This is the third in a series of dialogs between a new CEO and an experienced mentor in dealing with a tough business issue. Follow @2020outlook on Twitter or enter your email address in the right column to be notified each time a new dialog is available for reading and comment. Thank you for your suggestions.
“Focus is your friend.”
Kevin Burns
Managing Principal, Lazard Technology Partners
Former CEO of Sage Software
Asha shuffled her papers as she prepared to discuss her updated strategy with Kevin, her lead investor. She was excited about getting feedback from a veteran CEO who’d “been there, done that” by leading three different companies to buyouts before he became a venture capitalist.
“The news is good overall, Kevin. I prepared some slides that we can walk through if you like.”
“I could happily endure three more lifetimes without seeing another PowerPoint slide. Why don’t you explain your direction as clearly as you can and then we’ll discuss it?”
“Sure, that’s fine. I’m so jazzed by what we’ve come up with that I couldn’t sleep well last night thinking about this meeting.”
“I wish I had that effect on more people,” he chuckled. “So let’s review your original objectives when you launched and go from there, OK?”
“Sure. So anyway, here’s the elevator pitch. We’ve been working on a way to connect messages from Facebook, LinkedIn, twitter, and other social media sites and present them in a graphical format. It’s working now and it’s very cool.”
“It sounds like fun. Who is it that uses it?”
“Basically, anyone can use it to find out the connections that exist. The more connections you have with someone, for example, the thicker and darker the line between you. You can mouse over the line and get a popup with all kinds of statistics and indicators of how you’re connected. Everyone I’ve shown it to under NDA has been wowed!”
“So people like what they see. That’s good. Who do you think will pay money for it?”
“That’s why I’m so excited. There are tons of uses for it. Marketing agencies want to know the big influencers are, for example. Law enforcement agencies want to find links that might indicate a crime ring. Online retailers want to discover how to get trendsetters to get others excited about their new fashions. People in financial services can identify new prospects. Every day I’m finding another use!”
“So I’m confused. I still haven’t heard who you’re going to sell it to.”
“What I was going to show you in my slides is a strategy for getting our solution out in the hands of people in different markets. The market for social media technology is moving very quickly, and this opportunity won’t last long, so we have to strike now. I’ve identified use cases in several vertical markets, and I have someone building a list of potential partners in each one that could sell this along with their other products.”
“Asha, are you sure you want to bite that much off? How many sales people do you have – two? three? And one marketing person? How much do you think you can accomplish with that many people if you’re targeting what sounds like all of the known world?”
“I thought you might say something like that, and we’ve figured it out. The key is enlisting the help of reseller partners who are leaders in their vertical. They already have contacts with most of the top players, they know how to integrate what we have into bigger solutions, and they’re all looking for new revenue streams. This will work.”
“Let me take this another direction for now. Characterize the market for your product. How big is it? What do prospective clients look like? What distinguishes a prospect from a non-prospect? Do you have answers to all these questions?”
“Not in every case yet, but we can find out faster through the partnerships I want, don’t you think?”
Kevin sighed. “Look, I don’t want to rain on your parade, but I have to. There are so many things wrong with this strategy, I don’t know where to start, so I’ll start at the end. Partners don’t just take what you offer and run with it. You really ought to look at them as though they are an extension of your company. With your own salespeople, you wouldn’t simply hand them a product and say ‘go sell this’, would you? You’d want to give them leads and help them gain some initial successes in order to create momentum. The same is true in spades when you sell through a channel.”
“But doesn’t it make sense to use them to figure out the strongest verticals? They’re paid on what they sell, so it doesn’t cost us much to find out.”
“Just like you, they will be thinking about whether there’s a market or not when you approach them. They have limited resources and are going to act like any other sales force by looking for the quickest path to revenue. If your competitor comes to them and has proven the market with direct sales, then hands them some hot leads and offers to help them close the first few sales, who do you think they’ll choose to partner with?”
Now it was Asha’s turn to sigh. “But you do agree that this has many uses, don’t you?”
“I think that it may, and I understand you don’t want to leave money on the table. Focus is your friend, though, because focusing on a single use case in a single vertical that offers the greatest chance of generating revenue. If you do your homework first, you can put all your resources into a proven, repeatable sales model. Focus, segment, specialize – that’s how it works. There are no short cuts.”
“But what if I select the wrong use case? Have I blown it?”
“First of all, I have confidence in you and your team to do the analysis and find the right answer. Secondly, if you’re wrong, you’ll find out quickly without having invested all your capital to find out.”
“I’m glad to hear you haven’t lost faith.”
“If that were true, I wouldn’t be here. It’s just that I’ve seen too many companies blow away their capital trying to be a mile wide and ending up an inch deep. In other words, you have finite resources and you want to save them to invest heavily in a market that is ready to spend money with you, once you’ve validated it. Make sense?”
“Yes, I get it. I was trying to ensure success by covering multiple bases when what I really needed to do was the upfront homework to find the sweetest spot possible and then go into all out. Right?”
“Right. It seems riskier to go after a single space while in fact, it’s much less risky to use a rifle than a shotgun.”
Asha laughed, “I’ve always hated that analogy but I guess it’s appropriate in this situation.”
DISCUSSION TOPICS (or create your own):
- What exceptions have you seen to the generalities portrayed here?
- How could Asha have found out quicker what she learned from Kevin?
- As a mentor, what different or additional advice would you give Asha?
“The news is good overall, Kevin. I prepared some slides that we can walk through if you like.”
“I could happily endure three more lifetimes without seeing another PowerPoint slide. Why don’t you explain your direction as clearly as you can and then we’ll discuss it?”
