A blog post from the “Father of the lean startup movement”

April 16, 2013 Leave a comment

Steve Blank authored a new blog post this morning that summarizes the origin of the Lean Startup movement.  For anyone who is considering starting a new company, I highly recommend this post and the books he references at the end of the story.

Please see his post here: http://steveblank.com/2013/04/16/when-hell-froze-over-in-the-harvard-business-review/

I have taken the Lean LaunchLab class at Stanford as part of the iCorps program and have applied the methodologies since with great success.

Filed under Business Model Generation, Entrepreneur, Lean LaunchLab, Uncategorized

Lesson from JC Penney – Test New Business Models Before Implementing Them

April 10, 2013 Leave a comment

flip-flop-channel-decisionsThis week, JC Penney‘s (NYSE:JCP) board decided to oust Ron Johnson and replace him with the previous CEO Myron Ullman who they had just previously replaced with Johnson just 17 months ago.  You could say that the JC Penney board has flip flopped on their CEO decision.  Who knows how this will end or if they will succeed in turning the business around.  One thing is clear, however and that is Johnson should have tested his new business model for his stores before broadly making changes.

Johnson’s success at Apple was fueled by great products and an understanding for the customer segments each satisfies.  Today, if you go into an Apple store you can walk around and see the customers grouped in areas of the store based on the products that suite that particular customer.  Aligning products, messages for targeted customers is a critical piece of the success of any business strategy.  Johnson’s revolutionary plan at JC Penney was changing both the product and the target customer (moving more up scale).  That is hard to do with a brand that is known for discounted products.  He would have been better off if he tested his ideas by converting one or two existing JC Penney stores to a newly branded high-end store with fresh products and higher end buying experience.  If the test succeeded he would have given the board, employees and customers hope and built excitement.  His new challenges would then have been, how to roll out the new “Proven” model quickly instead of the “historic collapse” of revenues that resulted in a disaster for investors and him out of a job.

This example emphasizes what entrepreneurs do well.  Hypothesize a solution to a problem, test the idea with target customers, analyze the results, pivot based on learning, test again … until all aspects of the business model are refined.  Peter Drucker said that what you (a company representative) sees as value is (in most cases) not what the customer sees as value.  Something I learned from the Lean Start-Up class taught at Stanford University and my own entrepreneurial experiences is you have to “GET OUT OF THE BUILDING” in order to learn what your target customers want and they are always willing to offer their help.

Flip Flopping is a negative idea when it pertains to a political candidate’s position, or a company’s approach to the market.  Learning and pivoting based on continual refinement of your go to market approach is a good thing.  If only Johnson and the JC Penny’s board were to learn the same lessons a bit sooner perhaps they would not be in the mess they are in now.

Filed under Business Model Generation, Business Model Pattern Tagged with , ,

Not enough leads? Is it a marketing problem or a business model issue?

March 21, 2013 Leave a comment

basic-product

The art of marketing is the ability to describe a product or service in a compelling and engaging way where the value of the product motivates the reader to take action.  In your career you will inevitably come across a situation where a product is not selling at the rate you would like, or the lead flow is not what it needs to be.  Is the problem the lead generation programs you have put in place or could it be something else?

Before you spend time and money on marketing, a significant amount of foundation work is required to clearly understand the value proposition, competitive advantage and sales process. If you have read my blogs, you know I am a fan of the business model generation methodology to determine a start-up’s viability and set it on a path to success.  Additionally, with my consulting work I have applied the same methods to diagnosing revenue problems with products at large companies and have had great success in resolving them.  The key is to first make sure the product value proposition is compelling to the users in a differentiated way to alternative products and also test the other elements of the business model to minimize friction with your approach to the market.

Of course you know that understanding the value proposition is most important because it succinctly identifies the financial or competitive benefit your product provides to your customer.  All products either help improve operational efficiency (lowers cost in some way) or enhance a companies competitiveness (improve your customer’s sales), therefore you should be able to describe your solution’s ability to improve top line (revenue) or bottom line (cost).

