Takeaways and Lessons from OAP

The Opportunity Assessment Project (OAP) is meant to serve several purposes but the primary one is to force the startup teams that you've formed to go through a process of brainstorming an entrepreneurial opportunity and then determining whether it is worth pursuing as a startup. Many of you appear to have actually found something that you want to continue building a business around, which is very exciting!

If you decide that it is not worth pursuing this particular idea, then the OAP project should have helped to shed light on which aspects of the idea should be change or what other big problems your potential customers have that they would like you to solve. This should have led you to some potential avenues for a more promising startup.

1. Approach potential customers and users face to face and ask them open-ended questions.

If you try to only survey customers (and do not talk to them face to face) then you gain significantly less insight into what their problems are and how they think about your potential product or service. Too often the students I ask to do surveys just end up with what I call "glory metrics" where they ask not very insightful questions and get not very insightful answers. They get to claim that 90% of the people they surveyed want their product, but how much do they really learn? I still asked you all to do a survey because it is important to determine whether it is only the few people that you spoke with face to face that have this problem or whether there are a broader set of people who also have this problem and really badly want it solved.

If you talk to potential customers but ask them closed-ended questions or quickly narrow them down on your particular product idea, then you get much less useful feedback.

2. After you've spoken with potential customers face to face, you want to incorporate what you learned and check whether there is a broader set of people who seem to have this problem and want your solution.

Here is where the guidance depends on your specific industry and product. If it's very cheap, easy and fast to build and distribute a basic version of your product/service then this is the best way to get real world feedback from a broader set of potential users.

However, in some cases (biotech, medical devices, physical products), it often requires a sizable investment. Here you may decide to gather more information via a survey before proceeding with building a prototype.

3. Entrepreneurs never have sufficient information.

Andrew Chen has an interesting post on the difference between being data-informed and data-driven.

• In interviews people will sometimes be lead to certain answers or tell you what they think you want to hear.
• A survey is imperfect because the sample size is going to be limited and potentially biased and people will act different than they respond.
• Launching a beta version or building a prototype of the product gets you a little closer to real user behavior and response. However your beta version will be just that . . . beta and customer feedback will be diverse on what it needs exactly.
• Yet, sitting and brainstorming or theorizing or trying to dream up a vision doesn't get you very far either.

This is the challenge of entrepreneurship. You have to act on extremely limited information. Yet, the best entrepreneurs will think through how closely they can get an approximation for the real user response at the cheapest cost to the firm in time and money.

4. It's very hard to calculate market size, especially for a new market. It's also very important to have an understanding of whether you're going after a potential $5M market or a potential $5B market.

Yet, many people think that they've created a brand new market when in fact they are in an existing or growth stage market.

5. When you get out and talk with potential customers, you're going to get feedback that what you had in mind initially isn't quite the right thing to pursue.

Part of the art of entrepreneurship is then knowing what to change. Whether to change part of the business model, go after a different, bigger problem that the customers have, or stick with it and alter the target customer.

Any other takeaways from the OAP? I'm interested to hear what you all learned?

Hopefully you're now testing the other aspects of your business models for the OEP project and also building out the site, prototype or product to actually launch and put in front of customers.

Update: Once again here are some great lessons learned from Spike Morelli.
http://www.spikelab.org/adventure-lab-part-4-5-lessons-learned-on-customer-development/?sc=bvl

Here are some of the submissions getting a lot of views so far on YouTube:

Session 9

SEGMENT 5

Session 9

• Videos
• Venture Finance Workshop Video 1
If you use a supported browser, you can view Youtube videos via the YouTube HTML5 Video Player, which may be more accessible for keyboard and assistive technology users. This can also be used to playback the video at a faster rate of speed. 
[Transcript]




• Guest lecture by Clint Korver on Boards of Directors
If you use a supported browser, you can view Youtube videos via the YouTube HTML5 Video Player, which may be more accessible for keyboard and assistive technology users. This can also be used to playback the video at a faster rate of speed. 

