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Startup Tips from MIT Venture Forum – Part 1

Last month I attended a MIT Venture Forum here in Seattle and the topic was “Ten Steps to Launching an Early Stage Company”. The speakers were Jonathan Roberts of Ignition Partners and Stan Shull of Intelligent Results which was recently acquired by First Data. I’ve been meaning to write about my thoughts & what I learned and finally sat down to do it. Instead of laying out all 10 steps, I will layout the main bullets and integrate my thoughts to make it relevant for consumer applications. Jonathan & Stan both work mostly with enterprise software so the presentation was more enterprise focused but I think the same advice is equally valuable & applicable to consumer internet startups.

Key Takeaways:

  • Determine who your customer is and what they want to buy
    • Don’t be disruptive
  • Secure first customers – deep is better than broad
    • Focus on engaging first customers rather than aggressive customer acquisition

I strongly believe that understanding who your customers are is the most critical step to building a profitable business. And by customers, I don’t mean the end users that get your product for free – focus on the paying customers too. Whether it be advertisers, subscribers or whoever, it’s important to understand the following at a granular level:

1.      What’s your vision for monetizing your product? (don’t just say “targeted advertising” and be done with it)

2.      What’s the addressable market and how quickly is it growing?

a.      How much of that market is actually your addressable market? (if you’re selling targeted advertising online, don’t include TV & print ad spend in your addressable    market)

b.      What’s the penetration and how quickly is that changing?

c.       Realistically, how much share can you gain and how quickly? (if you tell me you can take 20-30% market share in 1-2 year, I’d have a hard time believing)

3.      Why are you better than your competitors? (in consumer apps, you have to be better at appealing to users & paying customers if they’re not the same people)

a.      Who are your competitors?

b.      How much incremental value are you adding to existing solutions?

4.      What’s most important to your customers? (this better align with your answer to 3)

5.      What’s the sales process / sales cycle? (who’s actually making the final decision)

a.      What’re the barriers to sales? (existing contracts with current vendors, typical replacement/upgrade cycles, etc.)

b.      Jonathan believes you need six customers before you can replicate the cycle

If your only exit strategy is to get acquired and not actually generate any revenue, then figure out who you’d ideally want to be acquired by and treat them as your customer. Understand:

1.      What kind of acquisitions have they been making?

2.      How do you fit into their acquisition strategy?

3.      How much value do you add to the acquirer’s strategic vision?

4.      What are their competitors doing that they haven’t noticed yet?

5.      How do you shape your product so they can leverage it compete?

One of my favorite points is when Jonathan said “don’t be disruptive – don’t try to create something revolutionary”. It’s a bit counter-intuitive at first but quickly made sense. He explains that if you make something revolutionary, then don’t expect customers to buy it like hot cakes because it’s a much tougher sell – most successful companies makes products that are improvements of predecessors. (e.g. Microsoft improved on Lotus products, Facebook on Friendster, Google on search, etc.) Why is it a tougher sell? Because people like products they’re familiar with, products they’re already spending money on. If your product requires your customer to allocate new budget for, you must convince them to slash budget elsewhere. If your product is revolutionary, most customers will view it as a “nice to have”, not a “need to have” – “need to haves” are much easier to sell.

A lot more was talked about which I will follow up in later posts. Let me know if you agree or disagree with these thought or if I’m missing anything…

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