Category Archives: Company Culture

Startup Validation – Ignore This at Your Own Peril

Plan A better

I see this mistake all the time… Build your product and automatically customers buy it at the exact price you originally intended.

Wrong.

Many entrepreneurs make a fatal mistake of believing that just because they see the vision and value for a given product, the rest of the world, or at least enough market share to support their company, will see the same. This could not be further from the truth. Now in some cases, people and companies get lucky, but we may as well not deal with luck here, rather solid market insight which should provide a more predictable outcome.

Test Test Test

When you are thinking of launching a product, and you’re in the visionary state, begin to discuss the idea with some trusted, confidential advisers. Find smart business people who can give you their opinion on whether or not it’s a good idea, or will suggest changes that might make it a great idea (I have a whole section on advisers and advisory boards here). I find entrepreneurs are very protective of their intellectual property, which is justified in many cases, but when you’re thinking about whether or not a product will work in the market and sell at the price you need to justify your margin, you need to figure out if this is feasible ahead of time. Entrepreneurs that go about it backwards, launching, taking capital, hiring (and thus taking on liability), and find that their product could flop in the market.

Once you have run your ideas by your initial advisers, and you’ve received enough positive feedback  to proceed, the next  and immediate step should be to reach out to prospects and ask them if they would have a confidential, early-stage conversation with you. Talk with your would-be customers to understand if your product is going to add value, and even better, what changes or enhancements should be made, and what price is acceptable?

Don’t Fool Yourself

One of the biggest mistakes I see with entrepreneurs is even if they get the product right, they don’t have any indication of what the customer will pay. It’s easy to fool yourself when customers say they would love to have it. It’s harder to fool yourself when after customers say they want it, you then ask them if they’re really willing to pay the price you want to charge. Everybody wants the Ferrari, but most don’t want to pay the cost. So you have to be careful here. When asking for feedback from your prospects, be sure to discuss pricing. Tell them that it will be X amount to purchase the product, or per month or per year, and really understand if they are willing to pay that price for that value. Many entrepreneurs don’t want to have this conversation because they aren’t sure how to do it.

Make It Hypothetical.

Ask them in a manner that allows them the ability to creatively imagine how they would use the product and subsequently ascertain the value, and then compare that to the cost. Something like this might work, “suppose I could bring this widget to you that would change your life in this way. It would make it much easier and less expensive for you to do business, and it would have a return on investment estimated at this. Would you pay $1200 a year for that?” By using a supposition, the customer feels relieved that they don’t have to commit to anything because it is all imaginary. However the insight you gain is valuable.

Ask Enough People

Be sure that you take the above scenario to enough customers and advisers to gain the feedback you need. Using social networking or business networks like LinkedIn, reach out to people and ask for a phone call or presentation. Don’t rely on email to gain your insight as it’s impersonal and asynchronous. But rather talk on the phone or meet in person because you might learn more through the customers intonation and tone, than you will from their words.

Competitive Information Avoids Competitive Decimation

Or, we find that we have a great idea for product but we didn’t know that a company like Google might be developing the same just to launch it for free. Look at what happened with digital maps and mapping. Google Earth, and Google maps essentially put many companies out of business. By giving away mapping for free and then integrating it everywhere, mapping companies got blindsided. I’m going to guess, and I don’t have proof, that there may have been some mapping companies that were thinking about launching right around the time that Google gave maps away for free. I’m hoping that those companies sought advice, and made the appropriate changes so that there wasn’t significant loss.

By testing in the market, and speaking with your advisers, you may gain competitive information which would lead you to a new approach for your product, or may have you scrapping the product altogether. You’d be amazed at what your customers or potential customers might know about other solutions. Your advisers may have insight on potential competitive products.

 

Be a Marketing Madwoman

By aggressively reaching out to dozens of potential customers far before your product is ready, you accomplish all of the above but additionally, you are seeding your market and you can re-approach the same prospects when your product is in beta or ready for market. You might want to try rewards-based Crowdfunding for your product. I worked for the company that successfully launched a crowdfunding campaign prior to raising their series a round of capital. They pre-sold the product and then shut the campaign down once they hit the numbers they needed and this proved there was demand for the product at specific prices. Again, you’re reducing market risk if you have prepaid orders. For more on Crowdfunding click this link.

