via email. The due diligence process will generally take from four to six weeks, but can be significantly shortened if necessary. When Canaan decides to invest, we will then work with the company’s management and advisers to tailor investment terms specific to the transaction. In addition, we have extensive relationships throughout the venture industry and can provide, where appropriate, assistance in assembling an investment syndicate of highly capable investors.

Note the additional tips within Canaan's advice, particularly the value of a personal referral. But even that will not get you out of preparing your Executive Summary because the investors, VCs or angels, rely on it. For them it is the first step in reviewing what you are proposing to do. If it is not interesting, then they have not wasted their time reading a 40 page business plan to reach a reject conclusion. They do as much as possible to save precious time. If you help them with a superbly written Executive Summary, they'll appreciate you even more.

Can you avoid writing an Executive Summary? It has been my experience that you will cannot, even if you have gotten an audience with a Partner in a firm or with an experienced angel. They always seem to end those 1 on 1 meetings with "And send me something about your idea." That will be an Executive Summary. They will then use it to recall you and your idea (they are so swamped with other start-ups that they forget about you). Also, it enables them to email something on to other Partners or angels whom they meet with to discuss potential investments.

Now let's address the second question: What goes into a great Executive Summary?

Here is a brief guide from Sequoia Capital, one of the gorillas of venture capital firms:

"What kind of excutive summary format appeals to Sequoia? We like business plans that present a lot of information in as few words as possible. The topics that interest us the most in any business plan are a description of the market the company plans to attack; an overview of the company’s initial product and planned products; a description of distribution channels; a summary of the backgrounds of the management team; a five year summary of financial projections; and a capitalization table. We place more credence in a 15-20 page business plan than a compendious compilation with attendant appendixes. We are very skeptical about placing too much faith in detailed financial projections beyond the first 12-18 months of a company’s operations and have a jaundiced view of reams of financial data.

Their advice works well and is supported by serial entrepreneurs. It's central theme is "BRIEF." But short and crisp is hard, while long and wordy is easy. So plan to set aside more time than you expect to write an Executive Summary that gets an investor or key employee candidate excited.

"What should go into an Executive Summary?" Here are some specific tips I recommend based on what I've noticed the venture investor and key employee are looking for:

• 2-4 pages long, about 10% of a complete business plan.
• Follow the outline of your complete business plan:

•Executive Summary

•Customer Need and Business Opportunity

•Business Strategy & Key Milestones

•Marketing Plan

•Operations Plan

•Management & Key Personnel

•Financial Projections

• Short and concise paragraphs only, don't waste words
• Include a "compelling" graphic, something you could talk about for an entire meeting.
• Write with calculated emotion, be determined to balance boldness with realism.
• Cite the status of your start-up and amount of cash you are seeking.
• I recommend you leave the company valuation for in-person discussions.

BOTTOM LINE: To get your money, to attract those key employees, you must stir their emotions. So your Executive Summary must be deliberately written. Keep it short, be complete, and aim at delivering excitement about your new enterprise idea. This may be the only written document you have a chance of using during the entire process, so write it well. When you can do that, you'll be on your way to building an unfair competitive advantage.

I wish you The Best on your Adventure!

ELEVATOR PITCHES FOR START-UPS: What makes one effective?

"You have 30 seconds to tell me about your start-up idea."

That's your challenge when you unexpectedly meet the venture investor (or talented potential employee).

In very few words you must deliver something so compelling that when you are finished, they will say:

"Step off the elevator, tell me more, you have 3 minutes."

Now your challenge is to deliver the richer version that increases the person's interest so much that they say:

"Interesting. How about meeting me for an hour next Tuesday at 9:00 in the morning at my office?"

That opens the door to pitching your full story about your new adventure.

And it all began with the 30 second elevator pitch.

