Half Engineer / Half Business Guy

Starting Your Business And Becoming An Entrepreneur

Navigating This Blog

TABLE OF CONTENTS

  1. Moving Past The Idea
    1. You have an idea, now what
    2. Getting smart on the industry – resources
    3. Building your personal brand
  2. Presenting
    1. How to build your elevator pitch
    2. How to build your pitch deck
    3. Tightening up your pitch deck
    4. Building a screencast demo
    5. Where to get a pro demo animation built
  3. The Biggest Questions Facing Your Company
    1. The most important questions you’re going to be asked
    2. Customer acquisition is your biggest problem
    3. That dumb video is not viral strategy
    4. Choosing your target customers is not optional
  4. Fundraising
    1. Should you raise money, and from whom?
    2. Should you apply to an incubator?
    3. Technical aspects of raising money
  5. Building
    1. You need a technical co-founder
    2. How we built our engineering team
    3. Building a site using outsourcing
    4. When to start UI/UX testing
    5. Opinion: More visuals, less UI

You Don’t “Just Need Engineers”

As I’ve spoken to new business-side entrepreneurs recently (even those, like me, with advanced engineering degrees), one of the most frequently asked questions has been: “How do I build an engineering team?”

It’s a very tough question! In this post, I’ll describe my team’s experience.

REMEMBER – YOU’RE BUILDING A TEAM

When my co-founder and I decided to pursue Catapulter, we knew it was going to be a complex technology, so we couldn’t just run out and “find some engineers”. We needed to build a team.

For some perspective on what NOT to do:
http://whartoniteseekscodemonkey.tumblr.com/

Here’s how we did it:

  1. Ask Experts Who We Need
  2. Post Jobs & Network
  3. Interview
  4. Get Lucky (Networking & Perseverance Make Luck Happen)

WHO DO WE NEED, ANYWAY?

The first step was figuring out what the Perfect Team would include.

We had a good idea, but we wanted to defer to those who knew from experience. We reached out to as many people as we could find in the entrepreneurial community, to figure out what types of folks would really make the most sense to round out our team.

We met with developers, startup CEOs, VCs, and even a mathematician at Apple, and after a few meetings, we narrowed it down. Besides the fact that we knew we needed a talented CTO (see here why you need a technical co-founder), we specifically needed a mathematician / algorithm guru, and a CTO who could knock out the front-end, but also work with some heavy data processing on the backend.

JOB POSTING & NETWORKING

Now that we knew who we were looking for, we started networking and posting jobs everywhere we could think of.

The easiest way to find a high-quality co-founder is through someone whose opinion you respect.

We basically set up as many discussions as possible with folks in the entrepreneurial community, particularly developers, to find someone who might be interested. First, we asked friends who they knew, then asked those people who they knew. (Whether or not you find someone, you’ll definitely learn something!)

You may have the “perfect person” in mind…but the best folks usually have plenty of projects to work on. There’s likely going to be quite a bit of luck involved – who’s super-pumped about your idea, who happens to have the right experience, and who’s available.

Another way to find folks is by posting to job boards and email lists.

We received a number of quality applications through both entrepreneurial email lists like the Philly Startup Leaders and school job boards like UPenn’s. (We also got a lot of noise, so be prepared to screen!)

With school job boards, there’s a timing consideration based on when each of the various divisions of the school searches for jobs. It turned out that one specific engineering school was recruiting when we posted our Algorithm Developer position, and we received a huge number of applications from that group.

For tips on job postings / intro emails, check out this post from a Penn CS Major.

One important note: If you’re not a developer yourself, there are going to be some people who tell you you’re just a “business person”, you’re useless, and no engineer should ever talk to you. There are certainly folks for whom that’s true…just don’t let it be you!

INTERVIEWS

We found our first team member (our Lead Algorithm Developer) through a school job listing. He wrote one of the few cover letters we received (about his genuine interest in algorithms!), had excellent routing/networking experience, and was a leader going in. We interviewed a number of folks, but he stood out at the interview. He didn’t overpromise, he told us what he could and couldn’t do, but was confident that he could figure out anything.

And he freaking rules.

From the same job board, we found a few students who were interested in the CTO position. We ended up selecting one particularly energetic student before a final round startup accelerator interview…

GETTING LUCKY, PART I

In our interview, the partners of the accelerator gave us the business, and really pushed to figure out how talented our new teammates were. A few days later, our new CTO called and told us, without explanation, that he was out. Shortly after, the incubator called and told us they liked the idea and the team…except for our CTO.

At the time, we were bummed out. We were so close…but now we were a tech startup without a CTO! We didn’t realize how lucky we were to have another opportunity to find the right person.

In any case, we knew we needed to figure it out, FAST!

GETTING LUCKY, PART II

We hit the phones again, now networking with people we knew who already had great jobs. We knew it would be tough, but we also knew we had a fantastic idea, an awesome algorithm developer, and a real opportunity.

Running out of network, I called up one of my college buddies, a super-talented engineering classmate of mine who already had a fantastic job. There was no chance he’d leave, so I decided to ask if he had any friends who might be interested.

However…by an amazing coincidence, it turned out he had recently built a trip planning website in his spare time! AND he was the jack-of-all-trades type of guy who could knock out the front end but work on the heavy processing in the background. AND he happened to be casually looking to join a startup. Booyah.

That’s what networking gets you. You make your own luck. And now we had a CTO.

GETTING LUCKY, PART III

With the new team, we spent the summer at Betaspring building our alpha product and beginning to test with users. At this point, our database was rapidly expanding, and we wanted an experienced engineering leader to focus on managing the growth of our technology, and our growing data acquisition and storage needs.

