Venture Investment
In the course of looking for something else in the blogosphere, I came across the writings of Steve Blank, a serial entrepreneur and professor at the Stanford Business School. (He has a blog, and lots of his videos, podcasts, and articles are all over the Internet. All good stuff.)
Prof. Blank is known for fresh thinking and new ideas on entrepreneurship that are firmly grounded in his real-world experience founding and running and investing in venture start-ups. He has self-published a book, The Four Steps to the Epiphany, that reportedly is as hard to read as it is revolutionary.
My plan was to get the book, read it, and then tell you about it. But this morning I twice found myself describing some of the ideas to CEO’s I was talking to. So I decided not to wait.
The fastest way to give you a taste for these ideas is to quote a big chunk of a blog post by Eric Reis on this blog Lessons Learned. All that follows is a shameless cut-and-paste from Eric’s post. The exact post is here. Thanks Eric.
There’s so much crammed into The Four Steps to the Epiphany that I want to distill out what I see as the key points:
- Get out of the building. Very few startups fail for lack of technology. They almost always fail for lack of customers. Yet surprisingly few companies take the basic step of attempting to learn about their customers (or potential customers) until it is too late. I’ve been guilty of this many times in my career – it’s just so easy to focus on product and technology instead. True, there are the rare products that have literally no market risk; they are all about technology risk (”cure for cancer”). For the rest of us, we need to get some facts to inform and qualify our hypotheses (”fancy word for guesses”) about what kind of product customers will ultimately buy.And this is where we find Steve’s maxim that “In a startup no facts exist inside the building, only opinions.” Most likely, your business plan is loaded with opinions and guesses, sprinkled with a dash of vision and hope. Customer development is a parallel process to product development, which means that you don’t have to give up on your dream. We just want you to get out of the building, and start finding out whether your dream is a vision or a delusion. Surprisingly early, you can start to get a sense for who the customer of your product might be, how you’ll reach them, and what they will ultimately need. Customer development is emphatically not an excuse to slow down or change the plan every day. It’s an attempt to minimize the risk of total failure by checking your theories against reality.
- Read more
Financial projections are, on the surface, a futile exercise. Nobody believes them. Studies prove that 98% of actual business results of start-up companies are less than projected and take twice the time, compared to the projections in the business plans. Yet investors insist on seeing them, and complain if you leave them out of your presentation. Why?
Because financial projections serve two functions.
Here’s something I hadn’t heard before: four handy metaphors for answering the questions, “why go to the trouble of getting a patent?” I found it in a compact and loaded two-page PDF offered by Morgan Lewis on their Entrepreneur Resources website called “Sieve or Safe–How Solid is Your IP?”. You’ll see it here. (There’s a lot packed into this PDF; I’ll be expanding on some of the more interesting ideas in future posts.) The full Morgan Lewis resource site is linked in the right column of this blog page, under Law Links.
From the section on patents:
“WHY SEEK A PATENT?
• “Sword”
− Sue anyone with same or equivalent invention
• “Shield”
− Helps to defend against a patent infringement suit
• “Trading Chip”
− Trade technology rights with other patent owners
• “Walk the Walk”
− Additional credibility for investors”
I’ve worked with a lot of tech companies who own patents (or are investing a lot of time and money to get some). But most are focused on only the first reason–the Sword. It’s true that being able to protect your technology from being copied and stolen is important. The “Shield” idea points up the other side of patent value–to prevent other companies from going after you to stop what you’re doing. “Trading chip” is even more exotic, but I have seen it happen, especially with complex technologies that have many dimensions. You might compare it to “seizing higher ground,” to use another battle analogy.
For laughs only. I heard about this from Andy Sernovitz, the only guy who says “this has got to be the worst idea I’ve ever heard.”
If you don’t know who Ali G is, this bit is a total put on. He’s an actor–the guy who did the movie Borat a couple years ago, and is currently posing as Bruno. The other people in the video, including Donald Trump, don’t know it’s a put on.
For a serious discussion of lessons embedded in Ali G’s charade, check out the O’Reilley blog post, Is Your Prodcut an Ice-Cream Glove or a Snuggie. If you’re in the mood for more reading, follow the links in that post for “lean startups” and “customer development” and anything by Stanford professor Steve Blank–new ideas coming from entrepreneur thought leaders. I’ll blog about these ideas myself at some point.