Investors Love This

I recently I spoke with the company who successfully deployed the above strategies. They went out to over 100 customers, gained enough positive feedback and validation that when they went to investors, they actually had prospects who would give them hypothetical testimonials. In other words the prospects were so excited about what was coming, they were willing to let an investor know via phone that they would buy it when it was ready if it delivered on the product marketing promises, and was at the discussed price. Of course the investors found this extremely valuable and investment capital flowed easily to this company. Generally investors look to reduce risk and increase upside. When you can reduce market risk, then you’re left with technical risk management risk and a few other types of risk. By using the above strategies, you’re making it easy for investors to invest, customers to buy, and most importantly you’re justifying that you should launch.

Negative News Can Be the Best News
You might also find that you cannot get customers to care about your product. Or they care but they’re not willing to pay the amount you plan on charging. Better to know this early so that you don’t waste an enormous amount of time and effort, along with investor capital. It’s critical to understand your customer traction and the earlier the better. Again my suggestion is to got your customers before you even start building your product to understand whether or not you should launch the company. The fact is that 90% of businesses fail. By deploying early market validation strategies, you can be part of the 10% that succeed.

Team

Choosing the correct team members at the appropriate time is the most important set of tasks you will ever take on with your startup. We can tell you from experience that over 80% of the issues that we have seen with early-stage companies have to do with expectation problems between team members. When your startup is operating on limited resources and time is against you, you cannot afford to run into too many personnel and staffing issues (although you can never fully avoid people problems).

Unfortunately, this is probably the hardest thing to get right in a startup.

We recommend adding team members slowly. What we mean by this is you need to really know your team members or partners so that there is no doubt as to how they will perform and react under pressure. Many of the problems we see occur because team members are hired to quickly and the appropriate time is not taken to understand cultural fit and performance capabilities. We suggest that you interview all team members multiple times under different circumstances to really get to know them. For senior members, you should spend time with them in the office, at lunch or dinner, and even in a 3rd scenario. We have had personal experiences in hiring team members to quickly and have had everything from unmitigated disasters to slight problems that could’ve been avoided.

Strengthen your weaknesses – The best advice we can give you is to bolster your own capabilities when hiring other team members. In other words, if you are weak at finance, hire somebody that understands finance, raising capital, accounting and more. If your’e weak in technology, be sure to bring on a good chief technology officer. We think you get the idea.

What will you do? – First decide what role you are going to play in the organization. Generally, you will take on a roll of “founder”, and in most cases CEO. We suggest that you run your company until it is determined that you need to bring on somebody with more talent across the organization. In some cases you may want your company with a partner and you will each have to take on C-level roles.

Team members you will need in order to successfully launch and initially run your startup:

CEO – has complete operational responsibility for the organization

CFO – your chief financial officer plays a critical role not only in finance but sometimes also running other administrative tasks possibly including human resources

CTO – the chief technology officer deals with both outward facing technology and internal systems. This would include your website and apps, hosting infrastructure and enterprise software and cloud-based systems.

CMO – the chief marketing officer has responsibility for all marketing mechanisms, communications, and in some cases sales and revenue. Additionally, the CMO usually handles product marketing and is integrally involved with product development.

CRO – a relatively new title, the chief revenue officer as complete responsibility for all revenue from customers, partners and affiliates. You’ll need to contrast this with the CMO position above to optimally execute your strategy

Product or service development – this position is critical to developing and delivering the best product or service. Generally most businesses fall into other products or services, although some can be categorized as knowledge. No matter what, you’re going to need somebody who heads up a very focused and driven team. In many cases the founders start out with this role because it was their idea to begin with

Board of Directors – your board should be a combination of C- level members, people familiar with you in your organization, and outsiders. You can see more on our thoughts about Boards here.

Advisory boards – advisory boards are very interesting ways of bringing more people into your organization to support any and all aspects. You can create multiple advisory boards which give you the ability to tap into greater resources. See our advisory board article here.

When should I hire or bring on the above staff members? There is no standard way to determine when staff members should be added. Generally you add based on need, and capability to pay. In other words, you may want a chief marketing officer but if you are not yet funded, you may have a hard time finding the ideal candidate. However some cases you can trade equity in the company for dollars and thereby hire more quickly. You will have to prioritize what you need 1st and figure out a way to bring that person on.