Over the summer, we had continued to network and post on job boards, but hadn’t found anyone. We had been interviewing a number of candidates through the normal channels, but none really fit the team

Then one day, while cleaning out my email, I found one that had slipped past…

Well after we had selected a CTO and began at our accelerator, a really talented candidate who fit the bill had sent us an email. He had experience as VP of Tech/Product at other heavy-data startups, where he had guided nascent technologies through rapid growth.

It only took a couple of phone calls and a video chat with the writer of this email, but it was clear he was the man for the job.

PIECE OF CAKE, REALLY…

And like that, we had three killer engineers making up Catapulter’s core team.

The perfect team needed a jack-of-all-trades CTO, an algorithm developer, and an experienced data-processing guru and technology leader, and somehow we got them all.

The main take-away for me: you have to network, and you have to try everything. It took a ton of legwork, but as a result, we built the absolute perfect team.

It was totally worth it.

That Dumb Video Is Not A Viral Strategy

Viral Strategy is not, as the first few pages of Google’s results will have you think, a stupid video that gets 10M hits. Really amazing content can be viral…but is not strategy.

Viral means: Users will share your stuff.

Viral Strategy means: Figuring out how to influence people to share your stuff MORE.

Of course, the value of your product IS important. However, value is generally determined by the needs of your target audience and the ability of your team to create quality content. You’re not likely to completely change your target audience to try to influence virality, and you probably already strive for top content. I’ll talk more about value later.

The core of viral strategy is: There are 3 parties here: your company, sharer and recipient(s). The higher the benefit to the sharer and recipient(s), and the easier it is to share, the more viral you’re going to be.

The most important levers:

  1. Sharing Friction (Reach)
    1. How easy to share
    2. How many people reached per share
  2. Reciprocity (Drive Action)
    1. Can’t just help the company
    2. Must help sharer and recipient
    3. Drive action

Sharing Friction (Reach)

How difficult is it to share, and how many recipients are reached per sharing action?

Low Friction Per Share

One obvious example is YouTube, with its share button. Though the value of a funny video is debatable, hitting “share” and typing an email address or instantly posting to Facebook or Twitter is extremely simple.

Auto-tweeting for a user signing up with a twitter application is annoying, but it’s the ultimate in low-friction sharing. In fact, it’s negative friction (effort required NOT to share)! BTW – I’m not recommending this!

Low Friction Per User

Though it’s low-friction per share, an “email this” button may only reach a few recipients at a time. However, a Facebook share instantly reaches hundreds or thousands of users.

Ticket companies like TicketLeap are also at this end of this spectrum. It may take significant time and effort for an event organizer (the sharer) to select and set up a ticketing service, but when they send an event invite, it’s an instant share to every invitee and attendee (recipients), and TicketLeap (the company) reaches a huge number of potential customers.

Reciprocity (Drive action)

The real core of a viral strategy is that it incentivizes people to share your product, and incentivizes the recipient to act on the shared information.

A tweet may be shared with thousands of people instantly, but unless the viewer has a reason to, they won’t take action. The key is to make sure that your company isn’t the only party that benefits.

There are 3 parties here: your company, sharer and recipient(s). The higher the benefit to the sharer and recipient(s), the more viral you’re going to be.

In the graph below, I show a number of examples of highly viral companies, arranged by reciprocity (how many parties benefit). I’ve split this into two groups: “Need to Function” means the core product of the company requires sharing, and “Help Each Other” means the product can be used without sharing.

Viral Strategies 12Feb11 v2 1024x687 That Dumb Video Is Not A Viral Strategy

No One Benefits

A typical example of what’s NOT very viral is adding a “share this” button. Since it doesn’t necessarily help the sharer or the person receiving the link (only the company).

I Benefit

The sharer gets benefit by sharing. For example, Hipster recently got thousands of signups for beta testers, without anyone even knowing what they did. In order to receive a beta invite, you had to share a link to the site with at least 3 other people. The sharer received the benefit of getting closer to an invite – the value to the recipient was no more than a “share this” button.

You & I Benefit

Farmville (by Zynga) is a viral machine, and one of the key features of getting new users into the game is how they use invites. The game moves slowly so that in some cases, the only way to move ahead of the painful pace is to suck more friends in or pay extra!

To illustrate: once Jon realizes he has to get help from somewhere to advance in the game, the free way to do so is pull in a friend with the pre-worded invited: “Glenn – Jon just sent you a cow, will you help him out?”. Jon receives benefit from Glenn’s signup & future help, and Glenn feels an obligation to help out Jon, who’s already given him this free cow, and asked Glenn in public (on Glenn’s facebook wall!) to reciprocate. Don’t be a jerk, Glenn. Jeez.

Another interesting example is the file-sharing feature of Dropbox. In order for Glenn to send a file to Jon, he simply clicks “share”, enters Jon’s email address, and then Jon receives an email telling him to sign up as a Dropbox customer to receive the file. Both the sharer and recipient get value, and Dropbox gets its new user.

Many of You & I Benefit

This is a major factor that helped social networks like Facebook, Twitter, and LinkedIn take off.

When you first joined Facebook, it’s likely because you either wanted to see your friends’ pictures or what they were up to (content), or your friends asked you to join so they could follow you (more content). The more friends you have on Facebook, the more value it provides to you, so you try to get as many people 1) on Facebook and 2) actively sharing as possible.

