Foolproof: De-Risking New Ventures

Whether it’s a start-up or a product line extension, next to having the right team on board, validating your market prior to developing your product is the best way to increase the probability of your success.

Often I hear the cry “oh, this doesn’t apply to us”…. “We do disruptive technology like Steve Jobs… “our customers don’t know what they need till we show them”.

Truly successful disruptive technologists use research to back up and tune their visionary thoughts. They study their target audience’s behaviour to the point where they can create powerful product insights based on a combination of research and creativity to de-risk their investments. Without this behavioural research you are simply guessing.

It’s no wonder we have such a high failure rate with companies in this country when you hear facts like – “only 20% of companies approaching MOVAC for investment have completed market validation, which is a perquisite for us to invest” – Dion Mortensen

85% of those completing market validation will fundamentally change the functionality of their product, ultimately creating a product that will be more profitable and actually sell!

Jenny Douché has just released her latest book Fool Proof – How to find and test great business opportunities”.

“This easy to read book is full of great tips and guides, it should be compulsory reading for all new ventures and product managers”.

Jenny has included some insights from New Zealand entrepreneurs (Rode Drury’s Xero, Campbell Gower, Phil & Teds buggies, etc) and a few local investors who have experienced the fruitful outcome of performing market validation.

Foolproof is an easy light read, designed for entrepreneurs – 2 aeroplane trips should have it read with no bullshit or big theories. It will be one of those books that you will refer back to.

Unlike other books on this topic, Jenny actually gives you plenty of actionable content, rather than just theory, including lists of questions for all participants of market validation including: target end users, distributors, market influences and enablers. She covers both desk research and engaging with stakeholder groups, including how to talk when interviewing and surveying.

Too many entrepreneurs  fail to look at the wider macroeconomic factors that will influence their business both now and in the future. It’s amazing what insights you can gain from mapping and studying your market place’s value and supply chains along with current trends. (Note: value chain mapping is one of the key activities we do in Business Dominoes – strategy programme). By performing this type of research, you can save yourself the embarrassment of being blind sided down the track, or worst still investing in the world’s best mouse trap that no one will ever buy.

Just because what we have created is faster or better than the existing market alternative, it is not a right of passage to easy sales. As creators of new products, we easily forget the life of a consumer; where we are faced with better and newer products and services, yet we choose to ignore them and use what we consider easy, safe and predictable.

Clearly getting there is a balance between “no market validation” and “doing so much research you never do anything”. Either extreme is going to be a recipe for failure.

Some takeaways on Market Validation:

  1. Market validation before undertaking any major investment is an essential risk mitigation tactic
  2. If you are seeking investment, doing market research will put you ahead of the pack
  3. Do both desk and personal research – yes, talk to potential customers
  4. Map out your market place (value chain and trends), make sure you are not missing any opportunity or trend merging – a lot of this can be done by desk research and validated by contacting key industry commentators
  5. Engaging key stakeholders in the industry in market validation often builds loyal evangelists for you and your new business
  6. A quick prototype or sketch can help discussions
  7. Market validation is not a one-off exercise, it is a crucial part of improving your business and product over its life
  8. If you are developing disruptive technology then you need to be doubly sure of your target audience’s “pain” and more importantly motivation to change behaviour to adopt your new product. Do some behavioural research.
  9. Be warned if you have been in the industry or are a target user – you do not know enough.
  10. Doing market validation will often open your eyes to a better product than the one you have conceived by yourself.
  11. Buy Jenny’s book

I have already purchased 10 copies of the book and are handing them out to clients as compulsory reading.

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Test your BHAG

What is the uniting force in your business? Running and working in high growth companies is hard work and we are often losing sight of what we are all about.

Daniel Pink in his book Drive he outlined three core drivers for people: Autonomy, Mastery, and Purpose.  (Note:  For those who have not read this great book watch the 10 minute animated summary)

Nothing binds a business like a clear and succinct BHAG (Big Hairy Audacious Goal) and a clear purpose.  I am not talking about the traditional boring mission statements that lime the walls of corporate offices, full of: Corporate blah blah… typically lots of words taken from a corporate speak bingo competition.

What I am talking about is a mantra or Big Hairy Audacious Goal (BHAG) that is worth waking up for in the morning and going the extra mile.

