The Long View

Turnarounds make for interesting reading

Some of the most interesting business stories I read talk about a company stepping back, and re-examining what they have and how they're trying to succeed with it. They realize that they need to re-shape their assets as a different type of product, use them to go after a different market, or both. Learning about that process is usually very instructive. Companies that succeed are sometimes lucky (right product for the right market at the right time). Those that fail often do so not fully understanding what went wrong. Even if they do have a good handle on the missteps, they don't often share what they'd do differently if they had it to do all over again - they're hopefully off starting another venture.

A story on Sandhill.com about the turnaround of Niku is a good one with plenty of lessons.

Marketing Custom Software - Conclusion

I recently (ok, so it wasn't so recently - my apologies) started a discussion about how I would market my services as a custom software developer if I had a chance to do it all over again. In my first post I discussed the need for a value proposition, and explained that simply describing custom business software as my business doesn't begin to explain what that proposition is.

In my second post, I discussed some characteristics of a potential target market segment - business owners who fit Geoffrey Moore's category of "visionaries". To me, this market segment is attractive on several counts. First is that they see technology as a way of gaining a competitive advantage. This makes them more focused on the results rather than how they get there. Thus I will have greater opportunities to a) break new ground in development rather than working with or on a legacy system, b) employ the tools wth which I feel most competent and c) price my services based more on value. In addition, (and possibly most importantly for me professionally) because their vision is probably incompletely formed and rapidly changing, my reliance on "best practices" in software engineering will pay off handsomely, as I can keep up with the ever-evolving moving target that a project for such a client represents.

I also made a post the other day on the value of networking, and some pointers on how it's done. Another advantage of business visionaries is that they frequently cross company and industry boundaries seeking others of their ilk. The way in which this is usually accomplished is through local business organizations, which also frequently host networking events, or events at which networking is a major component.

So let me put this all together into a rough outline of a marketing plan.

First I would develop a brief "pitch" that describes what my company does that would catch the interest of a visionary business owner or manager. This pitch must be something that conveys the message in 30 seconds or less. There is a template for this proposition that goes something like this:

• For (Target Customers)
• Who are (describe pain experienced)
• We (describe nature of service)
• That results in (describe outcome)
• Unlike (describe alternative service providers or products)

So in my case, the pitch may read something like this:

For aggressive, technology-aware businesses who are continually developing strategies to achieve and maintain a significant competitive advantage, we deliver custom information systems that allow the business to implement those strategies and change the game on their competition. Unlike vendors with common, off-the-shelf software packages, we work with our clients to understand and help them develop their unique vision and work cooperatively with them to ensure that the technology solution fully supports that vision.

Now I have a value proposition. I'm giving someone enough information to begin to complete the "Oh, then I'd call you when..." sentence. I'm also identifying my target market. Most business people are simply seeking incremental improvements. Visionaries are looking for quantum improvements, and I'm trying to let someone listening know that my services aren't right for the safe, plodding style of business management that is looking for another "me-too" solution. If that's what they need, they're going to be more comforable with NetSuite, Navision, SalesForce.com or other, less expensive off-the-shelf solutions.

The next thing I need to do is to NETWORK MY ASS OFF and listen, listen, listen and probe, probe, probe to identify people that are in this target market segment. If you think back to my post on networking, you'll recall that if properly done, networking is 90% listening. I'll show great interest in everyone I meet and find out everything I can about them. What are they doing? How are they doing it? What is their competition is doing? How arethey meeting that competition? What forces are at work in their industry that are making things difficult (and presenting opportunites)? I'll make a few notes or "keywords" on the back of the business card they give to me.

When asked about what I do, I will give them my "elevator pitch" above, then turn the conversation back to them. If I'm lucky, they will have a chance to hear the pitch multiple times as people may come into our circle of conversation. What is absolutely golden is when someone comes into the conversation, and someone else in the group introduces me, repeating a version of my pitch. Then I'll know that my pitch is working. If people (when given the opportunity) have difficulty explaining what I do, then I know that the pitch needs refinement. I'll even ask others to describe to a new arrival what I do. There's no better way to ensure that my message is getting processed.

Because I've become involved as an active member in the organizations that provide these networking opportunities - they might be a venture capital club, a CEO roundtable, a leadership council, the Chamber of Commerce - I'll have an opportunity to see many of these people repeatedly over the course of several months, gathering more information about them and their businesses. During this time, I'll continue to read (online through my handy feed aggregator) industry and business publications, and I'll make this a part of my daily routine. Whenever I run across something that is likely of interest to one of these contacts (whether or not they seem to be a prospect), I'll be sure to send them an email with a link to the online article. This can often develop into a fruitful email or telephone conversation.

This process will yield a "short list" of companies or business people that are clearly of the innovative, visionary sort that I want as my customers. Now is the time to offer to meet these folks informally for coffee or for lunch, and again, talk about their business. If I've cultivated a reputation of being sincerely interested in other people's businesses and their issues, and a person that is a can-do type and quick to volunteer to help get things done, people will very naturally ask for thoughts and advice, and sooner or later an opportunity to offer to do some paying work will arise.

