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December 3rd, 2013
By Jason Cohen, founder of WP Engine & Smart Bear Software.
During the summer, one of the Capital Factory companies developed a plan to sell into the “mid-sized” corporate market. Uh oh.
The startup graveyards are littered with companies who tried to target this seemingly alluring market segment — customers small enough to be intelligent and nimble, young enough to embrace new technology, yet big enough to spend real money to alleviate real pain.
It sounds like it’s best of both worlds. But the reality is it’s the worst of both worlds.
They’re not “small enough to be nimble,” because at fifty employees they’ve already established much of the lumbering process and bureaucracy of companies a hundred times their size. Shackled by budgets and internal politics, technology changes require expensive coordination and retraining, and fear of change trumps potential rewards of improvement.
All this makes for an arduous sales process just like with big companies. But although they have the process and controls of a large company, they don’t have the budgets to match; there’s no large reward for successfully navigating the painful, Herculean sales adventure.
Worst of both worlds.
Why is it like this? Maybe they’re stingy because they’re still being run by a parsimonious small-business founder (like me!) who is still straightening used staples to save pennies. Maybe it’s because with a few dozen people, the segmentation of teams, departments, roles, and behavior is inevitable. Whether because of physical limitations of communication or human tendency towards tribal behavior, we fall into semi-autonomous isolation coupled with formal processes to ensure command-and-control, and a bureaucracy is born, self-generating and largely inescapable.
Whatever the reason, it’s a tar-pit.
Then there’s the numbers game. There are 220,000 businesses in America having 50-500 employees, and only 18,000 businesses with more than 500. That’s often the argument for going after those mid-sized businesses — look how many there are!
But the average employee count of the mid-sized is 119 and of the large is 3,100, so if your goal is to sell a copy of your software to everyone inside a company, you have to sell 30 mid-sized for every large. Or looking at it another way, the total number of employees of mid-sized companies is 26m, whereas large is 60m.
And since the sales effort isn’t much different between 75 seats or 750, this is a lot more work for the revenue.
Even setting aside the internal machinery, “mid-sized companies” isn’t really a market segment anyway.
“Mid-sized companies” have less in common than you’d think; it’s much more important to know what industry they’re in. A 100-person technology startup has a certain makeup of employees — ratios of developers, QA, tech support, sales staff, HR, etc — whereas a 100-person plastics manufacturing company has a very different make-up, for example having no software developers, probably not tech-savvy, and IT is run by a guy who is a Windows “power user,” runs Exchange, hasn’t heard of Google Apps, and doesn’t know how to open a port in the firewall “my Cisco guy” installed.
So for example if you’re selling server monitoring software, everything about how to sell into these two companies is different: How you find them, what pain you’re solving for them, what that user wants to see in the interface, etc.. The fact that both are monitoring 100 computers is only vaguely “the same;” there’s more differences than similarities.
The most common argument I hear targeting the middle is:
“Small businesses have no money, and the large companies already use Entrenched Competitors X and Y, so it’s in the middle that there’s opportunity.”
But there isn’t necessarily an opportunity. Maybe your competitors have figured out that it’s not cost-effective to sell to the middle.
WP Engine is a perfect example of this. My initial idea was to target the “mid-market” of the WordPress ecosystem — bloggers and websites big enough that cheap hosting was no longer delivering the speed, scale, and support they required, but not big enough that they could afford full-time WordPress experts or the $2500/mo (and up) cost of Automattic’s excellent but expensive “WordPress VIP” program.
There are some drawbacks here to be sure. People with $50/mo blogs have many of the same problems as people with $2000/mo blogs but pay us 40x less, which might imply we should focus on the high-end blogger. But there’s lots of $50/mo bloggers who never call and never have a problem where the profit margin is great (even if the absolute dollar profit is less), whereas a $2000/mo blogger is constantly running into new speed and scalability challenges since even small changes to their configuration is magnified by 10,000,000 hits a month, vaporizing that so-called profit with expensive expert human time.
In other words, exactly the problems of “selling the middle” — with small-blogger budget meets big-blogger problems.
