Seattle Techstars Demo Day is coming!

techstars-logoTechstars Demo Day for the 2014 Seattle class is on November 6th at 2pm.

I look forward to this every year.  It’s remarkable to see how the ten teams evolve though the program and watching them pitch is humbling.

There three ways you can be involved.

1) If you’re an accredited investor or venture capitalist, and you’d like to attend, contact anders.maul@techstars.com for an invitation. These are always very fun events, and the networking opportunity is unheard of.

2) If you would like to participate as a community member, you can reserve your FREE ticket here: http://bit.ly/TSDD14COM Space for this is extremely limited… so do doddle.

3) Following the Demo Day pitches, Techstars is hosting a massive launch party for all the teams… and you’re invited. They are expecting 800 to 1,000 attendees so you don’t want to miss it. Grab a ticket here: http://bit.ly/tsSEA14


Newco Kids – Lessons in Entrepreneurship

Last summer, I began working with my then 10-year-old twin daughters, Sarah and Annalise (now 11), on an entrepreneurial project.  It has been (and continues to be) one of the most personally rewarding experiences I’ve ever had as an entrepreneur and as a dad.

Even before last summer, Sarah and Annalise had a vague understanding of what it means to be an entrepreneur and they know that’s what daddy does.  They know that the work of entrepreneurs is building businesses.

They know that dad tries to help other entrepreneurs through mentoring, advising, speaking and writing.  They know what Techstars is and they love visiting the Techstars offices (although I think part of that is the massive stash of snacks on hand during the program.)

They’ve sat in a few Startup Weekend events and interacted with several of the teams at the Startup Weekend Women’s event last year.   They also used to love hanging out at Student RND when they had their youth hacker space in Bellevue.twins-collageAnd now they know what the words “customer development” mean.  Because we did it, together.

They now also know what a spreadsheet is, how web sites get built, what a patent is and why it matters where is a product is manufactured. And a LOT more.

It all started when Annalise, Sarah and I were walking our dog, Lola, one day.  Like clockwork, Lola pooped. I asked “who’s gonna pick that up?” The giddy answer was “dad!”

I was resigned to do my duty (dooty?) as a dad and pick up the poop. Jokingly, I told the girls that if I had to pick it up then they at least had to carry the nasty bag. The predictable response was an enthusiastic, “Ooo… no way!… gross!”

dog1I couldn’t blame them. It really is gross. It’s also a constant distraction — whenever I’m carrying a poop bag, I’m constantly thinking about finding a place to dump off that bag. Once I do get rid of it, the distraction is immediately gone and I can enjoy the walk again.

Not to be melodramatic but it really does feel like a weight being lifted from my mind. As a chronic entrepreneur, that sounds like a “pain point”, a problem crying out to be solved.

I saw this as an opportunity to challenge the twins to think about a solution to the problem of carrying poop around… and directly experience what it means to think like an entrepreneur. Thanks to Socrates, we talked about solutions to the problem in the days ahead.

The next week, we went to a major pet retailer and three small pet shops fully expecting to find at least a couple products that would solve this problem.  But we didn’t find anything… not one product allowed you to stash the poop bag!

We were able to find a couple of home-grown products by searching Google, but nothing that looked like a commercial product.  This was surprising; it seemed like such a natural product.  So I called my friend, Shaheed, who runs Oliver’s Pet Care, a successful online pet supply retailer on the Amazon marketplace.  Surely he’d know of some commercial products.  Nope… he’d never heard of one.

tigersWe finally did find a commercial product by reaching out to another colleague of mine who invented the very clever novelty product DogSnorz, a set of humorous pillowcases for dog lovers.  He offered to scout for similar products at a major pet products show he was heading to. He found just one product; a hard-shell poop case with a shoulder strap — yes, that’s right, you WEAR that nasty bag of poop!!!  Yuk!

Ok… so there should be a better solution for this problem… and at a minimum there was at least some entrepreneurial lessons to be learned (and some fun to be had) by trying to come up with something better.  And that’s just what we did.

Exposing my daughters to the lessons of entrepreneurship has been one of the most rewarding fatherly experiences I’ve ever had.  And that experience continues!  We’re now working on a Kickstarter project to continue with our entrepreneurial journey.

