The Worst Term Sheet We’ve Ever Seen

Last week we talked about what makes a startup investor “Founder Friendly.” While that’s important to know, it won’t help startups much if they aren’t aware of what the opposite case looks like: when is a term sheet definitively unfriendly to founders?

With this in mind, we polled a collection of investors and lawyers who are friends of StartupYard, and they shared examples with us of the worst term sheets they’ve ever seen, and what was wrong with them. This post should serve as a handy guide to avoiding the worst terms out there.

Too Much Too Early

Several of the respondents noted problems with a company’s early stage valuation, along with protections for both founders and early investors, as a key problem in later rounds.

Innovation Nest, StartupYard, CEE Allstars

Chris Kobyletcki, Innovation Nest

I think it can go both ways. We see investors not taking into account founders for the later-stage investments. Investors take 30-40% of the company at a super-low price that will not leave space for someone new to join the cap table.

The other case is having a super high pre-money valuation that will result in a company not being able to reach the next level of valuation for the next fundraising. I saw multiple cases of rounds falling apart because of that. “ – Chris Kobylecki, VC, InnovationNest

 

Tytus Cytowski

Tytus Cytowski, Cytowski & Partners

“At the Angel Round stage, I have seen CEE angels ask for and receive a board seat, pro rata rights, drag along and protective provisions, which are typical for the series A stage. In general angel should only receive equity without any special rights unless they provide significant assistance to the startup. I have also seen CEE angels and VC investors take up 20-25% of the cap table in exchange for €200K at this stage.” – Tytus Cytowski, Cytowski & Partners

 

Peter Cowley

Peter Cowley, Angel Investor

“At the very early stage (ie seed, seed+, A-) sophisticated angels in the UK always offer ordinary shares that are identical to the founders, with no prefs, and no special rights attached to the shares.  We do however drag/tag along, pre-emption and other rights and a number of consent rights – see my own term sheet, that I use as the basis of negotiation with founders. This is more a checklist with my suggestions of how the legals should be worded and I am 100% wedded to little of this.” – Peter Cowley, Angel Investor

 

Cap Table Headaches

Another hot-button issue is the cap table, where founders and investors make mistakes that cause them future problems.

Jaroslav Trojan Equus Ventures, StartupYard

Jaroslav Trojan Equus Ventures

“The most usual scenario is that investors take majority ownership thinking they can ‘control’ the startup. Most of the problems relate to cap table I would say. Also, too many conditional investment tranches are quite a frequent mistake. I also occasionally hear that startups and investors don’t use term sheets at all which may lead to poorly managed round, confusion, and increased legal costs.” – Jaroslav Trojan, Equus Ventures

 

“One [item I insist on] that strongly surprises founders is reverse vesting, until I have explained to the founders that if one of the founders leaves the business (I have had to negotiate this three times) then their unvested shares are then available to strengthen whatever senior hires are needed to replace the founder If those shares are not used, then the remaining founder owns a bigger share of the pie.” – Peter Cowley

 

Planning Your Exit

A theme that also emerged in the responses was that founders and investors often fail to plan for the eventuality of an exit, and prepare themselves legally and practically for the eventual sale or liquidation of the investment.

Investors can and do take advantage of the smaller legal resources and lesser experience of startup founders.

“In later stage investments, the big one to watch is (participating or not) liquidation prefs, which if everything goes well, will appear toothless, but if something goes wrong… I was not an investor but there is a 10 figure exit in Cambridge where the founder (having been on the journey for a decade) was squashed to zero by the prefs.” – Peter Cowley

“In a Polish seed VC deal, I saw participating liquidation preferences set at X 2.5 with the preference participating again after payment to founders from the exit. In another deal led by a Polish VC I saw a VC insert a participating liquidation preference while the term sheet called for a non-participating liquidation. In investment agreements I have also seen liquidated damages if founder stops working at the company and/or decides to leave the board of the company. Liquidated damages started at €50K and went upto the size of the round. Standard terms like drag and tag along are often drafted excessively in favor of VC investor.” – Tytus Cytowski

Some less-than-friendly investors can get extremely creative in the ways they ensure they profit most from a startup’s success. As in the above examples, what can appear to be fair on paper can end up costing a founder any chance of profiting from their own work.

To provide some context, a liquidation preference is a clause in an investment contract which ensures that a certain investor receives the profits from any sale of the company first, up to a certain multiple of the original investment. This means that not only does an investor get their share of the company when it is sold, but they may also get more than their original share if the company is sold for less than expected.

For example, if a VC invests €1m at a €4m pre-money valuation, their stake is 20% of the company post-money (€1m out of €5m). If there is a liquidation preference set at 3x, that means that the investor expects to be paid back at least €3m no matter how much the company eventually sells for. If the company sells for €3m, then the VC would take the whole amount, and the founders would have nothing, even though they’d built a company worth €3m.

Often these issues arise because the founders believe that their companies will be worth much more at exit than ends up being the case. A high liquidation preference is not important if the company is worth even more than the multiple of the preference. But if the company sells for less than expected, the investors can take a huge piece (or all) of the proceeds.

Business Culture: Legal Fatigue

One of our own favorite startup lawyers Tytus Cytowski, who has supported our alum Gjirafa Inc. in fundraising, pointed to our regional business culture as an issue:

“Three big picture problems that translate into specific terms. First, CEE investors focus on maximizing control instead of focusing on wealth maximization. The focus on control maximization is a CEE cultural issue caused by lack of trust in entrepreneurs, corporate mentality of investors and the fact that the main LP of the majority of CEE funds is the government.

Silicon Valley on the other hand focuses mainly on wealth maximization and invests with a ‘spray and pray’ mentality. Silicon Valley investors are interested in absolute returns in portfolio, while CEE investors look at returns on the level of each company.  The control maximization problem is especially problematic in deals with Polish VCs.

Second, most of the CEE investors have a strong private equity/investment banking background, which does not work well in the startup world. For example, PE/Investment banking is focused on generating fees and strictly growth metrics. Good VCs invest with an understanding of technology, disruption and innovation, not only growth metrics.

Finally, a lot of CEE investors don’t have experience as entrepreneurs and don’t understand the life cycle of a startup and what terms are crucial at each stage. Paradoxically CEE entrepreneurs that become VCs tend to have the most unfriendly startup terms from my experience. In general CEE term sheets are heavy on protective provisions (veto rights), liquidated damages and penalties for founders, drag and tag along, disproportionate equity to risk ratio of startup in favor of investor (above 10 % per round), low valuations. Exception are term sheets from Credo, Reflex and Rockaway, which follow Silicon Valley best practices.” – Tytus Cytowski

That sentiment was strongly echoed by Tudor Stanciu, a startup lawyer and advisor from Romania and former organizer of the HowToWeb conference, who wrote:

Tudor Stanciu“I think the biggest problem in term sheets is a general one, especially when dealing with corporate VCs / investment arms: the density of language being used. You see 20+ pages of term sheets/SHAs out of which most refer to standard limitation of liability/disclosures that arise from other types of transactions that the VC’s lawyers have done.

At least for early stage, pre-revenue startups, founders do not have the ability to reach out to lawyers and pay out fees to get a language-dense SHA cross-checked and simplified by a founder-friendly lawyer, and that can make a founder end up suffering from “contract fatigue” and missing out on important details oft he transaction while wasting time going through lawyer slang and verbose the effect of which is not that significant, in the end.” – Tudor Stanciu, Startup Lawyer

 

You Need a Lawyer

There’s an old Russian proverb that the writer Suzanne Massie famously quoted to Ronald Reagan in the 1980s, near the end of the Cold War: “Doveryai, no proveryai” or “Trust, but Verify.”

Trust is a tricky thing when it comes to money. There are absolutely people who can be trusted, but how do you recognize them before the fact? It might be that a person left along in a dark room with a pile of cash might be the type who never even thinks of touching it. The problem is you just don’t know until it actually happens.

Certainly we as investors at StartupYard know that we will not, as a matter of practice and principle, deceive or mislead the startups we invest in. We can tell you this until we’re blue in the face, but we have no way of proving it to you except by following through on what we say. When there is a potential for abuse, there is always a risk of abuse. Recognizing that is an important step in maturing as a company founder.

As we have long noted to our own startups and community, when it comes to early stage and Angel investments, the best protection is your network and the good reputation of the investor. However, taking money from an investor without the advice of qualified legal council is a strategic error, even if it may not lead to catastrophe in every case.

Dealing with a bad actor can just be a case of bad luck. We can’t control how lucky we are, but we can control how prepared we are. So there is no excuse not to be prepared.

An Investor Deck Isn’t a Pitch

You know that pitching is one cornerstone of building a startup. It’s an art form: condensing your business and your story into something people can understand, and remember, in just minutes. While most startups are familiar with the idea, and some can present well, delivering a really standout pitch remains a high bar of achievement for most founders.

Despite the fact that pitching is such a common cultural phenomenon in startupland, the majority of startups never do it well, in my view. There’s a reason StartupYard spends a whole month toward the end of our program on pitching, and there’s a reason many of our alumni have won pitching contests after the program.

The key, as in most thing, is preparation: mental, physical, and organizational. We’ll focus here on that last point: organization.

The Pitch Deck

In order to pitch, you need a killer Pitch Deck. That being said, at StartupYard we sense a good amount of confusion over exactly what a “Pitch Deck” is, and especially what makes it different from, say an “Investor Deck,” or a “Business Plan,” or a “Teaser,” or the 101 similar things that startup gurus insist you need to have.

Most of the time, when you contact an investor who’s interested in your startup, they’ll ask you for your “pitch deck.” That only adds to the confusion, because what they usually mean is your “Investor Deck,” “One-Pager,” or “Teaser.”

Then again you may be asked to present your pitch in front of a more general audience, such as potential investors, partners, other startups, or even employees, and in that situation, an Investor Deck is the wrong material to present.

