Friday, January 30, 2015

Connect With Visionary Customers Face To Face, Hand To Hand

By Christian Dahlen & Oana Olteanu

There are two type of customer roles involved on the way to product/market fit: Executive sponsors - the buyers and decision makers -  meet at least twice a year. These executive sponsors provide validation of the use case and are future references to gain credibility in the market. A word of caution: As opposed to the users, they have much less patience for multiple product iterations.

The users act as sounding boards and listen to a product proposal such that the product team can explore and rehearse the proposition more fully to align the economic incentives of all the group members. This user sounding board function should not be confused with a council for market development or with industry advisory boards - those come at different stages of the development process.

The product team has one-on-one interactions with the users. It is fairly straightforward to define the minimum set of requirements, and hence iteration cycles can be rapid, using one hour feedback sessions every 2-4 weeks. Each iteration begins with the customer selecting which stories the team will implement during the iteration, and ends with the team producing something for the customer to react to. In these rapid iteration cycles, the team moves from storyboards to a prototype of the proposed user experience with minimal functionality in the least amount of time. With today’s tools, the prototype is quick and inexpensive to build. As long as the user experience is plausible, the backend processing and data can be simulated. A word of warning: Users tend to provide positive feedback during all stages, until they actually have to use the product.

These one-on-one relationships help establish clear accountability on both sides. Initial on-site workshops with select customers are helpful in building rapport, but remote video conferencing interactions are perfectly suited for the monthly follow-up. The value from these interactive user interviews is far higher than from any type of survey or from indirect feedback.

These visionary customers are part of the team and deserve to be rewarded, feted and nurtured: Invite them to company customer events, award them with certificates for their part in the effort, and leverage them in promoting the new product.

Many thanks to Allen Bannon and Ryan Nichols for providing input and feedback.

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Focus On Business Outcomes And Drop The Features

By Christian Dahlen & Oana Olteanu

On the road to defining a minimum viable product (MVP), individual customers would be expected to have a very limited frame of reference. By definition, they cannot imagine what they don’t know about emerging technologies. Even the visionaries should not be trusted to come up with solutions, rather, customers should be asked only for outcomes, i.e. what a new product can do for them. Otherwise, one of the dangers of listening too closely is the tendency to make incremental improvements.

The product owner articulates her best hypothesis as to what value will drive customers to adopt her product, the business model to deliver the product, and which customers the product is most relevant to. The business values are defined and periodically measured to verify that the practice is working. The business value can be determined by ranking the relative importance of the business value/outcome for the customers. In one case, the customers were given $100 in play money which they could allocate to the business values they wanted most and the results were stack ranked to yield the most important elements.

To minimize feature creep, the product owner needs to understand how upset the customer would be if a feature would be taken away. In one case, it turned out that 80% of the planned features were not related to any of the top business values requested. A final word of caution: For certain types of solutions, business value is only created if people actually derive some personal value from using the solution.

For new versions of existing products, it is not about what a particular customer thinks is important to add. Instead, the product owner needs to focus relentlessly on studying the live use of the business value metrics - what matters is what actually moves the needle on the metrics that matter.
We have heard of one executive who uses a very low fidelity MVP to identify the initial price point. She then picks a number - say $50 thousand - , and asks a customer whether they are willing to pay that amount. Before the conversation with the next company, she doubles the price, until she hits the ceiling. She does this by talking to as many companies as needed, typically between 10 and 20. By overpricing and underselling, she can gauge the level of gain customers experience via the amount that they are willing to pay.

Read next: How to engage with users and with buyers.

Special thanks to Allen Bannon, Ryan Nichols and Riley Scott for their insights.

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Understand The Personas Of Users And Of Buyers

By Christian Dahlen & Oana Olteanu

To build a minimum viable product (MVP), it is critical to identify the end users and the person who benefits economically. In the SaaS world, the users are absolutely vital for adoption and retention, and user personas and buyer personas are often synonymous. In large and complex corporate sales, the end user may often have little influence in the sales process.

Key stakeholders in the buying decision - the decision maker or their key influencer -  should be sought out to become the executive sponsors. These sponsors should be developed into a buyer persona describe the ideal customer to help the product owner make decisions about the right marketing and sales processes.

The executive sponsors nominate the user whose job will be made easier by the product.  A deep understanding of the users needs and motivations is vital to define the MVP. A release can only be for a single persona at a time, and therefore it is just as important to decide who a release is for, and who it is not.   

Read next: The mechanics of engaging with the different customer personas.