I know that the girls have learned a lot; and virtually none of it can be found in any school curriculum.  Best of all, they are learning by doing.

I hear and I forget. I see and I remember. I do and I understand.
— Confucious, 5th Centure BCE

We’ve all three learned a lot.  Somewhat unexpectedly, I’m pretty sure I’ve actually learned more then they have.   And there’s much more ahead.  I am gathering all the lessons we’re learning and will publish those for other entrepreneur dad’s and mom’s who have in interest in sharing their passion and experience as an entrepreneur with their kids.


The Most Unlikely $100.30… EVER!

Today I witnessed the most extraordinary coincidence of my life.

I count myself lucky to have two amazing daughters, Sarah and Annalise.  I also count myself lucky to have twins.  Today, “lucky” took on a whole new meaning.

FacetoFacebw

Annalise and Sarah are now ten-year-olds.  They have both had piggy banks since they were about two years old.  About a year ago, the piggies were full and so they each wanted to cash in their coinage for some folding dough.  So we busted them open.  Again, this was about a year ago.

Both girls dumped their respective hordes into heavy duty freezer bags.  My guess is that each weighed about 8 pounds or so, but Sarah’s was just a little bit heavier; she must have had a higher concentration of pennies and nickels.

Sarah wanted to cash hers in at the Coinstar machine right away; Annalise wanted to hold on to her bag of booty a while.  I totally understood Annalise’s choice… eight pounds of hard, cold cash is a pretty cool thing for a nine-year-old.

BadGirls

Sarah had a blast shuffling the coins into the machine.  She even got to push all the buttons.  A few minutes later, the noisy machine went silent.  We decided that she’d get the Amazon certificate and avoid the 9.8% fee.  I would buy the certificate from her for cash and then she could deposit the money in a savings account.  A couple more button pushes the and out popped the Amazon voucher.  The total: $100.30.

Fast forward to today.  Annalise had completely lost track of her bag-o-coins.  We decided to paint the girls’ bedroom this weekend and that meant sorting through (and purging) probably 200 pounds of accumulated kid debris.  Well, I call it debris… they would call it treasures. 

In the process, Annalise’s coins surfaced.  She was very excited to have them in hand again; and this time she was eager to visit the Coinstar machine!

2012-07-22 20.36.22

On the drive to the nearby supermarket where the Coinstar machine lives, Annalise hoped out loud that she had at least as much value in her bag as Sarah had a year earlier.  She still knew Sarah’s number: $100.30.

“Dad, how much do you think there is in here?”  She fondled the plastic pouch.  “I hope I have as much as Sarah… do you think I do?”

There’s a twin thing.  It’s like sibling rivalry… only much more refined.  You see, each twin is always competing for the exact same resources all the time.  If they were a year or two apart, the older one would outgrow the toys, activities and attention relevant to that age.

DSC01696As the younger one reaches that age, the older one wouldn’t care much for those things because they would have outgrown them.  Thus, less direct competition ALL THE TIME FOR EVERYTHING.  But I digress.

Finally we reached the Coinstar machine.  In go the coins.  Of course, like Sarah before her, Annalise got to control all the buttons.  Chugga chugga churn churn… ding!  The total amount: $99.27.  Remarkably close to Sarah’s $100.30.

Great result, I thought to myself; Annalise, though, was a little dissapointed.  “Dad, you have any change in your pockets?”  I didn’t.  “Do you have a couple dollars I can have so that have the same amount as Sarah?”

I probably should have encouraged her that it wasn’t a contest and that $99.27 is an awesome number and close enough to Sarah’s number.  But I didn’t.  We figured out how much she’d need to feed into the machine to get her to Sarah’s number: $1.03.

I took two one-dollar bills from my wallet and walked 60 feet to the bank teller at the US Bank counter housed in the grocery store.  “Could I get four seven quarters, two dimes and five pennies?”  The teller shot back a brief, quizzical smile.

The entire walk and bank transaction only took at most 90 seconds.

SupperBabies

But by the time I’d returned to the Coinstar machine, the screen was prompting us to confirm the Amazon certificate choice, with no way to go back and put more coins in!  Oh no… the machine timed out!  Foiled!  Now the voucher would forever say $99.27.

