mult.ifario.us

There is never a good reason to announce that you're going to make an announcement. This rule came to mind when I saw this tweet scroll by this morning:

This belongs in the same category of non-actions as a blog post to say you haven't been blogging, telling people about your "stealth" startup, or a statement like "with all due respect".

I was talking with a budding entrepreneur in the open source "big data" space (with my Entreprementor hat on), and we talked about his sales pipeline and potential customers. He had a list of a couple dozen companies that had expressed some interest, and that much was great. Just the same, I asked about the elephant in the room: Interest in what? Interest in your wonderful open source doohickey might get you Internet Famous like the Star Wars Kid but isn't likely to pay your bills let alone be something to build a company on.

This brings me to the subject of product management for the busy entrepreneur.

Product Versus Business

It's easy to get confused about the difference between a product and a business. A business is a machine that turns something you have into money. (One that produces more money than it consumes is a good business...) A product is a describable, sellable thing that your business can produce over and over and customers can consume over and over without too many changes. Products can be broad, like professional services, or very specific, like machine parts, but the aspects of commonality in description and delivery need to be there.

The point of a product is that the commonalities enable scale in a business's internal processes, from production to sales to accounting. It is also that commonality that makes a business an investment prospect because you can make reasonable inferences about capital in versus capital out (ergo value). Defining a product involves a bit of intuition and guesswork, but refining that definition is simple: Ask potential customers if they would spend money on it. I've never been able to understand the relative reluctance of some entrepreneurs to get on the phone or hit the street with an idea, maybe out of a reluctance to have their idea trashed by reality, but the customer's money is the one source of Truth. If it's difficult to explain, if it's not something that the customer's business can readily consume, or if the customer doesn't "get" it, then it needs to change.

Rows and Columns

Once you have a panel of potential customers assembled, it's time to sit down with a spreadsheet and figure things out. Customers go down column "A", and potential products go across row 1. Put an "x" and maybe a note in a cell if that customer would pay for that product, and then look for the column with the most x's. Alternatively, you can use the price that the customer would pay as the value for the cell in the column and try to make a more refined decision based on the profitability of the offerings, but the idea is the same — Get real data on what customers want.

There's an aspect to survey design that's important when interviewing a potential customer. To get a real response, ask specific questions and set the expectation with that potential customer that you'll very likely be back to get a check from them. You should expect to iterate on the process a few times, as customers may help you add columns to the spreadsheet, but you should avoid open-ended questions.

Real product management is quite a bit more involved and detailed but equally necessary as your product and base of customers grows and evolves. Nonetheless, this should be enough to get started.

Basic product management is one of those times where stating the obvious is useful: Data is helpful in making decisions.

After a short stint at Amazon.com in 2005, I took some time off, where "time off" means not being an entrepreneur or having open-ended commitments — other than at home. I had a lot of fun getting back to basics as a software developer building applications with some great customers (learning some new industries in the process), working closely with a few entrepreneurs, and with being a hands-on Dad for my kids.

At the start of 2009, with kid #2 up and crawling, kid #1 finally sleeping decently (most of the time, knock wood), and a fresh calendar year ahead, I sat down to think about what to do next. I made a list of things that I think are interesting and things that I do well and/or enjoy. Next, I brainstormed and ranked concepts for businesses with rank roughly defined by the combination of my level of interest, the impact of the idea, and the value both to and from my network and experience in making it a success.

All of the business concepts were subject to the following constraints:

• Minimal startup costs. Getting going should take no more than an LLC ~($200), some assorted licenses (<$100), a domain (~$10), Google Apps for email, and a modicum of non-free infrastructure if required (no more than $50/month total — private repository on GitHub, and maybe CRM/SFA like PipelineDeals, etc.).
• Short path to gauge interest and engage customers. Typical customers, partners, and advisors/boosters should all be present within my personal network and if not, easily identified, enumerated, and contacted
• Strong collaborators. The reinforcement and feedback that comes from working closely (and occasionally butting heads with) collaborators is important.
• Head start or unique angle. The business should have a built-in competitive advantage in the form of knowledge, relationships, or intellectual property.

I ended up with a few dozen things and about half that many business concepts. Some obvious things made the list of, e.g., open source, simpler and lighter middleware, big data, mathematics (including statistics and probability), functional languages, visualization, consuming less, and being data-driven in everyday life. Some less obvious things made the list, too, e.g., teaching/mentoring, generative music, ultra-local agriculture (in your yard or even home), and scholarly communications. I intend to revisit the list of things and businesses as the year unfolds and my perspective evolves.

