"Your next feature won't save you"

Nivi · October 19th, 2009

Here’s our top 5 tweets from last week. You’ll never miss another tweet if you subscribe via RSS or email (no more than one email a day; unsubscribe anytime). Of course, you can also follow us on Twitter.

Top 5 tweets of the week

We calculated the top 5 tweets of the week by looking at the click-throughs of our j.mp links (example):

438 clicks: Sell your product with fake screenshots. Read http://j.mp/1vTIxI. (This tweet also made it to the top of Hacker News; first tweet ever to make it to the top?).

240 clicks: “The idea that anyone at all would build a business around funding startups is the remarkable thing.” – @pkedrosky, http://j.mp/10ICTQ

217 clicks: VC-backed foursquare uses Google Docs to collect customer feedback: http://j.mp/3Y9QLL. No code, no maintenance. Keeping it minimal baby.

200 clicks: Chris Dixon (@cdixon) on the problem with taking seed money from big VCs: http://j.mp/2BHIPe. Some solutions: http://j.mp/4hFSsL.

182 clicks: “We’re often told that there are no shortcuts to success… There are always shortcuts and loopholes.” – Paul Buchheit (@paultoo), http://j.mp/2PLlcY

Editor’s choice

My favorite tweet of the week:

208 clicks: Your next feature won’t save you. But product/market fit, acquisition optimization, and creative distribution might. See: http://j.mp/23hdE.

Put your tweets on your blog

Nivi · October 13th, 2009

We recently undertook a landmark survey to determine whether our readers want to see our tweets here on this blog. The short answer is: yes.

First, 62% of respondents want to see tweets on the blog at least once a week. And a whopping 75% want to see tweets at least once a month:

Lesson: Consider putting your tweets on your blog. Surprisingly, and yet also, unsurprisingly, people who already follow us on Twitter are more interested in seeing tweets on the blog than people who don’t follow us.

Second, a stunning 30% of respondents want to get our tweets over email:

Third, 65% of respondents already follow us on Twitter:

Fourth, 50% of respondents volunteered to be on our customer development team. Lesson: Ask for help—you might be surprised by the response.

We also learned to pilot and test surveys on Twitter. Before distributing the survey broadly, we put up a tweet asking people to check out the survey. Then we used their feedback to make the survey more clear.

Finally, here’s my favorite comment from one of the respondents:

“[You] guys seem to exhibit a sense of humor. Absent that, all this stuff is unbearable.”

I need to remember that.

Take our Twitter Survey

Nivi · October 8th, 2009

We’re spending more and more timing posting original content and links on Twitter at twitter.com/venturehacks. For example:

smartbear

vcmike

Once in a while, we post a summary of our tweets here on this blog — like this.

Do you like our tweet summaries? Hate them? Want more? Want us to stop? We want your feedback.

Click here to take our Twitter survey.

5 questions. 1 minute of your time. Your feedback: priceless. Thank you for sharing your thoughts and time.

There’s also an opportunity to join our customer development team at the end of the survey. Muchas gracias!

Get drunk with VCs and help charity

Nivi · October 7th, 2009

This post is for people who want to get drunk with Boston VCs and help charity at the same time. For free.

Atlas Venture and General Catalyst are throwing a charity wine party in Boston on Thursday, October 22, 2009 at 6pm. You can buy tickets at TUGG’s site and learn more in this Xconomy article. VCs from about 10 Boston funds will be attending: Spark, Battery, CRV, etc.

Free tickets

They’ve given us 5 free tickets to give away (they’re normally $150) and we’re running a contest to give them away: Where do you think the money should go this year? Last year, the party raised $40K for Build, a Silicon Valley non-profit that helps students start small businesses.

Send your idea to dsamuels@tugg.org or tweet it with the #tugg tag. We’ll give free tickets to the 5 best ideas. Even if you don’t know where the money should go, send a note to say hello and introduce yourself.

Atlas Venture: A new supporter

Atlas Venture is now supporting Venture Hacks. That’s another way of saying they’re sponsoring us. But I like the idea behind “support” better. It’s more like the Hewlett Foundation sponsoring PBS, and less like P&G buying an ad on Days of our Lives.

Frankly, Atlas has supported us financially for quite a long time; I was an EIR at Atlas while I was getting Venture Hacks started. Many other firms and people have also supported us financially and otherwise — we need to figure out a way to thank them soon.

New York Meetup was awesome

Nivi · October 2nd, 2009

We were amazed at the awesome turnout for the New York meetup on Wednesday. About 100 people joined us during the course of the evening. Thanks to everyone who came and everyone who spread the word.

It was a wonderful opportunity to meet old friends and make new ones. I saw lots of people exchanging cards and making new contacts. I only wish I had more time to talk to everyone.

What I learned

First, a few folks said there aren’t enough mixers for entrepreneurs and investors in New York. Can you recommend your favorite New York mixers in the comments?