If we just chose one or the other, we could optimize the rest of the business around it — hiring, automation, marketing, sales — and maybe we should. (Actually we have a theory that there’s another way for us to solve this problem, but that will have to remain under wraps for now. I know, I know, I just said hiding your business plan is silly, but although I’ve shared our “secret” plan with dozens of people in person, it’s a little different publishing it in front of 30,000 RSS subscribers… at least, not yet.)
So my immediate reaction to anyone “selling to middle” is the same: Yuck. If you’re going to do it anyway, I hope you have some nice, extenuating circumstances that truly makes you the exception to the rule.
By Neil Patel
Over the last 7 years I’ve been in the software as a service space. More specifically I’ve been in the web analytics space. My first analytics startup, Crazy Egg, helps you understand how people interact with your website. And my second one, KISSmetrics, helps you understand your customers so you can maximize your lifetime value.
In the analytics world the biggest player in the space, by far, is Omniture. And although they aren’t a direct competitor to either of my startups, I’ve had the privilege of watching them go from being just another analytics company to turning themselves into a 1.8 billion dollar company.
Here are the 7 most important lessons I’ve learned from watching my competitor, Omniture, dominate the analytics space.
Lesson #1: Best Product ≠ Biggest Company
By no means does Omniture have the best product out there. And no, I am not just saying this because I own 2 analytics companies…
Their product is hard to use, it’s slow, they’ve had a ton of instances of data loss, and they constantly get customer complaints. If you don’t believe me, just Google “Omniture Sucks”.
That’s actually the main reason I got into the market. Years ago I used to own a consulting company and we used to help our customers use Omniture… and they hated it, although they kept on paying for it.
So what did I learn exactly? Well you of course want to try and have the best product out there, but even if you don’t that’s not a valid excuse for not making money. Before Omniture sold to Adobe their revenue’s were well into the 100s of millions. In 2008 (they sold in 2009) they had $296 million in revenue. Which brings me into lesson number 2…
How I applied this to my business: Although we focus heavily on product at KISSmetrics, we hired a VP of Sales a bit more than a year ago to build out our sales team. You can’t just focus on product or sales, you have to focus on both.
Lesson #2: Sales is the quickest way to grow a software company
I’ve always had the belief that you need a finished product before you start selling. The reality is, you don’t. I didn’t learn this until I sat on a sales call from a rep at Omniture. Here are the specific things I learned from digging into their sales process:
PowerPoint presentations can be more effective than real product demos – if you have an incomplete product the last thing you want to show someone is a half working product because it’s really hard to convince someone to pay for something that isn’t built. And if your product is built, but has bugs, it’s also a bad idea to show someone a demo of a product that doesn’t work 100% of the time. Through PowerPoint presentations Omniture was able to dance around all of these issues because they were able to show you the problem they were going to solve for you. And if you happen to close a deal before your product is done, you can always tell a company you won’t be able to start till X date as you are backlogged from customer demand.
Always sell with case studies – the more case studies you include in your pitch, the more validation you bring to your product. Case studies show that your product does what it is supposed to do. If you can’t use case studies, try to use data and facts to back up how your product will make a company more money or at the very least save a company money.
Don’t forget to score leads – if you are an ideal candidate for Omniture you can expect one of their sales guys to constantly hound you. If you aren’t you’ll notice that their sales reps won’t bother you too much. It’s not because they don’t want your business, but it is because they are lead scoring. They know that if you aren’t ready to buy, it’s best to throw you back to marketing where they can continue to educate you until you are ready to talk to a sales rep. This is smart because sales reps are really expensive and you don’t want them talking to people who aren’t ready to pay.
Educate first, sell second – just like the lead scoring example above, Omniture has a tendency to educate first and then sell. It helps drive up the demand for their product, which makes the job easier for sales reps. They do this through webinars, whitepapers, conferences, booths, and countless other forms of marketing. But if you look closely at all of the methods I mentioned above you’ll notice 1 thing in common… all of their marketing methods involve collecting your contact information so their lead qualifiers can follow up with you later on to figure out when you are ready to buy.