Understand the competitive position of your product helps you to understand the customer’s decision process.  I am a firm believer that you can sell anything to anyone, but you cannot generate broad based pull for a product if it is not significantly differentiated.  Don’t be fooled by a few sales that you have your approach to the market right.  Getting the competitive position right will enable you to determine if your product has the differentiation necessary for broad based scaling or not.  If not, customer discovery is a good way to find the right enhancements to building a “killer product”.

Don’t stop there.  Continue to review the business model to refine all of the pieces of your go-to-market plan.

When I engage with a company who has a problem, the process described here is exactly what I do.  In a recent case, a company had a product that was mostly a “me-too” product but had the potential to be much better than competition.  The pricing was way out of whack with industry norms to the point that they were being discounted without a review.  The channel they were using did not fit with the product, meaning they were calling on the right companies but did not have any relationships with the users or management chain for their product.  We successfully worked through the business model, made changes after customer discovery, made minor enhancements to the product based on customer input and the product began to sell with repeat business, and new customer growth.

Review of your product may discover that the product is not worth investing in as well.  It is best to know that too.  That was the objective of the iCorps program which was run by NSF recently.  The goal is to asses NSF funded technology for commercialization.  Large companies are exploring the use of this methodology as well.  In a recent discussion the president was looking for a way to assess the value of new R&D efforts and a way of choosing which ones to fund.

The applications are numerous.  Contact me if you have an issue with product sales rates and want an alternative view.

Filed under Business Model Generation, Lean LaunchLab, Product Innovation, Uncategorized Tagged with , ,

Why Long Term Investors are Buying $APPL Now

January 24, 2013 1 Comment

apple-logo

I had the opportunity to listen into the Apple (NASDAQ:AAPL) earnings call last evening and I was struck by their results and what their CEO Tim Cook had to say.  If you have read any of my posts, you know I am an entrepreneur that understands that to build value in any enterprise, it is the product that matters most.  Without a great product you have no long term growth prospects.

Last quarter, Apple updated each product category and I remember telling a close friend that I was amazed that they were able to execute a complete upgrade so quickly.  It is hard enough to do so with one product, but they did it.  The downside of pushing new products out across their product line is the supply chain had difficulty ramping up fast enough which in the case of two products, iPad Mini and iMac, limited their sales in the quarter for both products.  From and investor point of view, that is a one-time event and is generally overlooked because it is not a long term indicator of the health of the business.  I will come back to this point later.

Apple reported record revenue and earnings but missed analyst expectations on the earnings side, primarily due to the lower margins caused by the upgrade of all products at once.  In the early part of a products life cycle the cost to manufacture are higher and drop as the product matures.  Well, the analysts and short term investors did what was predictable, they started selling the stock and focusing on the negative.  Full disclosure here, I hold a position in Apple.

Let me tell you why the short sighted analysts are wrong.

  1. Last quarter the iPhone 5 sales ramped at an equivalent rate as the iPhone 4s did at the same point in the product launch.  Analysts were reporting that iPhone sales would disappoint but the truth is they did not.  Apple sold 47.8M iPhones in the (shortened by one week) quarter versus 37M the year ago quarter.  Apple reported broad adoption across governments, enterprises in addition to strong consumer demand.  So the rumors about poor iPhone sales because of a reported supply chain order cancellation were incorrect.
  2. Apple continues to dominate in the tablet sector selling 22.9M iPads in the quarter versus 15.4M the year prior.  The new iPad mini had constrained sales all quarter because the supply chain could not produce them fast enough.  A friend of mine and others shared the same experience of going to Apple stores and finding the mini was sold out and had to come back another day or go to another store that had stock.  This issue will be resolved in this current quarter.
  3. The newly refreshed iMac and Macbook production was also constrained because new versions of the iMac were not available until late in the quarter.  Apple sold 4.1M macs versus 5.2M the same quarter last year.  The analysis that Apple provided is that if the product were available sooner then they would have at least been on-par with prior year sales in the PC arena which from all accounts is a declining product segment world wide.  Apple has been gaining share in the PC market for years, this quarter would have been no different if not for the one-time events.