Now, is this a lot of work? Yes. Is it a fool-proof method of generating business? No. Would doing this have saved my business? I don't know.

However, I do know this - this is much better than the marketing plan that I actually employed, which was none at all. Equally as important, I can't make refinements and adjust a marketing plan that isn't formulated and implemented, because I have no empirical information on which to evaluate its effectiveness.

The Elimination Game

I was reading Guy Kawasaki's blog the other day and ran across this comment:

True or false: The most important part of a business plan is the section about the management team. The answer is False.* The executive summary, all one page of it, is the most important part of a business plan. If it isn't fantastic, eyeball-sucking, and pulse-altering, people won't read beyond it to find out who's on your great team, what's your business model, and why your product is curve jumping, paradigm shifting, and revolutionary.

When working with entrepreneurs to hone their pitch, I often make the point that the goal of each pitch they make, whether in an oral or written form is to get to the next step in the process. However, the goal of the investors is to filter out a majority of potential deals, including yours. I often draw an analogy between the purpose of any investment-seeking communication and a resume to make this point.

The purpose of a resume in the hiring process is to eliminate you from consideration for the position. The hiring manager has time to interview five people for the position. She conveys this to the HR department, and they end up with 100 resumes. What's their task? To winnow the list down to the 5 candidates that the manager can handle. As a result, they're looking not for the five strongest candidates, but a reason to put the other 95 into the discard pile.

This is also true for any of the elements that an entrepreneur uses to gain the attention of potential investors -the elevator pitch, an extended pitch, the executive summary, the business plan, the formal presentation. Angel investors and VC's might have a deal-flow of 200 or more opportunities each month, and might only invest (in the case of a VC) in a half-dozen companies in a year. So again, it's a winnowing process to separate the far more plentiful chaff to get at the kernel or two of wheat. If you bore, obfuscate, confuse or raise questions that can't be answered within the medium in use at the moment, the potential investor mentally calls "next" and moves on. You don't get another chance to make it to the next level with that investor.

On that last point (raising issues that can't be addressed adequately in the medium at hand), we were working with a company that had some outstanding legal issues involving their IP with a former investor group, and they were including this information in a 10-minute pitch! While the issues appeared to be minor, there is no opportunity to explain the nuances of this in a 10-minute pitch. Better to leave issues like this that could put off a marginally interested investor to the formal presentation when the investor's questions can be fully addressed. Or (if it is indeed a minor issue) leave it to the due diligence process!

I think it is helpful to adjust your mind-set to the realization that in any selling situation, whether you're selling yourself for a job, selling your company to investors or selling a product to a potential customer, that the prospect is often looking for a reason to eliminate your proposition from consideration. Thus you can easily (if you're not careful) give your audience reason to place your proposition into the "discard pile".

Proactive Entrepreneurial Development

I have recently gotten involved with a couple of organizations whose mission is to promote local entrepreneurial business development. The work has been interesting and rewarding, and educational as it has provided an opportunity to learn more about the private equity industry and technology commercialization.

A new local entity was launched with much fanfare recently to help coordinate many of these organizations, but this event got me to thinking about this whole process. It would seem to be surprisingly passive for such a dynamic mission - waiting for entrepreneurs with business plans to walk in the door seeking assistance!

You'd be pretty hard-pressed to find anyone - successful entrepreneurs, angel investors, venture capitalists, entrepreneurial educators - who would favor a good idea over a good management team. A colleague recently recounted a comment by a venture capitalist as saying he'd rather back an "A" team with a "B" idea than a "B" team with an "A" idea. This reinforces the idea that the truly scarce resource in growing successful new businesses is successful entrepreneurs. Thus it makes little sense to passively wait for that scarce commodity to magically appear on your doorstep.

Within the VC community, there seems to be an emerging recognition of the wisdom of not being so passive. Bill Burnham argues that the growth in the number of VC firms and the amount of capital under management has created a “seller’s market”, wherein a firm can no longer be assured of seeing all of the viable investment opportunities within their target investment focus, and may frequently be actively competing with other firms for the best opportunities. He describes deal-flow as a passive strategy and contrasts it with what he suggests as an alternative, proactive approach he terms “thesis driven investing”. In this method, the firm develops “an investment thesis based on focused expertise and then [uses] that investment thesis as the basis for a directed deal acquisition campaign designed to...help create new companies that can take advantage of an identified opportunity” (emphasis added). Mr. Burnham references Mark Pincus who similarly sees a blurring of the boundary between VC firm and entrpereneur.

So what does this suggest for those interested in accelerating entrepreneurial business development? Would it be possible to "recycle" already successful entrepreneurs, by encouraging and facilitating them to more rapidly launch their second (or third, or fourth) enterprise in the geographic area of interest? Would it be possible to facilitate the creation of "A" teams to commercialize licensable technologies?

I kited this idea recently to a local VC who pooh-poohed the idea, claiming that at least the recycling happens naturally. I was amused when a friend of this VC mentioned a few days later that this VC himself had voiced a similar thought at one time, so maybe the idea isn't completely off-the-wall.

What do you think? Could entrepreneurial development organizations pull this off?