Why do established organizations want pilot projects?

A continuing series on pilot project strategies for B2B startups…

If you are an established organization, whether for-profit or not-for-profit, that is considering running a pilot project with a startup, then you are seeing things from a somewhat different perspective than the startup. You know your industry, your business model, your priorities and your budget. Yet here’s this scrappy little startup telling you things that you may (or may not) already know and trying to convince you that they are critical to your future and that they see things out there that you may not be aware are problems.

For the organization, it’s important to remember a few key things regarding startups:

  • Startups are not small versions of big companies.

Startups don’t have the time, money, resources, processes or anything that you are used to in a larger organization. Don’t treat them like a big company. Recognize them for what they are.

  • Startups have made a series of critical (and sometimes fatal) assumptions.

Startups are often nothing more than a series of assumptions that have to be validated by the entrepreneur. This includes assumptions about their ideal customer, their value proposition, their revenue model and more. Read “The Lean Startup” and research this area to learn more. 

  • Startups need you but you also need them

Through pilot projects, startups gain valuable insights into technical, process, and quality requirements and the workings of an actual organization, which helps them become savvier and more adept at business development. But the organization can also gain much from the experience by identifying important trends, tapping into new technologies and identifying potentially future organizational talent. 

  • Gaining insights

Done correctly, a pilot project can help you gain valuable insights into your industry and give you market intelligence that you don’t currently  have. Hopefully the startup is doing a significant amount of market research and see you and your competitors as fruitful opportunities. Might you gain a competitive advantage by deploying a upstart solution? A pilot project can help you determine that.

  • Access to the startup world

It’s increasingly important for established organizations to get and stay connected to startup ecosystems. Pilot projects become a great way to do that. Ask the entrepreneur to provide you a perspective on this, what meet-ups you should attend, what other resources are available to larger organizations to help you tap into some great minds in the ecosystem.

  • Key resources

You should always be on the lookout for great talent. Consider that the entrepreneur may have something your organization needs strategically. This is a good time to road-test them and to see if you want to potentially gain both the solution and the people.

Startups and established organizations can establish symbiotic relationships with mutually beneficial outcomes. Working together to achieve common goals, moving beyond the traditional vendor/customer relationship, is critical to finding mutual success.

Piloting Your Go-to-Market Strategy

First in a series on pilot project strategies for B2B startups

As a startup with a B2B idea, you “think” you know who your customer is, but, you don’t really know. If you have an EdTech startup, for example, how do you approach the market? You may think your customer base is comprised of let’s say “universities” but is that true? Not all universities are the same. There are big ones and small ones. There are rural campuses and urban campuses, What about international? Are all universities organized and structured the same? No. Which unit would you approach? Who in the organization most has the pain?

To help you figure this out, the evolving Lean Startup movement and its associated customer development techniques put B2B startups squarely in the world of the customer as soon as possible. Getting a “minimum viable product” very early into the hands of the customer becomes a top priority. You need to do this to get feedback, not only on usability, but on the overall elements of the business model including revenue model, go-to-market strategy and customer relationship approach. This means that you need to organize “pilot projects” with your customers and develop a pilot project strategy.

(Even if you don’t follow the lean startup approach and you are going for more of a “build-then-sell” approach, you still need your early potential customers to work with you on testing out the product and getting feedback on what works and what doesn’t.)

With a properly-formed pilot project strategy, you are focused on testing your solution concept with early-adopter customers while also testing your assumptions about your channel strategy, sales processes, revenue model and many other elements of your proposed business model. You are using pilot projects to get solution feedback but just as importantly to develop your business model and using the results of your project to inform your future.

Customer development becomes a journey of not only validating certain high-level assumptions but also drilling down into detailed and critical assumptions analysis that are going to be important to your startup journey. A well-formed pilot project strategy will help you as it’s not going to just be about the perfecting the solution – you’re actually piloting your entire approach to the market.