This includes bugging people to post pictures and even the original “poke” to get them to respond and engage. “Likes” and “comments” on content are almost a goal in themselves, as people try to post valuable status updates or videos to get as many pats-on-the-back from the community as possible.

In the biggest examples of this model, the drivers tend to be the desires to increase content and get social approval.

We All Benefit

This is why Groupon is the fastest growing company ever. With Facebook, there is an unbounded problem: if more people share, you get a better experience. With Groupon, there is a light at the end of the tunnel – you know how many people are needed, and you know the reward.

Reasonable Goal-Setting: Imagine a boss saying “you’ll get paid more if you work hard for a long time” vs. “if you finish this blog post by tomorrow, I’ll give you $100″. It’s uncertain what the outcome is for the first request, but it’s pretty obvious what it would be for the latter.

Mutual & Broad Participation Required: Not only that, but you MUST share with a BUNCH of people NOW and you ALL get benefit. No one benefits if everyone doesn’t participate. Not only does the experience improve with more people, but if someone is asked to help, there’s an obligation not to ruin it for everybody.

Effective Customer Targeting: Furthermore, if a user is trying to get a deal on Groupon, he’s going to target the people most likely to sign-up for a particular promotion.

As you can see from all of these examples, there are a number of components to improving virality. In general, help both the sharer and recipient, and push them to act through some benefit and/or the desire for social approval.

OK FINE, “QUALITY” IS IMPORTANT TOO

…but I’d focus on Value Added.

This includes both the size of the audience (potential reach), and how much benefit do they get (quality).

Obviously, viral videos do well because they are quality (of some sort) content, that a huge number of people want to see. On the other end of the spectrum, a miracle drug for a serious, yet-unaddressed disease, doesn’t need a large sales force – those in need will find it.

Notes on value added:

  • It can be purely positive or anti-negative – Funny video vs. medicine
  • Narcissism adds value – “I like showing how awesome I am”
  • Giving adds value – “I feel good helping my friend” (or “I’ll get returns in the future”)
  • Value altered by timing – Send a link when a user needs the product

Conclusion

We’ve all heard about the usual suspects going viral with quality content, but I want to reiterate that Sharing Friction and Reciprocity are the unsung heroes of viral strategy.

While you’ve already determined your target audience and are striving to create quality content, eliminating friction and raising reciprocity can really boost your virality.

Have thoughts on what you think REALLY makes something viral? Good examples I should add? Let me know in the comments!

Building A Screencast (“Canned”) Demo Video

WHY WOULD YOU NEED A Screencast Demo?

There are many places you’ll want to live demo your product, but also a number of situations where a demo video will be preferable.

Examples include a walk-through video on your website’s front page for first-time users of your site, or an investor pitch before you’re comfortable running the working version of your product live.

At a very early stage, if you don’t have your web product built out enough to be viewed, but your product is novel, a screencast demo may be a good way to show an investor what your product “feels” like, rather than just giving them an idea. It’s much easier to fall in love with a product when you get to see it in “use”, rather than look at a screenshot or just have it described to you.

Just to make this demo, you’ll have to do at least some UI/UX design and testing, rather than just visual design. (In this post on UI/UX design, I describe various ways to mock up a site)

You Don’t Have To Hire Someone (wHEW!)

Fortunately, it’s actually pretty simple to do yourself with one of a range of tools built specifically for screencast creation. Paid tools I’ve been recommended include Screenflow, Camtasia, and iShowU.

However, I went cheap-o, and loved the results: Screencast-O-Matic. It’s not the most beautiful website I’ve ever seen – but $9 for a year with the Pro account did the trick. The best thing about it (aside from the name) is the simplicity of the interface. It’s got just a few features, and they are the exact ones you need.

Unfortunately, the microphone on your computer sucks, and it will be very obvious you used it when you crank your demo volume up for a room full of listeners and you’re bombarded with whirrs and buzzes. Get a decent mic for your demo (if you’ve got a solid headphone/mic combo this can work too).

What should you include?

In total, your demo should be between 1-2min. You should show:

  1. The Core Features that define your product. E.g. if it’s a travel search, show travel search, which is: Enter city, enter dates, hit “Search”, get results, see detail and buy
  2. The Wow Factor – Make sure this is a real “Wow”. Don’t go crazy here showing a bunch of mediocre details, which happens WAY too much. Pick a couple of killer moves. E.g. Show a truly amazing deal your site can find, or some feature that no one has yet.

You’re going to want to add detail to show everything that you can do – but that’s for the next meeting and the next demo. Don’t BORE them! VC Mark Suster puts it well:

“DO NOT make it a features & functions presentation. Unfortunately most people do…Lame. You’re showing them features, not value. Value is when you frame the demo in terms of why it solves somebody’s true pain point.”

The best way to get this down to the core points is to write a script. If you just try to walk through your site on the fly, it’s easy to show too many features, and not hit your points hard. Write a script, then reduce it down to the Core and the Wow Factor, and expect to record multiple times and refine.

My final tip here – talk while you’re recording the visual part of the demo to keep pace, but voice it over later. You’ll sound much better.

BE EXCITING

As Mark Suster mentions in his post, there are a TON of bad demos out there. Avoid walking through your product and checking boxes with a monotone “and then you do X, and then you do Y, etc.

Content:

The best way to build your demo is to build it like your pitch. Don’t just tell your listener what’s happening next, make them WANT that next step. Describe the problem, and help them feel the pain point your product solves. They should think “Damn, I really want to fix this…but how??

(If you’re giving an investor presentation, it should be woven in with your deck, where you present the problem, a description of your solution, then show your demo.)