[Transcript]

[slides]

• Assignment
• Work on OEP (think about fundraising)
• Update blog
• Recommended Reading
• Ch. 14.1, 14.3, 15.2, 15.3
• Additional Resources
• Venture Deals: How to be smarter than your lawyer or VC http://searchworks.stanford.edu/view/9236189
• More videos on ECorner on venture finance

First time here? 

1. See the class description and frequently asked questions. 
2. The course operates according to the flipped class, where team-based, experiential education (learning by doing) is central and video lectures and readings are there for support.
3. If you'd like, form a team and follow along at http://venture-lab.org, like us on facebook and join the group, or follow the Google+ page.
4. Start with the intro and course overview videos.
5. See what some of the teams did for the last assignment and the description of the next assignment.
6. View the videos for Sessions 1-3 to catch up here.
7. View the videos for Session 4 here.

Small Business Partnering Tips

Teaming is quite common in business. Companies find themselves competing on some programs and teaming on others.

Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between you and any company with whom you are considering teaming.

Your prospective team member ideally will not be a direct competitor; rather a business in a related field with whom you share a mutual need for each other's contributions in pursuing large-scale projects.

Relationships must be developed with primes and other small businesses that can help you, team with you and keep you in mind as they search for success. That takes time, patience and open-minded, out of the box thinking.

It also takes more than a Non-Disclosure Agreement (NDA), a teaming agreement (TA) and a proposal to succeed. It takes dynamic marketing and communication with strong partners and hard, innovative work. Nice buzz words you say - but it is the truth and you have to find what that truth means to you.

See the below free articles on how to develop teaming relationships, protect your interests and your intellectual property.

Small Business Teaming

Protecting Intellectual Property And Proprietary Data

Business Success Achieved – Concentrate or Spread Out Your Nest Eggs?

Your Nest Eggs - Concentrate or Spread Them Out?

After much sweat, hard work and some luck – you have achieved business success. Sales, profits and cashflow are growing. You have plowed everything you own into the business to support new hiring, additional equipment and carry more inventory and receivables.

 

Now growth is becoming more manageable, cash is accumulating after all critical funding needs have been met. What is the next step? Invest even more funds into the business or invest some outside the business for your retirement? Should you continue to concentrate your personal net worth in the business or should you begin to spread it out?

I share my experience from 25 years back. I started a printing business in the early 80’s, struggled to build the business, achieved sales and profit success, and faced the same question – concentrate or spread out my nest eggs? 

In the quick printing industry publication, there was an article that addressed this issue. I recalled that it used a dentist as a case study – he invested all his profits in additional equipment for his practice. Nothing was invested outside his business, he reasoned "I'm going to invest everything in my dental practice.  Patient numbers are growing, revenues and profits are growing. Everybody needs dental care.” Unfortunately, his office’s demographics changed for the worse and his equipment became obsolete – he was unable to obtain full value for his investment. All his nest eggs were in the practice.

After reading the article, I thought it made a lot sense. I decided to spread out my family’s nest eggs – note this decision’s potential impact on your family. I invested in stocks and bonds, income real estate in addition to our house. Fortunately, this worked out well because computer technology did eventually hurt the printing business.

After your business’s critical funding needs are met, I believe it is a good practice to spread out your family’s nest eggs. It will lead to more confidence and peace of mind because you will have more alternatives.

Next – we’ll discuss choices and implications of this decision.

How To Survive In A Tough Economic Climate

Lowering your SP is perhaps one way out of the economic crisis but more important is reinventing yourself - your company, your product, your areas of operations ... as people across the globe are equally looking forward to increase business including China and India.

Some of the ways which can be explored is -

1. Promoting newer product use - re-positioning your product/services

2. Exploring newer geographical areas of marketing and drastically reduce your inventories

3. Cross branding

4. Innovative sales promotions

5.Turning your cost centers into profit centers - e.g. if you have excess production capacities or R&D capacities or test beds ..... you can take up such opportunities from across the world from different companies.

6. Collaborate in countries where your products or services are not

7. Increase your sales network - in your country and abroad.

Affordability in my mind is in availability of funds.

Some long range thinking is in order here, not short term bottom line thinking. Most of the big boys and many, many of the small ones are acutely aware of this factor or will become acutely aware when their funding goes dry.