The lesson learned is that ramping up products at the significant volumes that Apple realizes is unique because their product scale is very difficult.  This was a one time event and they are learning by this experience as Apple always does.

The hardest part for most businesses is getting the products right.  Apple has done that.  Because of their scale, the second hardest part is getting the scaling of the supply chain right.  Apple is doing well here but must do better.  Most companies don’t get the product right and hold on to old product too long without innovation.  Apple does not suffer from either of these problems.

Apple has generated $13.1 billion of value in the quarter.  They are innovating new products and not falling behind in any product category.

That is why long term investors are buying Apple now.

Filed under Entrepreneur, Product Innovation

Business Model Patterns, Understanding Your Market is Important

December 29, 2012 1 Comment

Book about business model generation

Business Model Generation is a handbook for visionaries, game changers, and challengers striving to defy outmoded business models and design tomorrow’s enterprises.

If you are an entrepreneur and have not read the book by Osterwalder and Pigneur called Business Model Generation, you are in for a treat.   In addition to providing a methodology for dissecting your approach to the market, it helps you understand your business model and provides methods for experimentation and refinement of each element of your business.

I have been using this methodology ever since I mentored a startup group that was part of the NSF I-Corps program.  During that session, I helped researchers from Northeastern refine a start-up idea and validate the viability of the business.  The team went on to earn an SBIR grant to fund refinement of the business.

One of the elements of business model generation is to understand the business model patterns for your industry.  I have worked in the semiconductor industry for many years.  Most recently, I was CEO of a company that focused on the Field Programmable Gate Array (FPGA) market.  Like any market this segment has patterns of behavior that dictate your success or lack thereof depending on your product and how you approach the market.

Common market entry patterns are Segmentation by Price and Segmentation by Niche.  For example, the FPGA market has been conditioned to not pay more than $20,000 for an electronic design tool.  The reason for this is the FPGA vendors give away design tools for free to customers of their devices.  In order for users to pay anything, never mind a $10K to $20K premium, the product has to be an order of magnitude better at addressing an existing pain point by solving the problem in a new way, this is an example of Segmentation by Niche.  Segmentation by price is straight forward because it involves solving the same problem and a significantly reduced cost.  That cost could be product cost or by driving the design process cost down.  Often, cloud based products drive the cost of solving a problem down be leveraging the infinite scalability of the internet.  You can see by understanding these patterns that attempting to offer a me-too product at a high price would not work in the FPGA design segment.  Of course you may have success in closing a few deals, but it would not be a scalable business.

Consider business model patterns as you approach your start-up.  Please provide comments and share your view of business model patterns for different industries.

Filed under Business Model Generation, Business Model Pattern, FPGA Market Tagged with , ,

What is Inbound Marketing Anyway?

March 23, 2012 Leave a comment

“What is Inbound Marketing” is a great question.  There is a great answer to this question by HubSpot, but the simple answer is “marketing techniques that enable customers to find your product or service on the web”.  Consider that your product appeals to some small percentage of the population in the United States but in aggregate it is a large market.  If you had the ability to light a dot in the map of the USA for every person who needed your product right now, it may look like the picture here provided by NASA.

how-to-find-leads-with-inbound-marketing

You know they are there but you do not know how to get in touch with them.  Now consider that the majority of your customers learn about new products by searching the web with a search engine like Google.  If you could optimize how these points of light (your prospects) find you then you would have solved your problem, that is the benefit of inbound marketing.

What is wrong with traditional Marketing?

When you think of traditional marketing approach, it is all about generating awareness about your product or service by push techniques.  Find an editor to publish an article about your product to drive awareness or spend millions of dollars on a super bowl advertisement.  Traditional marketing is very expensive and has become largely ineffective.