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It Takes 10 Visionary Customers To Play The Game

By Christian Dahlen & Oana Olteanu

A product owner needs to work closely with visionaries to develop a product that will meet the need of thousands of customers and millions of users. In almost all cases, working with a single customer will result in a product which does not scale to other customers, with one possible exception: The first customer is a standard setting lighthouse customer in its industry segment; the ‘job to be done’ has already been widely adopted by others.

It is always difficult to recruit multiple charter users and customers without much more than a storyboard. If it is impossible, it is very likely that the product owner is chasing a problem that is not urgent or important. For teams in an accelerator program, finding enough customers within the prescribed three month period until the demo day can be major issue. For product teams in large enterprises, the pressure of a marketing driven release schedule often cuts short the time spent on customer development in favor of frantic engineering activity.

There is agreement that about ten customers in the target market segment is a good number to get to product/market fit. To get to ten actual customers, the team will need to talk to hundreds of people. Only a few dozen will be in the eventual target group, and less than 25 will have the appetite to move forward. Those ten customers will lead to about five reference customers that publicly state their use and satisfaction with the product.

Read next: How to focus on business outcomes and not features.

Special thanks to Allen Bannon, Ryan Nichols, and Riley Scott for their insights.

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Engage With Visionary Customers, Not Technology Enthusiasts

By Christian Dahlen & Oana Olteanu

In an early market, two types of customers often come through the door at the same time: The innovative technology enthusiasts, and the visionary early adopters.

Technology enthusiasts are always looking for state-of-the-art technology and are the gatekeepers to get to the visionaries. The challenge is that they may want to modify the innovation and invest more in new functions to address their specific needs, without regard to what the market wants or needs.

On the other hand, the visionaries see the value for their organization and have the financial means to pay for the solution: They feel the same pain as the general population, but with more intensity. These industry revolutionaries are looking for a breakthrough application that will give them a competitive business advantage. They exaggerate the value, but they can teach the value all the way down the line. Their importance lies in their ability to fund development as well as publicize it within an industry. The benefit for these visionaries is that they quickly get a solution to their problem.

The product owner needs to identify early visionary customers based on the characteristics of early adopters and the different personas. These early adopters can be found in the offline and online forums and communities of the relevant target market segments. Selecting the segments with the highest pain points is a good starter, and events for these segments are often a good way to demo a minimum viable product to identify initial  customers.

Read next: How many customers to talk to.

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How to Get To The Only Thing That Matters

By Christian Dahlen & Oana Olteanu

The only thing that matters for a new startup is to achieve product/market fit. Product/market fit has been achieved when the minimum viable product (MVP) has beta quality, is used in a similar way by ten customers, and the customer acquisition process is repeatable and scalable. For startups, building an MVP first has become commonly accepted practice. Increasingly, the methodology is finding its way into large companies where it can be equally applied to new products and to new versions of existing products.

It is the product owner’s job to pick a problem to solve, figure out how to solve it, and to understand how much the solution is worth to potential customers. The way to go about it is to create a product which sells to many customers and is delivered with the minimum amount of resources - the MVP. Ben Horowitz states that ‘Good product managers crisply define the target, the “what” - as opposed to the how - and manage the delivery of the “what” ‘. As soon as enough software is built to address that crisply defined ‘what’, release. As the old adage goes ‘if you are not embarrassed by your first release, you have waited too long.’

Product owners have been advised to listen to the ‘voice of the customer’ to build the MVP, and all product and customer development will magically take care of itself. In reality, the implied single voice of the customer often is a cacophony from many stakeholders, and distilling an MVP is not as much of a no brainer as it would appear at first. Building an MVP as opposed to just a minimal product is a continuing struggle, and getting to product/market fit often requires the product owner to make multiple iterations over several quarters:

The road map is clear: a product owner and her team need to push beyond just one customer and remain steadfast in their discovery of a viable product - the ‘what’.

First up: How to pick the right customers.

Many thanks to Allen Bannon, Manny Cortez, Chris Hallenbeck, Ryan Nichols, Karl Christian Roediger, and Riley Scott for providing input and feedback to this series of blog posts.