In addition to the overall reason for your product’s being, you should be clear why you’re doing every little thing you’re doing in the demo. Don’t say “I’m doing X, now Y – instead say “I’m doing X, because I want to Z – and BOOM, there’s what I wanted”.

Style:

This is your product that solves this MASSIVE problem and is going to make A BILLION DOLLARS. Be excited about it for goodness sake! You don’t need to be a monster truck commercial, but avoid the monotone.

I also recommend using a bit of humor. Even the coolest product can have a boring part that needs to be shared. One that comes to mind is logging into your bank account with Mint.com – if I was investing, I’d want to see how you connect a bank account, but once I realized what was happening, I’d tune out as the presenter fills in some form. It’s a good time to crack a joke, make people happy and get the blood circulating.

MAKE IT BIG, FOCUSED, AND CLEAR

This is where the program you’re using really helps out. I have seen a ton of demos where people bring up their website on a huge screen, and absolutely nothing is legible to the audience. This makes for an incredibly boring demo, and people will quickly start checking email and ignoring you.

  • Big – Zoom in on the detail you’re talking about so the font is very readable, and the parts of your site that are unimportant for what you’re saying go away. However, you should leave some of “the rest” visible, so people still feel the context of your site
  • Focused – “Gray Out” the area around your focus area so people don’t get distracted by all the other fancy features still on-screen
  • Clear – Don’t show a bunch of power-user moves, keep it simple

As Always – Test And Refine

Just like your product, your pitch, and the rest of your deck, you should always test your demo with others and incorporate their input.

In particular, figure out which pieces of the demo don’t make sense to them, what they feel is missing, and – most importantly – watch their body language and figure out when they get bored, then make those sections better or remove them.

You Need A Technical Co-Founder

NO, YOU CAN’T JUST OUTSOURCE

If you’re starting a tech company, you need a technical co-founder.

Without one, you won’t be able to build your company. In addition, you won’t be able to raise money, because investors know how important it is to have a technical founder on the team.

There are a long list of reasons, but here I’ll make like an entrepreneur and show you the problem, then give you the solution.

Let me start by addressing the most common issues, usually preceded by:

“Sure I can start a tech company without a tech co-founder, I’ll outsource!”

PROBLEM: OUTSOURCING = MISALIGNED INCENTIVES

While outsourcing a website is possible, the incentives of whoever you’re sending work to is often the opposite of what you want.

Even for the most expensive contractors, their incentives are:

  • Do the least work possible while getting paid
  • Take longer than you want, if it means they can get paid more

Even a great provider has these incentives – they’ll just act on them differently. The best folks do work quickly to earn repeat business, and don’t charge for hours above their estimate. However, until you’ve had experience with someone, it’s hard to know how they’ll treat a job.

At Catapulter, while some of our contractors worked hard to earn repeat business, others did a quick, messy job and then demanded further hourly payments for edits. To be fair, that’s the lowest of the low, but it absolutely happens, particularly when you’re paying bottom of the barrel prices (common for early, low-cash startups).

(See my post on not getting screwed by outsourcing)

SOLUTION: TECHNICAL CO-FOUNDER

Above, I said that some of our contractors did a bad job. If we didn’t have technical co-founders, we wouldn’t even know it!

Fortunately for us, these were quick jobs, and we could afford to lose the $100 we paid. What if we had gone the outsourced route with a 3-month, several thousand dollar job, with no one to look over our contractors’ shoulders? It would have been a tough spot.

The reality is: you need a technical co-founder you trust. Someone who is not trying to make money from you, and wants your company to succeed.

Your Technical Co-Founder Will:

  • Screen and manage
  • Integrate
  • Do it the right way
  • …and, surprise – code!

Screen and Manage

If you’re non-technical, it’s very difficult to manage technical contractors because you don’t know what they’re doing, or how they need to interact with other contractors. Your technical co-founder will understand how the pieces fit together, and make sure that different components can actually integrate.

Also, you shouldn’t expect every contractor or even employee to be able to problem solve or think pro-actively. You’ll need to give guidance and feedback constantly, and if you’re not technical, you won’t be able to do this correctly by yourself.

Integrate

If you outsource components, they’ll have to be integrated. Integration takes an immense amount of time, and it’s not something that can be tacked-on to the end of a job. You’ll want someone internal to guide this process (if not do it completely), to make sure it’s done right.

Do It Right

As I mentioned earlier, a contractor is interested in completing the job, and maybe getting repeat business, not making your site as elegant and easy to maintain as possible. Your technical co-founder will want to drive this process, to make sure your site is being built in a scalable, updatable, low maintenance way.

Code!

Building a website is not easy. There are many moving parts, and there’s always something that needs to be fixed, changed or updated. You want someone on your team who you can count on for emergency fixes, to fill in the gaps between contractors, or add that one last little feature before the next release.

AND MOST IMPORTANTLY, THEY’LL STICK IT OUT WITH YOU

If you fully outsource your website, the folks building the website are doing it for a paycheck. If you stop paying the bills, they’ll stop building the site.

If you’re a new startup, you’re probably not loaded with cash. You want to find someone who’s going to stick it out with you when the going gets tough, and continue to move forward if you hit a rough patch.

How To Make A Pitch Deck More Awesome

In a previous post, I detailed how to create the content for a killer pitch deck. In this post, I describe some of the more technical aspects of refining your deck, and how to make it sharper and harder-hitting.

USE THE “NO THINKING RULE”

Your audience should think about your deck as little as possible…they should only be thinking about your ideas.