As we reviewed the receipt, Annalise looked down at the coin return slot.  Neither of us had noticed it till just then.  “Wait, what’s this?”, Annalise said.  “Oh, that must be the coins that the machine couldn’t figure out.

We counted it out.  Holy crap!  $1.03!!!  I couldn’t believe.  I counted it again… twice.  Sure enough, exactly $1.03.  Add that to the $99.27 and what do you get?  Precisely $100.30.

What a tremendous coincidence.  Annalise “got it”, at least in the way that a 10-year-old can.  But I was reeling.

I’ve always been a geek about probabilities.  In college, I used to count cards at blackjack, which is all about shaving fractions of a percentage off of the houses advantage until the advantage is yours.  For the past decade I’ve been studying the odds and probabilities and odds of poker, to the point that I can calculate the percentage chance of making a flush or a full house out of my hole cards in a matter of seconds… and my expected long-term value of calling a bet based on that percentage and the amount of cash in the pot.

Roughly estimating about 17 random coins per dollar:

  • 2 – Quarters
  • 3 – Dimes
  • 2 – Nickels
  • 10 – Pennies

That makes about 1,700 coins collected randomly over about 8 years.

2013-09-15 21.09.57

There was never any effort to achieve parity between piggies.  Visually, Sarah’s piggy appeared to have about 20% more coins than Annalise’s piggy — Sarah was more diligent about stocking away change when you found it.

I don’t even know how to figure the odds that eight years of random coin collecting would yield the exact same dollar value.  All I’m confident of is that the probability would be infinitesimal.

I’m also confident that I would have bet the farm if someone would have offered me a wager against.

I guess there really is a “twin thing”
.


The John Cameron

A couple of years ago I grabbed a drink with my good comrade, Randall Lucas.  He suggested Mistral Kitchen because he had the inside scoop on a renowned bartender who could create high art with a rocks glass and mysterious bitters from places unknown.  The bartender in question was Andrew Bohrer; if you’re a fan of mixology you should definitely check out his blog, Cask Strength.

After a few minutes of indecision, Andrew proposed that I described the “essence” of a drink I wanted and he’d concoct something to match.   That was easy.  There is a drink I had a I’d never tasted but had many times imaged.

Imagine a dark, dank cave lite by only an weathered oil lamp.  Cob webs drape the rough hewn walls.   In a dimly lit back corner of the cave a single cask sits among ailing, rusted farm implements and curiosities long forgotten.  The cask markings are unreadable.  Above the cask, a narrow plank shelf secured to iron spikes driven deep into the wall.  Small, dusty bottles with mostly dry corks clutter shelf.  A few corks, however, have saved their contents from evaporation.  After some trial and error, here’s what you blend….

The John Cameron:

2 oz Vermouth: either Torino or Carpano Antica
.25 oz Ardberg 10yr old scotch
2 dash orange bitters
1 dash persimmon vinegar


Why Impact Entrepreneurs Need Tough Love

[This post was originally published on GeekWire, June 13, 2013, under the title "Tough Love and Less Purity for Impact Entrepreneurs."]

One reason I love getting to know social impact entrepreneurs is that they are among the most sincerely passionate entrepreneurs I ever get to meet.  They’re not just enthusiastic and driven, which often gets labeled as passionate.

Social impact entrepreneurs care deeply and passionately, about their projects in a very personal way.  And their missions are often so profound and inspiring that I get goose bumps just hearing them talk about it.  Occasionally, I even get a little choked up as I imagine what they want to accomplish and the impact they would have if they were to succeed.

I was moved in just this way recently when I met a wickedly smart and infectiously passionate entrepreneur whose simple vision could have profound, life changing impacts for children all over the world.  (Wow… I just got a lump in my throat just thinking about what she wants to accomplish.)

(Out of respect for confidentiality, I am not disclosing the particular entrepreneur or her mission.  However, she did review this piece prior to posting.)

Moreover, her idea is not only brilliant and potentially highly impactful — it’s also a very simple idea and straightforward to execute on.  That’s part of what makes it so brilliant.

But once I felt that I understood her project (and cleared my throat) I found myself doing what I always seem to do — rooting around for the biggest, hardest problems that will challenge the success of the business.

In my view, she had some potentially fatal issues.

She was trying to tackle too many, disparate problems all at once and that was going to complicate her messaging and dilute her resources, her impact, her brand and her chance for success.