Ingredients of BHAGs that work are:

  • Compelling and gripping: people understand straight away
  • Action orientated
  • Bold: bordering on arrogant and unattainable
  • Clear: who, what, where, by when
  • Types: target, common foe, role model, internal transformation
  • SUCCINCT: The power of message is inversely proportional to its length

Have a look at some of the founding BHAGs for some of industries great companies noting this is what they started with…

  • Microsoft: “A computer on every desk and in every home”
  • Amazon: “Every book, ever printed, in any language, all available in less than 60 seconds. Also: Earth’s most customer centric company”
  • Ford: “Democratize the automobile”  (1900’s)
  • Twitter:  “To become “the pulse” of the planet”
  • Giro Sport Design: “Become the Nike of the cycling industry”
  • Nike: “Crush Adidas” (1960’s)

Brian Gaynor spoke at Springboard this month citing “New Zealand  business owners, in comparison to Australian counterparts, lacked ambition”.  Check your BHAG against the above list. Do not fall into the trap of being another conservative Kiwi company without big ambition.

Here are a few ideas from local examples (note: not their actual BHAG)

  • Biomatters:  “Tools on every biologist’s desktop”
  • E-spatial : “THE location intelligence behind all major New Zealand enterprise solutions”
  • Sale finder: “New Zealand’s ultimate consumer research tool”

When it comes to purpose statements – these are just clear concise versions of your value proposition in the language of your clients. More on this later – a topic for another blog post.  In the meantime, you can read value propositions revisited, creating succinct messages, No value proposition = No business from old posts.

Example Purpose: Spike mail: “Building qualified and engaged buyers versus creating lists”  – note no reference to their core craft of email marketing.

Product Marketing – the missing discipline…

An effective Product Marketing team is most probably the best insurance policy for any new venture.   For a trading company the Sales team and CEO’s all have tunnel vision on next quarter’s revenue.  The role of product marketing is to build next year’s revenue and ensure that any investment in product development produces a measurable return. 

The finite definition of product marketing’s function is variable, but it unanimously does include the full range of marketing activities, rather than just promotion activities. Noting that for too many business people, marketing is just a promotion activity.

Key activities of pure product marketing that are often absent in businesses include:

  • Assessment and validation of marketsWill someone actually buy this product once it is created?
  • Access to channels to marketsmart go-to market strategies and distribution agreements that are workable and will not conflict with potential company exit strategies.
  • Return on Investmentworking out if this is the best use of the company’s capital and when and how will it get a return.
  • Development of effective sales collateral and messaging – that communicates what is relevant to customers, rather than a feature or technology list.

Check your company’s marketing activities against this great list from www.pragmaticmarketing.com

This is one area we have a lot to learn from American technology companies. New Zealand technology companies often make the first move of appointing product managers, to manage product road maps, product requirements definitions, and act as the referee between sales and development teams.

My suggestion following on from my recent  Rule of 10’s post is, at the very least, budget an equivalent amount of money in the complete list of marketing activities as you do in product development. Likewise, balance your marketing spend between strategic and tactical activities.

I would encourage CEO’s of companies, Crown Research Institutes and universities to explore this missing discipline. I would also welcome the Ministry of Science and Innovation to begin to invest in this crucial area of commercialisation, rather than just the science part.

Milestone Map-Plan

Need to communicate your business plan to attention deficit stakeholders? … or perhaps just get smart feedback on your plan.

Creating a one-page milestone map-plan on a chart is a great way to keep you, your team and advisors focused. With a small list of tactics and key measures you have a far greater chance of achieving your desired end result.

Many business growth strategies fall apart at the transition point between creating key strategic themes and establishing a set of measurable tactical tasks and goals.  Too many businesses end up with huge lists of tactics, most of which will only get token attention, with the end result being  the plan never being executed.

This technique will force you up front, to prioritise and rationalise your tactical list of things to do. The milestone map-plan is a great way to succinctly communicate your business plan both past, present and future to all stakeholders of your business. Particularly when you are seeking intelligent feedback and buy-in from potential investors and staff whose attention spans are limited.

A fictitious example of a web company is shown below to illustrate the technique. (click the chart image for larger view)

Tips on using the milestone map-plan:

  • Limit yourself to max of 10 milestones per year – prioritise the top 10 that will influence or measure success
  • Split your milestones across different functional areas.  Add rows to suit your business but make sure you include at least finance, market, process and people.
  • List the last 1-2 years to help provide flow
  • Include additional boxes on key risks and your competitor’s response, both historic and forecast.
  • Do not fill the chart with activities that will naturally happen unless they help with the understanding of the plan
  • This is not a product roadmap –list only major product releases/events
  • Put it up on the wall by your desk for daily review

The milestone map-plan is great for helping all staff members focus on tasks that will help you achieve your goals, as well as showing the dependencies of tasks.