# Second, lots of people were wondering how to spread the word about their products. They’re putting the cart before the horse. Instead of spreading the word, figure out how to make a handful of customers (say 100) happy. How?

  1. Build a minimum viable product. If your market is big enough, it doesn’t matter if you piss of 10,000 customers along the way with a lame minimum viable product. If you’re really worried about your brand, market your product under a different name.
  2. Get the MVP into the hands of few people. Use Twitter updates, Facebook updates, Google Ads, Facebook Ads, LinkedIn Ads, standing on a corner, blogging, emailing bloggers, etc. to get your product in front of people and see if they make it to the finish line. If you can’t find 100 customers this way, it won’t do you any good to be on the front page of the New York Times.
  3. Iterate your product with these customers through surveys and interviews, until they think your product is a must-have. Yes, they might not embrace your product if you show them something too early — that’s fine. Don’t fear the false negative — just build the next version and test it again.

Once you’ve reached product/market fit in a large market, then you can work on the economics of acquiring users profitably. Don’t worry about acquiring customers until you solve a real problem in a big market. This is the theory described in Sean Ellis’ startup pyramid or Steve Blank‘s customer development model.

And if you don’t have the resources to build a MVP, put up a survey on SurveyMonkey or SurveyGizmo and start finding your earlyvangelists. You don’t need a technical co-founder to do this.

People I met

Here’s a brief description of some of the people I met. The list is missing many folks I met and others I didn’t get to talk to — massive apologies. There’s a lot of people working on cool things:

Josh Kaufman is writing a book version of the Personal MBA.

John C. Akbari is a sales agent for hire for early stage financial services software companies. No salary, higher commissions.

Anton Litvinenko is building Programeter so managers can monitor software development.

Manish Vora just launched Arlo, an easy way for artists to build portfolio sites.

Deepak Kapur is building a product to help you get more Twitter followers.

Sarah Tavel is off the rugby field and on her grind at Bessemer Venture Partners.

Lincoln Ritter from LearnVC is building an online cap table for entrepreneurs and their employees.

Massimo LoBuglio is working on the “(RED) of carbon emissions.”

Trever Owens is a student at Stern and burgeoning entrepreneur.

Eli Chapman’s Mediatronica is a software and entertainment consultancy in New York.

Kevin Murphy’s is working on Beeing to add a real-time social layer to the links you share.

Christine Lemke is COO and co-founder at Sense Networks which analyzes large amounts of mobile location data in real-time to make recommendations.

Jason Yeh recently joined Riot Games as Strategic Marketing Manager and also enjoys cardigans.

Bill Cromie is working on headliner.fm which lets you virtually open for other bands.

Zach Harris is working on DiGiTS, a show about a pickup artist gone wrong (think Ali G crossed with Derek Zoolander).

Zoran Knezevic is working on Fragrantica, an online perfume community. He forgot to bring free samples.

What did you learn at the meetup?

Customer Development Patterns

Nivi · September 29th, 2009

Almost every startup with an unfinished application puts up a page like this:

The customer development team at Grockit (Sean Ellis and Matt Johnson) takes a  more interesting approach:

Most startups just gather a list of email addresses. But Grockit measures the customer’s intent: “Why do you want to use our product?”

Consider asking these additional questions, perhaps on a second page:

  1. “Can our CEO contact you to learn more about your needs?” Now you’ve got a list of earlyvangelists you can talk to — an awesome asset for startups that are iterating with their customers to reach product/market fit.
  2. “How are you preparing for the LSAT today?” Now you know if customers are putting together a solution out of other parts.
  3. “Would you pay for Grockit if it met your needs?” Now you know if customers have a budget.

This is a customer development pattern that other startups should copy.

# And here’s Steve Blank‘s definition of an earlyvangelist — memorize it now.

New York Meetup

Nivi · September 28th, 2009

We’re excited to announce our very first meetup in the city of New York THIS Wednesday Sep 30th 6-8pm at B Bar & Grill.

It will be an informal mixer for entrepreneurs, investors, and other startup folks to meet each other and talk about venture hacking. Naval and I (Nivi) will both be there. We look like this:

This is our first offline meetup in any city ever — please help us make it a success. If you’re in New York, come, we’d like to meet you. If you’re not, please spread the word to your entrepreneur and investor friends there.

RSVPs aren’t necessary but you can help us get a headcount by RSVP’ing on Facebook.

We’re looking forward to meeting the startup folks in New York. We understand these fellows are quite active in the community:

Term sheet tune-up

Nivi · September 23rd, 2009

I recently received an email from an entrepreneur who had questions about a term sheet he received. Here are his questions and my answers.

Bridge before Series A

The entrepreneur says,

“The investors are in the process of closing a fund so they want to give us a bridge loan now and do the Series A later in a few months after they’ve closed their fund.”