When we’re finally meeting our applicants for the first time in our final selection round at StartupYard, we ask them to provide a pitch for our investors, team, mentors, and partners. What we frequently get from startups is not exactly a pitch, but rather a presentation of an Investor Deck.

So how do you know what to present, and when? Why can’t you just show everyone the same thing?

Investor Deck ≠ Pitch Deck

For starters, despite what investors may say, the “Pitch Deck” they might ask you to send them via email is actually an Investor Deck.

Just to make this as fool-proof as possible, here are the key differences:

General Pitch Deck

  • Supports your in-person presentation
  • Focuses on problem, unique value proposition, and differentiation from competition
  • Introduces the market opportunity, team, and future plans
  • Tells your story and vision in simple human terms
  • Slides contain only very basic info
  • For an audience with no prior information

Investor Deck

  • Can be read by itself
  • Introduces the problem and covers the key value proposition
  • Focuses on the market opportunity and unfair advantage of the startup
  • Focuses on the team and their relevant qualifications
  • Discusses go-to-market strategy in detail
  • Talks about your vision in mostly business terms
  • For an audience with prior information

We can see from this breakdown that the investor deck puts most of its focus on the information investors need to make decisions. While an investor may be deciding “should I invest in this?” a general audience member is asking “should I care about this at all?”

A common problem occurs with early stage companies when founders create their Investor Deck before doing a Pitch Deck, and end up “converting” their Investor Deck into something they will use to pitch their startup to general audiences.

This is a mistake! It’s kind of like converting a Formula 1 car to a family van. These aren’t the same species. The two types of deck are meant for completely different contexts, and they are easy to tell apart. What might seem impressive in an investor deck can seem grandiose or unrealistic in a pitch deck.

Take a look at the 500 Startups Template for an Investor Deck:

As you can see, if you start with an Investor Deck and try to convert that into a general pitch, you’ll end up with a presentation that has too much data focusing on the wrong things. Whereas an Investor Deck argues in favor of an investment in your company, the Pitch Deck argues in favor of the existence of your company. If you start backwards, you’ll end up with all the wrong data, and all the wrong messages.

More importantly, you will miss narrative opportunities that are only available when you pitch in person. A pitch is all about salesmanship, so why would you undercut your opportunity to sell yourself to the audience?

Focusing on Your Audience

The key to getting any kind of pitch right is to know your audience, and do the heavy lifting for them. Ask yourself the key questions:

– What does my audience need to know?
– What misconceptions do I want to correct?
– What impression do I want to make?
– What do I want them to do after hearing the pitch?
– What questions do I want to be asked?

The answers are obviously very different if you’re talking about an investor you have met, or someone in a general audience hearing your pitch for the first time. Giving that information without the right context makes you look like a fool, and wastes your audience’s time to boot.

Failing to focus on your audience can cause you to lose control of the impression you’re making. What seems fine in front of investors, or in an email, can seem greedy and/or totally unrealistic in front of a mixed group of people who know little about you. Founders who are probably nice people can end up seeming sinister or assholish because they’ve forgotten where they are.

On the flip side, what can seem cute or fun in front of a larger audience can seem childish to a small group of experts. Funny is contextual. Fun is subjective.

I’ve seen this kind of thing happen in person. Once, I was in the audience of a pitch where the founder completely lost control of the impression he was making. He was presenting a really complicated and in-depth Investor Deck to a general tech audience. He was making pretty unbelievable claims about the opportunity he was attacking as well. Maybe they were justified in his mind, but they were not justified in his pitch.

That might be fine for an investor deck because investors can ask about the assumptions being made. A crowd of people doesn’t get to stop you: they have to listen with mounting disbelief.

Even for a group of really smart and informed people, an out-of-place pitch gets tiresome fast. By the time the Q/A started on that occasion, snarky and hostile questions were bubbling up on the audience feedback screen behind him. Having started off badly, the founder got defensive with his answers, and people ended up actually booing him at the end.

I’ve never seen that at a pitch session before or since, but I understand why it happened. He didn’t respect his audience by showing he understood them. He talked down to them, rather than treating them as the focus of his pitch. That was his unforgivable mistake.

Saying What’s Important

The impression you give is as much how you make your audience feel, as how you talk about yourself and what you do. It’s important to stick to saying what’s most important, and not necessarily what’s most impressive or “complicated sounding.”

Keep in mind: if they wanted to become experts on the topic, they could read a book. A general audience are there mainly to learn about you, not the market you’re in or the technology you’re working on. They should come away knowing more about you and the way you think, even if they don’t really understand what you do yet. If they learn something about technology in the process, consider it a plus.

Building trust is all about being appropriate to your context; showing your audience that you are prepared for them, and they can trust you. This is why we advocate for a simple Pitch Deck, particularly for a 2-minute pitch (made famous by Techstars). The rule of thumb should go something like this:

  1. Killer intro / 30 sec, 50 words
  2. Problem / 20 sec, 33 words
  3. Solution / 20 sec, 33 words
  4. Differentiation / 10 sec,  16 words
  5. Business model & go-to-market / 20 sec, 33 words
  6. Traction / 20 sec, 33 words

 

The concrete number of slides you use is not as important as most founders think, particularly for a live pitch. A slide can be one word for example, or one image. One slide can be your whole intro, or your intro can be five slides. That’s down to individual style.

In his Medium post: Why You Shouldn’t Copy Sequoia’s Pitch Deck, Scott Sage makes a nice point, saying that the headline of each slide should, in sequence, tell the story of your company.  While he’s really talking about Investor Decks, this theory still fits nicely with StartupYard’s own “Maximum One Idea Per Slide” rule for Pitch Decks.

Simply put: don’t force your general audience to process two thoughts at the same time. That means a slide or series of slides supports one idea, not that multiple ideas are supported by a single slide. Consider what that means for a general audience pitch deck: the slides have to be very basic.

If you adhere to the KISS principle (Keep It Simple Stupid), then your pitch should only try to accomplish a very limited set of goals.

Communicate Your Message, Not Your Data

Now, if your pitch is shooting for these simple goals, it should be conservative with the amount of work it asks the audience to do. Do you need your audience reading in-depth market data if all you want to do is state that an opportunity exists? Do you need to deep dive into the unique background of your team members to show that you are suited to this project as a group?

The answer is probably not. In fact, it’s usually better to leave those details for a follow-up meeting, where anyone interested will likely ask about them or challenge what you’ve said. Don’t be defensive about your ideas from the start – allow people the chance to question you, and welcome those questions.

The best live pitches are built around developing questions for the audience to be curious about. It’s impossible to convince someone in 5 minutes, but it is very possible to intrigue them in that time.

The effectiveness of a general audience pitch is going to be determined not by how much your audience understands, but rather by if they care. An investor usually only looks at your Investor Deck because they care to begin with. You can play into that interest and take the time to inform and enlighten the investor- but that is fundamentally a differently thing from getting someone excited about you and your idea itself.

Remember, an Investor Deck answers questions, but a Pitch Deck provokes new questions. You want to give your audience the space and in a way the mystery needed to inspire their imagination. A pitch that is grounded in things like market size and opportunity, or even in-depth data on the problem itself, is not asking its audience to dream about the future – it is asking them to study the present with a clinical eye.

 

mentors engaged with founders

How Smart Startups Keep Mentors Engaged

A version of this post originally appeared on the StartupYard blog in January 2016. As a new group of Startups joins us in the next few weeks for StartupYard Batch 10, we thought we’d dive back into a very important topic for them: How do the smartest startups engage their mentors?

But first: why do some of even the most successful startup founders continue to seek mentorship?

Strong Mentors are Core to a Successful Startup

Mergim Cahani (right), CEO of Gjirafa, one of StartupYard’s most successful alumni, is an avid startup mentor himself.

Founders have to balance mentorship with the day-to-day responsibilities of their companies. But sometimes founders approach mentorship as a kind of “detour” from their normal operations- something they can get through before “getting back to work.”

This is the wrong approach. Having worked with scores of startups myself, as a mentor, investor, and at StartupYard, I can comfortably say that those who engage with mentors most, get the most productive work done. Those who engage least, are generally the most likely to waste precious time. 

How can that be? Well, simply put, the first line of defense against the dumbest, most avoidable mistakes, are mentors who have made those mistakes themselves. I’ve seen this happen: a startup decides they’re going to try a certain thing, and it’s going to take X amount of work (often a lot of work). They mention it to a mentor, who forcefully advises that they not do it. The mentor tried it themselves, and failed.

Now this startup has 2 options: proceed knowing how and why the mentor failed, or change direction to avoid the same problems. Either way, an hour-long discussion with a mentor will probably have saved time and money, simply by raising awareness. I have seen 20 minute conversations with mentors save literally months of pain and struggle for startup founders.

Recently, one of our founders reached out to a handful of mentors for information on an investor who was very close to signing on as an Angel. The reaction was swift, and saved the founder from making a very serious mistake. The investor turned out to have a bad reputation, and was a huge risk. As a result, mentors scrambled to suggest alternatives and offer help securing the funds elsewhere. That is what engaged mentors can do for startups.

Engaged Mentors Defeat Wishful Thinking

There’s a tendency, particularly among startups that haven’t had enough challenging interactions with outsiders, to paper-over issues that the founders prefer not to think about. Often there “just isn’t enough data,” to prove or disprove the founders’ theories about the market.

Conveniently, “lack of data,” or “need for further study,” can serve as an excuse for not making decisions. That’s one of the main reasons startups fail – refusing to make a decision before it’s too late.

We like to focus on things we can control, and things we have a hard time working out appear to be outside of that sphere, so we are more likely to ignore them, or hand-wave their importance away.

Founders sometimes long to go back into “builder mode,” and focus solely on executing all the advice they’ve been given. And they do usually still have a lot of building to do. But one common mistake -something we see every single year- is that startups will treat mentors as the source of individual ideas or advice, but not as a wellspring of continuing support and continual challenges.

The truth is that a great mentor will continually put a brake on your worst habits as a company. They will be a steadfast advocate of a certain point of view- hopefully one that differs from your own, and makes you better at answering tough questions. But you have to bring them in.