If you find yourself or your staff overtime not executing tasks on the plan then its time to challenge the map-plan and test out whether “the plan is still relevant”. If not change the map-plan otherwise re prioritise your work.

Put your plan up for continual challenge with advisors and staff. Do not be afraid to throw it out when the environment changes. Do not fall into the trap of “the law of committees”

If a committee is allowed to discuss something long enough, it will inevitably vote to implement their idea, simply because so much work has already been done on it.”

If the plan is no good say so and do something about it.

Succinct visual tools like this and the business model canvas, create powerful discussions very quickly and maximise interaction time.
More importantly they increase the probability of success.

Link between simple strategy pitch and success

Link between simple strategy pitch and success

Can you easily articulate your business strategy less than 60 secs?

Most business owners get that they need a product elevator pitch for sales, but have you considered whether you have a strategy pitch for your stakeholders?

Strategy without execution is just a waste of time. If your staff fail to “get” what your strategy is all about, how are they going to engage with it, think out of the box and work as a team to achieve the goals set out in it? Do not expect your team to read that strategy document you diligently prepared or mind read. How many of your staff could tell you what the company’s growth strategy is?

“A business plan is a document that investors ask for but never read” whether you are raising capital or inspiring your team – you are responsible for creating the interest in your strategy and delivering it in a manner that people will engage with and act on.

After helping many business owners over the years with their investment pitch I have come to the conclusion that: the leaders who fail in the ability to deliver a succinct version of their business strategy, will fail to grow beyond where they are now – irrespective of investment or not.  This is evident when I see companies year after year going nowwhere – failing to achieve the growth talked about but never delivered.

Too many businesses suffer from the lack of clarity, wasting time with a team not empowered to say no to stray activities “off strategy, basically letting fate decide what they should be focusing on. In many of these cases the business owner has it all in his head but fails to communicate it. Or worst still a non- connected or busy management team that have parts of it but are not aligned.

High growth businesses live in a chaotic world, most staff living on the edge chasing tails. Failure to articulate your business strategy to your stakeholders (team, board, investors) is just as bad as not having a strategy at all.

My advice is take your business plan / strategy and condense it down to less than five key statements – themes that people get.   Eg Market share is king, more important than profits.  The power of the message is inversely proportional to the number of words used.

This condensing could even be considered as a bolt-on-phase to your existing planning technique.

Creating and expressing your business strategy as an elevator pitch is a mind bender, but the resulting clarity is empowering.  The conversations that you and your team will have around condensing your strategy is a worthwhile exercise in its self.

Some tips:

  • Have a go at presenting your business strategy verbally: no props or power point, can you do it? Have your strategy challenged by someone fresh outside your business or a new employee.
  • Use an external facilitator who excels at this to help accelerate the extraction of the core strategy and listen with fresh ears – BTW this is GMC’s speciality 🙂
  • Use diagrams and pictures to focus thinking, business model canvas, balanced score card diagrams
  • Engage specialist graphical recording – facilitation techniques to record and stimulate complex enterprise strategies and problems. This powerful technique is relatively rare in NZ. Here is a link to one of the many you tube clips explaining this technique.  Two NZ providers GMC work with are: www.motive8.co.nz/ and  www.martincoates.com contact GMC if you want to give it a go.
  • Everything can be simplified, strategy does not need to be complex

Irrespective of whether you are thinking of raising capital or not, creating clarity and simplicity in your business strategy is key to getting staff, board and potential investors engaged and actually achieving goals.

If you can clearly and succinctly articulate your strategy you have a far higher chance of actually executing it.

Morgo Diary Note: Price – higher or lower but not the same…

#MORGO 2011 kicked off with an opera signer – Darryl Lovegrove founder of threewaiters , sharing his inspiring and entertaining story of taking corporate entertainment global.  His shared winning formula:

  • Price leadershiplead with an aggressive price strategy either: price well above your competition or well below not the same.
  • Quality
  • Mass Appeal: adapt known concepts to a broad set of people
  • Focus: on what you can control. Do not get distracted with too many product variants do something and do it well.  Stick with your winning formula and make it better.

The pricing strategy makes sense – why be just the same as every one else. Either you have been able to package your offering with lower costs and can hit the market with a new price point, or what you have is so good it demands a special place above every one else.