What makes an elevator pitch effective? Here are some tips from serial entrepreneurs:

• Cleverness. It should describe something out of the ordinary, a business that smacks of large potential, a product/service that is instantly appealing.
• Mystery. Selectively choose words that entice, trigger desire to hear more, like a mystery story that grabs and holds the attention of the reader from the first paragraph.
• Boldness. Without childish bravado, be confident of your idea so your tone and demeanor deliver an impression of confidence and courage.
• Facts. Include numbers, just a few, only ones that suggest the business has large potential and any that support your claim that this could be a game changer, so you leave an impression of large numbers on the left half of the brain.
  
  
• Images. Pictures in the mind leave graphic impressions, so try to use a metaphor that conveys your idea and stamps a picture on the right half of the brain.
• People. Describe your core team, why you are together and what makes each a standout for your business.
• Why. Be sure to ask for the order, either the round of financing you are looking for, or the talented person you are hunting for.

There you have it, the key elements for an effective elevator pitch. Now try yours out, right now, without more practice. Then compare it to the above and start improving it.

BOTTOM LINE: Simple can be powerful. Elevator pitches can start an avalance. Short stories are very challenging to write well, so expect to do a lot of work before yours is in top form. Serial entrepreneurs respect that, it's one of their secrets to success. When you can prepare an elevator pitch as effective as theirs, you'll begin building your unfair advantage.

I wish you The Best on your Adventure!

WHAT IF YOUR GREAT START-UP IDEA IS DISAPPOINTING TO TOO MANY PEOPLE? Focus it, narrow it, simplify it.

What should an entrepreneur do when he has fallen in love with his start-up idea but comments from friends and others are not complimentary?

When I receive a document written by an enthusiastic entrepreneur, often first-timers, I examine each with the attitude that this idea might turn into the next Facebook or Google. 

Remaining positive, I mostly find myself reading an awkward three page sketch based on a basic idea. In that form it will never get investors interested. But it might contain something that could be insanely great.

So what should be done next with the sketch?

I have some suggestions that can help you modify your initial idea and turn it into a great start-up.

Here is my recent response to the writer of such a document:

Dear Kim,

I have read the summary document for your business idea, enjoyed reading it and have thought a bit about how my comments could be of assistance to you.

The main idea is rich with possibilities. Written by a person clearly very intelligent and familiar with contemporary issues in this [new market], it is filled with many enticing things that could used by many people to resolve many [new market] problems. That abundance contributes to an expanse of opportunity that is quite awesome to mere mortals. The trick is to find something specific to work with, something that has a good chance of leading to a great new business.

Therein lies the opportunity with your idea. In the spirit of being constructive, allow me to put into context my recommendations to you, so I can be of some practical assistance.

Most start-ups begin with an idea consisting of excited complexity, the kind evidenced in this document. Some join the race consisting of a herd of new enterprises, each competitor hoping to be first-to-get-it-right. During the turmoil, they constantly alter their initial idea, "pivoting" (the currently popular term) or morphing week by week with a singular dream constantly in mind: “Be first-to-get-it-right.”

No start-up begins with an initial idea that is either sufficiently focused or simple. Like the proverbial lump of sculptor’s clay, the idea needs to be worked on in order to become extraordinarily attractive. Experienced serial entrepreneurs spend a lot of brain-power and time working to get their initial idea refined before seeking financing or trying to build the first product. They know the power of first figuring out a simple focus in the form of a crisp articulation of the initial idea, especially one that triggers an immediate emotional response among a narrow segment of initial users.

Start-ups win using simplicity and focus. Winners begin with a simple idea and refine it before starting the business. That gets them the money and people they need to build and launch the first product. Then they modify and expand the tiny start-up as its business grows.

However, most entrepreneurs start with a complex idea that begins a difficult struggle. The founder makes sequential attempts to reduce the initially expansive idea into the small kernel needed to grow the business and win. Too few wait to figure out the simplicity and focus needed to succeed – “I just had to it going” – and go out of business, most rather swiftly.

As a start-up business sketch, the current document reflects the Swiss Army knife problem: full of many things that can be used, all contained in one tool. The danger is that, like Swiss Army knives, such a start-up will be used briefly and then set aside (the knife becomes a good paperweight). This observation is not intended to be demeaning, rather to suggest that the next step is obvious: examine the multitude of possibilities from among the many cited in the sketch, seeking one or two (only) that could be the core of a terrific new enterprise.

