Fit For Purpose

Thanks to Eric Ries, Steve Blank and the whole lean startup movement, increasing numbers of founders and investors are more aware of the need for validating ASAP that a new business has a "Product - Market Fit".

Today, thanks to some mental prods from reading @RobFitz, I'm reminded that there are 3 words in that phrase and that each word matters.

Product Fit, Market Fit and Product Market Fit are worth each understanding in their own right.  As a founder or investor, it's worth knowing the difference and which matter to your business.

An emphasis on Product Fit is most important when the market is already understood.  For example, when we know that people want to play games online, the important thing is to work on building a great game. Product Fit.

An emphasis on Market Fit is important when the customers' needs are not yet fully understood.  For example, if a startup was to focus on improving tools for events and event organisers, they would need to understand the current pain points and identify something real and tangible that they can improve and which people are willing to pay for it.  Understanding that is first of all understanding your market.  Market fit.

Product Market Fit brings the two together.

In some startups, deep research both is required to validate the business model.  In others, more emphasis on product or market may be more relevant.

The most relevant word of all is "fit".  Any business that succeeds needs to be fit for purpose.  This "fitness" relates being adapted to the current and future environment.  It's precisely the fact that the environment in which we find ourselves is constantly changing (technological trends, social trends, legislative changes etc.) that gives businesses new opportunities to exploit.

Just as an athlete can train to be fit for a certain event, a startup needs to be fit to exploit their opportunity.  Usually a training schedule for boxing won't help win a swimming race.  Training to run a marathon won't win the 100m sprint.

In the earliest phase of a business, research therefore needs to focus on defining the opportunity and figuring out what's needed to win that opportunity.  Then it's time to get fit.

Traits That I Admire in an Entrepreneur

I've met many entrepreneurs and founders and wannabe founders over the years.  Some were convincing, some were not.  Some of the convincing ones persuaded me to work for them.  Taking the best of what I've seen so far, what are the traits that I admire in an entrepreneur?

• They really understand the problem they are trying to solve
• They have a strong vision of what the future will look like once they've solved the problem
• Others follow them because they are inspired by the vision
• They are humble enough to ask for advice and realise when they need help
• They build a team where each individual plays to their strengths
• They are frugal with money but generous in spirit
• They systematically want to test every part of their business model and will change course based on feedback
• They know their numbers; daily, weekly, monthly, quarterly, annually
• They have relentless energy and tenacity
• They speak with their customers directly
• They are open and approachable
• Their word is worth something and they follow through on their promises
• They can be trusted
• They can tell a great story
• They find it difficult to comprimise on quality
• They can react quickly, decisively; yet manage to make time to reflect and plan ahead
• They are positive and enthusiastic

To find such a person is rare but when such a person comes into your life, the rewards of supporting them with your time, money, help or attention are exponential.

2000 to 2014 - ifyouski.com Stands the Test of Time

It's the ski season and if you are looking for a ski holiday you could do worse than check out www.ifyouski.com.  In fact, to be clear - I love this website!

It's so good to see her keep going, year after year.  Ifyouski.com was my first internet job.  I joined in August 2000 (shortly after they raised some money from VCs) and now, 13 seasons later, she's still shining.

Ifyouski nearly didn't survive.  It had c.£3m of investment and at one point we had about 50 staff. It imploded and was saved/bought by Online Travel Corporation in 2001 for a bargain (it's since been sold again a couple of times).  A handful of us kept our jobs.  I was one of them, together with Robin Wallace, Max De Grunwald, Rob Van Selm, Tim Barke, Susanne Hedges, Andy Hiseman, Tom Corcoran and Alan Whiteley.  Great team.

Ifyouski.com was a very useful website.  It still is.  It's a well structured fusion of holiday search with great decision support content (resort information, snow reports etc.)  So what happened to the £3m? Where did that go?