In past periods I have witnessed this type over the last 40 years, those companies that diversify (innovate and keep a long view of requirements) as well as team and develop a marketing approach that is hard hitting in the areas of "Bang for the Buck" (efficiency, talent utilization and resource management) survive.

Those that send a bill for everything they want paid and show up with an army of workers with a cost plus mentality, burn through and run out of funding, lose competitions on overhead and G&A issues and go out of business.

The little guy with the "Big Guy" talent has an advantage but must cover his back as the larger corporations become squeezed and go for the smaller pieces of the action.

Your Business Plan is your friend!

You will hear a lot of pros and cons concerning spending the time to create a full business plan. Many will say it is not necessary to do all of the research and create all of the tables etc. Others will tell you that it is necessary, especially, if you intend to apply for a loan or grant to support your small business. The truth is you should do everything and then all you need do is update the tables and verbiage to correspond with requirements for applying for a loan or grant. Yes, creating a Business Plan does involve some work, if this bothers you…don’t give up your day job!

What I found was the creation of the business plan made me think about many necessities that would lead us to be successful in our niche that I had not recognized before. It, also, made me think of things purely related to doing business in general I had not thought of. Your business plan provides you with tools to track your progress from day one, month by month and year to year. If you think how much money you will make is all you need to track, you’re wrong and I sincerely hope you realize this before the bills start coming in.

If you are just starting to think of launching a small business, start your business plan now, especially if this is your first venture. It will take a few weeks to complete and it is worth it. If you are not willing to put forth this effort, you are not going to succeed with your business…period! There is a lot of research required that establishes what your particular market segment is doing, who your competitors will be, what your competitors charge and where your competitors are located. Taking a close look at who my competitors were allowed me to realize a number of services I could and should offer to remain competitive and increase sales. The research, also, helped me set what to charge for these services to be competitive without appearing to be just “cheap.” If your competitors have been around for awhile, they have realized how much to charge for their services or products to not just stay in business, but to make a profit. I do hope you intend to make a profit.

Your business plan establishes your model, identifies your market sector, establishes your sales expectations, tracks your results in sales versus profits, and establishes your expenditures and income requirements to pay those expenditures and to make a profit. The most important benefit is that it does make you think. This is why you should make your business plan prior to launching your business, if you can be honest with yourself while preparing it you may find your business is not viable or you may need to expand your services or products to achieve the goals you set for near and long term success. Of course, the key is being able to be honest with yourself and keep your expectations within realistic limits. You want to do better than or very close to your projections, not a whole lot worse. If you’re thinking, “this guy is crazy, how is it possible to project how much I will make?” then you should either not go into business or keep voting that same straight Democrat ticket this November and hope for a bailout! The rest of us will applaud you for the first choice and I for one will not support you for the latter.

A business plan is another one of those things you can pay to have done for you, but I suggest you do it yourself. Only you can be truly honest about your expectations and goals. However, an outsider can be brutally honest about your market sector and the chances for success without being influenced by “pie in the sky.” Unless you can be completely honest about your chances for success and failure you will not last and or be able to grow your business.

There are a number of business plan templates available for sale and for free. The ones for sale do some of the work for you, but you may find them difficult to change to meet your needs. If you are going to apply for a loan or grant you should make the business plan as much yours as possible. A plan that appears to be a straight template does not carry as much weight as one appearing to be tailored to your business. You need to remember you are selling yourself and your company to obtain the loan or grant. You may have to participate in an interview as part of the process and if you are not familiar with the document you have produced it may be construed you are not sincere in putting forth the effort and therefore not a good risk. Microsoft Office WORD contains a good template for creating a business plan. The template is easily customizable and contains enough direction as to setting it up and what it should contain. The tables you will need to flesh out the business plan can be found in WORD or EXCEL templates, and just remember to customize them for a professional appearance. As with any company document, you should have someone proof the completed business plan. This should be someone you trust to do a good job and who is not afraid to offer suggestions and or corrections to you. You should, also, repay them with a good lunch or dinner as this is no quick read.