Of course, you want them thinking about how much money they can make, or which portfolio company you could partner with. However, any time they’re thinking due to technical aspects of your presentation, it’s time they’re not listening to you, and making decisions internally that could hurt your credibility.

The “No Thinking Rule” Has 4 Parts:

  1. Tell a story
  2. Show, don’t say
  3. Keywords only
  4. Remove sticking points

Tell a story

Every slide should work together, and no one should ever have to think “why is this slide up?” You should be able to remove the slide content, say the title/main point of each slide in order, and be left with a cohesive, complete story.

After you’ve written each slide, make sure that the main point you thought about while creating your story is the obvious take-away, and hits quickly. If not, go back and refine.

Show, don’t say

Any time you can show something with a picture instead of words, do it. Examples include:

  1. Separate groups on a page visually – Who wants to read a 12-bullet laundry list?
  2. Use logos/icons to replace names/words – You’ll get your point across faster
  3. Use graphs to replace numbers – Numbers (especially relationships between numbers) are often easier to understand visually

Keywords only

You shouldn’t be writing prose, just include the important words. Instead of “Google’s specialty is spinning products out of large scale data aggregation and processing projects”, put a Google logo next to the words “Large Scale Data Aggregation”, and voice-over the rest.

Remove sticking points

Don’t distract your audience! You know when your computer freezes, and you get a “Not Responding” or a Beachball Of Death? It can happen to audience members too if you give them sticking points like these:

  1. “You’re wrong!” – If you write “Google sucks at search”, people will stop listening and start thinking of all the reasons you’re stupid
  2. “I have to do math?” – Only put numbers that directly relate to your point, or really simple, clear math. Don’t force your audience to make a mental leap
  3. “What is that?” – One confusing bullet point on a slide, such as an unfamiliar industry acronym, can distract an audience member for the entire slide
  4. “Did he mean…?” If a word you choose has a second meaning, particularly a dirty meaning, don’t use it. Even the grown-ups in the room will get distracted, even if just for a few seconds

Conclusion

Following the “No Thinking Rule”, you’re going to have a much more effective pitch deck. Your communication will be clearer, so your audience will waste less time getting distracted and have more time to focus on your story.

(This was a description of a deck’s more technical aspects – for the content of a killer pitch deck, see my post here.)

Choosing Your Target Customers – Not An Option

Having now experienced two incubator classes and meeting an amazing number of entrepreneurs, I’m still surprised at how often I meet folks who have made significant progress on their ventures, but haven’t even discovered their target customers.

Ok – I get it. There are a lot of places your product can be used, and you won’t really know where it will catch on until you launch. However – you have to make an educated guess and TRY before you find out which market will work.

Dwight Eisenhower once said “Plans are worthless, but planning is everything,” and this is a perfect example.

Depending on your chosen target audience, you will change:

  • Marketing Strategy
  • Product Features
  • User Interface

…and not just by a little.

Depending on whether you choose between a market of internet-savvy young professionals vs. disconnected elderly, or consumers vs. businesses, you’re going to need to make major changes in your product and strategy.

A real example of two groups of customers we’ve looked at: Imagine creating a travel site targeted at i) businesses that sell to seniors vs. ii) direct to young consumers. The content, user interface, and marketing strategy are all entirely different, and building out and executing each will take months.

If you figure out your target customer before you build, you’re going to build a better product and a better company.

HOW DO YOU FIND YOUR TARGET CUSTOMER?

To get started:

  1. Brainstorm on the potential customers (market segments)
  2. Size of each potential target segment
  3. Assess intensity of need for each segment
  4. Is the segment addressable?

Brainstorm – I recommend getting all of your ideas on a whiteboard, powerpoint slide, or your chosen visual medium. It’s a good way to organize your thoughts about what is likely a large number of options.

Size of the markets – This could be a whole post in itself, but the key points are to keep your market size estimates simple and understandable, and use clear and backed-up numbers that directly relate to the segment you’re examining.

To make the right decision, you need to find a market size that’s directly related to some mix of revenue, profit and timing. Don’t fool yourself by leaving out steps (e.g. 100M potential customers is meaningless if your expected profit per customer for the next 10 years is measured in pennies).

[Number of customers] x [number of uses per year] x [amount they pay for similar solutions] is one set of data that will get you to a reasonable estimate.

In some cases, you may not be able to get a market size, but at least you can find metrics about a market that you can compare with other markets you do have more data on.

Intensity of the need – Independent of the size, how much does each segment’s customers need the product. One good analogy that I’ve mentioned in previous posts is:

  • Vitamins – Your customer doesn’t need this or know they need this yet. (E.g. Foursquare – Still arguable if this is useful, but has a huge audience)
  • Advil – Customer has a mild pain point, your product helps. (E.g. iPod – Couldn’t carry all your CDs)
  • Morphine – Customer has a major point, you solve. (E.g. Online flight search – Took hours and pain to plan a trip, or paid fees to travel agents)

Is the segment addressable? – Once you’ve figured out which large, profitable, market segments exist, you’ll need to figure out which ones you can actually address.

As one example, a group of entrepreneurs I know once looked into building an online university in a developing country. The market was growing rapidly, and potential customers were crawling over each other to get access to the current offerings.

However, it turned out that actually reaching that market was going to be too difficult for them, based on 1) laws governing businesses and even school accreditation, 2) language barriers, 3) cultural feelings toward education, both on and offline and 4) absolutely no understanding of the online market or how to navigate the online community to reach customers. Despite their initial excitement, they ended up passing on the opportunity.