I was working in a Ski Tour Operator in 2000 and it was the height of the dot com boom.  I was excited by the chance to join an internet start up and whilst I didn't know much about startups or the internet, I knew a lot about selling and organising ski holidays.  I saw an ad, thought "Yup - that'd suit me" and I joined in a role which would these days be called Product Manager.  Back then such job titles didn't exist.

7 years earlier (1993) ex-Olympian skier, Michael Liebreich published a book on ski technique called The Complete Skier. A few years later he took it online as complete-skier.com.  It had ski technique content, resort information, snow reports, ski news.  It was just stacked full of great ski related content.  On top of this a ski chalet holiday search was added as a way of generating some revenue.

As it turns out, a ski chalet holiday search in 1999 was a very useful tool indeed.  It still is.  The British ski chalet business is fragmented with many small independent operators.  In those days, if you were looking for a chalet (say) for 8 people in a specific resort for a specific date from a specific airport you'd have to phone many different operators having read the ads in the Sunday Times travel supplement.  To have a website where all of the main operators were listed was fantastic because you could search across many operators at the same time.  When you'd found your ideal holiday you could phone the booking office (our travel agent partner) or make an email enquiry.  The travel agent made a commission on the booking which they shared with us.

Nice business model.  Going strong today.

What happened in 2000 was the company looked to build on it's early success in ski by raising money to launch new sites leveraging the same technology platform.  Instead of just ski, the plan was to open up into adventure travel (ifyouexplore), golf (ifyougolf) and scuba diving (ifyoudive).  And as well as doing this in the UK, we intended to launch in 3 other countries.  Instead of 1 market in 1 country we went head first into 4 markets in 4 countries.  Instead of nuturing 1 business model that worked, we developed 1 that worked and attempted to launch another 15 that we didn't know whether they would work or not. 

This was an expensive bet to make.  Expensive as we had about 50 people (although about 20 of them were interns).  In 2000, tech development was costly (we used an agency) and almost everything was proprietary.  We had to buy our own servers, write code from scratch (very few open source libraies existed) and create our own content.  We didn't know about lean startup methodology.

As it turns out the international businesses and the non-ski businesses didn't deliver a revenue stream fast enough.   Some parts of the ski business model simply did not transfer across borders or sectors.

The cash burn was crazy. Back in the dot com boom maybe this didn't seem so crazy.  However, unable to deliver the revenues, we were not able to raise further funding and the business was sold. 

All that remains now is the one business model that worked; selling ski holidays in the UK via a travel agent using online search.

The lesson I took away from that experience was that any new business model that a company attempts needs to be validated before putting too much investment into it.  Validation of the business model requires really understanding the customer segment(s), the distribution channels, the customer relationship methods, the proposition, the key activities and resources, who the key partners are, the cost base and the revenue model.

An excellent way to map this out is using a business model canvas.  A business model canvas allows you to capture on one page all of the above points.  You can highlight the parts of the canvas that you understand (the "knowns") and the parts you yet need to prove (the "known unknowns").  You can think about the assumptions you are making and then think about how you can go about testing those assumptions.  You then systematically run those tests and tweak the model based on the feedback. Once you really have proven all elements of the canvas to a reasonable degree of certainty, you're in a position to start investing money in developing this business model.  

I was lucky enough to work with some really great people at ifyouski.com.  Many remain true friends.  We had a real adventure and managed to leave a legacy which still keeps going today. 

The good news is for entrepreneurs today, lean start-up methods have made it easier to validate business models sooner.  More tools and platforms exist to support new initiatives and there's a growing workforce of talented designers, developers and marketing folks to call on. 

The Death Of A Startup

This week I met an entrepreneur who was at a critical point in her journey.  I use the word critical on purpose.  Her company was about to live or die.  Either she will raise more cash (or be acquired) in the next few weeks or she will pack it all in after 3 years of toil with nothing to show for her effort except some wisdom and battle scars.

She's got a great product, the future could be very bright. She's an amazing positive force despite the obvious stress. Circumstances have simply dealt her a bad hand in the last few months and she now needs a little light from lady luck. I will cheer loud and proud if she makes it.