Treat Your Mentors like Precious Resources

I can’t say how many times great mentors, who have had big impacts on the teams they have worked with, have come to me asking for updates about those teams. These mentors would probably be flattered to hear what an effect they’ve had on their favorite startups, but the startups often won’t tell them. And the mentors, not knowing whether they’ve been listened to, don’t press the issue either.

Mentors need care and feeding. They need love. Like in any relationship, this requires effort on both sides.

But time and again, mentors who are ready to offer support, further contacts, and more, are simply left with the impression that the startup isn’t doing anything, much less anything they recommended or hoped the startup would try.

Mentors who aren’t engaged with a startup’s activities won’t mention them to colleagues and friends. They won’t brag about progress they don’t know about, and they won’t think of the startup the next time they meet someone who would be an interesting contact for the founders.

This isn’t terribly complicated stuff. Many founders fear at first that “spamming” or “networking,” is the act of the desperate and the unloved. If their ideas are brilliant and their products genius, then surely success will simply find them. Or so the thinking goes.

Alas, that’s a powerful Silicon Valley myth. And believe me: it doesn’t apply to you. Engaging mentors is just like engaging customers: even if you’re Steve Jobs or Elon Musk, you still need to be challenged and questioned. You still need support.

As always, there are a few simple best practices to follow.

1. A Mentor Newsletter

Two of StartupYard’s best Alumni, Gjirafa and TeskaLabs, provide regular “Mentor Update” newsletters. These letters can follow a few different formats, but the important things are these: be consistent in format, and update regularly. Ales Teska, TeskaLab’s founder, sends a monthly update to all mentors and advisors.

In the email, he has 4 major sections. Here they are with explanations of the purpose of each:

Introduction

Here you give a personal account of how things are going. You can mention personal news, or news about the team, offices, team activities, and other minutiae. This is a good place to tell small stories that may be interesting to your mentors, and will help them to feel they know you better. Did a member of the team become a parent? Tell it here. Did you travel to Dubai on business? Give a quick account of the trip.

Ask

This is one section which I love about Ales’s emails. I always scroll down to the “ask” section, and read it right away. Here, Ales comes up with a new request for his mentors every single time. It can be something simple like: “we really need a good coffee provider for the office,” to something bigger, like “we are looking for an all-star security-focused salesman with 10 years experience.”

Whatever it is, he engages his mentors to answer the questions they know, by replying directly to the email. This way, he can gauge who is reading the emails, and he can very quickly get great answers to important questions or requests.

Audience engagement happens on many levels. Not everything engages every mentor all the time, and that’s important to keep in mind. A simple question can start an important conversation. You don’t know what a mentor has to offer you until you find the right way to ask for their help.

Wins

Here, Ales usually shares any good news he has about the company. This section is invaluable, because it reminds mentors that the company is moving forward, and making gains. A win can be anything positive. You can say that a win was hiring a great new developer, or finally getting the perfect offices. Or it can be an investment or a new client contact. These show mentors that you are working hard, and that you are making progress and experiencing some form of traction.

You’d be surprised how many mentors simply assume that a startup that isn’t talking about any successes, must have already failed. StartupLand in can be like Hollywood that way: if you haven’t seen someone’s name on the billboards lately, it means they’ve washed out.

The fact might be that you’re quietly doing great business, but see what happens when someone asks about you to a mentor who hasn’t heard anything in 6 months. “Those guys? I don’t know… I guess they aren’t doing much, I haven’t heard from them in a while.” There’s no good reason for that conversation to happen that way.

KPIs

Here Ales shares a consistent set of Key Performance Indicators. In his case, it is about the company’s sales pipeline, but for other companies, it might be slightly different items, such as “time on site,” or “number of daily logins,” or “mentions in media.” Whatever KPIs are most important to your growth as a company, these should be shared proactively with your mentors.

If the news isn’t positive, then explain why. You can also have a little fun with this, and include silly KPIs like: “pizza consumed,” or “bugs found.” This exercise shows mentors that you are moving forward, and gives them a reliable and repeatable overview of what you’re experiencing in any given week.

I heard one mentor complaining not long ago about these types of emails. “The KPIs don’t change that much, it’s always the same thing.” But he was thinking about the startup in question. The fact that the KPIs hadn’t changed might be a bad sign to the mentor, but probably the absence of any contact would be worse. At least in this case, the mentor might care enough to reach out and ask what’s going on.

2. Care and Watering

Mentors aren’t mushrooms. They don’t do well in the dark. Once you’ve identified your most engaged mentors, you need to put in as much effort in growing your relationship as you expect to get back from them.

How can you grow a relationship with a mentor? Start by identifying what the mentor wishes to accomplish in their career, in their life, or in their work with you. Do they want to move up the career path? Do they want to do something good for the human race? Do they just want to feel needed or important?

A person’s motivations for mentorship can work to your advantage. Try and help them achieve their goals, so that they can help you achieve yours.

Does a mentor want his or her boss’s job? Feed them information that will help them get ahead of colleagues and stand out. Mention them in your PR, or on your blog to enhance their visibility.

Does the mentor want to be a humanitarian? Show them the positive effects they’ve had by sending them a letter, or inviting them to a dinner.

Does the founder yearn to be needed? Include his/her name in your newsletter and highlight their importance to your startup. These things are all easy to do, and can be the difference between a mentor choosing to help you, and finding other things to do with their busy schedules.

ideas

Your Ideas are Worthless. You Should be Glad.

Yesterday we received an email that I can only describe as an “hysterical screed” from a disappointed startup founder who felt that his ideas had been “stolen” by the likes of Y-Combinator some years ago. The email included links to an elaborate set of documentation including YouTube videos that compared two products that sort of, kind of do similar things.

Note, neither the message nor the documentation ever contended that any actual intellectual property, such as code or wireframes, had been stolen. Only the ideas behind them.

What was more arresting was the content of the email, which verged into conspiracy theorism and fantasy.

We get our fair share of weird mail. Investors seem to attract people who combine sad desperation with megalomania. Some just want money. Still when Cedric sent me this email saying: “Maybe a blog post?” I responded: “Hell yes.”

I am not posting this to defend the good name of startup accelerators worldwide, nor to defend StartupYard against such an accusation. I’m also not posting it to ridicule this person, because I am sure their problems are deeper than professional disappointment.

Rather I’m hoping to show startup founders how insidious and destructive the concept of “Idea Ownership,” really is, and why they ought to think very hard before making accusations of IP theft. Again, not because these accusations are particularly damaging to those who are accused, but because they are quite damaging to those who make the accusations, and to the many people out there who have great ideas to share.

You’ve Got an Idea? That’s Nice Dear.

The general gist of the supposed conspiracy was summed up in a few bullet points I will paraphrase (though I won’t give free publicity to the author):

Step 1: Accelerators Collect Startup Ideas (via F6s)

Step 2: We “Steal those Ideas” and Give Them to “Our” Startups

Step 3: We Exit Companies 5 Years Later for $300m

Please understand, I am not exaggerating. It was taken as a given that finding the best ideas out of thousands of applications would lead to multi-hundred million dollar exits.

If only that were the case! How easy life would be for accelerators like StartupYard. Not to mention those lucky startups we would give the stolen ideas to.

But sadly no, it just does not work that way. Your ideas are pretty much worthless. Let me explain why that is:

  1. Your Ideas Aren’t New, and We Don’t Care

The central plank of this theory is that investors and VCs are out digging through your garbage and listening to your phone calls trying to steal your ideas.

We’re not. You know why? Because we’ve heard them already. Yes, even that one. A typical VC is pitched a couple of hundred ideas a year. I see around 400-500 a year. Every year. It gets so that when I hear a pitch these days, I sometimes struggle to remember whether I have already met the founder who is pitching, because I know about the idea already.

What was funny to me about this particular email was that the idea the author purported to own was not only not a new idea, it was a problem already being solved by existing enterprise software. The pitch was for turning existing functionalities into an SME level product. That’s what we call “an execution play,” in investor lingo. It means the idea is the market, not the product.

You should know this if you’ve ever been to a pitching event with a Q/A. There’s always a smarty-pants judge who points out he’s heard every idea before. Most of them have, it’s just that lazy judges say that instead of something more useful. We’ve all heard the ideas before. There’s nothing new under the sun.

That’s ok because we don’t care much about ideas. We care about finding big problems to solve, because that is going to determine how successful your company is. The thing about big problems is that everyone knows about them. If they didn’t know about them, they wouldn’t be problems to begin with.

So our biggest problems with picking startups is finding the right team to solve that problem, and doing it at the right time.

Just think about this logically for a minute: you have an idea, and it’s a pretty good one. Genius in fact. What industry is it in? How big of a problem does it address? How many people work in that industry? How many people are customers or users of the products of that industry?

ideas, startupyard, accelerator

Even if we’ve never heard an idea before, it usually takes about 30 seconds of googling to figure out it isn’t a new idea. Even if we can’t figure that out, one of our alumni or mentors can, and frequently do. The question is not whether an idea is new, but whether the problem being solved is real.

The bigger the problem you’re solving is, the higher the likelihood that somebody, somewhere (and more likely many people, everywhere), have had the same exact thought. Their description of it might be different, and their way of fixing it might be different, but the idea is effectively the same.

2. Ideas are Easy to Copy. Vision cannot be copied.

We choose startups based on their vision, and how that vision makes sense for that team, that technology, and the problem they want to solve. It is mostly about people.

To someone not familiar with our thinking, it might look like we hear ideas, then “give them” to our startups. But, thats pretty misleading.  It would be like accusing a filmmaker of watching other films, or being inspired by literature. Ideas are wonderful and sometimes very clever. They are just never really entirely new. If they were, they wouldn’t make sense when you heard them.

Of course the iPhone would have been a truly new idea before the invention of electronics. But then, nobody ever had any reason to imagine such a thing before the discovery of electricity, let alone computing and the million other nested inventions in a smartphone. Inventions are always a blend of established knowledge with new approaches.