A final word on assessing potential market segments – This is a simple, structured way to start assessing potential target markets. However, there are plenty of strategies – e.g. acquiring low-profit users first to eventually reach high-profit users – that may suggest you choose a different course.

In addition, as you grow your business, you’ll eventually have to tap new markets.

What’s important about this framework is not that it gives you “The Answer”, but that it helps you frame each market and understand your opportunity. After this assessment, you can make strategic decisions – and if your strategy starts off by acquiring small numbers of unprofitable customers, you’ll be able to explain why.

NOW THAT YOU’VE TAKEN YOUR SHOT AT IT – GET FEEDBACK

This is one of the most important themes in entrepreneurship. No matter how smart you are, or how long you’ve worked in your industry: Make sure you ask for advice and feedback as much as possible. (And make sure you include people outside your company.)

Even though you and your team may have an opinion on the proper target market, it’s likely that other people, including potential investors, will be able to refine your logic, target weak points in your analysis that you can improve, or come up with ideas you’ve never thought about.

Treat this feedback like a survey, and aggregate the advice you receive to make decisions on your target market. Whether or not this actually causes you to change your direction, you’ll at least begin to understand the key questions that outsiders have on your business, so you can be better prepared to answer them in the future.

NOW THAT YOU’VE GOT THAT SETTLED – PROVE IT

To further support your selection of target market, you’ll want to find proof. Whether or not you intend to raise money, you’ll want to at least prove this to yourself (after all, you’re investing a lot of time and probably a high percentage of your net worth in this).

There are many ways to find proof, some of the big ones are:

  1. Survey – You can pay for Facebook surveys by demographic, or build a simple survey on the free version of a service like SurveyMonkey and email it to folks in your target audience
  2. Get people to sign up for something – Before you’ve even built a product, you can build a simple landing page with a platform like Unbounce, that gives users a description of your product/service and a place to sign up for beta invites/newsletters. If you can get huge numbers of signups with no product, it’s often a good sign the product is worth building
  3. Other tests – You may be able to create a specific test that illustrates the need for your product. For example, creating a popular twitter feed or email list that responds to requests for a certain type of information could show that there is a market for a paid product providing that information

Just remember, while the target segment’s need for the product may seem very obvious to you (e.g. if you’re creating a service for college students while you’re in college), it won’t be obvious to people who aren’t in your position and don’t spend all day thinking about your business.

Building your product and making it successful will take time, and it’s likely you’ll want to make a partnership or raise money before then. Make sure you find some way to show others why you’ve made the right choice.

…AND NOW YOU CAN BUILD

Once you’ve figured out your target customer, you can design your product, UI and marketing strategy around them.

One good way to help your team stay focused on your target segment is to personify the various customers within that segment. Select pictures, give each a name, and write a blurb describing who they are and why they need your product. Post their pictures on the wall, and bring these personae up as you design new features and strategies.

For example, if you are building a restaurant review site targeted at wealthy young male professionals, find a picture of a twenty-something in a suit, name him Stefan, write up a bio about his job at Goldman and his European girlfriend, and make it clear that he prefers his restaurants to be new, expensive, and next to a certain type of club. At the beginning, you may make pretty major assumptions like these, but as you continue to learn more about your customers, you can continue to refine each persona.

This makes it much easier to think specifically about whether Stefan would be into your new feature or service, rather than the sometimes nebulous concept of “our users”.

REALLY, IT’S IMPORTANT TO ALL ASPECTS OF YOUR BUSINESS

Choosing your target customers and building specifically for them will help clarify the goals of your company, and help you build a clearer story about your business for future customers, partners and investors.

Getting Smart On The Entrepreneurial Community

When you start out as an entrepreneur, one of the first things you’ll want to do is understand the entrepreneurial landscape – in particular, where to turn to find answers to the millions of questions you’ll have.

Though this isn’t fundamentally different from many other professions, I wanted to give a rundown of sources and strategies that will help you quickly immerse yourself in the startup world.

IMMERSING YOURSELF IN THE ENTREPRENEURIAL COMMUNITY

Where to turn:

  • Local Email Lists
  • Twitter Lists
  • Individual Bloggers
  • Larger News-Blogs
  • Quora
  • Mentors & Peers

Local Email Lists

One of the first things you should do is sign up for StartupDigest in your city. It’s a curated list of entrepreneurial events in many major cities, and you can use this as a basis for finding networking events and discovering which are the major entrepreneurial groups in your city.

For example, organizations that sponsor a good number of events in Philadelphia are the Philly Startup Leaders (PSL), Philadelphia Area New Media Association (PANMA), and co-working space Independents Hall.

Sign up for the email lists of what appear to be the major groups in your area and those you’re interested in – it may be a firehose at first but you will at least get a feel for what is and isn’t helpful to you (that’s what email filters are for anyway).

For example, the PSL email list is easily one of my favorite entrepreneurial resources in Philly. More than any other email list I subscribe to, PSL’s members are never shy to shoot questions out to the group, or hesitant to share their own experiences and solutions.

Another way to find local groups and events (though it’s not focused solely on entrepreneurship) is to search Meetup for entrepreneurial groups in your area.

Twitter Lists

One of the most important things to do, when you first start out, is figure out who are the big names in your industry. One good way to do this is to find Twitter lists with titles like “[Your City]-entrepreneurs-and-vc”. A good starting point is to find the leaders of the local groups I mentioned in the last section, and check out what lists they’re on.

To get started, I recommend checking out Mass High Tech writer Galen Moore’s @galenmoore/vc list.

(This, of course, assumes you’re on Twitter – which is an important piece of building your identity in the entrepreneurial community.)