“Sure, that’s fine. I’m so jazzed by what we’ve come up with that I couldn’t sleep well last night thinking about this meeting.”
“I wish I had that effect on more people,” he chuckled. “So let’s review your original objectives when you launched and go from there, OK?”
“Sure. So anyway, here’s the elevator pitch. We’ve been working on a way to connect messages from Facebook, LinkedIn, twitter, and other social media sites and present them in a graphical format. It’s working now and it’s very cool.”
“It sounds like fun. Who is it that uses it?”
“Basically, anyone can use it to find out the connections that exist. The more connections you have with someone, for example, the thicker and darker the line between you. You can mouse over the line and get a popup with all kinds of statistics and indicators of how you’re connected. Everyone I’ve shown it to under NDA has been wowed!”
“So people like what they see. That’s good. Who do you think will pay money for it?”
“That’s why I’m so excited. There are tons of uses for it. Marketing agencies want to know the big influencers are, for example. Law enforcement agencies want to find links that might indicate a crime ring. Online retailers want to discover how to get trendsetters to get others excited about their new fashions. People in financial services can identify new prospects. Every day I’m finding another use!”
“So I’m confused. I still haven’t heard who you’re going to sell it to.”
“What I was going to show you in my slides is a strategy for getting our solution out in the hands of people in different markets. The market for social media technology is moving very quickly, and this opportunity won’t last long, so we have to strike now. I’ve identified use cases in several vertical markets, and I have someone building a list of potential partners in each one that could sell this along with their other products.”
“Asha, are you sure you want to bite that much off? How many sales people do you have – two? three? And one marketing person? How much do you think you can accomplish with that many people if you’re targeting what sounds like all of the known world?”
“Kevin, I thought you might say something like that, and we’ve figured it out. The key is enlisting the help of reseller partners who are leaders in their vertical. They already have contacts with most of the top players, they know how to integrate what we have into bigger solutions, and they’re all looking for new revenue streams. This will work.”
“Let me take this another direction for now. Characterize the market for your product. How big is it? What do prospective clients look like? What distinguishes a prospect from a non-prospect? Do you have answers to all these questions?”
“Not in every case yet, but we can find out faster through the partnerships I want, don’t you think?”
Kevin sighed. “Look, I don’t want to rain on your parade, but I have to. There are so many things wrong with this strategy, I don’t know where to start, so I’ll start at the end. Partners don’t just take what you offer and run with it. You really ought to look at them as though they are an extension of your company. With your own salespeople, you wouldn’t simply hand them a product and say ‘go sell this’, would you? You’d want to give them leads and help them gain some initial successes in order to create momentum. The same is true in spades when you sell through a channel.”
“But doesn’t it make sense to use them to figure out the strongest verticals? They’re paid on what they sell, so it doesn’t cost us much to find out.”
“Just like you, they will be thinking about whether there’s a market or not when you approach them. They have limited resources and are going to act like any other sales force by looking for the quickest path to revenue. If your competitor comes to them and has proven the market with direct sales, then hands them some hot leads and offers to help them close the first few sales, who do you think they’ll choose to partner with?”
Now it was Asha’s turn to sigh. “But you do agree that this has many uses, don’t you?”
“I think that it may, and I understand you don’t want to leave money on the table. Focus is your friend, though, because focusing on a single use case in a single vertical that offers the greatest chance of generating revenue. If you do your homework first, you can put all your resources into a proven, repeatable sales model. Focus, segment, specialize – that’s how it works. There are no short cuts.”
“But what if I select the wrong use case? Have I blown it?”
“First of all, I have confidence in you and your team to do the analysis and find the right answer. Secondly, if you’re wrong, you’ll find out quickly without having invested all your capital to find out.”
“I’m glad to hear you haven’t lost faith.”
“If that were true, I wouldn’t be here. It’s just that I’ve seen too many companies blow away their capital trying to be a mile wide and ending up an inch deep. In other words, you have finite resources and you want to save them to invest heavily in a market that is ready to spend money with you, once you’ve validated it. Make sense?”
“Yes, I get it. I was trying to ensure success by covering multiple bases when what I really needed to do was the upfront homework to find the sweetest spot possible and then go into all out. Right?”
“Right. It seems riskier to go after a single space while in fact, it’s much less risky to use a rifle than a shotgun.”
Asha laughed, “I’ve always hated that analogy but I guess it’s appropriate in this situation!”
20/20 Insight
A key requirement in getting any business off the ground is identifying a problem that many people will be willing to pay money to solve. If you’re tempted to take a shotgun approach, it’s a sign that you haven’t found a market yet.
An unsolvable business predicament can arise if you create a solution and only then start looking for a problem. Engineers starting technology businesses are especially vulnerable to this trap. They fall in love with the technology they develop and assume everyone else will love it too. The worst offenders see problems everywhere that their technology solves before they’ve even talked to the prospective buyer to understand his/her pain.
There’s a reason the discipline of marketing exists, and you need to employ its methods of analysis at all times. A great way to find out where you stand is to pull a diverse group of people into a room for a positioning session. Your goal will be to complete a positioning statement for your company that identifies all its key elements, including category, primary benefit, competitors and their weaknesses, and unique differentiators. Appendix x contains a positioning statement and tells how to conduct a positioning session that will give you a reading on how well you’ve done your homework. It may take half a day, a full day, or even longer, yet it’s far less expensive than pouring money into an unproven market.
More…
Adams, Rob. If You Build It, Will They Come: Three Steps to Test and Validate Any Market Opportunity. Hoboken: John Wiley & Sons, 2010.