How to get started with developing a new business idea

Every aspiring entrepreneur needs to learn a few critical pieces of information to move forward with their idea. The first and most important of these are:

  • Customer – who do I think is my ideal customer, where and when might they use my idea, and how do I envision them using it?
  • Problem/need – what is the problem I am solving or the unmet need that I am trying to satisfy for the ideal customer? How do they solve the problem today or why can’t they solve it today?
  • Idea – what is my idea and why is it unique? Who will be my primary competition? What can I do with my idea that is unique so I can beat my competitors?

This approach is part of the “lean startup” movement whereby entrepreneurs start by learning as much as possible about the ideal customer and their problem/needs before fully developing the idea. This “customer first” approach is important as it helps ensure that the entrepreneur is designing and building a product or service that customers really want as opposed to building something that may not have a real need in the market.

Having a good understanding (also known as validation) of the above is essential to moving ahead with a new idea and serves as a foundation so the entrepreneur remains centered. While each of these will likely change over time, any entrepreneur who moves ahead without having put significant thought and work into validating them runs the risk of focusing on the wrong things.

It’s also important to focus on a very specific type of customer as opposed to trying to assume that everyone can be your customer. Even the biggest brands had to start with one customer. Figuring out your ideal first customers is very important as they will be your biggest champions as you get started.

You can use the following interview guide (crafted by Talking to Humans) once you have considered your ideal customer. Tailor the questions to your specific product idea and interview at least ten potential customers to get started:

  • Warm up: basic questions about person
  • What do you currently use today?
  • Tell me about how you found and chose it.
  • Please describe the last time you used it. What do you like and not like?
  • Walk me through the process of how you decided to buy it.
  • What was frustrating about that experience?
  • What did you like about that experience?
  • What do you like about your current product? What don’t you like?
  • Have you ever thought about changing to a different product? Why or why not?
  • How do you find out about related products and what do you know about them?

This approach will help you better determine if your idea will be a good fit for your customer and will help you determine if your idea about your ideal customer is correct. Don’t be afraid to challenge your assumptions about every aspect of your idea, your customer and the market problem/need. You can turn the answers to your interview questions into a document that answers the initial set of questions about the customer, problem/need and idea. You’ll be off to a great start in developing your new business idea.

Comparatives, Competition and Noise

It’s challenging for any new idea to break through the noise. There’s such a great deal of information, news, content, advertising, pings, beeps, rings and more coming at us nearly every second of the day. Most of it is noise. No wonder it’s very difficult for most startups to find new and inventive ways to stand out and gain the attention of prospective customers.

To help counter this, sometimes entrepreneurs fall into the trap of using buzzwords to get attention so they can break through that noise. Words such as disruptive, extraordinary, world-class, game-changing and others are used to demonstrate why this idea stands above the crowd, potentially helping prospective customers to see it and want to learn more. Once in the door, startups will often compare themselves to more established companies to try to capture the very limited attention span their potential customers. That’s why you’ll see startups saying things like “we’re the Uber for X”. That referential method (sometimes known as high-pitch statements) can quickly grab someone’s interest and imagination.

But there’s a downside to all of this.

First, the buzzwords you used may not carry any weight and are just more noise. You’ve become part of the problem and you’re not adding any substantive value to the important parts of the conversation. Avoid the noise.

Also, when you compare yourself to your competition by stating something like “we’re like them, only better”, then you’re likely in serious trouble without even knowing it. You’ve immediately become a comparative. This is especially trouble for B2B models where the buyer will tend to be more conservative, may already know a lot about your competition, and is going to probe and poke until you are so full of holes you will sink. You’ve gotten attention but not the type of attention you really want.

Finally, by creating a comparison you are potentially demonstrating why you are NOT unique. Questions of the prospective customer might include “Are you just a slightly better mousetrap?” or “Is this just a copycat of someone else’s business model?”