Photo credit here

Wednesday, January 14, 2015

2014 - A delayed reckoning, and more uncertainty ahead

2014 was supposed to be a good news/bad news type of year: More tech IPOs than in 2013, but a reckoning for startups facing the Series A crunch. Both pretty much played out as expected: The Dow Jones Industrial Index started at 16500 to close the year end at 17824, Alibaba went public in the biggest IPO ever in August, Whatsapp was acquired by Facebook for $22 billion, private unicorns like Uber, AirBnB and Box continued to raise hundreds of millions of dollars, and Zendesk, Lending Club, GrubHub, Hortonworks, HubSpot, New Relic were just a few of many notable tech IPOs. All companies that went public had been founded a decade ago or so, except for Hortonworks which was only spun out of Yahoo! in 2011.

Until 2013, round sizes increased, and second seed rounds emerged to stave of the Series A crunch. The largest seed rounds included VC participations and exceeded traditional Series A. While late stage fundings seemed to spiral out of control in 2014, it also appeared that valuations and overall activity on the seed funding side cooled off significantly. For the Band of Angels, the overall dollars invested stayed fairly constant, but the number of deals invested in dropped by half - consequently the amount invested per deal almost doubled.

Players in the seed funding game continued to evolve: Accelerators churned out start-ups at ever increasing rates, and the accelerators and their business model went international. The transaction volume on Angellist reached $104 million. The MicroVC market of super angels and freshman funds continued to expand and fill the gap towards Series A, although consolidation may be on the horizon already .

I spent more time on my existing investments versus seeking new deal flow. My own portfolio comprised nine enterprise focused software companies at the beginning of the year, where some had already raised second seeds and now needed to raise a substantial next round. Retailnext/Nearbuy (2010) raised $30m in July and Navera (2010) $8 million in October. I was reminded that getting to a minimum viable product is so easily said, and yet it is so difficult to achieve: Two of my investments (from 2010 and 2011, respectively) were able to get acquihired, and one (from 2013) closed its doors. The only real surprise was a McKayla Maroney moment when a seasoned CEO sent an email announcing that his company would have no cash left in two days. I do want to give a special shoutout to my Band of Angels colleagues Jack Carsten for taking the lead on restructuring of A6, Ken Arnold for looking for the crazy ones, and Carol Sands for teaching a world class course on being ‘The Effective Startup Board Member’ at Stanford.

Several spaces stood out as potential sources of new deal flow: Workflow and productivity tools, wearables, 3D printing, drones and associated systems, healthcare communications involving patients, nurses and doctors, social media marketing and advertising (still!), and HR applications. Three other broad trends: SaaS applications to every buying center, anything and everything as-a-service, and the continuing API-ification of software. Out of the 100+ companies I saw and the dozens I talked to, I ended up making three investments

  • Truevault offers healthcare applications a secure API to store health data in a HIPAA compliant way. Jason Wang started the company in June 2013 and was part of the  Winter 2014 Y Combinator class.

  • Secured3D’s encrypted 3D printing cloud allows centralized command and control of 3D intellectual property, 3D printers, and users. John Dogru is maniacal about product development, and his Estonia based development team is peerless.
  • 3ten8 helps mobile operators better understand and optimize their wireless networks and subscribers experience. Miro Salem drinks from the deep fountain of professional experience and is driven by the mission to make the mobile network world a better place.

I authored a dozen blog posts, mentored at the Alchemist accelerator, and shared my experience at the annual Band member workshop ‘Good outcomes and bad outcomes and the lessons learned’. My resolutions for 2015 are much the same as last year: Work closely with the teams, leverage my colleagues in the Band of Angels. and continue to build my network.

My outlook for 2015: caveat emptor. The tech IPO pipeline is still full, but the overall climate continues to be somewhat uncertain. The huge number of seed funds means that there are a lot of companies testing different things, and that there are many copy cats.

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Tuesday, January 13, 2015

Liberty and Vanity - Talkin’ ‘Bout A (Software) Revolution in HR

Until Peter Drucker’s seminal 1946 study of General Motors, organizations were seen as functionally organized, centralized structures based on the principles of a military hierarchy. In the 1960s, GM’s divisional model took hold. In the 1970s, large companies tried to address the challenges of the increasing business complexities by introducing a matrix structure. Yet today we know that power in organizations is less and less defined by their structure, but by the social networks inside a company. More than ever before, the relationships between companies, managers, and employees are undergoing fundamental changes. In addition, the boundaries between work and private life continue to be blurred. And last but not least, organizations are far more tightly integrated with their customers, suppliers and partners than ever before.

How companies contract with employees. In times of globalization and the information age, the traditional lifetime employment compact is giving way to a free agent model where employers are increasingly planning to use 3rd party employees. Salary, bonus, equity participation, employee recognition, health care, insurance, retirement plans, social security, perks, and sustainability are becoming ever more unbundled. Just to mention one example, the Affordable Healthcare Act is fundamentally disrupting how healthcare is provided.