Vision, Mission, Values and Culture

One of the most important aspects of any company is the company culture. In fact there are experts in the world who have found that company culture is the reason that a company will survive and prosper, or go out of business. If you think about it, aside from disasters like the financial crisis of 2007, 2008 and (will probably go to) 2009, most companies that experience ongoing success have cultures that survive the upturns and downturns of most economic cycles. Think of companies like Hewlett-Packard, Dell, General Electric, Wal-Mart and others that seem to continue to succeed in all but the most extreme situations. Now, they can all take stock price hits depending on a given set of news, or events, however over the long term they seem to succeed. Is this only because their customers buying more goods or services from them? No, I would argue that the reason their customers by more goods and services is because of the company culture which is completely reflected in the company brand.

So how is a culture defined? Largely, company culture is defined as the types of people involved in the company, and how everyone behaves and functions. Does a company hire “A” players? Or do they allow for less productive participants? Do companies treat their employees, customers, partners and other constituents with respect and dignity? Or is it all about profit whether or not it’s the right thing to do?

We all have been involved in companies with good cultures and bad cultures.

What are the elements of culture?

Trust

First and foremost, a great company culture starts with trust. Without trust, employees don’t trust management, management doesn’t trust employees, partners, vendors and customers don’t trust the company and so on. In the opening phases of a startup, it is very important to define the company culture. Now while this may seem irrelevant or something to do on a rainy day when you have time (by the way you never will have more time in the future than you do right now), I am going to argue that it is probably the most important thing you can do before you interact with your first employee, customer,partner, supplier or other constituent. Your company culture defines who you really are and where you’re going as a company. Without a foundation, any structure will soon crumble. Culture is the foundation to your company.

Vision

The first step in defining culture starts with vision for your company. Vision is your long term brand or image. How will people think of you and your company? When you take your company to its end (transfer of assets, IPO or acquisition) what will it look like? Think of the highest level vision for your company, and draft a statement around it. Here is an example of a vision statement:

“Year after year, Westin and its people will be regarded as the best and most sought after hotel and resort management group in North America.” Westin Hotels Vision Statement

You can see the vision statement is defining relationships with your constituents and your overall brand. It’s a guiding light or Northern Star that helps all in your company determine the proper behavior to move forward. It’s the element that when times get tough or people are at odds, that defines a greater good to had. A vision statement should include a statement about the quality product or service you offer, a statement about how you will relate to your customers, partners, shareholders and/or employees, and some information about your market and where you will be positioned (largest, most heralded, easiest to work with etc.). If you look below, you will see a short vision statement from one of the companies that I founded earlier in my career.

Values

If your vision is the guiding light for your company, values are the elements of behavior. Trust, mentioned above is a key value. Does everyone trust each other? Or do people not trust each other and watch their own backs?

Other values you might find important or applicable are things like: integrity, efficiency, quality, perseverance, inspiration, creativity, courage, compassion, respect, fun, enjoyment, acceptance, perfection and more.

The key is to define values that you believe will be important for the future of your company. Values well help set the tone of how everyone in your company will behave. If your company is one of mutual respect, should anyone ever get yelled at? If your company has a value of creativity, should great ideas be quashed because they did not come from the management ranks? Unfortunately, the hard part is not defining your values but sticking to them. In a company that is values-driven individual employees will be able to call the company or other employees on value violations. And if the company truly holds to those values, they will respect their values and everyone will behave accordingly. See below for a sample company values statement.

Mission

A mission statement is articulation about why the company exists. In other words, what is your mission? Here is an example of IBM’s mission statement: “Our goal is simply stated. We want to be the best service organization in the world.”

Let’s look at Federal Express’s mission statement:”FedEx is committed to our People-Service-Profit Philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global, air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery.”

And here is Wal-Mart’s mission statement:”To give ordinary folk the chance to buy the same thing as rich people.”

As you can see there are both short and long mission statements. Both simple and complex. Does your mission statements accurately reflect why your company exists, or is in business?

Now let’s compare Westin’s mission statement to its vision statement:

Vision statement – “Year after year, Westin and its people will be regarded as the best and most sought after hotel and resort management group in North America.”

Mission statement – “In order to realize our Vision, our Mission must be to exceed the expectations of our customers, whom we define as guests, partners, and fellow employees.(mission) We will accomplish this by committing to our shared values and by achieving the highest levels of customer satisfaction, with extraordinary emphasis on the creation of value. (strategy) In this way we will ensure that our profit, quality and growth goals are met.”

I hope the above provides enough examples for you to draft your own mission, vision and values statements. Once a company has accomplished the above, you’re ready to begin setting your goals and objectives. Feel free to click on the goals and objectives pages for more information.