The bigger the pitch the bigger the money – Omniture doesn’t sell you analytics, they sell you a solution to your problem. And the bigger the problem they can solve, the more money they can charge. A good example of this is that they don’t help you with just your SEO needs or PPC needs, instead they help you with your digital marketing strategy. They know large corporations are shifting their budget towards digital marketing and if you look at Google Trends, you’ll notice that more and more people are interested in digital marketing. In essence, they are riding the wave of what’s popular, as that tends to be where the big bucks are.
How I applied this to my business: Throughout the last year we’ve been building out our sales team at KISSmetrics. We are now at the point were we are adding a new sales rep each month.
By Charlie O’Donnell
You have a million things to get done at your startup, yet you only have a handful of people to do them. How are you ever going to get it done? Who should you hire? What should be the makeup of a founding team? What is the Minimum Viable Team, if you will, for a startup?
To make life simpler, I’ll take a page from George Carlin, who masterfully widdled down the Ten Commandments down to two simple rules. I can break down all the things a startup needs to do into three ideal people.
Let’s start out with the basic functions of a tech company:
4) Business development
7) Product Management
Ok, that’s just overwhelming.
Ready to start simplifying?
The last two are pretty basic. On a 2-3 person team, there really are no “operations”, save for some light calendaring, and “finance” is pretty simplistic. To the extent that you need bills paid and some simple bookkeeping, you should 100% outsource this, because it’s not a good use of anyone on the team’s time. Let’s call these tasks “Some outsourced crap the team shouldn’t be thinking about.”
Now we’re down to nine core business functions on a small startup team.
Let’s take sales and business development. When the product is early and still pivoting, these are kind of the same thing. In a way, you can think of BD as “sales when you don’t know what the product is yet.” It’s basically working with potential outside partners to reach your business goals–which could be revenue, distribution, financing, product development, awareness, etc. If you think about it, these things are all of the goals of another function on the list–PR. Interesting that biz dev and PR would have the same exact goals–but not surprising, since they deal with the same group: outsiders. PR is just a way to get outsiders to come to you, so communicating to them should be part of the same role as negotiating business deals with them.
So, we could generalize this function and call it “Attracting and benefiting from outside interest.”
That leaves seven core business functions. Just to recap, we have:
1) Attracting and benefiting from outside interest.
2) Some outsourced crap the team shouldn’t be thinking about.
7) Product Management
But wait, isn’t the recruiting part of HR also about outside interest? Sure is! Getting people to join your company is a key goal of early PR. The part that isn’t about recruiting, like healthcare benefits if there are any, shouldn’t that be part of the crap the team shouldn’t spend time thinking about? Yup! So, poof! Break that baby up, divide it, and now we’re down to six.
Wikipedia defines Marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers”. So, when you read into it, marketing isn’t really selling, it’s more of finding and packaging the right thing to sell to the right customers. Hmm.. what other functions in our organization have to do with our customers? Well, a good product certainly requires a good customer or user experience. And what is a good user experience? It involves a deep understanding of the target audience and figuring out what kinds of interactions they’re going to find valuable.
Understanding the audience and designing products that suit their needs requires close cross-functional collaboration to get it right. Therefore, it makes sense that all of these functions in the process–marketing, design, and product management–fit under one roof:
The role of a customer experience person is simple: understand my customer and satisfy them by creating easy to use products that enable them to accomplish their goals. How you do this tactically is a combo of intense user research, narrowing product requirements, getting feedback, user experience testing, etc.
That leaves us with four functions of a startup:
1) Attracting and benefiting from outside interest
2) Customer experience
4) Some outsourced crap the team shouldn’t be thinking about
And given that the outsourced crap isn’t a person at the company, there’s your three person startup team:
Many startups start with two people. When you’ve got two people on the team and you’re going super lean in the early stages, usually your best bet is to have a customer experience person and a builder. Outside tasks, like getting PR for the company, can often be done with the help of advisors and investors who are good at showing the company around. Plus, in such a connected world, at the seed stage, the “outside” bar is low–a good article, review, demo can be a difference maker and get you on the right radars.