This popular phenomenon of “idea theft” is more pronounced today in the tech industry than in almost any other- and it’s particularly true in products that rely on a simple central value proposition that is easy to copy. Many products can “do the same thing,” but very few can do it in just the right way.

Look at Facebook, and the endless accusations of their “stealing,” the Stories idea from Snapchat. It’s true that Facebook recognized an opportunity when it presented itself, but the idea of using media to create a narrative was invented in the past few years is ludicrous. Do we accuse Uber of stealing the idea of a livery service?

One of my favorite ever blog posts about this topic is from the creator of the game 3s. When I first read this piece when it was published, I was a fan of their copycat competitor, 2048. Since then, I’ve adopted 3s and actually played it on a near-daily basis for the past 3+ years. Today I understand the piece very differently. What I saw then as mostly whining about competition, today I see as a powerful argument in favor of vision:

“We wanted players to be able to play Threes over many months, if not years (…)The branching of all these ideas can happen so fast nowadays that it seems tiny games like Threes are destined to be lost in the underbrush of copycats, me-toos and iterators. This fast, speed-up of technological and creative advances is the lay of the land here. That’s life! That’s how we get to where we’re going. Standing on each others shoulders.

We want to celebrate iteration on our ideas and ideas in general. It’s great. 2048 is a simpler, easier form of Threes that is worth investigation, but piling on top of us right when the majority of Threes players haven’t had time to understand all we’ve done with our game’s system and why we took 14 months to make it, well… that makes us sad.”

What this really is, is a startup founder talking about how simple his idea was, and how important his dedication to his craft was to the delivery of a special product. He was absolutely right to point out that comparisons between his product and the copycats were unjust, and would eventually be judged premature.

He may not have ended up with the most popular game, but he did end up with the best game, and customers paid for that game, not for the copycats (which were free). They “lost” in terms of being a market leader, but they succeeded in their vision for their users and product.

When you actually stop to think about it, it’s hard to name a lot of first movers in tech who managed to dominate their industries, or even survived. As CBinsights has pointed out using data supplied by failed startups themselves, “late to market” doesn’t even qualify in the top 20 reasons for failure.

  1. First to Market Isn’t a Predictor of Success

Shockingly, being first on the market is not a powerful predictor of success. In fact, study has shown that it may be associated with a higher risk of failure. MIT Sloan Management Review noted over 20 years ago that claims of first-mover advantage among successful businesses across a broad base of industries was caused by an effect known as “Survivorship Bias.”

Survivorship Bias, a form of selection bias, occurs when we attempt to judge the relevant qualities of a group, such as a group of startups, after they have become successful, while ignoring the qualities of those who don’t make it. This can lead us to misjudge the importance of some qualities in survival, because we are not looking at all the data.

The logical error is easy to spot when you know how. If I told you that a study of billionaires shows that 75% of them wear white shirts, but only 25% wear other colors, you could conclude that having a white shirt improves your own odds of success. But you would likely be in error. The population as a whole might be 90% white shirts, meaning that in fact another color is even more correlated with success when looking at all the data.

Think about that the next time you dress a certain way because Steve Jobs did. That would be aggressively missing the point.

Survivorship bias arises when we don’t have good data on failures, obviously because they have failed. However, there are ways of determining that survivorship bias is at work. For example, the inconvenient truth that the failure rate for Silicon Valley based startups is actually *higher* than in many other regions. As the Guardian suggests in the above article, this is precisely because so many successful companies are based there. The local standards for success are higher, so failure rates rise.

Does that mean you should or shouldn’t move to Silicon Valley? I don’t know. I know it does mean that moving to Silicon Valley is not guaranteed to help you.

Want even more proof of why first to market is overrated? Of the top 10 startups according to StartupRanking.com, not a single one of them was first to market. Some, like Slack, were not even the first multi-billion dollar companies in their own category. Booking.com offered private flat rentals in the 90s, a decade before Airbnb, and Couchsurfing was founded in 2003, a full 5 years before.

4. Most Ideas Don’t Come from Startups Anyway

A dark and terrible secret of the tech industry -just kidding, it’s obvious- is that most of the ideas that end up getting made don’t come from the founders themselves anyway. The core idea is there, but the final product with market fit is usually a distant cousin of the prototype- the work of many minds.

Where do most actionable ideas come from? Users, customers, advisors, investors, partners, friends, family, and hatemail. I’m only sort of kidding on that last one. The point is that startup founders generally start with wanting to solve a somewhat unclear problem in a somewhat unclear way. They attend accelerators and get early users, investors, and corporate partners on-board to help them make the problem and the solution more clear and actionable.

The really successful founders are not idea machines, they are execution machines. They know how to listen, recognize a good idea when they hear one, make it work, observe the results, and adapt further. There is great creativity and invention in this process, but it is not about ideas, it is about empathy, passion, and skill.

You Should be Glad Ideas Are Worthless

Now that I’ve ruined your beautiful vision of the perfect idea that will make you rich, I will give you a moment to thank me.

You should be happy after all: now you can get on to the stuff that really matters, like building a company you can be proud of, that provides something your customers really value.

Here’s another reason you should be celebrating: you can work on anything you want to. Somebody else already tried it? Not like you will. The problem is already solved by somebody else? I bet some of their customers aren’t happy.

Oh and nobody can credibly accuse you of “stealing their idea,” since ideas are not automatically intellectual property. Intellectual property is the work product of an idea, not the idea itself. Copyright applies to words and images and code. Patents require you to actually design an invention and describe how it works in detail; even then, it’s not automatic. A patent is for the bread slicer, not the sliced bread.

ideas,

Call the lawyers. We’ve got a live one.

If someone has already done what you want to do, thank God somebody has already proven you can make money in this field- that makes your job a lot easier. Or thank goodness somebody else tried this and failed. Now you know not to make those same mistakes. See? Now that ideas don’t matter, the world is truly your oyster. Go forth and start up.

Startups Fail

Our Top 3 Reasons Startups Fail: Featuring CB Insights Data

This is going to be a post about what makes startups fail. But first of all, if you don’t regularly read CBinsights and receive their newsletters, then stop reading this post and go sign up. There’s a reason most newsletters don’t have 400,000 weekly readers.

If you do, then you may have seen a bit of content that CB insights has been updating consistently since 2014: The Top 20 Reasons Startups Fail. This is a list compiled from a sample of over 100 “Post-mortems,” written by founders and employees of high profile startups that failed.

The list is ranked by the number of times a specific reason for failure is cited – each post-mortem contains some combination of these reasons:

StartupYard’s Top 3 Startups Fail, and How to Avoid Them

We won’t detract from this piece by hashing out every reason startups might fail. Instead, we’re going to focus on 3 of these reasons, and how to avoid letting them kill your startup before it starts.

Some of these reasons also explain why we choose not to work with some startups that apply to our program. If you’re thinking about applying to an accelerator or talking to early-stage investors, then these are important questions to ask about yourself and your business.

  1. Ignoring Customers

Oh boy. This is a big one. For me, this is the big one. The mistake that kills a startup dead like a beautiful rose in a dry vase. Ignoring your customers, refusing to think about them and to be driven by their needs, is the kiss of death.

It all starts so innocently: a humble coder working nights and weekends on a passion project. That’s the way a startup should start, but the nature of a startup is to grow – not just in size but in mentality.

Every startup investor and mentor has had this conversation:

Mentor: who are your customers.
Founder: Well we are our own customers.
Mentor: Yeah… but who is going to be your customer? What do they need?
Founder: They need our product.
Mentor: Why?
Founder: Because it’s awesome. They’ll love it.
Mentor: Yeah but… why your product? What not a competitor?
Founder: Because we are newer/smarter/cheaper/better UX, etc.
Mentor: How do you know that’s what they’re looking for?
Founder: Because we are the customer.

Points to you if you can spot the tautology in this reasoning. I strongly agree that a problem you are passionate about solving has to be one that affects you. In that sense, you should be your first user, you just need to remember that the customer is somebody you can also learn from.

A good way of remembering that is this: you didn’t buy your product. You built it. Your customer will buy it. Even if you both have the same problem, you are not the same person.

Again, it’s essential to create something you would use yourself. It just isn’t enough. Great products involve a deep insight into the motivations of customers; even when that insight is a very simple one, or an instinctual one, it does not come about by chance, but by observation and curiosity about people.

Thinking About Your Customers:

How to avoid this one? It happens that we’ve shared a lot of content on this theme. Positioning for Startups, Bulding a Killer Customer Persona, and The “We” Problem, are good places to start.

In short, it comes down to having a process. Here is one you can try:

  1. Develop customer focused product/messaging frameworks (aka: Positioning)
  2. Make educated guesses about your customers in that framework (aka: Personas)
  3. Test these frameworks with real people and an early product or mockup.
  4. Redevelop your product and business strategy based on what you’ve learned

There’s not one way to do this, but there are plenty of ways to do it poorly. Not having a clear idea of what you know and don’t know about customers is a mistake that’s easy to avoid. Paul Graham put it this way in one seminal blog post:

When designing for other people you have to be empirical. You can no longer guess what will work; you have to find users and measure their responses.” -Paul Graham

2. Lacking Passion

“You need passion,” we are so often told. Less often are we told what that means.

I think this is why some founders confuse “having passion,” with “being energetic,” or “assertive,” or “dominant.” These are not the same things.

Passion comes from within – it’s not a performance art; it guides what you say but also how you think, what you are willing to do, and what setbacks you are willing to accept. In short, it’s not about how you behave, but about who you really are.

Everyone has some passion. It’s the thing that keeps you up at night, and bothers you throughout the day. A little voice in your head telling you something needs to be done.

Understanding their own passion is pretty hard for some people. We’ve seen that a lot. We spend a lot of time with founders trying to find out what gets them really engaged and excited about their work. What gets you out of bed in the morning is what’s most important in your work.