The publishing industry has undergone tremendous change.  You could see it coming as trade magazines became paper thin.  A friend in the business described the change in size of trade pubs like this.  As advertising revenue increases, it gives a magazine more space to publish and therefore more content for technical articles or points of interest in any particular issue.  As the converse happens the magazine gets thinner until it no longer is economical to publish.  This has happened to many trade and popular magazines.

So where did all of the advertising investment go?  Well, a significant amount of it went to Google.  (estimates are in the US print advertisement came in at $34B and Google brought in $38B) As Google search became the def-acto standard search tool, the advertising revenue through Google Adwords followed.  Depending on which industry you are in, Adwords can be the fastest way to get visibility for your product.  The problem with Adwords is, just like any other advertising medium, there is no inherent trust built with the user.  On the contrary, organic search carries a lot of weight with customers because it aggregates influence and brings to the top of the search the most important and relevant results.  Users inherently trust Search more than Adwords or other advertisements.  As an example, a company that I recently spoke with decided to hire a marketing company to execute an adwords campaign for a new product venture.  The contracted with the company and paid $10,000 for the program.  Based on the amount of money they spent, they got impressions but did not generate many leads at all.  The last time I checked they received approximately 10 leads through the campaign.  It was clearly a waste of money.

The key point is that it is far more effective to find the right customers for your product or service if you rank on the first page of Google or other search engines.  The most difficult part of this process is 1) finding the right keywords that your customer would type in order to find the solution your product provides and 2) executing campaigns to effectively improve your company rank on these keyword phrases.

There are many free tools to help you with the analytics that provide you with visibility into this process.   Google provides many of them for free but the tools you will need are in different products from Google and they take expertise to organize the results.

Over the past five years I have used the HubSpot platform to help me with this.  I found them when they ware a small start-up and I was inspired by the writing of Darmesh Shah, one of their founders and Mike Volpe their VP of Marketing.  The tool enabled me to self manage the web presence for my company, see all of the analytics I needed while providing advice for getting onto page 1 of Google search.  It was a tremendous success.

If you would like assistance with your Inbound Marketing programs, I would be happy to help you get started.   Just complete for contact form on the about page of this site.

Filed under Entrepreneur, Inbound Marketing Tagged with

Mentoring an NSF Innovation Corps Team

March 15, 2012 3 Comments

NSF Innovation CorpsDuring the fall of 2011 I had the opportunity to mentor an NSF I-Corps team.  The I-Corps program is focused on working with University research that was previously funded by NSF and may be ready to launch as a new company.  In essence, the federal government provides funding for all types of innovation and the I-Corps is the next step toward turing that innovation into business therefore helping the domestic economy.

I had just completed a CEO role (i will post on that later) and decided to give back to my alma mater, Northeastern University.  I reached out to the Alumni group and offered my services and they connected me with a research team in the optical science lab that was looking to spin-out technology from the university.

I advised them during the proposal phase and they won one of 21 $50K awards out of over 181 submissions.  The team asked me to participate as their mentor for the program which involved supporting them during a 12 week program and participation in the Lean LaunchPad class at Stanford University.

I have lived by the principals of Stephen Covey’s seven habits of highly effective people.  Participating in this program gave me an opportunity to “sharpen the saw” (habit number 7) so to speak.  Steve Blank taught the class and although the concepts were not new to me, the framework of the program enabled the team to systematically work through the business model for their new product and speak the same language.  I am not going to cover the details of the Northeastern product here but it is sufficient to say that the company has tremendous prospects and continues to this day.

It was my honor to be one of the first I-Corps groups, and from my perspective the program is a winner.  Anything that helps spur innovation and enables new companies to emerge is a great thing.  The second set of NSF I-Corps recipients are participating in the program now.  I will be looking to learn about their ideas and progress over the next several weeks.

Filed under Business Model Generation, Entrepreneur, Lean LaunchLab Tagged with

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