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Author Archives: raymond

Competitive Analysis for Startups: The Goal

May 22, 2009 by raymond

One of the hardest things for emerging companies to get a handle on is analyzing the competition. Investors grimace when we hear “there is no competition” because outside of the world of patents, it’s just not true. But on the other hand, what’s the point of starting a new company when there are lots of competitors, implying a crowded space? Entrepreneurs often get lost somewhere between “no competition” and “too much competition”. This leads to unconvincing business plans or, worse, a strategy that’s blind to real competitive threats.

What’s the goal of competitive analysis?

For most entrepreneurs trying to convince people about a new product, the goal seems to be to prove, at all costs, that what they have is unique. There’s a standard series of tricks to accomplish this, two of my favorites of which are:

 

 

 

 

 

 

and

 

 

 

 

It’s pretty easy to define your competitive analysis in such a way that you appear totally unique. The question is, are you defining criteria that your customers care about?

“Competitive Intelligence” vs. “Competitive Analysis”

Whether you’re preparing a VC pitch deck or just strategizing about your business, remember that your real goal isn’t to show that you have a competitive advantage. Why? Because you might not. The real goal is to be an expert about your competitive landscape (and a paranoid one at that). The real goal of the Competition section of your business plan is to impress the reader that you are a) an expert about your competition and b) more paranoid than the reader (since the reader isn’t the one running the business).

The bad news is that being a real expert about your competition takes more time than creating a 2X2 matrix. But the good news is that you’ll be much better prepared for conversations with customers and investors who love pointing out that “Product X already does that”.

Stop Being Afraid to Talk About Your Competition

The takeaway is that you shouldn’t be afraid to have a competitive analysis that seems to be full of competitors. Your job is to show that you have a sophisticated understanding of your industry and where you fit in. I’m always more interested in how a startup is going to compete rather than why they don’t have to.

A Follow Up On Project Olympus

May 18, 2009 by raymond

There was quite a lot of interest in our post about Project Olympus, the startup incubator at Carnegie-Mellon University. I think it’s a (good) sign that many people are trying to understand what does or doesn’t work in the university commercialization process. To further help get the information out there I’m posting a detailed follow up from Kit Needham (PDF bio) who is the Senior Business Advisor and Executive in Residence at Project Olympus:

“I am the Senior Business Adviser for Olympus.  In response to your very thoughful question, the answer is simply that we truly filled a gap.  While there were many professors at CMU who pursued commercialization of their technology that fed into our Tech Transfer system and the other organizations listed, there were many that just had not really considered commercialization.  Further, they are often not at the stage where the path to commercialization is obvious. That is where we come in. We have initial exploratory conversations with the faculty and help by providing  some preliminary market analysis, walk them through what is involved in commercialization, what their options are, etc. So were are simply creating more, better prepared ‘deal flow’ for our Tech Transfer office and the other organizations in the diagram.  For the students, there was no other incubator space where they could meet 24/7, leave their equipment and notes on a white board, and collaborate with other student team members.

Also, when Olympus was getting started and as we grew, we sat down and talked with the staff of these organizations, and explained what we were intending to do. It was clear that this was going to be a true collaboration where what we did complemented and supported what they do.   For instance, once one of our PROBEs ‘graduates’ to another agency or organization, they become the primary adviser. We stay informed but are very careful not to be giving conflicting advice. The staff of the other organizations regularly attend our events and, as mentioned earlier, when we think there is a possible fit with one of the organization’s program, we set up exploratory meetings with the faculty (and students).  Again, we help identify (and help prepare) good prospects for their programs that they otherwise may not find that connection.

To Ben’s question, we haven’t really been in operation long enough for one of our PROBEs to have crossed the finish line, although one student PROBE  is getting close.  You can go to our website (olympus.cs.cmu.edu) to see the various PROBEs, link to their websites and see recent news about them as well as see the testimonials.”

Thanks Kit for the excellent comments. One thing I find interesting is how integrated Olympus is with both professors and students who are the source of new startups, and upstream funders and mentoring organization who Olympus can “hand off” projects to. It’s not easy establishing this level of integration especially where every organization wants (and probably deserves) some credit if the project succeeds.

If other people have interesting startup incubator stories they’d like to share please contact me and I’ll post it.

Project Olympus: A University Incubator That Works

April 28, 2009 by raymond

It’s rare that I come across a tech incubator that can claim any more success than the square footage they’ve rented out. It’s not that incubators can’t work, it’s that most confuse office space with synergy. Others try to do too much and end up competing with the entrepreneurial ecosystem around them, e.g. by bulking up on paid advisors and other “experts”.

Given my bias, I was pleasantly surprised to meet with Dr. Lenore Blum, founder of Project Olympus, a two-year old incubator based out of Carnegie Mellon University in Pittsburgh. With a shoestring budget that would make certain government funded incubators blush, Dr. Blum has created a model that will be of interest to anyone trying to figure out how to better commercialize university research.