Recently CB Insights published a report entitled "Startup death trends".  The headline; "Companies typically die around ~20 months after their last financing round and after having raised $1.3 million". The median time is 16.5 months.  

That makes sense.  Most investors will put enough money to buy a company enough runway for a year to two years.  Enough time to make a step change but not too much to over-invest.  After 16 months you're either ruling the world with profits to live on (unlikely) or needing more money (more likely).  If you have good indicators that your business model can and will deliver profitability, you have more chance of getting additional funding.  If you don't, death looms.

The article is well worth reading if you are thinking of starting a business, investing in or joining a startup.

Startups are massively risky.  When I interview someone to join a startup I make it clear... this company is a not yet profitable.  We've got a great opportunity (share the vision) but if we don't make, none of will have a job.  If you want job security, you won't find it here.

As a follow-up, CB INsights also published "51 Startup Failure Post-Mortems".

A quote stands out for me in particular...

Andy Young from GroupSpaces wrote, "…we most definitely committed the all-too-common sin of premature scaling. Driven by the desire to hit significant numbers to prove the road for future fundraising and encouraged by our great initial traction in the student market, we embarked on significant work developing paid marketing channels and distribution channels that we could use to demonstrate scalable customer acquisition. This all fell flat due to our lack of product/market fit in the new markets, distracted significantly from product work to fix the fit (double fail) and cost a whole bunch of our runway."

This I personally believe is the biggest risk to any tech startup. A startup is a quest to find and prove a viable business model.  Unless it's profitable, it's not viable.  An entrepreneur therefore has to really think hard about whether adding more cost to their business is going to help them uncover that business model sooner rather than later.  The aim should be to get to the viable business model with as little cash as possible.

Once a business model is validated, capital invested is then invested as growth capital.  That's a whole different challenge in itself.  However, taking lots of capital before the business model is validated and then spending hard basically adds more risk, not less.

The earlier you can prove the business model the better.  In simple terms that means having something that customers are willing to pay for and to be able to acquire customers in an efficient way.

What Start-Ups Can Learn From Archimedes

As it turns out, Archimedes can teach us a lot.  He was Smart with a capital S. 

“Give me a place to stand on, and I will move the Earth” Archimedes

Or – in other words, “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world."

 

“A lever (/ˈlɛvər/ or UK /ˈliːvər/) is a machine consisting of a beam or rigid rod pivoted at a fixed hinge, or fulcrum. It is one of the six simple machines identified by Renaissance scientists. The word comes from the French lever, "to raise", cf. a levant. A lever amplifies an input force to provide a greater output force, which is said to provide leverage. The ratio of the output force to the input force is the ideal mechanical advantage of the lever”. - Wikipedia

How does this relate to start-ups?  Start-ups are small Davids who are out to conquer giant Goliaths.  In the bible, David defeated Goliath with a lever.  A catapult with a stone is a weapon which turns a near useless stone into a giant killing weapon.

In the business world, there are plenty of levers to use.  Identifying them and using them to your advantage is an essential part of building a small business that can take on Giants.

An example. Microsoft came to dominate PC operating systems through a smart distribution deal with IBM.  IBM at the time were a massive PC manufacturer, Microsoft were tiny.  Bill Gates managed to get his DOS operating system into all IBM machines yet retain the rights to use them elsewhere.  By leveraging the massive scale of IBM, MS DOS became the main PC operating system of its time.

These days, a small online trader can leverage the marketplaces of eBay and Amazon to gain access to consumers.  A gaming company can leverage the user base of Facebook, a SaaS business can give away free products in app stores to acquire customers that they can up sell to paying subscribers.  A travel insurance provider can partner with an online travel agent to gain access to relevant consumers.  
 

Thinking of the world in terms of how to leverage the strengths of others to your advantage is a very useful perspective when you have very little in the way of money or resources.   

Got any other examples?  Please do share your thoughts…

To Scale Or Not Scale?

I was at an event earlier this week with a room full of tech start-up and growth company COOs.

