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!

 

 

MOVING FROM INITIAL THOUGHTS TO A GREAT START-UP IDEA: The process and some tips

"How do you move from your initial idea to something that is worth doing?"

"What should I do with my first idea to craft it into a killer app business plan?"

Those are important and typical questions that confront the entrepreneur who is new to start-ups.

Serial entrepreneurs know what to do to move through the process of converting first thoughts to great business ideas.

Today I'll use a real example to give you more insight to this somewhat mysterious process, so you can then apply it to your cool idea.

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

EXAMPLE

E= Entrepreneur

M = My response

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

E: We have technology that can build a lab-on-a-chip. We plan to use it to monitor HIV patient's use of medicine so they can vary the amounts and get better results, improving their health.

M: How many are there?

E: About 2 million in the U.S.

M: Which are especially concerned with monitoring their health?

E: Those with geek tendencies, ages 20 to 40.

M: That would be about half of those with HIV. Which of those are extra sensitive to monitoring their health?

E: Ah, we had not thought about that. I guess the ones with the most income, how about a third of them.

M: So you are aiming at a third of half of two million, that's a very small market. Too small for venture investors to get interested.

M: What other health monitoring markets could you do, ones much larger?

E: How about pregnant women?

M: Yes, that would be a market large enough to pursue.

E: We could do that all over the world! That could be huge.

M: Right. Is there any one competitor doing what you are going to do, for pregnancies?

E: No, there are only a couple offering specific sample tests, non are doing on-going monitoring.

M: So you have a chance to become the Gorilla of a new market! Great news.

M: This idea fits under the banner of "personalized medicine," a rising tide lifting a lot of new boats.

M: What else could you do for your Ideal Customer? What else could you sell her?

E: Well, how about providing related health information. We could do a peer-to-peer discussion on our web site. And we could provide experts with free advice. That would attract advertisers.

M: Any ecommerce?

E: Oh, we could do affliate sales of baby things. We need to figure out the best strategic partners for that.

M: How could you get the doctors involved?

E: We could send the MDs the data from their patient, saving time and increasing the quality of healthcare.

M: That will make a fine cooperative arrangement.

========

I'll stop there with this example. I think you can see how the entreprenurial team moved from a weak initial idea to a very attractive one. Review the elements of the process and you will see what the issues were.

BOTTOM LINE: Your initial idea is going to change a lot by the time you get it ready for a real business plan. The process of moving, pivoting, morphing from the first thoughts to the great idea is a process worth its weight in gold. World-class angels and venture capitalists can do it very quickly. Serial entrepreneurs do it in split seconds. Doing it well lays the foundation for building your unfair advantage, so get started right now, apply the process to your cool idea and move on to the much improved next version. You can do it, others have, and they became big winners.

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!

STARTUP MARKETING: (12) Visual hammers win minds

Mangement deals in verbal abstractions.

Marketing deals in verbal hammers.

Right-brained marketing people know they need to use the narrowest possible term to describe a brand or category so they can develop an effective visual hammer. They know the spoken word will be instantly linked to a visual image. Simple and clear, it leads to power that wins.

EXAMPLE: Starbucks' Marketing Returns

A number of years ago, Starbucks hired a management guru to help it define its "big, hary, audacious goal." What came out was "To be one of the most well-known and respected organizations in the world known for nutruring and inspiring the human spirit." Fine for the United States of American, but to emplyees, this is just "management talk."

When entrepreneur Howard Schultz (first Starbucks' marketing hire) returned to take the reigns of a company that had gone astray, he immediately focused on "coffee." In an interview with USA Today he said "We'll spill out more coffee than most coffee shops sell. You won't be able to find a fresher cup of coffee on the planet."

VISUAL HAMMER

Right-brained marketing people decide on a verbal while also considering what the visual might be.

That's the opportunity for a start-up. To own the new category. The start-up's name instantly associated with the new market category. The verbal (Google) triggers the visual (search).

• Nike + Swoosh logo = athletic shoe leader
• McDonalds + Arches = fast food leader
• Louis Vuitton + multiple-logo design = luxury handbag leader
• Rolex + unique watchband = luxury watch leader

It does not matter that Starbucks sells more than coffee. Or that Nike sells more than athletic shoes. Because their visuals are easy to visualize. Far easier than "human spirit" or "respected organization."

BOTTOM LINE: Serial entrepreneurs intuitively search for the visual the moment they start thinking about the name of the company or product or service. They understand the power of the visual hammer to drive into the mind a compelling visual. When you can do that for your start-up, you'll add winning power to your unfair 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: (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!

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

"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.

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.