startup

Pick an Industry with Lots of Waves

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I can’t remember where I got the advice but I can’t forget what I learned. It goes something like this…

You can be the best surfer in the world and if there are no waves, it doesn’t much matter. However, you can be just an ok surfer but be in a place where there are lots of waves and chances are, you’re going to catch one and have a good ride.

When starting a company, pick an industry where there are lots of waves!

I think the main point for an entrepreneur (surfer) is to pick a growing industry with lots of demand (waves). I’m not suggesting jumping into something that just has a ton of competition, which validates that yes, there is actual demand. Rather, think about big macro trends that are going to disrupt industries over the next 5 to 10 years and create lots of waves!

When thinking about a new venture, I would look for big trends that will impact a very large number of people and companies. One example is self-driving cars and the disruption it will cause not just to the automobile industry but to all adjacent industries that are part of the driving experience such as commercial real-estate, security, safety, and many more.

Enjoy the Ride!

 

Traction Trumps Everything

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Customer Traction

As an entrepreneur, chances are you will look for funding from investors at some point while growing your startup.

Pitching your company to investors can be a humbling experience for the entrepreneur. As a founder, you are passionate about your product and believe in the future growth potential for your company. Investors however, are skeptical and look to poke holes in the business.

You can’t blame an investor for not being interested in your business. There are many reasons why an investor may choose to pass on your company. The thing that is frustrating is when you get feedback from an investor that makes it obvious that they don’t understand your business.

I’m ok with an investor saying no, but at least know what you’re saying no to. Maybe it’s the entrepreneur’s fault for not being clear enough about how their company solves a critical problem in the market. Or maybe it’s the fault of the investor for not taking the time to understand the business. What I’ve learned is that it doesn’t matter.

There is only one thing that matters and that is traction.

If you have paying customers, then obviously they find value in your product. Customer traction trumps everything! It’s hard to argue with your paying customers.

The more customers, the more credibility your company has and the less you have to explain to a potential investor. At some point, if the investor still doesn’t understand your business even after you have shown legitimate traction, then you probably don’t want to be working with that investor anyway and you should look at it as them doing you a favor for not wasting any more of your time.

Life in a Startup – Walking a Line Between Death and Greatness

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whiteboarddesignby_Ursula

My co-founder, Prem Bhatia likes to say that the default state of a startup is failure and each startup is furiously working to avoid that state until it finds product-market-fit. He is absolutely right.

Last year was a good year for my company, Cooleaf. We grew our revenue by 477%. I preference that number by saying that it’s a lot easier to put up a big number like that when you’re starting small, but regardless, it’s strong growth. We implemented a new iteration of our product last March and were able to close several large enterprise deals. Our largest contract being $50K.

This all sounds great and it is. However, it still is not good enough. Despite having our best year ever with huge potential in the future, we are still working towards achieving product-market-fit and being financially secure. We have steady MRR (Monthly Recurring Revenue) and are growing but we also have grown our expenses, primarily investing in our technology.

Based on the feedback we get from customers and our own market discovery work, we believe there is a path to scale the business faster through our product. We are seeing more frequent and stronger signs of product-market-fit and therefore, we plan to continue investing in our technology to get us there.

One big challenge we face is that B2B enterprise sales cycles are long. Much longer than we expected. We’ve found that company leaders can absolutely love our product but since there is no line-item in their budget, we have to wait until the next budget cycle to get approved which may take a full year. This puts a strain on cash flow for a small company like us. Bottom line is that we have to find ways to shorten the sales cycle by providing more value through our product resulting in it being considered a ‘must-have’ for the the customer.

It is a strange feeling that can only be summed up as being part of the life of a startup when you have the sheer excitement of that feeling in your gut that you are on to something really big, all the while feeling a burning on the back of your neck from the pressure knowing that the clock is ticking and you have no choice but to fight like hell every day to survive.

Here is to kicking some ass and breaking glass in 2015!

Challenges of a Two-Sided Market Business

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chicken-or-egg

I regularly meet other entrepreneurs at startup community events such as Startup Village, which is a once a month event where a handful of companies pitch their business to a crowd of around 200 people.

Lately, several entrepreneurs that I have met with have all pitched me their business concept that falls into the category of a two-sided market, which naturally creates the classic chicken & egg problem. Usually this involves some form of an aggregator or marketplace product where buyers of a particular industry have easier or discounted access to multiple suppliers in that industry. The typical business model involves a transaction fee or revenue share when the buyer makes a purchase through the marketplace product.

The problem is that this model requires double the work for a startup! First you have to partner with enough suppliers so that the marketplace is attractive to buyers and then you have to attract enough buyers to make the marketplace viable to the suppliers and to earn sustainable revenue for your business.

Based on my own personal experience at Cooleaf with our first product, I discovered a full set of challenges with this model.  A big challenge that I found was the amount of time spent on maintaining the supplier side of the marketplace. Issues such as keeping data or supplier information current, suppliers not being happy with the amount of business they are receiving, turnover at the supplier and them forgetting they even have an agreement in place, growing the number of suppliers into new markets which will make people question the scalability of your model (big issue for investors), and more.

An issue on the buyer side is that you need a enough budget to put behind promoting your marketplace to change the behavior of a large number of buyers. I get feedback from entrepreneurs that they are going to leverage social media to do this. My response, good luck with that! Getting likes on Facebook is a far road from getting loyal customers.

Another issue with buyers is them going directly to the supplier once they establish the relationship and cut your marketplace out. I’ve found buyers in this model to have very little loyalty to the marketplace product and more often than not, it comes down to price which is a ‘race to the bottom’ business.

My suggestion when I meet entrepreneurs who are going down this road is to focus on building the technology to solve the problem that they see for buyers in the market, but just sell it directly to suppliers as a product. This may be branded for the supplier and licensed to them which creates a recurring revenue business model (investors love this!). This allows the entrepreneur to focus on building a product company as opposed to a marketing company. I think it’s really hard to be great at both. Plus, by just focusing on building and selling to the suppliers in the market, you are able to dedicate all your scares resources and attention. I believe this is critical for any startup to be successful.