One word that was used often in conversation was "scaling". 

"As the business scales", "When you're scaling up", "scaling the business", "scaling the team", "bringing scale to the team"... these were all typical soundbites.

I've heard people use the term so much over the past few years.  In a start-up it's easier to talk about "growth" and "scale" than trickier subjects such as "revenue" and "profit".

So, to clear things up, just what is "scaling".

Well, in my opinion, it's something more than just "size".

It's about efficiency of resource utilisation.

Here's a simple example.  You have £100,000 in revenue.  You have 5 people.  You have 2 web servers.

What happens when you double the revenue?  Do you double the team and double the number of servers?  If you do, you are not scaling.  You are just growing. 

Scaling would mean that you doubled the revenue, but the team size and web servers did not need to double.  Maybe the team went to 6 people and the web servers stayed the same.  Now you're starting to scale.

Scaling come from the term "economies of scale". 

The more transactions that take place, the cost per transaction comes down.

So - are you scaling or growing?  Ideally both!

What's For Tea?

In our household there's sometimes a discussion that starts late morning or early afternoon with the question, "what shall we have for tea?" 

(Tea by the way meaning evening meal).

I usually say, "I don't know, it depends what's in the fridge".

My wife on the other hand likes to know what it is she is going to look forward to.

She'll think of a dish that she'd like and then asks what's missing to make it. If we need one or two ingredients, she'll buy them.

I on the other hand prefer to freestyle and make do with what we've got. Where she sees an empty cupboard, I see three or four alternative dishes. As I am the one cooking in these situations, I prefer to go with the flow.  It's not that I don't plan. I do plan. I plan by putting in place a lot of ingredients in our weekly shop. The cupboard is always stocked with lots of flavour and base items.

I however am less likely to imagine a meal in advance. I will perhaps look in a recipe book for ideas if we're having guests. My wife will think of lots of alternatives.

What about you? Who are you most like?

Both personality types serve a purpose. To be able to envision a future and make it happen is a great trait for entrepreneurs. Let nothing get in the way, get what you want.

Equally, the ability to adapt, optimise and deliver based on limited resources (making sure there are the right ingredients in place) is a great trait needed by teams who are working to build businesses.

Both tendencies have their advantages. Put both together and you get a formidable team.

By the way, it's no coincidence that my wife comes from a sales background and that I come from an operations background.

Just don't ask me what we are having for tea. Trust me, it'll taste great.

Get Your Platform Shoes On

Finding a business model that scales is increasingly important in the modern world.

What does that mean, and how do we do it?

First of all, scaling. I'm using scaling in the broadest sense. In my definition, it's a case of where revenues per unit grow faster than cost per unit. An example would be; say I need 2 programmers and 3 web servers to make 1,000 online sales a day. If I do 10 times as many sales, I don't want to spend 10 times as much on programmers and servers. So instead of 20 programmers and 30 servers, maybe I can do it with 3 programmers and 4 web servers. The cost of doing business gets more efficient the more volume I add.

This is a particularly important concept for tech-media companies, because often in a start-up mode they are running at a loss. They are still investable businesses though because if the sales and marketing bring the volumes, not only do you get to a point where the company starts to break even, but the growth in profitability thereafter is extremely impressive.

Secondly, the modern world. Increasingly we are seeing business models that transcend borders. They can be run primarily from one central location with small local teams for international presence. Not just in tech (Google, Facebook, Amazon, eBay), but also in telephony (Vodafone, Orange, Nokia, HTC), consumer electronics (Sony, Samsung, Apple) and supermarkets (Wal-Mart/Asda, Carrefour, Tesco). A business model that scales has a huge advantage over one that doesn't when competing on world stage.

So, if scale is important to compete in the modern world, how should we think about business investments into this environment?

I always ask myself, "is this a platform business?"

If the answer is yes, I'm interested. If no, you'll need to work hard to get my interest.

A platform. Not 1970's funky shoes, but a prism through which to view to judge almost any business investment.