Here are some key facts about Project Olympus:

Two things stand out as key to Olympus’ early success:

PROBES (Problem Oriented Explorations)

Probes are deep explorations into technologies and their potential as new ventures. Entrepreneurs work with the Project Olympus team as well as its volunteer Advisory Cabinet (which I’m very please to be a part of) to develop avenues of commercialization for the technology as well as to give entrepreneurs hands-on practical training. What impresses me about this method is that it focuses on hands-on ideation rather than business plan writing. The sooner entrepreneurs work with other people and get their feedback the better the chance of success. Regular “show and tell” sessions ensure that entrepreneurs get feedback early and often.

Integration with the Tech Ecosystem

Knowing where an incubator starts and ends is something that many incubators have struggled with. An incubator can’t duplicate or replace an entire ecosystem so “playing well with others” is very important. As the following (somewhat complicated!) diagram shows, Project Olympus has a very clear idea of where they fit. They have one foot in university research labs and the other in the area just before seed funding. This is the perfect spot for a university incubator to occupy because they are increasing the number of entrepreneurs entering the ecosystem (i.e. increasing the size of the funnel at the top).

(click to enlarge)

Once projects graduate from Olympus there are other organizations to pick them up, including Idea Foundry (a non-profit investor and incubator), Innovation Works (a state-run seed fund and support organization), The Tech Collaborative (a non-profit tech economic development org) as well as local VCs such as Meakem Becker.

Overall, this is a great example of the many pieces at play in a vibrant tech ecosystem, and a rare dose of good judgement for an incubator such as Olympus to find its ideal spot. When the ecosystem works it not only creates great companies but can build and support local communities.

I think universities, especially those outside of Silicon Valley and Boston, could learn a great deal from Project Olympus. I also think this is an important model to study for any city trying to build a functioning tech ecosystem.

What do you think? Would this model work in other universities and communities?

Business Planning Without Business Plans

April 15, 2009 by raymond

I recently ran a couple of business planning seminars at the 5th Annual Inventing the Future Conference put on by Young Inventors. Since it was a no Powerpoint affair (yeah!) I have no slides to share but here is a quick summary:

Business Plans DO NOT EQUAL Business Planning

By The Scott (Creative Commons)

By The Scott (Creative Commons)

It’s amazing how much stock we put in business plans considering they are works of fiction. Few startups really know their precise target market, product, pricing or cost structure. How could they? I guess writing a business plan is a good exercise in research and discipline but only if it doesn’t distract you from real business planning. My personal favorite is figuring out the size of a market. Any time there is 3rd party research on market size your product is probably too late. You can’t really size a market you’re creating from scratch so don’t sweat the details. Just show an intelligent attempt and that will be impressive enough. A recent WSJ article claims that Business Plans Don’t Matter to VCs (though not all agree).

All Customers Are Not Created Equal

There’s not much I can write about targeting specific customers that hasn’t been covered by Geoffrey A. Moore in Crossing the Chasm. If you haven’t read it please stop reading this blog and buy the book! If you have, a re-read will remind you how it still holds true in so many cases. Startups should realize that there is no such thing as a generic customer. When you’re planning, it’s important to find a niche where you can find customers with specific pain points. Even within this niche you have to figure out how to target early adopters, i.e. people who are willing to take a risk on a startup. Targeting the early majority (i.e. more practically-minded people who need proof before they buy) is a waste of time until you have bona fides with early adopters.

From Wikimedia Commons

From Wikimedia Commons

Real-world planning tip: Create fictional caricatures of your customers (e.g. “Joe the plumber”, or more precisely “Joe the small residential plumber looking for ways to level the playing field against bigger rivals”). You should have one caricature for each of your customer types. Then keep these ‘people’ in mind every time you make a strategic decision in your company.

Find The Value

Business plans make us believe that commercializing new products is a linear progress of steps leading outwards from the original idea. Reality is a lot less linear. Sure you may have a breakthrough technology or a wonderful idea and have a great plan to push it to market, but it has to pass the “Who Cares?” test first. It’s easy to convince yourself that people (especially generic people…) will buy your product. It’s a lot harder to go out and talk to them. I always ask entrepreneurs if they’ve talked to 100 prospective customers of their products. This actually takes less time than writing a business plan!

Real-world planning tip: Get to the core of your idea by figuring out if you have a vitamin or a painkiller. The good news is that this early in the game it’s not expensive to start over.

Real-world planning tip: Since Frederick Winslow Taylor invented time and motion studies people have been measuring and analyzing user behavior. Though I’m not recommending startups take up cameras and stopwatches, I am recommending you quantify the value you purportedly add. Think your solution saves time? Detail exactly how much time, in minutes or seconds. This presumes you know what your customers were doing before they bought your product. Once you have a convincing argument bring it to a customer and try to convince them. Then on to 99 more.