More often than not, however, you wind up with an outside person and a builder–because outside people are usually the business people who knew the industry well enough to have the idea in the first place. If you have the magical unicorn that is both a builder and someone who has a process for thinking about customer experience, you’re gold–but not many of these exist. So its left up to you, but you may have another resource you’re not thinking about. Many startups outsource visual design work, and instead of hiring that designer, hire a second developer.
I think that designer could be more helpful than you think, and maybe will do more for you than a second developer. The designer should be your third leg of the stool.
That makes the decision of the founding outside person:
1) Learn product management, like, yesterday.
2) Deputize the designer and bring them on full-time to run the product management process.
In regards to the latter, let’s be clear about what we mean by a designer. Design encompases a number of different areas:
1) Interaction design: These people are tasked with learning about your users, coming up with the flows to help them get done what they need to get done, and who maps product requirements to a set of wireframes. In other words, if you build a photosharing app, they’re the ones that realize that an app needs two buttons, taking a picture, and pulling from your phone, to get photos into the system, and put together what clicking each one means.
2) Visual design: These folks put flesh on the wireframe, giving your app a look and feel that will appeal to your
3) Usability: These people not only smooth out the rough edges so that your users can *easily* accomplish their objectives. This is a continual process–one that many people unfortunately outsource as a one time “fix”. If anything, if you had to outsource something, visual design is something you can have someone else do for you to give you a base set of colors, styles, etc that will serve you well in the near term. Usability needs to be a weekly, in-house process. Your whole team should be forced to watch users use the product with their eyes glued open each week.
Point being that your designer, if they’re doing their job and you’ve got them in a process that immerses them in customers, are the closest people in your company to the mindset of your users. While you’re out pitching to investors and press in the outside role, they’re testing to see whether or not people understand the word “invite” versus “request” in the context of your app. That’s the person who needs to own feature requirements, best practices on implantation, etc. When you’ve got a feature idea, you should be submitting it to them to see whether it jives with their model of a user.
What’s even better about this model is that more and more designers are learning how to code and getting a deeper understanding of how the technology works that they’re designing for–because those are the constraints they need to keep in mind when figuring out solutions to user problems.
It’s also important that this person is full-time–always thinking about the users for this product and not just one of many contract customers. Many startups will tell you that it’s nearly impossible to hire a designer full-time and I agree–but that’s to hire them as a designer. I know a bunch of designers who have jumped at the chance to own product as an opportunity to gain responsibility, and broaden their skillset while still keeping creative juices flowing and getting high levels of customer interaction. It’s a win-win for btw sides and it is the kind of offer startups should consider making. Product management processes can be learned, but curiosity, creative problem solving and continual desire for improving the product are drives found in most designers that are tough to take a class on.
Reprinted from Education for Employment
During a ceremony at the recent World Economic Forum Annual Meeting of New Champions in Tianjin, China, Education for Employment (EFE), which has worked with Endeavor in the Middle East to create employment opportunities, was recognized as one of the world’s leading social innovations by the Schwab Foundation for Social Entrepreneurship. Chosen from more than 1,000 international applicants, EFE was praised for its “novel approaches, demonstrated impact and ability to shape global, regional and industry agendas.” EFE’s Founder & Chair Ron Bruder and President & CEO Jamie McAuliffe accepted the award on behalf of the EFE Network of affiliates in Egypt, Jordan, Morocco, Palestine, Tunisia,Yemen, Europe, and the United States. As a Schwab Award recipient, EFE is fully integrated into the events and initiatives of the World Economic Forum, allowing EFE to benefit from peer-to-peer exchanges with other top leaders in business, government, civil society, social enterprises and the media.
By Ben Horowitz
After I wrote A Good Place to Work, people flooded me with feedback about one-on-ones. About half the responders chastised me, saying that one-on-ones were useless and that I shouldn’t put so much emphasis on them. The other half wanted to know how to run more effective one-on-ones. It seems to me that both groups are likely talking about two sides of the same coin.