NEXT STEP: This is your new homework: focus and simplify your idea, in the extreme. I will send you a topical outline to move your thinking in that direction. Use it to write the next version of your idea. Here is the challenging part: use only one sentence per topic. This will be very difficult, but will force the missing simplicity and focus.

I'll be glad to comment on your further work on this idea and hope it becomes a great new enterprise.

BOTTOM LINE: Those suggestions have helped a lot of budding entrepreneurs get over disappointment and discouragement. Yes, the wise entrepreneur knows when to abandon the first idea, send it to the trash bin, and look for a new idea. That should happen most of the time, but rarely does. The process of challenging your initial idea will lead you to discover an exciting one that will be focused and simple. Then you’ll have the starting kernel to build a very strong competitive advantage, one your competition complains is very unfair.

NEXT WEEK I’LL GIVE YOU THE DIAGNOSTIC TOPICAL OUTLINE MENTIONED HERE.

I wish you The Best on your Adventure!

STARTUP MARKETING: (13) Mulitple brands win (but it's tricky to do)

Management prefers a single brand.

Marketing prefers multiple brands.

Start-ups begin with a wonderful singular focus: launch one product, make it famous, brand it, make it the gorilla of a new market category.

What comes next?

To grow, more products must be added. Then the start-up is confronted with the same challenge as the large corporation: What name do we give the new product?

And the big error is made (most of the time): add the company brand name to the new product.

IBM personal computers. Kodak digital cameras. Both major failures.

At first it seems natural to stamp the famous name onto the not-yet-famous new product. Powerful helps the weak.

But the result is dilution of the famous brand plus confusion about what the new product is. Both are weakened. Sometimes fatally.

A brand stands for something. Google is search.

But what happens when three dozen new products have Google attached to them? Simple: brand dilution. People get confused about what a Google is becoming. What the famous established brand stands for diminishes. And worse than that, people get confused about what the new products stand for.

Amazon is struggling with the same issue: Amazon Web Services (cloud) is now dubbed AWS (not very exciting). Then there is Amazon Cloud Drive (is it for photos or competing against Box?). How about Amazon Elastic Cloud? And there is a lot more Amazon [add what you want here].

This can be lethal. Just look at what happened to Yahoo. And Hewlett-Packard.

Microsoft is not a search giant so perhaps entering the search market is not the wisest move. But they did something right when they named their search product Bing and not Microsoft Bing. Bing is search, Microsoft is Windows. No confusion.

Even when staying focused as Yelp has, the competition can become intense. There are over 50 direct competing companies attacking the same market as Yelp. So the temptation to stick to one name is also intense. Competitors target slices of the larger market and attack with focused brands, often with lethal success.

Most start-ups are right to focus everything on making their first product the giant in the new market. That strengthens the brand and fends off competitors, it leads to domination of the new category and gorilla power.

Yet along the trail to IPO the start-ups will unavoidably encounter the issue of how to position, name and brand new products. It is tricky to decide how to do that without diminishing the growing power of the first product as its intial brand increases in stature. When done well, the first brand remains strong and the second is free of confusion, free to compete on its own.

BOTTOM LINE: Start-up managers from large corporations struggle in new enterprise marketing. The focus necessary to win the first branding race to the top of the new marketing mountain is what is needed and they get that. But what is hard is to decide on the name (and positioning and branding) for follow-on products. Mostly they make the error of attaching the company name to each of the follow-on products. This is a quandary for most management people from large corporations who are now trying their first new enterprise, especially MBA trained marketing professionals. If you study and think about this issue, you can overcome and triumph in a new start-up. Serial entrepreneurs have done it and won big time. So can you. It will become part of your own personal unfair 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 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: (14) Marketing research is subversive

Management follows research.

Marketing follows intuition.

Would you use a search site called Google, or would you prefer to use a search site with the Microsoft name?

Before the launch of Google, there would have been no question which site consumers would have preferred. 