One of the first thing we ask applicants to StartupYard is: “Why are you doing this?” The answer says a lot about your passion.

A lack of passion is easy to spot, if you know what to look for. Here’s an overview of the qualities that typically tell us a founder lacks the passion they need to move forward:

  • Risk Avoidance: Founders who are unwilling to take risks, such as leaving a job, moving to a new place, or bringing on a co-founder.
  • Waiting: The founder who bases their decisions on the actions of others; who waits rather than acts with intention. “I will leave my job if you give me funding.” “I will decide what to do based on what investors say.”
  • Focused on Money/Valuation: Some founders who are overly focused on “getting the best deal,” do so because they value control and personal gain more than achieving their stated goals.
  • Motivated by Opportunity: I sometimes say: “don’t pitch me an opportunity, pitch me a company.” A founder who talks about getting a piece of a huge market might not be doing what they do out of a love for the work.
  • “Win At All Costs” Attitude: In my opinion, this happens when founders confuse passion for ambition. Ambition isn’t a bad thing, but it isn’t passion for what you do- it’s a passion for winning. Your passion for helping customers has to ultimately outweigh your personal ambitions, or else you won’t make decisions based on what’s right for them (and thus your business), but rather what fulfills your ambition.

Seeking your Passion: How do you know you’re doing things for the right reasons?

In my view, this is a simpler question than people often make it. We are taught from an early age that we should emulate those who are successful, but education systems often don’t help us to really understand why successful people are special to begin with: because they have a passion for what they do.

For all the tactics, tricks, and habits of the rich and famous, passion underlies everything. People succeed when they do what they are good at, enjoy it, and are willing to work harder at it than anyone else.

Just consider the following questions if you want to get in touch with your true passion:

  • If I were rich, would I stop doing this?
  • Are there better uses of my talent?
  • Am I waiting to enjoy what I am doing?
  • Am I doing this in order to be able to do something else?

If your answer to any of these is “yes,” then you ought to think hard about what you’re doing. You haven’t yet found your passion.

3. Missing Product-Market Fit (PMF)

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” – Andy Rachleff, CEO, Wealthfront

Even if you’re doing something you really care about and you’re doing it for customers you understand really well, you can still fail to make the right product for the right market.

Andreessen-Horowitzs  has a fascinating post on product market fit, in which they quote Andy Rachleff who developed the PMF framework, starting with what he calls a “Value Hypothesis:”

A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. “

There are two sides to the PMF equation. Market, and Product. Missing PMF means failing to address a specific market with exactly the right product, at the right price.

Right Market

Andreessen-Horowitz heavily emphasizes finding the right market first, which is another way of saying that you must identify the right problem to solve. If you pick the wrong market, you can end up building a product that people love, but won’t pay for.

This happens more than you’d suspect: plenty of popular products have never gained good PMF. Even mega-popular products like Twitter can teeter on the edge of failure, and take over a decade to achieve PMF (which Twitter seemed to do only in 2017, with their advertising business and focus on media and news).

Other orphans of bad PMF are products like Tumblr, Vine, Soundcloud, and BetaMax tapes. Each of these has either failed, or is now on life-support. The latter example of BetaMax is included in this extensive list from Business Insider. In fact, virtually all the products in this list failed because of lack of PMF. Not because the products were bad, but because the business model didn’t work: the market didn’t sustain them.

The Right Product

“First to market seldom matters. Rather, first to product/market fit is almost always the long-term winner.” – Andy Rachleff

So picking a problem you can solve, for a market that wants a solution critical. Still, you can manage this and still fail. The product that solves that problem also has to appeal to the customer enough for them to use it.

A great example of this also comes from BI’s list: The Apple Newton line, which lived from 1993 to 1997, and which Wired later called a “Prophetic Failure.” What most people don’t know about the Apple Newton line was that they very accurately predicted three distinct product categories, which would emerge in the following 15 years: the smartphone, the tablet computer, and the modern consumer laptop.

In many ways, looking at a Newton from 1995 feels like looking at a cyberpunk version of a modern device, made to look like a 90’s product.

 

The Newton failed in three categories that would go on to be the fastest growing market categories in history for computing, but still failed because the technology wasn’t ready. As the project lead Steve Capps said later: ““We were just way ahead of the technology. We barely got it functioning by ’93 when we started shipping it.”

The series failed at least partly because the market was not ready for such devices, but also because of its infamously bad character recognition feature. Even though later editions of the devices improved on the original, it was too late for Apple, which would spend the next 20 years rebuilding itself and slowly reintroducing all of these concepts in the form of the iPhone, iPad, and Macbook.

Testing the Value Hypothesis:

Like listening to your customers, PMF is all about trial and error. Make certain assumptions, test them with a minimum viable product, make more assumptions, and test them. The clearest milestones for PMF come from customer feedback about the Value Hypothesis.

You can begin to test this hypothesis right away, even with just an idea- with no product to show. It’s pretty simple: if you get confusion, lack of enthusiasm, or even hostility, either it’s the wrong product or the wrong market. Find out what the person you are talking to does want, and also look for others who do want the product you’re pitching. Chances are the answer is somewhere in the middle.

This is a bit like fishing. Either change the location or change the bait. It just takes time and consistency. Fish long enough, and you can get lucky.

For example, I was attending a tech conference a few months ago, when I got the chance to meet the former Senior Vice-President of a major electronics company. He mentioned that he helps early stage hardware companies find PMF, and I mentioned we had just such a company seeking PMF: Steel Mountain.

He asked me what the company did, so I gave him the 90 second water-cooler pitch. Within a few moments he was nodding. When I got into some of the features, he was saying: “yes… yes.” When I finished, he exclaimed: “I can’t believe no one has done this! When can I buy one?”

This, I must repeat, was the former Senior VP of a major electronics company, whose products you probably own. Nobody had ever pitched him this particular idea in just the right way before. That is a powerful indication of PMF.  You don’t have to convince the customer they need the product, because they know they need it.  

Still I may lack some important information. Is this customer representative of a distinct market segment? Is the business model workable for the target market? Does the product work the way they want and expect?

You still have to explore all those details, but enthusiasm for the product’s core value proposition is a great milestone. It was then the Steel Mountain team’s job to continue testing the product with the same customer and others like him.

 

Startup Skills: How to Create a Killer Talk

The Killer Talk: TL;DR: A Long Complicated Post

Creating a killer talk is complicated. Therefore this post is complicated, and because I want to go into detail on some of the points, I’m going to start with a quick TL;DR summary table. If you’re like me, and enjoy a nice wall of text, skip down and start reading!

 A killer talk

  • Preface
    • Practice is everything
    • Gifted speakers give bad talks too
    • Bad speakers can become great presenters 
  • Understanding Story Structure
    • Clear structure makes things memorable and easier to understand
    • Stories are present in all forms of expression, like architecture
    • Proper story structure helps us to manage attention and not be boring 
  • Picking the Story
    • 3 Key factors
      • What the audience expects
      • What the audience wants
      • What the audience needs
  • Complicating the Story
    • Subvert the 3 key factors and introduce conflicting ideas
    • Bring your story to an unexpected solution
    • If it’s not arguable, it’s not interesting 
  • Telling a True Story
    • Make yourself or someone else the hero of your story
    • Create an interest villain too
    • Have your hero’s story be a framing device for your views on the topic
  • Pro Tips: Establishing Authority
    • Always frame your talk in the context of your expertise and experience
    • Embrace your limitations as your advantage (unique perspective)
    • Make your authority clear by your words, not by declaration

 

People ask me sometimes how I prepare for the talks I frequently give at tech conferences and universities around Central Europe.

They say preparation is everything, and I agree. At StartupYard, we’ve been able to turn seemingly hopeless public speakers into real stars. It just takes dedication and time.

The truth is though, certain people are just good at public speaking. I have always been one of them, and that has made me slightly lazy when it comes to preparation. However, as expectations have risen over time, I’ve taken my speech prep more seriously.

This, by the way, is another common problem. Those who *are* naturally gifted public speakers tend to under-prepare. We’ve all had the experience of listening to a great speaker give a mediocre presentation for that reason.

The opportunity to change minds through public speaking is in many ways more powerful than in almost any other medium. It is an art our species has practiced for longer than any other. Standing in front of other people, and challenging and influencing their sense of truth, of justice, and of reason, is as good as it gets in the marketplace of ideas.

Public speaking is the Cadillac of communication.

So then, as a reformed lazy person, how do I prepare for public remarks? How can you learn from my experience?

Understanding Story Structure

“My mother always said: whatever you do in life, don’t be boring.” – Christopher Hitchens

The greatest sin in public speaking is to bore or confuse your audience.

I have covered the storytelling topic in detail in other blog posts. Still, I’ll provide a short primer here:

To be truly interesting is to be memorable. And memorability requires some structure- something the memory can attach itself to. The structure of a talk, just like that of a building or a piece of music, or a book, gives the listener/viewer/reader the shape of the idea, and helps them to remember it.

We call this structure “story.”

Think of it like architecture: the visible elements of a building help us to understand how that building works. Where are the entrances? What is the building for? These clues help you understand what is an office building, rather than a hospital, or what is a grocery store versus a warehouse.

An architect tells a story with the design of a building. In this analogy, we can see that it is possible to fail at speaking the same way you can fail at architecture. There are entire genres of architectural criticism that focus on this problem (and that particular blog is a hilarious example).

Is your talk a maze, or is the layout clear? Do people recognize the entrances and exits? Does it appear to be what it actually is? Does it make sense in the context of its time and space? Is it balanced?

Story structure is about answering these questions.

Note that not all of them have to be answered in the same way! Sometimes you want a maze. Sometimes you want the exits to be hard to find (like in a casino), and sometimes you want a building to stick out, and not fit in. But just like in architecture, we cannot simply ignore structure if we want to be different and memorable in the way we speak in public. We have to master story first.