Perhaps the CEO’s most important operational responsibility is designing and implementing the communication architecture for her company. The architecture might include the organizational design, meetings, processes, email, yammer and even one-on-one meetings with managers and employees. Absent a well-designed communication architecture, information and ideas will stagnate and your company will degenerate into a bad place to work. While it is quite possible to design a great communication architecture without one-on-one meetings, in most cases one-on-ones provide an excellent mechanism for information and ideas to flow up the organization and should be part of your design.
Generally, people who think one-on-one meetings are a bad idea have been victims of poorly designed one-on-one meetings. The key to a good one-on-one meeting is the understanding that it is the employee’s meeting rather than the manager’s meeting. This is the free-form meeting for all the pressing issues, brilliant ideas and chronic frustrations that do not fit neatly into status reports, email and other less personal and intimate mechanisms.
If you are an employee, how do you get feedback from your manager on an exciting, but only 20% formed idea that you’re not sure is relevant without sounding like a fool? How do you point out that a colleague that you do not know how to work with is blocking your progress without throwing her under the bus? How do you get help when you love your job, but your personal life is melting down? Through a status report? On email? Yammer? Asana? Really? For these and other important areas of discussions, one-on-ones can be essential.
If you like structured agendas, then the employee should set the agenda. A good practice is to have the employee send you the agenda in advance. This will give her a chance to cancel the meeting if nothing is pressing. It also makes clear that it is her meeting and will take as much or as little time as she needs. During the meeting, since it’s the employee’s meeting, the manager should do 10% of the talking and 90% of the listening. Note that this is the opposite of most one-on-ones.
While it’s not the manager’s job to set the agenda or do the talking, the manager should try to draw the key issues out of the employee. The more introverted the employee, the more important this becomes. If you manage engineers, drawing out issues will be an important skill to master.
Some questions that I’ve found to be very effective in one-on-ones:
If we could improve in any way, how would we do it?
What’s the No. 1 problem with our organization? Why?
What’s not fun about working here?
Who is really kicking ass in the company? Who do you admire?
If you were me, what changes would you make?
What don’t you like about the product?
What’s the biggest opportunity that we’re missing out on?
What are we not doing that we should be doing?
Are you happy working here?
In the end, the most important thing is that the best ideas, the biggest problems and the most intense employee life issues make their way to the people that can deal with them. One-on-ones are a time-tested way to do that, but if you have a better one, go ahead with your bad self.
By Eva Pearce
Seeking financial support from an angel investor should be mutually advantageous. Investors are looking for great opportunities in which to invest and make money, while entrepreneurs may have great ideas but no capital. Angel investors do refuse investment opportunities and for all sorts of reasons, it may well be because they don’t consider the idea a viable one, or it is just not something that has grabbed their attention. However, sometimes the idea may well be a great one, but the investor still says no, simply because the entrepreneur hasn’t done their homework.
Pitching an investment opportunity, no matter how great the idea, requires plenty of planning. All too often, entrepreneurs go into a pitch cold and are shocked as to why the investor has declined the opportunity. They may well be onto a winner, but have been refused simply because they have not prepared properly and considered the needs of the investor, and this poor planning soon becomes evident.
The pitch is something many people looking for investment fret about, and yet it should be simple, after all, it is your business idea and if you can’t explain it, nobody else can. If you can’t explain your business idea to somebody, you can’t expect that person to want to invest. An angel investor needs to know what they are plowing their money into, so the pitch should be succinct and concise and should clearly explain what your business is about both as an outline and in detail. For instance, say you intend to provide a European wedding service where you help people get married in romantic places such as Paris, Rome or Venice and do all the arrangements for them. Your pitch should detail what exactly it is your business offers, so you should explain that for a fee you take care of everything. You organize the necessary documentation and visas, sort through the European bureaucracy, organize the photographer, buy euros on the behalf of the couple, book the hotels and arrange the flights.