VC firms make seed investments all the time. If you have alternatives, take money from a firm that actually has the capital to invest in a Series A.

Even if the firm has capital, you won’t be able to raise a Series A from anyone if the bridge firm doesn’t like your progress after the bridge.

Read this article from our archives: Keep your Series A options open if you raise debt.

Board

“The board consists of 2 investors, 1 independent, 1 CEO, and 1 founder.”

This is too heavy for a bridge or a Series A. I recommend 1 investor, 2 founders for the bridge. Worst case: 1 investor, 1 founder, 1 independent. Best case: 0 investors, 2 founders. Use this quote from Marc Andreessen as normative leverage:

“In many cases, we don’t even think today’s raw startups should have boards.”

He’s talking about seed stage companies like you.

For the Series A, the worst case is 2 investors, 1 independent, 2 founders, 1 CEO (if and when we hire one). Read these articles: Create a board that reflects the ownership of the company, Make a new board seat for a new CEO, and Control is a one way street.

Valuation

“What are you seeing for valuations nowadays? Our prospective investor tells me ‘market’ is 40-40-20 (founders, investors, option pool) after the Series A.”

Market is whatever the market says, not what one investor says. You need at least two competing offers to create a market. If you have only have one offer, you’re going to have a tough time negotiating — although it can be done and companies do it all the time.

I would strive for 70 – 20 – 10 (founders, investors, option pool), depending on how much you’re raising. The more you raise, the greater your dilution. And I would settle for 60-25-15. These goals will be dramatically easier if you only have one investor in your Series A syndicate.

Read these articles: Create a market for your shares, Tips from a ex-VC who helps entrepreneurs raise money, and Should I shop around?.

New CEO

“The investors want to replace the CEO during the Series A.”

This is a big red flag, especially if you aren’t interested in giving up the CEO spot right now. Fred Wilson says it well in The Human Piece Of The Venture Equation:

“I’ve learned that nothing can replace the entrepreneur’s passion and vision for the product and the company. If you rip that out of the company too early, you’ll lose your investment. I think it’s best to wait until the initial product has succeeded in obtaining a critical mass of users and a business model has been developed that works and make sense for the business and is scaling. Then, if its warranted, you can sit down and have the conversation about bringing in experienced management.”

Use this quote as normative leverage.

This doesn’t mean you can’t collaborate with your investors to find a new CEO if you think the company needs one. Ask for references from all of the founding CEOs they’ve replaced — including the bad references. Fred Wilson also has a great post on how to bring in a new CEO: I baked the cake, you can ice it, but don’t screw it up.

Startups are not assets under management

Finally, who are the investors? If the investors are a well-known firm, they’re probably trying to anchor you and there’s a lot of room to negotiate.

But if the investors are from an unknown firm, they might think this is a fair deal. They might have the mindset that they’re investing in an asset that’s going to be “managed” by the founders or new management. That’s not the way startups work. If the founders give up too much of the company too early, they lose their drive to create value for the common and preferred shareholders alike.

Twitter updates

Nivi · September 15th, 2009

Here’s a snapshot of our latest updates from Twitter. We use Twitter to post links to awesome resources for entrepreneurs. If you don’t use Twitter, subscribe via RSS.

Steve Jobs does customer development: No new features

Nivi · September 11th, 2009

In Steve Jobs does customer development, I asked readers to find a customer development lesson in Steve’s interview. There were a lot of good responses that I didn’t anticipate. But Reece came closest to the answer I was looking for:

“The subtler customer development point from Jobs is ‘We don’t need to add new stuff.’ He realized the feature set is fine — instead of cramming in new features that most users won’t touch, Apple can instead focus on positioning the product via marketing and pricing.”

In other words, Apple didn’t add a camera so they could deliver on their positioning (“lowest-cost way to the App Store”), increase market share (“everyone can afford it”), and maybe even increase revenue.

I think Reece made one small, important error; so let’s pick on him for the sake of our education.

“But if we just add feature X”

Reece implies that a camera is a feature “that most users won’t touch.” But adding a camera is probably a good idea. Maybe it’s the key to selling a billion more iPods. Who knows for sure?

Go to any group meeting at any startup and you’ll hear employees arguing for their own camera: “but if we just add feature X we’ll get more customers.” That’s a reasonable hypothesis. More people might buy the product with feature X. Should you build feature X?

Not necessarily. A startup’s cash-on-hand is shrinking every day. You want to add the features that will do the most to stop your losses. You don’t execute every random idea without prioritizing it.

The optimal plan may be to slow down product development, commit more resources to customer development, and find the right positioning for your product. The lesson here:

Once you reach a certain level of product/market fit, the best plan may be to add no new features, focus on positioning, make more money, and move up the startup pyramid — even though the team has a million obviously great ideas for new features that will make a buttload of money. You can improve the business without improving the product.

Quiz

Can you find other examples where Apple and Pixar did customer development?