It was also greatly complicating the organization she’d need to build to reach sustainability… which in turn increased the risk she would fail to even get things off the ground at all.

She was impractically concerned about optimizing every single aspect of her venture, looking for the absolute greenest and healthiest (and, as it turns out, slowest and most expensive) way of doing every last thing.  And every single one of those things had literally zero to do with her core mission.

It was also going to massively delay the launch of her product… by about 500 percent.  In the meantime, while she was focused on things that had roughly nothing to do with her mission, how many kids would continue to suffer while she got all that irrelevancy worked out.

I’m not trying to be the bad guy (although it often feels that way).  You see, having a great idea and being passionate about it is absolutely not a guarantee for success.  In fact, I’d go so far as to say that those two things combined give you only a very marginal advantage at best.  As I’ve written before, very few awesome ideas turn out also to be good businesses and passion can be as much a curse as a blessing.

In the case of social entrepreneurs, these challenges are increased because:

  • Social entrepreneurs often focus on how to bring their idea to life and not on how to build a sustainable or scalable business around it. As such, they are perhaps more likely to miss the warning signs that their idea is not also a sustainable business.
  • Their passion is so strong that their blind spot is just that much bigger.

Add to this that they get less brutal feedback from advisors and mentors — no one wants to rain on their parade.  Personally, I think it’s unfair to coddle them.  In many ways, they need even more tough love than their self-serving, free-market counterparts because the get so little of it and their missions are so important.

I find that business-focused conversations with impact entrepreneurs can run pretty much the same way as with their capitalist counterparts.  With a few exceptions.

  • First, impact entrepreneurs are usually less comfortable and less interested in talking about the business aspects of their business.
  • Next, impact entrepreneurs suffer (I would say) from a notion of purity that is counter-productive to their mission and vision.
  • Next, impact entrepreneurs have such a refined radar for identifying good things that need doing that they try to do too many good things all at once, diluting their chances of success in creating significant and lasting good of any kind.
  • Finally, impact entrepreneurs are more caught off guard by “tough love” conversations.

I won’t speculate on why or whether these things are really happening.  I’m certainly open to discovering that these observations are either mistaken perceptions on my part or actually a byproduct of something I’m doing poorly.

What I can say is that it doesn’t need to be this way and for many social impact entrepreneurs it’s not.  Impact entrepreneurs who participate in programs like Fledge and Bainbridge Graduate Institute (BGI) have a terrific opportunity to develop their business acumen through rigorous programs of education and mentorship.  The quality of engagement in these programs is very high and there is no shortage of tough love.

But space in these high-quality programs is finite and competition is fierce. Inevitably, many otherwise very bright and passionate impact entrepreneurs are unable to participate.

Regardless of whether an impact entrepreneur makes it into an accelerator program or educational institution, I have found that there is a way to make headway on all fronts, essentially turning what I believe are four liabilities into four actionable principles that will make a difference.  In a nutshell, the four principles are:

  • Care deeply about building a sustainable and scalable business, as it will increase the impact you will achieve
  • Temper purity with practicability insofar as it supports your core mission without compromising your core values
  • Focusing your goodness radar on achieving your core mission
  • Embrace “tough love”

These are principles that will help impact entrepreneurs get the business parts right while they’re busy focusing on the social impact parts.  The mechanism for impact entrepreneurs to exercise these four principles is holding themselves accountable to a personal impact report.

A personal impact report is an attempt to account for the overall impact you bring into the world through your social impact business — not just your ability to get your idea off the ground and “make a difference”.  The challenge becomes how you can do that in the most sustainable and scalable way possible.

We’d probably all agree that making a meaningful improvement in the life of just one person is a laudable mission.  Every time you do that, you do something awesome.  But how much more awesome is it to make a difference in the lives of hundreds… or thousands… or millions?  Of preventing 1,000 tons of Co2 from entering the atmosphere… or 1,000,000 tons or 10,000,000 million tons?  Or providing clean water to 10 villages… or 100 villages… or 1,000 villages?

Sometimes, less is not more.

Of course, you’ve got to start with one life, one ton and one village.  Boiling the ocean pretty much never works.