Picking the Story

My strategy for creating a story for a talk is to understand 3 basic things very clearly. Again, this approach could be applied to any creative medium, even things like music (in fact, studying music theory and composition is where I learned this approach).

The three elements I start with are: what the audience expects to hear, what the audience wants to hear, and what the audience needs to hear.

So let’s take a practical example like Blockchain – the latest hot topic everyone wants to tell everyone else about. If I were to give a talk, I would follow these steps:

  • Think about what the audience expects you to say. Blockchain is the future? It’s a revolution? It’s safe? It’s better than alternatives?
    Pro Tip: Try to find something (which you also believe), that the audience doesn’t expect you to say. Blockchain will solve world hunger? Blockchain will cause a worldwide crisis?
  • Think about what the audience wants to hear. That blockchain is working out the way they hoped? That decisions made in the past were good? That the future is bright? Maybe the audience wants you to be negative about it as well. This is specific to the context of the talk, and who will hear it.
    Pro Tip: Acknowledge what the audience wants to hear, but don’t say it. “I know what you’re probably expecting to hear from me, but I’ll have to disappoint you.”
  • Think about what the audience needs to hear. What are the inconvenient truths about blockchain? What are the things people are ignoring? How are most people wrong about it? What is hard to grasp for this specific group?
    Pro tip: Avoid saying things the audience doesn’t need to hear or already knows. Blockchain is a popular subject? Yes. Only say this if it has a rhetorical purpose: “Of course blockchain is a popular topic but… (insert something the audience needs to know).

Complicating the Story

“Learn the rules as an artisan, so you can break them as an artist.” – Attributed to Pablo Picasso

So we’ve seen in essence, that a great talk is one that doesn’t say what people expect, that contradicts what people want to hear, and which says what people need to hear.

The art of public speaking is the way in which you complicate this process.

Complicating the story means introducing information or ideas that are in conflict with each other. One narrative appears to emerge, but is then challenged by a new narrative. A good public talk examines a story from more than one perspective, and shows how these narratives intersect and diverge.

So then an uncomplicated story begins with the three elements above, but stops there. It tells a narrative in conflict with previous narratives. A really complex and interesting story goes further, and challenges its own ideas in the same way, to arrive at still different conclusions. Often we do this by making the story about our personal journey of discovery: how we started by seeing things one way, and ended up seeing them another way entirely.

You will understand this concept quite instinctively, even if you have never noticed it before. Think of a classic story like The Lord of the Rings, or Casa Blanca. We are at first presented with two opposing ideas: a battle between the good guys, and the bad guys. But inevitably, the interesting part of these stories is what the good guys do that is bad, and what the bad guys do that is good.

You can’t have Frodo without Smigel. Casablanca’s Rick Blaine would never do anything interesting without his antagonist and rival Louis Renaultm to provoke him to action.

Remember: If it’s not arguable, it’s not interesting. Nothing worth your audience’s time is obvious. If everyone agrees with you all the time, then you’re probably not going deep enough. If you agree with yourself all the time, you’re probably not talking about anything that matters.

I know a talk has been a success when people come up to me afterwards to challenge my ideas. “Haven’t you considered this?” “I don’t agree with your conclusion about that.” These are positive outcomes for a public talk: that it inspires more people to think and talk about what you’ve said.

If nobody wants to give you their view, it may be because you haven’t really challenged them.

If it's not arguable, it's not interesting. @lloydwaldo on Creating a Killer Talk Click To Tweet

Telling a True Story

You may recognize the patterns i’ve talked about as similar to that of a classic TED talk, and with good reason. TED is masterful at helping presenters to illuminate a topic from a very specific point of view, and build a story around it.

Ted talks are most often shaped around the “Hero’s Journey,” narrative device. This is a common storytelling practice in which a character (often the speaker themselves), goes through a series of experiences which change their view of the world, and leave them better off than when they started.

A story that can seem flat and uninteresting if told without this device, can come alive for the audience when the hero is included. Take, for example, this classic talk from Will Wright, creator of SimCity, on Spore, birth of a game, from 2007.

On the surface, this could be a very dry discussion of game design in the 21st century. But because Wright makes himself the hero of his own story, we are taken on a journey from his early experiences with game design, through his personal discoveries about science and the theories of the universe, and arrive at the present day, understanding much more about why Wright has created this new game.

This strategy also works when you are not the subject of the story. We routinely see this in political speeches, for example: stories of average working people whose experiences are used to explain a political position or a decision. Investors often use this device to talk about the companies they invest in.

Pro Tips: Establishing Authority

Any time you’re being asked to speak as an authority on a given topic, it’s your job to help your audience understand not only what you think about that topic, but also how you came to have that position in the first place.

A poor way of establishing your authority is simply to state that you are an authority. “I am an expert in this topic,” is the lazy presenter’s mode of persuasion. Better is to list your accomplishments, and even better still, is to actively demonstrate your knowledge and experience in what you say.

A speaker’s authority is as important as what they say. This does not mean that one must be the highest authority on a topic in order to be persuasive, but it does mean that the speaker must frame their arguments in context with their authority to make those arguments.

For example, if I’m being asked to give a talk on Blockchain, I cannot give a persuasive presentation based on my knowledge of the technology. I just don’t know enough about it. There are others who should be listened to on that.

I don’t have to avoid talking about blockchain though. Instead, I would need to pick a point at which my authority intersects with the topic, and examine it from that perspective. Speaking outside my area of authority diminishes my arguments, but sticking to what I do know can bring up important points about the topic that another type of expert might miss.

Everyone is an expert if you look deep enough. @lloydwaldo on Creating a Killer Talk Click To Tweet

Can a marketing expert and an experienced startup investor tell you something meaningful about the blockchain? Absolutely. However, it should be something only a person with those qualifications would know or be able to argue effectively. I could talk about how the technology is marketed, for example, or what the technology’s implications are for marketing in general. I could talk about how the technology interacts with my discipline and my areas of experience.

Inside your area of authority, there will always be perspectives that can be valuable to others. So don’t ask “who am I to address this topic?” but rather “what does my expertise and experience tell me that others need to hear?”

An exit is not a vision

5 Surprising B2C Growth Strategies Founders Rarely Try

I’m not a fan of so-called “growth guruism,” or a believer that so called “Growth Hacking,” is what separates successful startups from failures. Solving problems that matter, taking pains to understand your customers and your market deeply, and doing truly unique and challenging things set the best tech startups apart- not the tricks they use, but how they use them.

Still, a growth strategy doesn’t hurt. Netflix wouldn’t be Netflix if it didn’t have clever marketing back when it launched. But it might not be Netflix the global dominant SVOD platform if it hadn’t sent its early-days DVDs to customers by mail in bright, flashy red envelopes, making customers proud to evangelize a sexy new product.

Even absent a full-blown growth strategy, it often surprises me that more founders don’t do relatively simple things that can help them grow much faster, and fine tune their marketing and sales efforts much more quickly.

So that’s what this is, a list of simple growth ideas that most people don’t bother to try, but which may just work for you. As a bonus, I’ll be adding real world examples that you can study on your own more closely.

1. Tame Your Mavens

There are lots of ways to launch a B2C online product. There is no right way, but there are plenty of wrong ways.

Something pretty much every B2C company I’ve worked with has struggled at some point to gain traction for the launch of a new product. It gets a lot easier once you have a following and a track record with loyal customers, but your first product is like your first date. If it starts off badly, things usually don’t get very far.

Bad Version: The “I Hope This Works” Strategy

To ensure your launch will get the traction they need, many startups will “soft-launch” – an intermediate step between a beta version and a market-ready product. A soft-launch may be just a stealth launch with no marketing attached to it. That relies on friends and your personal networks to begin creating buzz about the launch.

It might work, but then it might not. No way to know.

Better Version: The “Connoisseur” Strategy

growth strategy

You can and should think about putting a bit more punch into a soft-launch pitch. Instead of just meekly offering your product, and seeing what happens, identify and close a group of customers who will be ready to use it from Day 1.

Use your customer personas (I hope you’ve done them), to identify a group of people who are in your key demographic, and are influencers in your market, and among your customers. What does an influencer look like? Somebody with a strong social media presence, plenty of mentions in news articles, or a following for a product of their own.

This group is what marketers call the “Mavens.” They are the ones whose social capital is invested in spotting new trends and talking about them. They’re the self appointed taste-makers, and you need them to like you.

Once you have a list, do whatever you can to get these mavens onboard with your launch. Give them free stuff, promise them visibility, praise their god-like skills of discernment. Whatever you have to do to be their best friends, do that.

Ever wonder how those startups with cool ideas end up in the gadget section of the New York Times, or the front page of Wired? That’s a process that starts long before the launch. In fact the launch depends on that process succeeding. Startups with a great PR strategy pre-launch will time their launch around the PR, not the other way around.

Real World Examples:

Netflix targeted avid film buffs on early-internet chatrooms and indy film reviewers in the 1990s before launching their DVD delivery service.

IndieGogo and other crowdfunding platforms turned this strategy into their core businesses: getting product enthusiasts to pledge purchases and hype products in exchange for special access and perks.

2. Be Controversial, Asshole

Growth Strategies

Startup founders can spend a lot of time (maybe too much time) studying the every move of a Steve Jobs or an Elon Musk. We all learn that you need to act successful in order to be successful.

That’s fine and good, but don’t be fooled: you are not successful yet. Why do we talk about these people now? Because of how diplomatic and strategically minded they are? I think not. The things those entrepreneurs had to do to grow their reputations and businesses would look much different to us if they did and said the same things now.

I’m not telling you to be an asshole. There are plenty of very successful entrepreneurs who aren’t. But I am saying to speak your mind when you can, because later, you won’t get that chance. Consider Mark Zuckerberg ranting in the Harvard Crimson that he was smarter than the entire IT department of the university in 2003. Consider Steve Jobs frankly insulting his future boss John Scully by calling him a sugar-water salesman.

Or just consider any successful entrepreneur who made people question what they really believed about how things should work. Feelings get hurt in that process, and a small company looking for an edge can’t afford to worry too much about hurting people’s feelings, particularly people a lot more powerful than they are.