As Peter Thiel says in Zero to One, “…it’s competition, not business, that is like war: allegedly necessary, supposedly valiant, but ultimately destructive.” Startups should consider ways to avoid comparison and avoid trying to compete head-on. Go back to the basics and consider what fundamental problem that you are solving that no one else is considering. Look very closely at what your customer does today to solve that problem (not the one your competitor solves). They don’t need to say “yes” right away, but you need to take away all their reasons to say “no” or “maybe someday.”

Avoid comparatives and competition. And the seductive buzzwords that may lead you down that not so lucrative path.

 

New Ideas in the Right Order

I’ve worked with hundreds of potential and current entrepreneurs at the earliest stage of their idea development. With that, I think that I’ve gotten pretty good at helping assess those ideas and provide entrepreneurs with a few useful frameworks that can help them take their ideas forward.

One of the first frameworks that I’ll share focuses on the simple triumvirate of the customer, the problem (or unmet need) and the solution. Having a solid understanding of these three are essential to not only moving an idea ahead but also serves as a foundation so the entrepreneur remains centered in what they are attempting to do. While each of these will likely change over time, any entrepreneur who plows ahead without having put significant thought and work into validating them runs the risk of focusing on the wrong things.

The validation efforts can take many forms but usually starts with a few essential questions:

  • Customer validation – who is the customer what and when might they use your idea, how do you envision them using it? This is rooted in design thinking methodologies.
  • Problem/need validation – what is the problem you are solving for the customer or the unmet need that you are satisfying? This is rooted in lean startup approaches.
  • Solution validation – what is your solution, why is it unique and what is the technical feasibility for it?

First-time entrepreneurs may have a sense of one or more of these. Often though they’ve only thought through one (usually the solution) and rarely have they fully validated all three when I’m initially meeting them. So the first task is for me to make sure they’ve considered all three areas.

But beyond that, the real challenge I give them is to consider the sequence in which they are validating these and whether they have put the proverbial cart before the horse. What I often see is a solution-oriented idea that has little or no thought put into the actual problem/need and the ideal early customer. That means their initial thinking looks like this:

  • Solution → customer → problem(need)

In this case they become a solution in search of a customer and a problem/need.

Instead, their thinking should look like this:

  • Customer → problem(need) → solution

or this:

  • Problem(need) → customer → solution

Either of the two improved approaches put the customer and the problem first. Whether you start with the customer or the problem depends on where you have expertise and where you think the emphasis should be placed. Some problems have many potential customers while starting with the customer means you are exploring multiple potential problems to help solve for them.

With this simple tweak (along with providing a few great resources including books such as “The Mom Test” and “Talking to Humans“), first-time entrepreneurs benefit from avoiding the deathtrap of heading too far down the path of building something that no one needs or wants.

Building a regional entrepreneurial ecosystem

There’s relatively constant chatter these days about regional entrepreneurial ecosystems. Cities and regions know they need to be more innovative, need to facilitate startup development and need to provide the infrastructure and tax codes that help new businesses launch, grow and stay. A big part of those regional efforts involve universities and their increasing attention paid to entrepreneurial skills development along with providing startup support capabilities in order to drive more innovation and entrepreneurial success.

We are fortunate to have many great universities in the Philadelphia region who are increasingly focused on innovation and entrepreneurship. In early 2015, a number of us who run university-based entrepreneurship centers and programs got together to talk about potential collaboration. While we compete for potential students, once they are at our respective schools it’s all about helping students in what ever way we can to ensure they have access to the best resources they can when working on new ideas and launching new ventures. So we set out to build a consortium and called it the Philadelphia Regional Entrepreneurship Education Consortium.

One of the early ideas that bubbled up was that of a regional student competition. Fortunately, with the help and support of funding from StartupPHL’s Call for Ideas Grant, the Consortium was able to develop and run the inaugural College Pitch Philly. The goal of the program was to increase collaboration among local university entrepreneurship programs and students and to give participating students a way to present their ideas to a larger entrepreneurship community beyond their university.