Research will always favor the existing brand. But the companies that begin and become gorillas of new markets are not-yet-brands, they are unknown start-ups.

Try explaining that to a board member from a large corporation when you are about to make a bold marketing maneuver. And while trying it, sit close to the exit. That's where you'll likely be told to make a swift departure.

Serial entrepreneurs live by intuition, that instinct learned from real world experience. They can see through the fog. Yet they are risk-takers without being reckless. From their marketing minds emerge the great start-ups.

That's hard for the big corporation trained manager to accept. Much too dangerous. And he is right, it is far too risky for him because he would be following intuition trained in established enterprises, educated with MBA lessons, and that is far too likely to lead him to make big errors in start-up marketing judgment decisions about new products, branding and strategy.

BOTTOM LINE: Your job is to have confidence following your intuition and learn how to sell your decisions to a reluctant board of directors of your start-up. It is easier with a board composed of start-up winning people. They know the power of intuition over research when making marketing decisions for new enterprises. They learned how, so can you. Make it part of your unfair advantage.

I wish you The Best on your Adventure!

STARTUP MARKETING: (11) Owning a word is winning, owning all the rest is losing.

Management would like to own everything.

Marketing would like to own a word.

“What is a Sony?” I have no idea. I know what it used to be. Today the name has lost meaning.

“What is Apple?” I know immediately. So do you.

So what is your start-up? What does it stand for? When customers say its name, what pops into their head? When your answer is boiled down to a single word or concept, you have won. If you have to explain using sentences and paragraphs, you lose.

What does not work is standing for “great customer service,” or “top quality products,” or “lowest price.” Left-brainers use those phrases and end up explaining what they mean with a lot of words.

Right-brained marketers want to supply a single word that sums up the customer experience such as what is meant by “great customer service.” Otherwise, there is no way for a consumer to file the brand into the mind.

The objective of a marketing program used to be to make the brand famous. Today it is to answer in a single word the question “What is a [your company’s name]?”

Here are some examples:

• What is Campbells? Soup.
• What is Domino’s Pizza? Home delivery.
• What is Red Bull? Energy drink.

Check out automobiles:

• BMW = Driving
• Lexus = Luxury
• Mercedes = Prestige
• Scion = Youth
• Volvo = Safety

Are you struggling with your start-up standing for something? Try applying these right-brained marketing tools:

1. Focus the product line. Giant corporations sometimes get away with broad lines of products and services if they have a strong name like General Electric. Google is heading that way (from “search”). But focus requires dropping everything other than the one thing that can make the name stand out. For start-up CEOs, focus takes guts and often a fight with the board of left-brained investors. Nokia dropped rubber tires, trees and telecommunications gear to do only mobile phones. You know the rest of the story.
   
   
2. Focus the company name.  Start-ups can change their names to reflect more of what the company wants to stand for. Broadcom is better than Integrated Circuits Inc. and rides the expansion of mobile phones to smart phones requiring ever-larger (broader) communications channels.
   
   
3. Focus on an attribute of the brand. To build a brand, you need to stand for something in the prospect’s mind. Burbn Inc. shifted its name to Instagram when founders decided to change from a multi- featured HTML5 check-in project to a business focused on mobile photography. That’s a classic example of how real start-ups cleverly change their direction and then focus and win (pivoting, morphing, shifting, flanking, whatever the word, you get it) by becoming a name that stands for something in the prospect’s mind. It the moment Instagram says it stands for “Fast, beautiful photo sharing.” “Instant photo sharing” is better. Beautiful lacks crisp meaning. More attributes requires more thinking and more clicks.

That’s how to move from a meaningless name to a branded start-up. It takes right-brained marketing.

BOTTOM LINE: Serial entrepreneurs are eagerly pursued by investors because they know how to create a marketing program that differentiates their business from the competition. Prospective customers recognize instantly what the company is about, in a word or two. That’s what you must do for your new enterprise. It is not easy. But when you can do that, you’ll be well on your way to building an unfair competitive advantage that leaves your competition complaining.

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 the marketing challenges that confront first-time entrepreneurs.

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