A platform is a place where supply and demand are aggregated. Lots of buyers connect to lots of sellers through a central marketplace or hub.

There are platforms all around you.

iTunes: Hundreds of millions of music consumers connected to almost every music publisher
Google: Millions of searchers connected to millions of advertisers
eBay: Millions of private sellers connected to millions of buyers
And there's more... Autotrader, Match.com, Amazon - and of course Livebookings (my day job) - where we connect millions of diners to thousands of restaurants.

These are all platforms. The more supply you add, the more interesting you are to buyers. The more buyers you can provide access to (consumers), the more interesting you are to sellers. You gain market power - because the owner of the marketplace can charge people for attending the marketplace and for transactions that happen in the marketplace.

In any business model like this, the potential is exciting. The keys to success are; seeding the platform with sufficient product to get consumers interested, have a diminishing cost of sale by adding more inventory over time and having inherent viral effects that customers create more customers. That's all about execution. Having a great idea is one thing - doing it is always harder.

To get past that "is this a good idea?" phase, I always ask myself, "does this solve a real need", "is this a platform" and "will it scale?".

Then - I get my platform shoes on - and go for a boogie.

Community 101, Drive Usage, Then Monetise

STOP PRESS!!!

Since I wrote this blog, my frustration and objections are now resolved, you CAN now hear what I really thought about location based services on video...


ORIGINAL POST....

Location based services. Buzz words. You hear them a lot right now. But what do they mean?

Simply put then, if I know where you are, can I offer you something that uses that knowledge in real-time?

If your mobile phone tells me your location co-ordinates...
- if I am Google I can show you a map of where you are and what is nearby
- if I am a restaurant booking app on your iPhone (e.g. bookatable) I can show you restaurants nearby
- if I am Foursquare I can present local restaurants and bars that you can "check-in" to and see who else of your friends are there

Three very simple examples then. But what of the future?

What are the implications for consumers and for marketeers?

At a recent plustechnology event run by London lawyers, Olswang, I committed my comments on this topic to video.

A company called Knowledge Peers were videoing peoples thoughts. Today I received an email with a link to a short video on my observations that targeted marketing can be welcomed by consumers rather than seen as obtrusive, and that location-based technologies help with accurate targeting.

Can I share it? No!

I really don't get it. I mean, I REALLY don't get it. What the? Uh?

Knowledge Peers is a members only site. I tried to send a share this link to a friend, they first had to sign in to Knowledge Peers. Fail. They STILL couldn't view the video. Doh - that sign up was for standard membership. Apparently I have full membership and that's why I can view it. Double Fail.

Look, if you want to build a community site, it needs to be viral, self-sustaining. You need to drive USAGE first, then monetise when you actually HAVE a community.

It's all upside down. I should be able to embed the video in this blog post, email it to friends. If they get value from the content, maybe they will sign up and subscribe.

The content on Knowledge Peers is pretty good. I mean, it's like a YouTube for business. But walling it in is route to oblivion.

So much for trying to share my thoughts on location based services with you. Sorry!

What Makes A Start-Up Worth Investing In?

I saw in Wired magazine this month a short article about a company that had received VC funding via Seedcamp. One of the founding shareholders in Seedcamp is Robin Klein.

What I found very useful was a short list of checkpoints given by Robin on what he seeks in a start-up.

I've listed it here because I think it makes so much sense...

1. A team excited about what they're trying to achieve

2. A big vision with understanding of the issues involved in achieving it

3. A team that's already achieved a lot with very little

4. A differentiated product or service that meets a need

5. A project with global reach addressing a large market

There's one other point I would add for good measure; a business that can scale. By scale, I mean a business that will see exponentially increasing returns on the assets deployed as it grows.

Conclusion? If you are going to invest your heart and soul into a start up or join a start up team, make sure the answers to the above points are all "yes!"

Time will always tell course.

To the dealer, "I've made my bet and I'm sticking, thanks. I think I've been dealt a great hand".