Lovegrove also explained how speaking in a Kermit frog voice – was great training to become an opera singer.

MORGO is  a entrepreneurs conference / networking event hosted each year by Jenny Morel. Now in its 9th year, this event has become a “must attend event” for both inspiration in the technology business space and building networks.  In this post I share a few notes that I scribbled down on day one.

Speaker 2: Scott Yara CO founder  Greenplum, his lessons for success:

  • Timing: Being ahead of time is a bad idea.
  • Have Passion: “Earn the right”  – to be heard by customers and  staff alike.
  • Solve Real World Problems

Jades’s Craig Richardson  gave us all an update on  JADE’s reinvention.  I remember JADE in the 80’s with their unique and superior software platform. Unfortunately it became another example of a great product that failed to break into the mass market despite its superior performance.

Great Companies defined:

  • Good products
  • Know the audience
  • Talk to heart and head
  • Reinvent themselves
  • Stay close
  • Preoccupied with growth
  • Culture and capability to manage complexity

Rules for Development:

  • Only go where the category is well defined
  • Look for growing markets (20%+ growth)
  • Go where 2 or 3 trends clash
  • Concept to market in less than 12 months

Building on Yara’s comments of being ahead of time is a bad thing, the concept of attempting to create a category is bold move. Hence Jades new approach of only going where the category is defined.

Too often I see businesses attempting to educate customers of a problem they are not aware off. Typically all this means is very long sales cycles,  slow growth resulting in a slow death.

Altitude’s Michael Pervan gave us a fascinating insight into airline interiors and luxury jet fit-outs.  Some customers spending $60M for a jet then spending another $60M to fit it out. Altitudes strategy was to hit a small niche on a mega market that was to small for the big guys to bother with.

Like wise they have applied the IT outsourcing model to a market that has traditionally focused on in-house manufacture. Instead Altitude have taken the high ground of owning IP, Brand and process.

Michael Pervan gave a great endorsement to the NZTE better by design process, with their key change being around improved team collaboration.

Chris Mardon Energy Mad – gave us some hope for affordable LED like lighting. They are introducing a new technology LES “Light Emitting Snakes” which will be available next year at a great price point.  Ye ha..perhaps Hils and I can ditch those pesky halogen down lights in our living area that keep going on the blink.

Next we jumped into the world of AI and robots with an David Hanson from Hanson Robotics. It was a little freaky, but in the same way fascinating. There is a cool geek like toy coming out soon “RoboKind” that uses some of this great new technology. The prediction I took away – was simulating brain power of humans by 2050. All the same amazing use of computing power and robotics.

 

Quid.com’s Sean Gourley gave us an update on his mission to solve world war & peace with his mathematical genius. Although his keyword analysis tool looking at web activity on search gave a great insight into tools that will be of great use for predicting market interest.

Unfortunately I had to miss Day Two due to a speaking engagement in Wellington.

But I will be back for year ten in 2012 to catch up with many friends old and ones I haven’t meet yet.

For more on MORGO check out twitter hash tag #MORGO or the Morgo website

Thanks all a great event as always…


Pigs and Chickens – Business Model

Is your business a pig or a chicken?

Harold Star’s book “Chicken and Pigs – Business Models and Competitive Strategies” puts  businesses into 4 categories.

These models are referenced by transaction frequency and revenue contribution from each transaction.

My takeaways from this book are:

Business models are about customers not end users, often people get these stakeholders mixed up. Customers are the ones writing the cheques.

  •  Few companies know why their customers came to them and why they stay
  •  It takes different skills to attract customers and retaining them
  • Once established a business model is very difficult to change. This comes from the customer behaviours and required skills associated around maximizing operational efficiencies working each model.
  • Business models are predicated around decisions made by management around three model elements (strategic DNA) : Customer, Resources and Capabilities and Value Proposition.
  • Many companies operate multiple models,  as such they need to be conscious that each model requires different skills and behaviours

Through his book it he never actually mentions why he calls them such, perhaps obvious, but my take is:

Chickens: Lay eggs – lots of regular contributions
 Pigs: good for bacon and ham at the end, lots of reward once
 Black Widows: Mate and kill their prey, like big customers who consume your business leaving you  at risk with a small number of large customers
 Locusts:  lots of them and they move in packs, short life expectancy

Check out both Harold Web Site and his book for more detail on this pragmatic approach to classifying and developing strategies to manage your customer pools and business model.

The web site has plenty of great information. Click on each model to get more information.