But if, from the outset, you are not thinking about how you could sustainably scale your impact (by building sustainability into your model, intelligently tempering your purity, focusing your impact and attacking the hard business questions), not only are you setting yourself up to make a smaller impact on the world, you are also diminishing your likelihood of succeeding at creating any impact at all.

If an entrepreneur’s goal is to make a positive impact on the world, how could we possibly be critical of how they choose to go about it or how much they try to scale it?  I think the easy answer here is that we shouldn’t be critical.  Rather we should look for ways to support them.  But, I propose, they should critical be of themselves and seek advisors and mentors who will hold them accountable for doing so.  A personal impact report is a simple way to constructively do just that.

Here’s how it works.

A personal impact report measures the total amount of goodness your efforts produce in the world.  As the entrepreneur who got it all started, you get fractional credit for all the efforts of the team you build and the product or service your company delivers.  It’s kind of like building your “down line” in a multi-level marketing program like Amway.  That’s why being the founder is such a big responsibility — you make many of the early decisions that will determine the potential depth and breadth (i.e., the impact) of that down line.

Precision is neither necessary nor feasible — being approximately right is superior to be being exactly wrong.  A personal impact report need not be as rigorous as a written report complete with spreadsheets and critical analysis.  It can be as simple as a mental exercise performed when big decisions need to be made.  However, as with all forms of accountability, writing it down and sharing it with others are important.

When thoughtfully applied, I propose that the four principles will increase both success rates and impacts or social entrepreneurs.  Am I right?  Too soon to tell.  What do you think?

Returning to the story I started with, the impact for the entrepreneur of thinking about the four principles I’ve proposed is likely to result in a magnitude increase in the amount of impact she will have in the very near term, will lay the ground work for a more-scalable impact down the road, and will extend that road farther into the future.

Starting a company is a daunting undertaking, whether your mission is creating wealth or creating social impact or both.  Sustainability is crucial to all of them; scalability is crucial to many.  Impact entrepreneurs owe it to themselves, their team and, most importantly, to the lives they intend to impact, to be passionate about getting the business parts right.


7 Theses to Separate Good Businesses from Merely Good Ideas

You’ve got a good idea.  Awesome for you!  Good ideas are… well good.  But do you also have a good business on your hands?  There are lots of good ideas… really, really good ideas… ideas that everyone in the room nods their head to.  It feels awesome when you have one of these good ideas.  But here’s the reality — not all of the really good ideas are also good businesses.

There are so many factors that make otherwise-good-ideas turn out not to be good businesses.  Some are due to weaknesses inherent in the market/problem/solution that you’re going after and some are due to common failures of execution.  There are way too many to catalog here, but here are just a very few:

  • The problem you want to solve is just too small to warrant building a whole company around.
  • You thought your idea/product was so awesome that users would make it their life’s mission to help you reach a blowout viral coefficient.
  • You fail to solve the enormously difficult multi-sided market problem.
  • Everyone loves your solution but they are unwilling to pay you for it because they expect a product “like that” to be free.You encounter perverse incentives within your marketplace that want to keep your problem unsolved.
  • Sales cycles that take longer than your startup’s runway.
  • You didn’t realize how expensive it was going to be to deliver a viable product.
  • What do ya know, there are already better solutions out there that you never found because you never looked.

Add to this the ironic twist that our passion for our really good idea can blind us to the reality of these challenges.  In my view, we too often mistakenly believe that our passion is both impenetrable armor and mighty sword in our quest for startup success.  Passion can be both armor and sword, of course.  But at best they are chain male with soul sucking resistance and a +2 short sword.

PassionBlindSpot

At first this realization can kinda suck.  But it doesn’t have to.  Here’s the deal.  If you have a really good idea that’s not also a good business… it’s still a good idea.  It’s still an idea you can be proud of.  After all, lots of people agree that it’s a good idea.  Cool.  Relish that.  But don’t quit your day job, invest all your savings, put your family and your team at risk until you have a good reason to believe that your good idea could also be a good business.

Figuring out if you have a decent reason to believe your good idea is also a good business may seem hard (I hope it doesn’t seem unnecessary.)  I don’t think I have an awesome way yet to help entrepreneurs figure this out but I’m always on the hunt for new ways to think about the problem.  My current thought is around a compelling story you should be able to tell that include 7 theses.