By all accounts, we were successful. The program included great ideas, great sponsors and a great set of judges who all came together one evening in February 2016 to hear from over 30 student startups. Three finalists were selected and they received prize money that was only possible because of StartupPHL and the Ideas Grant.

The Consortium is continuing to develop programs that provide Philadelphia-area college students with the opportunity to build new relationships across schools and to give them more ways to participate in a vibrant startup ecosystem. Our next program will be the second College Pitch Philly event that will be held during the United States Association of Small Business and Entrepreneurship conference in mid-January. Students from across the region will have the opportunity to showcase their startup ideas to over 500 entrepreneurship educators from across the country. No doubt the attendees will come away with a great perspective of the Philadelphia region and the ways we are building a great entrepreneurial ecosystem through programs such as StartupPHL.

The Modern Business Plan

The historical approach for entrepreneurs has been to first generate an idea, then do some market research, then write a business plan, then attempt to raise some money, then build a product or service and then try to sell what was built. Their business plan will often be structured like this:

  1. Cover sheet
  2. Table of Contents
  3. Executive summary
  4. Problem and solution overview
  5. Market and competitive analysis
  6. Product / technology
  7. Business model and go-to market strategy
  8. Management team
  9. Current status and accomplishments to-date
  10. Financial projection / use of funds

The traditional business plan, however, has many pitfalls especially for new entrepreneurs since so little is known about their potential idea, the market opportunity and their specific customer pains. Entrepreneurs often write their business plans in a vacuum, full of invalidated hypotheses, hockey-stick financial projections and unrealistically short timelines. What’s worse is that investors and bankers, the audience for business plans, seldom read them especially if it’s for something that has yet to generate any substantive revenues. That creates a huge opportunity cost for the entrepreneur as their time could have been better spent on performing customer development and working to validate key aspects of their business model.

The prevailing thinking today is that the business plan is dead for early stage startups. Much of the current literature around the Business Model Canvas approach and the Lean Startup methodology dismisses the business plan outright since a plan with so many unknowns is not a very good plan. In addition, the Lean Startup model emphasizes taking action over planning and de-emphasizes the role of the business plan for early stage startups.

However, what if the entrepreneur must develop a plan for a very early stage investor or perhaps as part of a competition? In those cases, I still think there’s a place for a business planning document, especially as many of the standard audiences for them (e.g. investors, bankers, etc.) are still looking for one. Often too, a startup team may want to have a guiding document that captures their to-date efforts and short-term plans.

So what should an entrepreneur do if tasked with creating a business plan? Working with student entrepreneurs at Drexel University’s Charles D. Close School of Entrepreneurship, I developed an approach that combines the lean startup action-based approach to starting up with the structure of a business plan document. This format provides better details to the reader about the idea, the value proposition, the customer development plan and the short-term key resource funding strategy.

Here’s how it looks:

  1. Cover sheet (that includes the startup’s value proposition statement)
  2. Target customer segment (with details on customer validation efforts to-date)
  3. Solution statement (with details on Minimum Viable Product development/plans)
  4. Business model canvas (using Alex Osterwalder’s format with descriptions of hypotheses validation efforts and an emphasis on what is yet to be learned)
  5. Team details (including their specific roles in the startup’s customer development activities)
  6. Planned/future business model testing process (and the overall approach to validation efforts and team decision making)
  7. Market opportunity size and future customer creation concepts (going on some base assumptions, I want to hear how they would scale the business)
  8. Company building scenarios (more of a vision of future culture and processes)
  9. Key resource funding strategy (what’s needed in terms of key resources and money to get to the next critical validated stages of the startup)

Hopefully this hybrid can serve the purpose of combining action with planning and provide entrepreneurs with a viable short-term plan that provides sufficient insights into the startup while providing them with a document that is actionable and actually helps them accomplish the activities that matter most to an early stage startup.