Blogs

The startup world changes quickly, and much of the best and most up-to-date information is contained in the minds and blogs of the industry’s thought leaders. You’ll hear “check out this blog post by Fred Wilson” much more frequently than “check out this book”, by entrepreneurs and investors alike.

Here are a few frequently referenced, reputable blogs that I recommend:

If that’s not enough, you can take a look at OnStartup’s Top 40 Startup Blogs

Pro/News Blogs

As opposed to the more personal blogs listed above, the following blogs are well known, and more like traditional news sources:

  • TechCrunch – The best place to read breaking news on new startups, heavier bent on the west coast. Very well known, often gets great guest posts
  • VentureBeat – Similar to TechCrunch, but with a little less attitude
  • Inc. – A magazine (not a blog), but a great online resource for entrepreneurs, from general startup success stories to management and financial advice

Quora

Quora is a good place to shoot out questions about startups, and receive answers from other individuals, often reputable members of the entrepreneurial community. It’s basically a vastly better, tech-heavy version of Yahoo! Answers.

You can ask or search for any question you like, and topics range from high-level to company and even event-specific answers, e.g.

  • Should I develop my site with Java or PHP?
  • Who are the most prominent Super Angels in Silicon Valley?
  • Why did about.me sell so quickly?
  • Is it bad to follow too many people on Twitter?

Mentors & Peers

Though I’ll go into this in more depth in a later post, one of the most important ways you can get up to speed quickly is through mentors and fellow entrepreneurs.

Mentors can be investors or serial entrepreneurs with decades of experience, or they can be friends three months into their first startup. Building a company is an incredible learning experience, and anyone who’s spent significant time working on a startup is bound to have useful advice for a new entrepreneur.

If you’ve got a great business plan and a little luck, applying to an incubator is one of the best ways you can quickly build up a huge number of outstanding mentors, and get workspace among a group of peers building their early-stage startups.

So Get Going!

Starting a business is both extremely fun and extremely hard, and one certainty is that you’ll have a ton of questions. I recommend getting comfortable with the resources I’ve mentioned above, so when you do need an urgent question answered, you know where to turn.

Welcome to the community!

The Most Important Questions About Your Startup

Preparing your elevator pitch and pitch deck are going to help you fill out your business plan, and start to understand the core aspects of your business.

However, there are other questions, that aren’t directly assigned to a slide in your deck, that you’ll need to think through early on. Some will arise as typical follow-up questions after each presentation you give, and some will need to be addressed before you can successfully complete your deck.

THE MOST IMPORTANT QUESTIONS ABOUT YOUR BUSINESS (That aren’t in your deck)

I won’t get into answering all of these now, but here is a list of questions – in addition to those specifically assigned a slide in your pitch deck – that you’ll likely need answers for as you tell people about, raise money for and build your new business.

  1. Who is your target customer and why?
    • How will this shift over time?
  2. How will you acquire customers?
    • Already in the deck, but one of the most fundamental and complex questions in starting a business. You’ll need to go deeper than what fits on one slide.
  3. Why will someone pay you for this?
    • You’ve described how you intend to make money, but why do you believe it will actually happen?
  4. How will you scale your business?
    • When you hit 10k, then 100k, then 1M users, how will your technology/infrastructure hold up, and how will your strategy/customer acquisition tactics change?
  5. Why will your product be chosen vs. a competitor’s?
  6. And every entrepreneur’s favorite: Why won’t Google do it?

In addition, there will be a few questions specific to your industry or company that people will typically ask after you present. The best way to learn these quickly is to practice pitching and presenting your deck to folks who know your industry or the startup world well.

If you’re going to present, be sure to think through these questions ahead of time, and make sure you have clear and concise answers prepared. You may not have to go into major detail, but you don’t want to leave folks remembering an “ummm…” that hurts your credibility and suggests you haven’t fully thought through your business.

What questions am I missing? Let me know in the comments so I can continue to build up this post.

Writing Your Pitch Deck

Building a pitch deck is one of the best ways to make sure you’re answering the key questions about your business. There are a few standard formats you can use to make sure you cover the most important issues, one of which I will share a variation on later in this post.

Most importantly, make it short and sweet!

Would you want to sit around watching a presentation with a thirty page powerpoint deck? No. Now imagine if you were a VC and looking at decks was a major part of your job. They have even less tolerance, so don’t bore them!

Your deck should be 10 slides or less.

One good rule of thumb is Guy Kawasaki’s 10/20/30 rule: your presentation will be an hour, so it should have 10 slides, you should expect to present for 20 minutes (leaving 40min for discussion), and have no font smaller than 30pt (your audience shouldn’t be reading, they should be listening to you). Guy’s blog post on the subject can be found here.

Full disclosure: I don’t necessarily stick absolutely to the 30pt rule. In some cases, you can be concise with something smaller. (To learn more about making a deck awesome, you can read more detail in my post here.)

Another suggestion, from Fred Wilson, is to whittle it down to six killer slides. If you can communicate your business well in six slides, do it, but I would still recommend starting with a standard ~10 slide deck to help you think through the key issues of your company, then refine.

THE TEN SLIDE PITCH DECK

There are many variations on this theme, and two folks who often receive credit for this structure are Guy Kawasaki and David Cowan. (I’ll let them duke it out). This is my variation.

The Deck:

  1. Cover (contact info)
  2. Problem
  3. Solution
    1. Good place for a demo
  4. Business model
  5. Why you?
  6. How will you get users?
  7. Competition
  8. Who are you and why will you kick everyone’s butt?
  9. Timeline / milestones
  10. The ask (and routing #)

Cover page

On your cover page, make sure to include your name and contact info. Make this really clear so the audience remembers you and can reach you again.