  1. Here’s who would buy my thing. (customer)
  2. Here’s what they would pay for it. (revenue)
  3. Here’s why they would pay for it. (value)
  4. Here’s how many of them would pay for it. (market)
  5. Here’s how I’m going to get them to pay for it. (marketing)
  6. Here’s what the money looks like if I can get them to buy it. (financials)
  7. Here’s how I get there. (plan)

If everyone in the room nods when you layout this story, then you have may just have one of the good ideas that you could also make into a great business.

You can (should) spend hours and hours and pages and pages and spreadsheet after spreadsheet working out a compelling story that gets at every single one of these points.

Reid Hoffman is famous for saying that entrepreneurship requires jumping off a cliff and building a plane on the way down.  I couldn’t agree more.  But that doesn’t mean you shouldn’t design a plane capable of flight before jumping so that what your trying to build on the way down might actually fly.


4 Reasons the Seattle Angel Conference is a No Brainer

The Seattle Angel Conference III is coming up on May 16th.  The deadline for registering as a presenting startup is Monday, March 4th.  I’m signing up to present MoonTango and I think you should sign up too.  The reasons are simple.

1) SAC III will be making at least a $100k investment in one of the six teams that make it to the finals.  That a 17% chance of effectively “winning” a series chunk of investment capital.  This is unprecedented in Seattle.

2) The value of the help you get on your startup by going through the diligence process is worth magnitudes more than the $99 you pay to register as a presenting startup.  Don’t believe me?  Read what Corengi thought about the experience at the last SAC event even though they didn’t win the finals.

3) That $99 is effectively zero dollars, because you don’t pay anything more than a standard conference ticket to also be a presenting startup.  You just gotta let them know that you want to be considered to present.

4) Even if you don’t win (or even make the finals) where else are you going to spend an afternoon with a room full of angel investors

If I’ve persuaded you to register to present at SAC III and you win $100K (that is, you beat me) then all I ask is that you buy me lunch and tell me what you learned along the way.

Now go sign up… before the deadline and before the conference prices go up on Monday!!

Good luck!


Scam alert… blast from the past.

I just received the following text message from 781-366-7992:

I know you don’t know who I am yet but I promise you I will win tonight’s MINNESOTA / OKLAHOMA CITY game for sure. Reply FREE and I will text it absolutely FREE

I don’t even have to look this one up to know how it works… I saw it 30 years ago.

The trick was to start with a sufficiently large number of people and send them each a letter (yes, a paper letter with a postage stamp) identifying which team was going to win the next baseball/football/basketball game.  Let’s say you sent 100 letters.  Half of the letters (500) would identify Team A while the other half (the other 500) got told that Team B would win.  Which ever team one, you were 100% right in 50 letters.  You follow up by sending another letter to the 500 you got right claiming to have a secret for picking winners.  And to prove it you’re gonna pick the winner of the next game.  Five hundred letters go out, 250 pick Team C and 250 pick Team D.  Holy cow… you were right again.  But surely this is just luck, you say?  Watch, I’ll do it again.  Out go another 250 letters, 125 picking Team E and 125 picking Team F.  Voila!  I’m a genius!   You see where this is going.  75 letters, 37 letters, 18 letters, etc.  After establishing a perfect record of six or eight wins in a row, you’ve got their attention.  “Ok, that’s all you get.  If you want to know the 9th pick, you gotta pay me $1000 in cash.  Send the money and I’ll send you pick.”

The wait time of postal mail, the difficulty of anonymity and the cost of postage made this scam harder to run way back then.  But with the immediacy of text messaging, free access to cell phone numbers, relatively easy anonymity and the MASSIVE reach that possible… this sucker is a no brainer today.

All my readers are super smart so I don’t expect them to fall prey.  But I gotta think a ton of less sophisticated mobile users are gonna have an unfortunate wake up call.

Hope the Secret Service paying attention to this?


Entrepreneurs Should Learn to Think Like an Investor

I had a walking meeting scheduled for this morning’s Geeks on a Trail hike.   Before heading out I stopped in for a quick coffee at the long running Seattle Startup Open Coffee which Andy Sack founded years ago and which John Sechrest now shepherds forward.  Spying a new face and an empty chair, I sat down and introduced myself.   To protect the innocent, let’s just say his name was Ricky.