The first two businesses that percolated to the top of the list were FasterXML and Fremont Analytics. Both are now their own LLCs and spinning up. I am interested in the combination of open source, middleware, and big data in the mold of Cassandra, CouchDB, and Voldemort, but I'm not ready to place a bet there just yet.

Cross-posted on nPost.

The fundamental goal of selling is to clearly communicate to your audience, and this applies equally to pitching a company to investors or pitching a product to potential customers. It's obvious that confusing the audience conflicts with that fundamental goal, but it can be surprisingly difficult to avoid.

Your goal should be to provide your audience with exactly the information they need to make a decision, no more and no less. It's easy enough to fix providing too little information — just provide more. Providing too much information, probably confusing your audience in the process, is much more difficult to cure, and this is where a lesson from chess club comes in.

Keeping the feedback loop tight is the best way to throttle the flow of information, and using a chess clock — imagined or actual — is one way to do that. When you start talking, think about tapping the clock to start your turn, or if you're on the phone or otherwise not in front of the customer, feel free to use a stopwatch or countdown timer. Twenty to thirty seconds is a reasonable benchmark, and if you've got other people in on the pitch with you, it's up to you to set the ground rules for them to ensure that everyone's bound by the clock. It's enough time to communicate an idea but not so much time that your audience starts reaching for their Blackberries while you ramble.

Go shopping.

Seriously — go shopping. A downturn is a great time pick up office furniture, computers, phones, and even employees on the cheap from less fortunate companies. Unless, of course, you're in a tight spot for cash, in which case my advice would be to avoid that situation...

Matt Hulett's post about low water marks for startups provoked some pondering for me. My metric was always twelve months, but there are different considerations for a going concern versus a startup.

For the going concern (i.e., a business whose goal is to operate profitably and grow organically), reserves on the order of full operational expenses for two or three full sales cycles is reasonable. (This strongly depends on the complexity of the product and the deal size.) I'm defining a sales cycle as the length of time between when a piece of marketing hits a prospect to the time the money from that prospect (now customer) hits the bank. Failure to acknowledge the full cycle will kill you if you're on the razor's edge. For example, it's a reasonable three months from a signed deal to a signed check — close the sale, a month to deliver, a month for the customer to pay, a month for your AR to hound their AP, and you're ninety days from dotted line to dollars. Three sales cycles gives the business enough time to adjust to significant external events (most recent reasonable example would be 9/11), to respond to the entry of new competitors into the market, or to launch new products or extensions.

For the startup (i.e., a business whose profitability depends on significant growth and attendant capital consumption), reserves of twelve months is running on the metal. The business needs to be executing to its goals as the funding search is happening and then continue to execute as the funding process completes. (Ongoing execution is more important for later stage companies, as investors don't expect it from early stage companies.) A good rule of thumb is that reserves should account for hitting goals sufficient (on a hypothetical level) for the next round of investment, plus a margin of error for unforeseen issues, plus six months of runway to get funding done.

In either case, interim milestones at fixed dates and specific, measurable goals are essential. Are the initial stages or the marketing and sales pipeline working? Is product development on schedule? Is hiring and retention running to plan? Are your partners coming through? Is the investment climate or business climate changing? This is one situation where it's good to be a little obsessive — cobble together a simple dashboard and mark progress to plan no less than weekly. (The dashboard task has gotten simpler over the years; these days that can be a combination of QuickBooks, Google Analytics, SalesForce.com, and something like Jira or Rally for tracking product progress.) Make yourself accountable (e.g., to your management team and to your board) and hold your management team accountable for their individual goals because failure for one is failure for all when cash is a constraint.

When negotiating with a potential customer, it's tempting to offer things that you think will make them take the deal. This is wrong for two reasons.

First, what you think will make them take the deal and what they actually want may be different, so you're making a concession that doesn't help your cause. Worse than that, you run the risk of confusing a less savvy customer who will then try to understand the enlarged deal terms or showing a more savvy customer that you're desperate.

Second, you always want the simplest, most uniform deals possible. Repeatability is scalability for the organization, and a one-off deal proves nothing about a product or business model. (Bending — but not breaking — the rules for a big deal is acceptable.) Moreover, having a limited number of form agreements greatly simplifies due diligence for financing or acquisition.