Problem

As I mentioned in an earlier post on creating an elevator pitch, your audience isn’t sitting there thinking about how much they need your product. Your goal here is to set the stage so the audience gets emotionally involved and thinks “I wish somebody would DO something about this!” and your solution scratches their itch.

Make sure that your audience can relate to your problem statement. For example, the investor you’re speaking to may not “like, totally hate it when he can’t post his class notes to just his boys on his tumblr”, but will understand how painful it is when he can’t send a powerpoint deck to the LPs invested in his fund.

Finally – I recommend trying to be entertaining here. Presentations can get boring, especially if you’re a VC who listens to similar pitches so frequently. Make them laugh, make sure you give them something they can relate to emotionally, and jolt them out of slide monotony!

Solution

A description of what your product does to solve that problem.

Make sure this is concise and clear (for pitfalls, see my post on elevator pitches). Preferably, use visuals to make sure this hits hard in one glance, rather than making the audience read bullet points and think to put it all together.

Solution, Part II – Demo

During this slide, or just after, is a good time for a demo or screenshots. It’s good to show that you’ve made progress, and it will likely answer a lot of the “how will you do X” questions your audience will have.

Make sure your demo is quick and snappy. Don’t make a 3 minute video describing all your features. Test your video with people ahead of time and watch when they get bored. Then speed these parts up or remove them. This should be 1 or 2 minutes max.

Business model

This is the slide where you tell people how you’re going to make money. I recommend also including a market size or some data implying the market size.

However, don’t put a bunch of boring stats – your market size should pop (a chart, visual or large number). If your numbers are not impressive, find numbers that are, or you may have a larger problem than slide creation.

Obviously, you also need to put your business model on this slide. One of our mentors, Chris Savage (CEO of Wistia) said it best:

“Really, an early stage startup is an exercise in finding the business model. The next step is an exercise in scaling up as quickly as possible.”

As a result, you’ll probably have more than a few ideas for business models. Include the most compelling ones, as long as they have significant and realistic revenue potential. You want to show that your company has different paths to success, and that you’ve thought ahead to future revenue streams.

Why you?

This is where you describe your special sauce. Whether it’s a description of proprietary technology, or some other competitive advantage, you want to make sure your audience knows why you’re going to crush it.

How are you going to get users?

You may have a great idea and product in the works, but your customer acquisition (marketing and sales) strategy is one of the most important questions you’ll answer as you build your company.

In short, don’t tell people you’ve got Twitter and Facebook accounts, a lot of friends who would use it, and are going to get written up in TechCrunch, because this is code for “I don’t know anything about entrepreneurial marketing”. See my post here on customer acquisition for ideas.

Competition

Another red alert for investors or other entrepreneurial audiences is “we don’t have any direct competitors”. No one will believe you don’t have any. Almost every “new” business is a variation on an old theme, and these slightly different businesses are usually your direct competitors.

Describe the competitive landscape on this slide. Make it visual if possible, and be very clear about how your company and other industry players are different.

Who are you?

Here’s where you show how much your team kicks butt.

Don’t write full prose bios on here – just the interesting stuff. Names of previous startups, money raised, prestigious companies/schools/awards, etc. You want your audience to see a bunch of impressive words, not sentences to read.

This is also a good place to list advisors you may have.

One of the things an investor will be trying to understand on this slide is which skills your company is missing – whether it’s industry or functional (e.g. marketing, strategy) expertise.

Advisors or mentors with expertise in your industry or with skillsets where you are lacking are major assets, because they strengthen you where you may be weak, and their place on your team shows that you’re self-aware and willing to find and accept help where you need it.

Timeline / Milestones

This is where you show your investors your progress, what you expect to do, and what are your upcoming milestones.

This will give investors an idea of where you expect to be in a few months or years, and this information is valuable to help them understand:

  • …what their investment will return before the next round of funding is raised
  • …value inflection points and other times when investment should be discussed/made
  • …whether you understand how to set realistic goals

What you need, what’s next

Note: This can sometimes be combined with the previous slide.

You need to be able to tell an investor how much money you’re raising, for what uses, and how much they’ll get in return.

Your slide may only have a high level description of uses, but you should have a good idea about specifics (e.g. salaries, types of marketing you’ll spend on) to voice-over or respond to questions. As for what they’ll receive in return, this doesn’t necessarily need to be in writing, because it will be a negotiation, after all. You should be prepared to tell an investor how much equity they’ll receive, and in some cases (angels more than VCs), what kind of return on investment they’ll get. My post on technical aspects of raising money may be helpful here.

(If you want to go brash, I’ve read many VC blog posts suggesting that they’d like to see routing numbers or PayPal accounts on this last page, though I’ve yet to hear a specific successful story using this tactic.)

PRACTICE, KNOW WHAT TO EXPECT, AND BRING BACKUP

As I suggested in my elevator pitch post, you should practice your presentation of this deck in front of as many people as possible, get their feedback, and refine.

When you do this, you’ll begin to get used to 1) where you’re not comfortable and 2) which follow-up questions you’ll typically be asked.

To fix #1, just practice more!

To help out with #2, I recommend building backup slides on the questions you’re frequently asked. This will let investors know that you’re well prepared and that you know your company’s key issues. It will also make sure you’re not left giving a credibility-lowering “ummm…” that could have easily been prevented.

Good luck!

(For advice on making your deck more awesome, see my post on the No Thinking Rule here.)

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