Write Once, Don’t-Survive-Battlefield Everywhere

To summarize, I’m not saying that business plans are evil. Sometimes it’s good for entrepreneurs to work out ideas on paper before committing time and capital to them. Other times you have no choice, e.g. for banks or VCs. But don’t confuse writing a plan with real business planning. A plan is something you write, print, file away and celebrate with a pint. Business planning is a continuous discpline you’ll use throughout the life of your business.

Students Invent the Future at Young Inventors Conference

April 13, 2009 by raymond

Nobody needs to be reminded how important students are to our startup ecosystem. I started my first Web consulting company in the McGill Music computer lab (which was probably against the rules!) along with two friends who were also students. Yet most universities privately admit they’re not doing a great job turning research projects into commercial products or students into CEOs.

It always surprises me that we see so few students at startup events. There are some but just not very many. At ConnectMcGill, a recent student event in Montreal, most students had never heard of the meetups, mixers and startups surrounding them. We need to do something about this!

One group that’s actively helping young entrepreneurs and inventors is Young Inventors International. Founded by Anne Swift, YII’s mission is…

…to work with leading universities, organizations, and entrepreneurs around the world to educate student inventors and entrepreneurs on how to create new ventures and social enterprises, build intellectual property portfolios, and acquire transferable professional skills. With more than 2,000 members who own almost 700 patented and patent-pending technologies, YII is the leading not-for-profit organization providing a comprehensive network for education and skill training specifically for student innovators and entrepreneurs in North America.

I ran a business planning session at their 5th annual Inventing the Future conference held recently in Pittsburgh at Carnegie-Mellon University. 120 students took part in a gruelling (ok, probably not that gruelling) “commercialisation marathon” that was kicked off by Regis McKenna of Kleiner Perkins fame. You can see some pictures and videos on the YII blog.

One of the highlights for me was something called BrainBuzz(tm) which was a 3-hour intensive brainstorming session. Small teams were formed and each tackled problems e.g. how to design a more effective passive solar energy collector or how to market a dancing robot (click the link, trust me). What’s amazing is the quality of ideas that flow, even from people without training in a particular field. BrainBuzz not only gives students confidence in their ideas but gives them a taste of the idea generation “buzz” that all startup entrepreneurs feel. That’s one way to get them hooked on becoming entrepreneurs.

If you are (or know) a student thinking about becoming an entrepreneur, I highly recommend you join Young Inventors and get involved. You’ll be joining a community already over 2000 strong, and growing.

Flow Ventures Announces Investment in Symtext

March 30, 2009 by raymond

We’re happy to announce that we’ve made an investment in Symtext, a Toronto-based startup. Led by digital media industry veteran Ian Barker, Symtext has created a platform for building “liquid textbooks” which combine content from e-books and other digital content into unique learning tools. Containing both licensed works and royalty-free works, Symtext allows professors to create unique liquid textbooks for their courses and provides students with an interactive learning experience that goes beyond traditional textbooks.

Symtext has made great progress and is already working with recognized learning establishments such as Athabasca University and the Queen’s School of Business. It is also working with several major publishers (more announcements to come).

Flow Ventures has a unique investment model that combines Angel-level financing with strategic services including interim management and direct operational support. We look for opportunities where we can accelerate the development of a startup using our experience as technology entrepreneurs.

Keep an eye out for more Symtext announcements to come, as well as more from Flow Ventures. If you are a professor interested in using Symtext in your course, contact Ian Barker for details.

Students to Startups: A great kick-off event at McGill

March 27, 2009 by raymond

ConnectMcGill, the inaugural tech entrepreneurship event at McGill was a huge success. Two computer science students, Nicolae Rusan and Ladan Mahabadi, had the idea of organizing an on-campus meetup for students interested in entrepreneurship. I was immediately interested in getting involved, especially to try to help bring people from the startup scene to mingle with students. We had over 80 participants and a lot of enthusiasm for making this a regular event.

James Duncan (from Joyent) and I gave brief presentations on getting started in entrepreneurship but the real highlight of the event was seeing students mingling with Montreal startup folks. I believe that one of the most important things you can do to encourage students to become entrepreneurs is to give them access to people who are actually doing it. Half an hour spent chatting with a startup CEO is worth 40 hours plugging away at a business plan, in my opinion.

We’ll be organizing our next event with the involvement of students from the other Montreal universities as well. If you are a student, a startup, an investor or a mentor, contact me and we’ll get you involved.

Over $1 billion in stimulus for Canadian startups

March 20, 2009 by raymond

This is a great time to be building startups in Canada. Ontario and Quebec have recently announced over a $1 billion in funding for new ventures through matching funds and fund-of-funds. There may be more good news when Ontario tables its budget on March 26.