Once you have set up the business idea, you need to have also planned for any questions. For instance, after pitching the European wedding idea, an investor may ask what happens if the hotels are all booked, or do you charge commission for buying euros or booking the hotel? What happens if the couple changes their mind? If you can’t answer these questions then you can’t expect the angel investor to want to give you any money.
Poor business plan
Too many people asking investors for money have either a poor business plan or none at all. A business plan should outline not just the initial idea, but also outline every aspect of the aims for the business and possible threats. This should include how it will be marketed, operational information such as where you will be based, the running and set up costs, possible threats to the business, any potential barriers to success, a sales forecast over three years, and what return you are offering for any investment.
Of course, if it is a new business you may have no idea of what your sales forecast or costs may be. However, an investor will have expected you to research similar ideas and come up with at least a realistic estimate. Most investors will want to scrutinize or question your business plan so make sure you have done your homework and you business plan contains as much information as possible.
Overvaluing the business
You may think you have a million dollar idea, but that doesn’t mean you should value your business at a million dollars. If you ask an angel investor for $100,000 for a ten percent share of your business, you will probably find the investor either laughs or walks away. You need to be realistic, while you may think the business has the potential to earn millions, an investor will look at what the business is worth at the moment. If you have few assets and limited sales, your business is not going to be worth very much. A more realistic figure for a start up to offer an investor will be around 50%. While this may sound steep, without investment, your million-dollar idea will essentially be worthless. Furthermore, any investment is a risk to the angel investor, and the potential share should reflect this.
No exit strategy
While your business idea may become your whole life and is all you think about, it won’t be the angel investor’s, and there is a chance he or she doesn’t want to be tied to you and your business forever. Most investors will want you to offer them an exit strategy and a time limit on the investment where they will get their money back and be able to walk away. An angel investor is just that, an investor, they are not your partners so don’t plan on them wanting to stay with you forever. Make sure you have planned for the future, both positively and negatively. You may think things won’t go wrong, but an angel investor probably won’t share the same optimism, so ensure you have a strict time limit as to when you will be able to pay them back.
CLICK HERE to read the full Endeavor Insight, Omidyar Network, and Aspen Network of Development Entrepreneurs’ report, “Why Becoming Large Matters: How scalable, high-growth entrepreneurs can help solve the jobs crisis” or use the interactive Job Creation Calculator.
The world needs to create more than 500 million new jobs by 2020 to provide career opportunities for the currently unemployed as well as young people who will be joining the workforce. SMEs which grow into large businesses are uniquely capable of quickly scaling and, relative to microenterprises and un-scalable SMEs, growing SMEs are most critical to meaningful job creation, especially in developing countries. By supporting and investing in scalable SMEs, policy makers, business leaders and development works can help fight the jobs crisis.
Many innovative organizations are working towards this goal, include Aspen Network of Development Entrepreneurs (ANDE) members Endeavor, Omidyar Network, Acumen Fund, Ignia, SEAF, and New Ventures. These organizations are investing resources and providing much needed support to entrepreneurs all over the world.
Globant (Endeavor company in Argentina): Globant’s four founders transformed a self-staffed IT outsourcing shop into a company of more than 2,800 employees that is putting Buenos Aires on the tech map. Globant is one of Latin America’s fastest growing independent software product development companies and the leader of a new sector in Argentina.
Ziqitza Healthcare (Acumen Fund portfolio company in India): Ziqitza Health Care Limited (ZHL) is the first private ambulance company in India that provides service for all, regardless of income, and is one of just three organized operators in the country. In 2007, the company had 10 ambulances in Mumbai. Today, it has more than 870 Ambulances across Mumbai, Kerala, Bihar, Rajasthan, and Punjab.
Versé (Omidyar Network Portfolio company in India): Versé offers a suite of mobile classifieds products that allows people of all socio-economic classes in India and other emerging economies to engage and access important information that can help them improve their lives. Versé facilitates deeper connections between people, their needs, and new opportunities through services such as: SMS-alerts, a Hindi language option, zero-cost USSD sessions, and customized information searches powered by online and print media partners.
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