Once completed, remember to keep your “friend” handy and update the tables regularly so you can track how your business is doing and how well you projected your progress would be. All of this can and should be a fun and rewarding experience!

Next time: “To be social or not to be social…that is the question.”

Tests for the business model

Startup teams should think hard about which assumptions in the business model are the most critical and the most risky. What most needs to be true for this to work? Test those assumptions first. I can't tell you exactly how to experiment on and test each and every aspect and not all business models contain each part of the business model. So you have to use some creative thinking on your own. Below are some guidelines and suggestions to get you started thinking. In general, you should try to be as quantitative and objective as you can in deciding what worked and what didn't. You're not trying to run tests for the sake of running tests or to generate glory metrics (we had 100,000 users - ok, well is that 100,000 daily users, email signups, hits to the website?). Rather the point is to actually think critically and learn something about how best to organize your business - before your competitors learn it faster!


It is up to you to prioritize your testing process. One part of your business model may be highly uncertain. You might want to test this first, particularly if it's a very important aspect of the model and if you can find a way to test it relatively cheaply and quickly. You want to turn your assumptions into data points and you want to generate the most valuable pieces of data first, before you spend a lot of time and money. However, you may have debates within your team about which tests and data points you should focus on generating first. There's no way that I can tell you ahead of time for all the different types of businesses out there where to start precisely.

Marketing

As I mentioned on the videos, marketing starts with a thorough understanding of your customers and market segment as well as the type of market (new, growing, mature). First brainstorm several potential ways to reach your target customers. Ideally you can involve potential customers in your brainstorming. Then prioritize these marketing strategies into the cheapest and easiest ones to test out first.

You want to carefully track these marketing campaigns so that you can later calculate your cost of user acquisition. How much did you have to spend on each marketing campaign to get a single customer to buy? Or if they can't buy yet, how much did you have to spend to get them to leave an email address? Then you can start to track which type of marketing strategies are the most cost effective? You might try a campaign on facebook, hold a raffle, buy some google adwords, etc.

Sales

If you have a consumer web product or if you have a physical product or are selling to other businesses your sales process may look very different. Nonetheless, there will be some type of sales funnel or process. If you're selling to a business, who are the key decision makers? What does their process look like for approving a sale? How long does it take? Can you brainstorm several possible sales strategies and order them from cheapest and easiest to the most expensive. Start with the cheap or free ones (contacting your network). Can you try to make a few initial sales? Which strategies or tactics seem to work best? Where to potential customers get stuck and why?

Partnerships

Does your business model require partners? If you need a supplier or a distributor, can you reach out and talk to a few of them? What information do they need? Are they potentially interested in partnering with you? If so, under what terms and conditions? What types of firms seem to be most interested in partnering with you? Do you have bi-directional relevance that Alex Rampell speaks about?

Distribution

How will you distribute your product? Are there distribution partners you need to contact? Is your distribution through the web? How much will setting up distribution channels cost you? Should you sell the product directly or through a third party or retailer? What is the best way to reach your customers? Who can you talk with to learn the best way to set up distribution for your company?

Costs

What are your costs and how can you get them to be as low as possible? See if you can estimate the cost of goods if you're producing a physical product. If you have a service or a website, then how much will personnel cost you in the first year or two? How much will server space and hosting cost you? Do you need customer support? I don't want you to spend a ton of time on financial models that will never come true. However, to check whether your business model is viable, you need to get sense for whether the dollars coming in through revenue will be greater than the dollars flowing out in costs.

Revenue Model

How will customers pay you and how much are they willing to pay? Is a subscription model better than a one time payment? Is it better to rent to them or sell? Does a freemium model make sense and if so, what features will people pay to upgrade for? Run some tests with customers to see what the best revenue model would be. Are you planning to make money through advertising? If so, contact a few potential advertisers and see if they are interested and how much they would pay you. How many users do you need for them to be interested in advertising on your site. Try to think outside of the box and not just rely on advertising-based business models. It's great if you can have a few different potential revenue streams to test out. Are there other ways you might charge for the product or service? Which might yield the most revenue? How do you know?