Revelations From A Congressional Briefing Panel

I had the opportunity to participate on a Congressional Briefing Panel regarding the challenges of funding for women and minority tech startups.  Entitled “New Models For Tech Start-Up Funding & Economic Impact”, the Briefing brought together a group of stake-holders to examine and analyze current disparities within tech start-up funding, contributing psycho-social/cultural factors, forecast, possible public-private support systems, and overall U.S. economic impact. It was a great panel that included representatives from government, technology companies, academia, investors and accelerators.

The event was kicked off by Congressman Charlie Rangel who led a very impassioned speech about the importance of creativity, innovation, infrastructure and education in order to help create the workforce of the future. The panel then dove into the difficult statistics that have been previously disclosed with a discussion around the core reasons for the major disparities in entrepreneurial funding opportunities for minority and female entrepreneurs. The panel coalesced around a few key reasons, including:

  • Lack of awareness that a problem exists
  • Cultural and unconscious biases
  • Lack of purposefulness in considering possible solutions

The panel discussion was very formative and provided some ideas for ways forward. These included:

  • Using storytelling as a means of educating stakeholders
  • Using data as a way to challenge limited partners of ventures funds to help drive more diverse portfolios
  • Encouraging the development of self-reliant ecosystems that provide better support capabilities for female and minority entrepreneurs
  • Combining perspectives from multiple stakeholders and working to find synergies through non-siloed initiatives

This is a challenging topic but one that has received significantly more attention. Hopefully this is one of a number of ongoing discussions that will lead to more action and improved results!

Event pics:

IMG_2404 IMG_2420

New Models For Tech Start-Up Funding

I have the opportunity research and reflect on an important topic for a Congressional Briefing Panel focused on new models for tech start-up funding. At task is a discussion on the significant challenges related to female and minority entrepreneurship. To start, here are some recent sobering statistics from CB Insights:

  • Earning the lowest share of investments for all minority groups were companies led by African Americans. Only one such company acquired capital funding in the time period during which data was collected, totaled at $1.9 million, which factors to less than 1 percent of the total share.
  • For female entrepreneurs, the news is even worse: Companies headed by male executives received 98 percent of all investments, totaled at nearly $1.88 billion. By comparison, female executives only received $32.2 million in funding, while mixed-gender leadership teams took in $9 million, or less than 1 percent.

In addition:

  • The National Women’s Business Council (NWBC) found that male founders start with twice as much capital on average as their female counterparts, and women-owned business are much less likely to get loans from banks or the Small Business Association.
  • Snagging venture funding is equally difficult, in part because only 6% of VCs are women, according to Babson College’s Diana Report. Only 0.2% of black female founders, for example, received VC funding between 2012 to 2014, according to a study by digitalundivided.

The good news is that there is an increasing amount of dialogue about these issues and hopefully  those in the tech startup scene will straighten-up and pay increased attention.

Without getting into the causes of the situation we are facing, what are some ways to improve the current state? I think it comes down to a similar approach that many entrepreneurial ecosystems can use to drive new participation and growth.

First, success begets success. Just as one generation of successful entrepreneurs helps to fund the next generation, successful female and minority entrepreneurs should ensure that a disproportionate amount of their financial and social capital is allocated to a new generation of entrepreneurs that may have similar backgrounds and challenges.

Second, board representation is critical and tech startups should be consistently reminded that companies with diverse boards that mirror their customers’ demographics have been shown to function better. It’s incumbent on tech startups to purposely be more diverse and more inclusive.

Finally, female and minority entrepreneurs should develop focused venture funds that allocate capital to amazing entrepreneurs who may be challenged in finding capital through current financing sources.

I am hopeful that current and future discussions will lead to unparalleled action, addressing a fundamental and structural flaw that could inhibit true entrepreneurial growth.