Real World Examples:

Bitcoin was launched by the anonymous “Satoshi Nakamoto” in 2009 via a controversial white-paper. Regarded by some as revolutionary and prescient, and seen by others as problematic in its economic theories, the paper continues to enforce the Nakamoto brand even years after its author receded into silence.

Google began its campaign to expand beyond its beginnings as a search engine and launch Gmail. The company adopted the motto “Don’t Be Evil,” which at the time was interpreted as a hard swipe at competitors (like Microsoft and Yahoo) that Google was positioning itself against as a new Big Tech player.

3. Have a Gimmick

There are a few kinds of gimmicks. There are physical gimmicks, like a piece of swag or a clever trinket related to the product, and there are software gimmicks, which are a kind of game or a tool your target customers will like. Let’s take this premise in 2 parts.

  • The Physical Gimmick

A physical gimmick isn’t going to work for every company, because not everything lends itself to a physical hardware product. Then again, a lot of things really do.

growth strategy

Physical products, even very simple or decorative ones, offer an opportunity for your brand to reach customers in a new way. We are much more likely, as social creatures, to demonstrate new products we’ve brought to our friends and family if it has a physical component. This type of thing is sometimes referred to as “swag,” but a proper gimmick rises above the level of swag to become a part of the product experience.

Consider Google Cardboard – it’s a gimmick that advertises Google’s VR technology. Instead of a t-shirt or a coffee mug, customers get something that is contextual to the product itself. Because the product is also probably rare or unknown, it appeals to the human need for discovery and for “being first.”

How do you turn your product into a physical gimmick? There’s no one answer, but think about the ways in which your product is going to be used. What kind of physical tasks are involved? In what context will it be used? In the office? At home? On the toilet? In the car?

Not long ago one of our startups Beeem, the physical web company that helps retailers or venues broadcast webapps to nearby mobile devices, sent us a gift. They were standard sized “Business Cards,” enabled with Beeem’s beacon technology, that would broadcast a website where our LinkedIn profiles and emails would be accessible.

This is not really the business Beeem is in, but it’s a very clever growth idea. Now, whenever I talk about Beeem at a conference, I can whip out my business card and tell everyone how to get to my special, on-the-spot website from their mobile phones. It makes me seem geeky but cool, and it gets lots of people to try the service at once. Win, Win.

Real World Examples:

Revolut, the recently launched “post-banking” fintech company that offers virtual bank accounts and ultrafast and cheap currency conversion, used a very similar technique to the one I described above. They created blank credit cards, which they then distributed at events for free. Users could “claim” their card by opening an account on Revolut and putting some money on them. Which many, many people promptly did.

growth strategy

Amazon, when launching the Amazon Dash service (which allows customers to order specific items with one click), distributed small “Dash Buttons” to consumers to place in areas of their homes where certain products are used, such as laundry soap or food. Today Amazon has hundreds of these devices available to buy.

  • The Software Gimmick

The other avenue for gimmicks is in software, either in a browser or via an app. A great example of a classic gimmick is The Calculator. Such as this Mortgage Calculator from NYT.

A software gimmick is something related to your product in some way, but appeals to your customers on its own, helping you to instill your brand in their minds. There are a number of classic gimmicks:

The Calculator: a tool to help your customers solve a specific problem related to the product (like the price of insurance, or the cost of owning something versus renting it).

The Map: A way for your customer to explore content or learn something with a geographical context. Examples: Airbnb, Kiwi.com

The Puzzle: A game to get your customer thinking about the problems that your product solves for them. Also a way to spread the world about the product. Example: Google Doodles

The Quiz: A questionnaire that gives the customer a feeling of accomplishment (and works well to qualify a customer for follow-up). Examples: commonly used on Facebook

The Secret: This is in the form of an easter-egg or a “lifehack,” that helps your customer accomplish something few other people know about. Examples: In&Out Burger, famous in the US for their “secret menu,” which contains a large list of items that are only available upon request. Google has famously introduced hundreds of easter egg functionalities, which fans share and explore regularly. By the way, if you haven’t already: Do a Barrel Roll.

4. Make it Rain – (Money, That Is)

The quickest route between two points is a straight line. This is as true in finding customers as in anything else.

StartupYard, growth strategy

One of the straightest lines to a customer is the offer of something for nothing. Pay your customers to be your customers.

While it doesn’t work for every startup, it has been proven over and over to work for a great many of them. In a B2C company, even a SaaS company, the classic marketing strategies still work fine. There are a lot of ways of getting people in the door to have a look around.

If you’re old enough, you might remember some of the classic tactics. Sending a potential customer a discount coupon with a specific cash value (only to be used for a purchase with the retailer). Promising every customer a cash rebate for signing up.

The classic rebate deal was essentially a way of giving a customer something for free, while also getting them to commit cash to the endeavor. That’s a classic foot-in-the-door tactic. Many younger entrepreneurs today are less familiar with these old-school techniques because they went out of fashion with the age of online ads. However, they are making a comeback today.

For example, the phenomenon of “pre-purchases,” particularly of products that are not actually constrained by distribution logistics. Yet companies like Apple and Amazon have brought back the practice in a big way, tapping into the same emotional experience that send-away catalogues relied on for a century before they were abolished in favor of websites and apps.

Even supposedly “crowdfunded” products are increasingly really just products in pre-sale. The shift toward a primarily marketing role among leading crowdfunding platforms has been noted for years. With good reason: the tantalizing appeal of something one cannot have is harder and harder to find in today’s online consumer world. Waiting can be a joyful experience, and it can make the product feel special and noteworthy.

Real Life Examples:

Damejidlo, our 2012 alum and now the dominant food delivery platform in Czechia, bought users by offering every new customer about €10 worth of free food. You could get more credits by bringing friends to the platform as well.

Uber and many other ride-hailing apps have also famously paid for customers, offering a free ride to newly registered users. Airbnb has offered similar deals to new customers, as well as hosts.

5. Become a Public Personality

Easier said than done, but it’s still worth a try. Becoming a known public face for your industry, or for the greater problem your company is solving, can open up an ocean of free publicity for what you make.

At StartupYard, for example, we operate on a loose rule that we don’t attend tech conferences unless we are allowed to speak at the event, such as on a panel, or a workshop or keynote. Once at the event, we apply our experience as presenters and coaches to try and be the most memorable and interesting speaker there.

By being controversial, being informative, and being most importantly fresh with our perspective, Cedric Maloux and I are both often identified as standout presenters. People frequently talk to us after speeches, and more importantly, they tell their friends about us. Being out there in public isn’t for everybody, but if you’re doing something that takes advocacy and education for people to understand and value, then you need to be a leader, and speak out.

Growth strategies

Here are some things that can really help you transform yourself into a public personality:

Join Reddit channels in your industry, and follow topics on Quora. Take the time to build your reputation as an expert in the field you engage with. This takes time, but it also keeps you informed about what interests people, what’s being talked about, and what most people are missing in the conversation.

Join Competitions (with a goal). Pitching competitions, speaking competitions, even pub quizzes are going to help you build your confidence and assert yourself in front of strangers. Make yourself a goal of first attending a minimum number of competitions every month. When you get better at pitching or speaking, aim to win all the competitions you enter. Approach them as a game, not an opportunity, and try to win. If you win, opportunities will come to you.

Get speaking gigs. This means volunteer yourself to talk in front of groups of people. Be it technical, or business focused, government, corporate, or open source, get yourself on the list of speakers at relevant events and go out and talk about things you know matter. Be controversial. Be informative. And say something people haven’t heard before.

Get a speaking agent: If you’re highly skilled in your area of expertise, it’s quite possible there are people looking for speakers just like you, and even better, are willing to pay you to advertise yourself.

 

Our next post: How to Create a Killer Talk

StartupYard is currently accepting applications for Batch 9.

We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Apply to StartupYard Accelerator, Prague

How to Apply to StartupYard in 1 Hour or Less

It’s amazing how difficult filling out forms and following instructions can be for startup founders. But why not? After all, startups aren’t supposed to follow the rules.

Still, this is one thing we strongly recommend applicants to any accelerator take the time to do properly. It only takes an hour or less to write an application that will place you within our top picks for an interview with the selection committee.

This is our strategy for finishing your application as soon as possible. But our application platform F6S, allows applicants to revise their applications continuously until the due date: January 31st, 2018.

Ready to Apply to StartupYard?

We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Apply to StartupYard in < 60 Minutes

 

Phase One: Data Entry (5-10 Minutes)

Pro Tip : Don’t go in Order! Go through the whole application and fill in the data answers first. This should be easy, and it will help you better answer the other questions.

For example: When did you start your company? How much revenue have you made? What is the total amount of cash invested?

Also use this time to fill in your team information. You’re building a picture of the company basics here, you’re not telling the story just yet.

Also provide any links or documentation requested at this stage. Now the annoying part of the application is totally out of the way, and you can focus on the good stuff: the long form answers.

Phase Two: Positioning Work (20-30 Minutes)

Pro tip : Do this in a separate text file!

Go to our post on Positioning for Startups, and read it first. After reading it (not before), use the template provided to fill in your positioning statement:


Product Positioning Statement:

(Our Product) is for (target customers):

Who (have the following problem):

Our product is a (describe the product or solution):

That provides (cite the breakthrough capability):

Unlike (reference competition):

Our product/solution (describe the key point of competitive differentiation):

 

To be extra nice, I’m going to give you a concrete example you can compare your statement with in terms of length, specificity, and scope.

“MyFamilyApp is for parents of young children, who can’t afford to hire a babysitter and take a night off every few weeks. MyFamilyApp is a social platform that allows parents to share responsibilities with other parents, and get some time off for themselves. Unlike a paid babysitter, MyFamilyApp is free to use, and is restricted only to verified parents who pass a strict background check.”

(Note: This is just a fictional example. We would likely not be interested in this kind of product, though a good positioning statement would force us to at least consider it).