There may be additional aspects to your business model. If so, generate a few alternatives and get out into the real world and start testing some of them out to see what works best. You can't figure these things out just sitting around a table and brainstorming or theorizing. You have to get out there and talk to people out in the world who will often tell you things you never would have thought of or expected. Use this feedback to then refine your model. We want to see what you thought initially, what you learned from the real world interaction/testing and then how you revised your business model based on that feedback. Hypothesize, test, revise or in other words, build, test, iterate.


It's discovery-driven planning or customer development.

Session 8

Having just finished the OAP project, many teams will be even more excited about pursuing their ideas, having received positive feedback from customers and realizing there is a large market potential out there.

Other teams will have received less than positive feedback from customers and will have realized that their initial idea is not feasible.

For the latter teams, you can change to a new idea for the OEP project if you would like. Ideally, you would choose a related idea rather than a completely new one so that you can leverage some of the learning generated from your OAP activities.

For the former teams, I encourage you to not get too carried away with optimism for your startup. There will be ups and downs and you need to remain somewhat self-critical and open-minded as you begin to test the other parts of your business.

We are now beginning the first of a few sessions on fundraising and venture capital. My friend Henry Wong, a serial entrepreneur and venture capitalist with Garage Ventures agreed to get us started by telling us how he thinks about the pitch from entrepreneurs. Henry is a frequent mentor and guest speaker in my class at Stanford and I appreciate his help!


Session 8

Intro to venture finance

• Videos
• Acid Test for Entrepreneurs by Henry Wong
If you use a supported browser, you can view Youtube videos via the YouTube HTML5 Video Player, which may be more accessible for keyboard and assistive technology users. This can also be used to playback the video at a faster rate of speed. 

[Transcript download]

[Slides]
• Assignment
• Work on OEP (test the other aspects of your business model)
• Work on your website/mobile app/prototype to help you test the other aspects of your business model (marketing, partnerships, etc.). Having a beta version or prototype to put in front of people is incredibly helpful. You should have built a basic version in the OAP, now it's time to upgrade it and use it for the rest of your business model tests.
• Update blog
• Recommended Reading
• Ch. 13.1, 13.3, 13.7-13.8
• Read entries from Feld's term sheet blog
          Price
          Liquidation Preference
          Board of Directors
          Anti-Dilution

First time here? 

1. See the class description and frequently asked questions. 
2. The course operates according to the flipped class, where team-based, experiential education (learning by doing) is central and video lectures and readings are there for support.
3. If you'd like, form a team and follow along at http://venture-lab.org, like us on facebook and join the group, or follow the Google+ page.
4. Start with the intro and course overview videos.
5. See what some of the teams did for the last assignment and the description of the next assignment.
6. View the videos for Sessions 1-3 to catch up here.
7. View the videos for Session 4 here.

How To Make Your Customer Feel Special

Ever met anyone who "loved" strawberry ice cream?

Of course, there are people who say that, but when it comes to actually defining the true definition of love.....we find that what the people really mean is that they "like" it.

The relativity is that often, as you know, we use words and phrases out of context without truly considering their true significance. Let's take for instance the questions: " How do you pamper 'n' spoil your customers? How do you make them feel special and unique?"

Do you notice something, here? Neither one of these questions are unique. In fact, they reflect an "old school mentality" for what is understood today in a much better light as "customer care." Back then, It was all about manipulation.

Words like "pamper," "spoil," and phrases like "make them feel" presupposes an air of subliminal seduction as opposed to honesty.

Although there's more detail to really explaining what I'm saying, hopefully, it'll suffice to mention that we're, in general, a far cry from the school of "Roger Ramjet"

We don't "pamper 'n' spoil." Instead, we "gently embrace." We don't "make them feel special and unique." We let them "know" they are.

So, in direct response to " I recently got a new set of clients, and I want to do something special for them."

Here's your answer:

Gently embrace them with sincere words of appreciation, letting them know that they're truly very special and unique....'cause really...they are!! Then you graciously prove it by doing something extra relative to the situation.

Be creative. It has to come from you....