Ended up having an invigorating conversation about Ricky’s startup project.  It was clear that Ricky was an extremely talented developer and really passionate about his product.  As is my wont, after about 10 minutes of getting to know him and his product… I was ready to talk business.

Ricky had lots to say about product features and how he could build them.  But Ricky had virtually no clue about whether the startup project he was working on (for a year!) was likely to also be a sustainable business.

We talked about a lot of stuff that Ricky wasn’t thinking about — like whether his product could ever actually make enough money to warrant investing another year of his life.  What became clear was that after working on his product for about year he still had no idea whether his product had any hope at all of becoming a sustainable business.

A few of the questions he had no answer for were:

1) how big is the market for the product you’re building?

2) how are you going to acquire lots of customers?

3) how much do you think it will it cost you to acquire a customer?

4) how much will customers pay to use your app?

Before I go on, let me just say that Ricky struck me as a really smart guy and seemed like a really nice guy too.  So when I bag on Ricky now it’s not personal.  In fact, I have roughly the same conversation with other entrepreneurs so frequently that it prompted me to write about it here.

Ricky correctly pointed out that I was asking the kinds of questions that an investor would ask.  But, he claimed, since he hadn’t figured out yet what is final product and customer were going to be and because he wasn’t raising capital he therefor didn’t need to bother with such non-proudcty questions like these.

There is a lot wrong with Ricky’s claim, but here are two of the thoughts I left him with.

1) YOU are an investor in your startup.  So is your wife and your kids if you have them.  The opportunity cost alone is sobering when you consider that two years working on a project will cost a talented developer like Ricky at least $250k in salary.  Add in the sleepless nights and the “always on” lifestyle of an entrepreneur and you’re talking some serious emotional bank.

2) Asking those investor-ish questions is key to figuring out what product you should build for what customer.  You may never bring in investment capital; but remember that the questions investors care about are all filters on whether your startup is likely to succeed.  If you don’t have a compelling story to tell about how the product your building is going to be valuable enough to a scalable customer base that will pay enough for you to build a sustainable business around… then you just may not have found a great product or customer yet.  That doesn’t mean you’re dead in the water.  It just means you haven’t found a startup “business” yet.

Ricky was clearly enjoying the startup lifestyle and loved all that he was learning.  I support that and I wish him the best of luck.  But startups don’t have to be just about luck.


It’s not a startup … It’s a startup business

[This post was originally published on GeekWire, February 13, 2013, under the title "It’s not a startup … It’s a startup business."]

As a species, we can be pretty lazy with language.  That’s cool… we all know what we mean.  But I reckon there can be benefits from occasional reminders about what we all think we know.  The word “startup” is such an occasion.

We say it and we hear it all the time.  But “startup” is really just shorthand for “startup business.”  We all know that, right?  So what’s the point of laboring over two whole additional syllables when we’re already all on the same page?

I’m not claiming causality here, but I find it curious how infrequently I hear entrepreneurs talking about the business side of their startup businesses.  Mostly, we love to talk about the idea and our passion for it.  We love to talk about our motivation… the solution… the design… the technology… the brilliance.  The business?  Not so much.

Mostly, the ideas I hear are good.  Some are really good.  But a startup business needs to be more (much more) than just a really good idea.  It needs to be a good business too.  And as it turns out, there’s usually a huge chasm between good ideas and good businesses.

Here’s the rub: there are lots and lots of really good ideas, cool ideas, outstanding ideas, stuff we all wish existed and if it did exist we think we’d use it… that are NOT also good businesses.  It’s only a small subset of good ideas that are also good businesses.

Job one for an entrepreneur is to figure out if there’s actually a good business to be had from a good idea. Or is it just a good idea?  It’s OK if a good idea turns out not to be a good business — just so long as you figure that out before you spend three years of your life, expend all your savings, exhaust your relationships and take down your whole team with you while you’re at it.

There’s no certainty to be had here but it’s remarkable how often startups are pursued without ever diving deep on the business side.  It’s a rare thing when an entrepreneur reaches out to me because they want to talk about the sustainability of their business model or the scalability of their revenue strategy.  They want to talk about their idea.  Which is just fine because I love talking about ideas.  But even more than the ideas themselves, I love talking about the business of the idea.