What employees expect from employers. Employees are increasingly behaving like freelancers. To increase their own status and attractiveness to other employers, posting accomplishments on LinkedIn has become de rigueur. Employees are also expecting a ‘fair’ treatment, and by posting anonymized salary and compensation levels on Glassdoor they make it easier to assess their value in the market place. Social networks such as Facebook and Twitter are communication channels to the outside world to demonstrate that value. As Napoleon Bonaparte said “Vanity made the revolution; liberty was only a pretext.” Employers need to embrace this trend and enabled their employees to create, curate and share content for their company. Everyone is a marketer now.

How employees engage with each other. The rapidly changing nature of work makes lifelong learning and growth key elements for skill development; and knowledge based industries with flat hierarchies are leading the way. Functional silos are increasingly being replaced with project based collaboration. Internal networks of brokers and connectors are becoming more powerful than the line hierarchies. To wit, social networking software companies like Jive and Yammer have reached early adoption by directly engaging with employees without senior level awareness or approval.

We live in an era of unprecedented access to information, and companies are only beginning to grasp the magnitude of these revolutionary changes. For software companies and for startup investors, these these changing relationships provide massive opportunities. As Robespierre observed in the French Revolution: “The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant.”

Wednesday, January 7, 2015

Harvey Weinstein - God, Punisher, Boss.

Update: In October 2017 the New York Times published an investigation alleging that Harvey Weinstein sexually harassed women over a period of over 30 years. Weinstein was fired from his company on October 8.

Technology investing, like the movie business, is a hits driven business. But only a few people in the technology startup world can lay claim to even a handful of so-called unicorn exits with more than $100 million dollars in revenues. By contrast, there is one man who has been able to generate a string of movies grossing in excess of $100 million each. The man’s name is Harvey Weinstein.

Harvey Weinstein is one of the most charismatic and controversial personalities in the movie business. At various times, he has been called god, the punisher, or simply the boss. He has often been cited for his passion, his ambition, and his marketing prowess. His push to perfection has been described as unrivalled. Ken Auletta has portrayed Weinstein’s drive to become the Irving Thalberg of the modern age, willing to do almost anything to achieve that goal.

Leaving behind their early career as concert promoters, the Weinstein brothers started in the movie business by hustling to various European film festivals to buy the distribution rights to independent European art house movies. The brothers believed that international movies were underpriced assets: They had great story lines and talented actors, but lacked the distributions into the large U.S. market. Their first foray in 1979 turned out to be a complete flop: a soft-core porn film called Goodbye, Emmanuelle. At Cannes in 1981, they bought the rights to footage from an Amnesty International benefit. A year later, they launched this re-cut movie as the Secret Policeman’s Other Ball which became a major success in the U.S. The brothers continued to edit and distribute European movies, but the Ball remained their only hit for six long years.

Their situation only improved when a British venture capital firm invested $2.5 million in 1988. The brothers used the venture capital funds to continue buying more foreign films. The brothers also moved more heavily into production and acquiring scripts. When he lost a bid to buy the movie rights to "Ghost Soldiers," the best-selling book by Hampton Sides about the Second World War rescue of American soldiers from a Bataan P.O.W. camp, Harvey Weinstein decided to make his own movie based on a similar story that he had owned since 1999.

Harvey Weinstein is most infamous for his involvement in the editing process of recutting and rescoring the original director’s cut. Weinstein believes that a bad performance or a mediocre screenplay in a movie can't be fixed, but that it is possible to do a lot with editing and music. Martin Lewis, the producer of the Amnesty International footage, said of the editing process: ‘Eventually I succumbed. Harvey and Bob were like slave-masters in the best possible way. They drove me insane, and they were absolutely right on pretty much everything.It comes as no surprise that Harvey Weinstein has a love-hate relationship with many directors and producers, but he is well known to support his marquee actors.

Weinstein has also been credited with a finely honed understanding of movie audiences and segments.The Weinsteins learned their initial marketing lessons during the promotion of the Secret Policeman’s Other Ball. They had almost no marketing budget, but used the controversy created by NBC’s banning of the trailer with great effect. Today, Harvey Weinstein masterfully builds up anticipation for his movies during the annual calendar of Sundance, Academy Awards, Cannes, Venice, New York, Toronto, BAFTA, Golden Globes, and Screen Actor’s Guild.

Over 150 movies later, his movies have produced in excess of $11 billion in revenues.

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