Another pro tip: The Positioning Statement is not a marketing document. It is a clear description of what your company does, how, and for whom.

Phase 3 : Answering The “Hard” Questions (10 Minutes)

Now that you’ve done the positioning statement, the remaining questions are relatively easy. What problem do you solve? Who is your target customer? These have become clear thanks to your prep work.

Also take a few minutes to come up with your answers to the Q&A at the bottom of the application. The more you tell us, and the more questions you ask, the better we will know what you’re looking for, and will be able to answer your concerns.

Phase 4 : Self-Review (10 Minutes)

Here is a checklist of questions to ask yourself before clicking “Submit.”

  • Would a Non-Expert in my field understand basically what I am doing?
  • Have I answered all the questions completely (not just part of the question)?
  • Are my answers also about the company, and not just an advertisement for the product?
  • Am I being really clear and honest about our current status, and not exaggerating or distorting the truth?
  • Is my spelling and grammar reasonably good? Do I write in complete sentences and  thoughts?
  • Do I sound like someone that would be good to work with?
  • Have I clearly shown why my project is a good fit for the accelerator? Have my answers shown that I am aware of how acceleration works?

And there it is: you’ve just shot to the top of our list with a great looking application. We look forward to seeing you in the next selection round.

Ready to Apply to StartupYard?

We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Startups: Do You Make Me Money, or Save Me Money?

Something jumped out at me from a recent podcast by Y-Combinator with Des Traynor, Founder of Intercom. Asked about the problem he solves, he described how over time, their approach to sales has changed:

“. When you’re trying to pitch them something, they just say “Hey, here’s my two numbers, which one of these are you changing?” And I think when we show up and we’re like, well if you love your users you’re going to stick around, and they’re like sh-sh. Don’t care about any of that. Are you going to make me money or save me money? And we need to get better at answering that question. And we need to have better evidence to answer that question.”

In Startup culture, there is always a lot of talk about “solving problems.” Every product and service has to solve some problem. That’s true as far as it goes, but “solving a problem” for your users is not, in itself, enough to build a business on. You have to also answer some version of this question: how do you make me money, or save me money?

As we accept applications for StartupYard Batch 9, this question will be forefront on our minds when making initial selections.

Lots of problems exist, but not all of them are promising new businesses. How do you know when you’ve nailed down that problem that people are willing to pay money to solve?

You can check out the video podcast here:

A Problem That Isn’t a Problem

The reason we always begin our acceleration program with the classic Positioning Statement, is that expressing the problem you solve is one of the hardest things an early stage startup has to manage.

Often times the “problem” founders pick to talk about is just another way of saying that their customers want their product. Maybe they do, but why?

Over the course of in-depth positioning discussions with dozens of startups, I’ve developed a sort of framework for determining whether a problem is in fact a real problem, and not a “startup problem.” While not universal, this framework is extremely helpful in determining whether you’ve really nailed down the problem you’re solving.

I apply this mental checklist:

  • Does the problem have clear financial implications?
  • Is the customer aware that this is a problem?
  • Does the customer actively search for other solutions?
  • Is this problem something your customer would list among their most important concerns?

One of the most typical early positioning problems is that founders will identify things like “a better interface,” or “more efficiency,” or “saves time,” as the key benefits of their solution to a problem.

But by applying this checklist, we can see that benefits like “saving time,” are not always as urgent as they might appear. Does the time have a clear financial cost? Is the customer aware that they can do something faster? Would they actually seek a faster solution on their own? Is this time that they are wasting a concern for them?

You can sell me a way to shower in half the time every morning, but I wouldn’t buy it. It’s only a problem if the time I spend showering is a frustration to me.

Sometimes I ask founders: “Have you ever sat down and googled: “how to do x faster?” Most of the time, they haven’t, because that’s not typically how people behave. Only when something is taking so long, and is so arduous that it has become a clear problem, do people act to find solutions.

A Case Study: Steel Mountain

Steel Mountain

Getting your positioning, and particularly your problem statement to answer those questions can mean changing deeply how you talk about what you do, and how you see your customers, and who they are.

I’m going to use the case of one of our most recent startups Steel Mountain, the home-network security company that will soon be offering a single device to monitor and protect homes from digital intruders, viruses, and other threats.

Steel Mountain, it must be said, were already in a more than usually advanced stage of development when they joined our program, but I would say this exact roadblock was among their toughest questions early on. They had a compelling product, but they needed to really be able to express the problem that it solves.

The “You Need Us” Problem

After about a month in the program, their positioning looked something like this:

“The privacy and security of homes and small businesses are increasingly at risk from digital threats. Steel Mountain’s Secaura device plugs into your router, providing enterprise grade security across your entire home network. Unlike typical security software, Secaura covers all connected devices instantly, requires no active maintenance, and employs advanced artificial intelligence against known and unknown security threats.”

That is a very straightforward positioning statement, quite typical of a security company. Just one problem: it doesn’t quite pass the checklist I mentioned earlier. Let’s see:

  • Does the problem have clear financial implications?

Not really. We are told first of all that there is a threat lurking out there somewhere online. But that threat has no exact proportion, and the target customer (the head of a household or small business), is at pains to estimate how much exactly a digital threat means in terms of lost income, lost business, theft, or other mischief.

  • Is the customer aware that this is a problem?

Maybe… although given that this is such a simple solution to a complex problem, it’s rather doubtful that anyone who truly understands the problem doesn’t already have a solution in place. Perhaps there is market awareness of the problem, but we aren’t yet clear from this statement that the target market knows they’re in real danger.

  • Does the customer active search for other solutions?

Again, it’s not yet clear whether the target customer actively engages with this problem at all. Some probably do, but the alternatives mentioned, such as security software, serve only a minority of households. Most do not have a sophisticated solution in place. Is the product only for security minded people, or is it for people who can’t deal with complex solutions?

  • Is this problem something your customer would list among their most important concerns?

Again, we can speculate that the typical household or small business does not list security among its top concerns. Those that do are probably using more complex solutions. For those who are using no solution, it is seen more as a low-level, constant issue that many people would rather ignore than understand, and most people believe will never have an effect on them either way.

As we can see clearly from this checklist, we haven’t identified an urgent, well-understood need from a well-defined target customer. 

Making the Problem a Real Problem

How did Steel Mountain come down to a positioning statement that did involve a clear problem and urgent need for the solution?

First, they took the painful but necessary step of considering that while their expertise and the value of the product as they see it is in security technology, the typical customer in their target market has no way of evaluating such products.

Instead, they went back to these 4 checklist questions and identified a problem that satisfies all of them at once.

The problem they identified was this:

 

“Parents of families feel great pressure to provide a safe digital environment for their children, and are prone to wasting money and effort on partial security solutions that never completely protect their homes and families.”

Bingo.

For starters, we have narrowed the customer set in this positioning statement to parents. In doing so, we’ve been able to identify a more universal emotional and social problem that the target customer can easily identify with.

So the problem is no longer: “my home is not secure,” but instead: “I am afraid of feeling like a bad parent who can’t protect their family.”

How does it do with the checklist?

  • The problem has clear financial implications. Every parent has wasted money on safety equipment that wasn’t really needed. This solution promises to end that guess-and-check approach to digital security.
  • The customer is very aware of the problem. Any parent who gives their child a smartphone or a tablet knows the dangers, and tries to consider them.
  • Nearly every parent in the target market has or will in the future investigate digital security to protect their children. The solutions are in fact much broader than merely software, as in the earlier positioning statement. Education products, specialty devices, operating systems, and many other solutions are available to address the same concerns. This solution can now be compared to those as a cost effective and complete alternative
  • Child safety is a top concern for most families with children. Again, by shifting the problem to one of “parents with children” rather than “owners of homes,” we have also shifted the conversation towards top concerns that parents have, for their children. Now, rather than comparing Secaura to an anti-virus software, we can compare it to other home security essentials: baby monitors, door locks, or fuse-plugs.

This process also helped the founders identify more features of the product that were very attractive for customers. Parental content locks, and “bedtime” settings for individual devices, though the founders had included them as an afterthought, were of prime interest to this new target market.

The reactions the founders got began to change because of this new positioning.

When Steel Mountain’s CEO Will Butler began pitching the company with this strategy, the change in enthusiasm was remarkable. People in his target market started asking: “Can I have one?” And “I’ve always wanted that!” It went from a geek product to something the customer had to have, and should have already owned.

Steel Mountain CEO Will Butler pitches about the stress of living up to your role as a parent.

It’s often said that “people don’t buy security.” What’s really meant by that is that people have a hard time seeing the value of something that protects us against a problem we don’t understand. If the product solves a problem we do understand, and even better, one we already have right now, then the customer is much more likely to consider buying it.

Some security companies only manage to sell to customers who have already been victimized by attacks and theft. But others find a way to sell “peace of mind,” instead.

When solutions really find a clear and understood problem and customer, they begin to feel not just strong, but practically inevitable. Why hasn’t someone done this before?

Applying it Yourself

Of course, not every problem has to do with security, or money, or peace of mind. Your customer might not be concerned with saving or making money. The logic of the framework is about the relevance of the problem to a particular customer. Have you picked a customer and a problem that match?

If not, how can you change your thinking about who the customer really is, or what their problem really might be?

Squaring that circle is never easy. As a founder, you’re naturally absorbed in what you’re building, and driven by your own reasons for building it. Opening up and applying that work to problems you haven’t considered is part of a continuous creative process. It involves talking to your target customer and others about what their real feelings and concerns are.

You have to talk to a lot of people. Not just customers, but the people who sell to those customers, and understand them best.

Getting the problem right is a life or death challenge for an early stage company. That’s one of the reasons an accelerator can be such a great choice for a team like Steel Mountain, or many other companies we’ve worked with. The opportunity to shift your thinking and test it with so many mentors and potential customers in such a short time is a rare opportunity for a startup.

 

StartupYard is currently accepting applications for Batch 9. We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.