So once I think I have a reasonable understanding of their product, their market, their team (which usually takes less than 15 minutes)… I am ready to talk business.  How are or you going to make money?  How much will customers pay?  Why would they pay that?  How long will it take and how much will it cost you to acquire those customers?  How many have you talked to?  What’s the long term value of a customer once acquired?  What’s your distribution strategy?  Is it a two sided market?  How are you going to solve for that?  And a hundred other questions. Needless to say, these can be hard questions to hear if you haven’t spent a lot of time thinking about them and can make for a disappointing conversation for a lot of entrepreneurs.

In any case, here’s what I’ve found: It’s really hard to tell if a startup business is likely to succeed but it’s surprisingly easy to show that it’s likely to fail (or at least show that there’s rational justification for believing you don’t know how it could possibly succeed).  This is really good news because if you can make your startup business fail on paper first then you’re way ahead of the game.

Then you have some choices to make besides fervently proclaiming your passion for the idea and constantly quoting the late Steve Jobs on perseverance and citing Instagram’s acquisition.

You could choose to call it what it looks like, i.e., just a good idea but not a good business.  There’s no shame in that. Lots of useful, clever ideas turn out not to be a good business.

Remember, most good ideas are not also a good business.  If it’s an idea you really care about about but you can’t wrangle a business model out of it then you may have just discovered a labor of love that you can have a blast working on in your spare time without the pressure of feeling like you should quit your paying job.  And who knows, if you keep working at it, something might change and you might stumble upon a business pivot that turns it from a labor of love to a startup business.

Bob Crimmins

You could also choose to dig in and keep working on the business model until it’s really hard to make it fail on paper. This is what I think a lot of really good entrepreneurs do.  This is called “perseverance” and it’s a lot of work so buckle your seat belt.  This is also where your passion is a really valuable asset because it will keep you moving forward while you figure it out.

Just don’t loose site of what you’re trying to figure out, i.e., a sustainable business that can support your awesome idea.  And by the way, don’t build into your model that your going to raise investment capital before you’ve got a reasonable story about the business side of your startup business.

You could choose to take what you learned and pivot your idea in the direction of a different market, a different customer, a different product.  This is another common behavior of good entrepreneurs.

You could also choose to follow your passion, ignore the paper and double down on your good idea in spite of a lack any evidence that it’s likely to be a good business.  At least if you choose to double down in the absence of a credible business model you’ll at least be making an intentional choice to do so.  I don’t recommend that but as an informed and conscious choice I can get behind it.

As I’ve written before, I believe passion is necessary but not sufficient for startup success.  But recognize that your passion is irrational.  Although it inspires you, your passion doesn’t know anything about revenue models, acquisition costs, competitive barriers or conversion rates.  Your passion has never crunched a spreadsheet or solved for a two-sided market. In short, it doesn’t know anything about the “business” part of your “startup business.”

To be clear, when I say “fail on paper” I’m being very lazy with language.  It takes a lot more than just paper to figure out whether your idea might also have a decent shot at being a business.  Some indicators that you’re doing something right are:

  • You’ll be talking to a lot of relevant people about your ideas.  And unless your preparing to file a patent, you won’t be asking anyone to sign an NDA.
  • You’ll be doing a lot of market and competitive research.
  • You’ll be crunching numbers in spreadsheets to figure out what the economics are likely to look like.
  • You’ll feel like you are the biggest critic of your idea and will always be on the look out for qualified folks to confirm or challenge your assumptions… but mostly to challenge them.

My recommendation:

1) Occasionally work in the phrase “startup business” when you talk about your idea. It may feel dorky but it will help keep you honest about what you’re really trying to do, i.e., build a sustainable business.

2) Strap a spreadsheet to your passion and embrace the hard questions that will help you figure out if your good idea is also possibly a good business.  I strongly believe that falling in love with a specific idea is, well, a bad idea.  Much better to fall in love with solving problems and cultivate a passion for exploring ideas with the aim of figuring out if they might also be a great business.

3) Try in earnest to prove that your idea is not a good business.  If you fail at that then you have a much better chance of staying out of the 90-plus percent of startups that fail —  even though the founders had tons of passion for their idea.  You may also have a shot at discovering a labor of love that you can have some fun with while you wait for the muses to return with a better idea or fix the one you already have.


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