Sunday, December 14, 2008

Business Stage: KittyHawke

After the Popcorn Business Stage, startups start to get a bit of wind under their wings. They are still not focused, taking whatever opportunities for revenue that they can find. But they are starting to get clusters of customers. Enough customers to have a notion of revenue flow. This is one of the most exciting times in a very early startup. You have a group starting to pay attention to you.

It is also a very dangerous time for a startup. It is easy to be pulled one way or another into projects that generate revenue, but which do not have a long term market for the company. This is the point for clarity. Who exactly are the people who are the best market for your company? Often the early adopters who help you get you to the KittyHawke stage of a little flow are not the ones who will ultimately support the company.

Clarity about the company's market and the direction are often very hard to get at this point in the business. So this is a time of experimentation to try to find pathways to the next flight. If you are successful, you will end up taking several short flights that lead you into the next Business stage.

The Theory of OOMAAT - One Order of Magnitude at a time

        Every day, entrepreneurs dream that they can create the next
        big company. They have a dream of putting the right project
        together which will grow to be the next Google, Facebook or
        Myspace.  And every day, many potential entrepreneurs work
        hard on their project, but make less progress than they need
        to succeed.

        Let's go run a marathon tomorrow! For most of us, running a
        marathon would take preparation and planning. Not doing
        that preparation only leads to pain and trouble. Potentially
        serious trouble.

        In the same way, starting a new company can be like running a
        marathon. A successful company is a complicated coordination
        of many different components. The creation of a winning team
        is something that takes some skill and experience. Most
        investors want to fund teams with a full compliment of
        experience. Most business don't get big without external
        funding. So for you to engage external funding, you need to
        have experience. How do you get experience getting funded, if
        you have not been funded before?

        As many technologists, marketing and finance people are being
        given an opportunity to leave big companies and find something
        else to do, some are thinking that they will do a startup.
        Because they come from a big company context, they jump right
        back into that context not realizing that at a small company,
        you don't have teams of other people to rely on. You get to do

        Rather than jumping into the next $1B opportunity of our
        dreams with one big bite, let's explore the question of how we
        can take small pieces of the process and build the skills

        I am calling this idea OOMAAT: One Order of
        Magnitude At A Time.  Instead of trying to create a huge
        company when you have $100 in your pocket, look at an effort
        that will allow you to grow that $100 to $1000 in, say, 30
        days. What would you need to do in order to accomplish this?

        By thinking out how to start smaller companies that are
        bite-sized efforts, you gain several advantages. First, you
        reduce the risk of failure. By starting many small companies
        with smaller amounts of effort, you waste less time and
        resources on your failed companies and the experience you gain
        will be very helpful to you on the next business. If you
        structure your efforts in the same area, the clients that you
        gather for one business will be interested in the next
        business. Thirdly, the efforts to start the smaller businesses
        will give you more ability to connect with others who are
        starting businesses and help you see the potential partners
        you will need for your next business.

        So... How much money can you put on the table today that you
        can afford to loose in order to start a business? Cut it in a
        third as a way to keep your powder dry. Now, Given that amount of
        money, what could you do in a fixed amount of time to increase

                   Amount                 Time             Target
              $100                      1 month                 $1K
              $1K                       3 months               $10K
              $10K                      6 months              $100K
              $50K                      1 year                  $500K
              $100K                     1.5 years               $1M
              $500K                     3 years                 $5M
              $1M                        2 years                 $10M
              $5M                        5 years                 $50M

        In this Blog, I will explore a collection of ideas
        to create OOMAAT-style startups. We will look at:
   characteristics of investors,
   skills that make a difference to the success of entrepreneurs, and
   experiments in trying to build businesses in the OOMAAT Model.

        Come join the experiments and let me know how things fare for you.


Sunday, December 7, 2008

Business Stage: Popcorn

In the business life cycle, there is a beginning stage of the company, where there is no flow. There is revenue.... From time to time. but there is no flow. I want to call this stage of the company the "Popcorn" stage. It is like you are waiting for popcorn to pop. You are not sure how hot the fire is. But you have seen one kernel pop. But here you are waiting for the next one to pop.

This is a stage of searching, trying to find a way to catch some momentum. Often this is the stage where people will try anything that produces revenue. And that can be a way to kill a company. On one hand, you want to search around to find things that people are willing to pay for. On the other hand, you want to have a business focus that does not get distracted by contracts and projects which pull away from the core of the business. Some where between those two is the answer.


Business Life Cycle as an adoption Curve

When I have conversations about a business decision, I try to put the questions in context. The right answer for a business that is in the middle of rapid growth has dramatically different numbers and expectations than a company that is in full maintenance mode. There is a GREAT book called Diffusion of Innovation by Everett Rogers. It is the basis of the work that supports the idea of "Crossing the Chasm". Let's assume we have a product which we can sell to a fixed number of people. Let's also assume that we will only sell them one in their lifetime. Over time, we should be able to plot the revenue for the company. With this One-Trick-pony of a company, we would expect that as people adopt the product, we will get revenue. As the product is purchased, the Diffusion of Innovation suggests that there will be a Normal Curve for how the product is adopted. However, since we are selling only one to everyone, there is a point where the population is exhasted and you no longer have any revenue. This outlines the Business LifeCycle for a single product company with no replacement. When people talk about the S-Curve in adoption, they forget that there is the opposite curve as that technology is abandoned. The business process, expectations and activies need to be appropriate to the stage of the company. Over the next several blog post, I will explore many of the details of this curve. We are going to explore some of the expectations and divots that make this curve different than the Normal Curve and when this should cause you to take one action or another.