Here’s a quick summary:

Ontario:

Quebec (link to budget):

  • $825 million for a fund-of-funds to invest in 15-20 VC funds ($700 million from the government, $125 million from the private sector)
  • $125 million for the creation of 3 seed funds ($100 from the government, $25 from the private sector)
  • 10-year provincial tax holiday for new ventures that commercialize research from a Quebec university or research centre

So how does this trickle down to startups?

  1. If you’re raising your first round it means there will be more seed funding sources and more money in existing funding sources. Private investors may be more willing to invest since the government is matching their dollars 1 to 1 or 2 to 1 in some cases.
  2. If you already have investment it means your investors may be more likely to top-up if they are on the receiving end of these funds.
  3. If you’re commercializing research, which Canada does a poor job of, you look a lot more attractive to investors. Not paying provincial corporate tax for 10 years has a huge effect on investor returns (assuming you’re planning on profitability).

The best part of these initiatives is that they support the existing investment ecosystem rather than trying to replace it with something government run. We already have the pleasure, privilege and intestinal fortitude to deal with the government for SRED and other subsidies. Best leave investment to experienced managers.

So is there any bad news? Timing will be an issue as nobody can deploy this much money quickly. It’ll be awhile before funds actually trickle down to companies. I personally don’t like any initiative with a geographical limitation. I understand the desire to create jobs in a particular place but technology companies can be spread out. In Canada, where we don’t have the density of markets and talent, an Ontario-only company doesn’t make sense.

But enough complaining. Does this mean that we at Flow are more likely to make investments in the near future? You bet!

(Link to more budget analysis from Chris Arsenault from Inovia)

A method for finding out if you have a painkiller or a vitamin

March 15, 2009 by raymond

The more pitches I hear from startups the more I realize that entrepreneurs have a hard time figuring out if their startup is a painkiller or a vitamin. I mentioned this briefly in a previous idea screening post but I’d like to propose a method to help.

I’ve come up with five measures so far:

  1. Do you have a problem or a feature? – “Mobile access” is a feature, not a problem. E.g. I don’t really want mobile access to my tax return. A lot of startups have a feature idea at their core, not a pain point, mostly because the initial idea was created by an engineer.
  2. Do you have a specific target market? – A telltale sign of a feature looking for a problem is to target “everyone” or “small business”. Saying everyone needs your product doesn’t mean a trillion dollar opportunity. It just means you don’t understand the problem.
  3. Can you describe the person who will use your product? – How, where and when do they work? What are they doing exactly that causes them ‘pain’? What alternatives do they look for? Can you draw a picture before they use your app and after?
  4. Is the pain measurable? – Any convincing CEO can make you believe that bad UI is as painful as a root canal. But how do you measure it? Extra clicks? Time lost? Money lost due to errors? If you can’t measure the pain you have two problems: 1) you might be wrong and 2) you can’t tell if your solution is an improvement.
  5. Is it verifiable? – Sure, you may find some way to quantify pain but how do you verify with the people who matter, i.e. users? Have you identified ways to double check, like surveys, focus groups or one on one interviews?

So let’s look at an example:

Bad Better
Problem or Feature? We create social networking tools for non-profits We help non-profits engage more volunteers and raise more money from funders, using social networking tools
Clear market segment? Non-profits Geographically-distributed non-profits with less than 10 staff whose target volunteer base is 18-35
Detailed description of user? People who work at non-profits 3 user types: 1) the Volunteer Coordinator & Fundraiser (who regularly communicates with volunteers and funders), 2) volunteers who network with the non-profit staff and other volunteers, 3) funders who don’t want to network but enjoy the profile they receive on the network
Measurable? All non-profits wish they reached more people We measure the # of volunteers needed each year to deliver programs minus turnover to calculate the total annual volunteer hours needed. There is often a deficit. We measure the annual budget deficit that needs to be covered by outside funding. We measure the opportunity cost of programs not delivered due to insufficient funding. If we’re successful, the # of volunteers, funders and programs goes up.
Verifiable? We talked to a local non-profit and they loved our product We have identified a list of 25 non-profits in our target market. Within 30 days we could contact each one, ask them to complete a survey, and give us feedback on some screenshots of our product. If feedback is negative we will try other segments until we find the right one

Of course, having answers to the five questions doesn’t guarantee that you have a painkiller. It just makes it more obvious whether the pain you think you solve is really all that painful. Stated one way, the lack of a social network is no big deal for a non-profit. Stated another way, helping find volunteers and funders is a life-or-death part of how non-profits operate.

The main benefit of this process? Forcing you to spend more time digging into the problem. You may abandon your original problem but you may also find some legitimate pain points that are a lot more interesting to tackle.

Next time I’ll post a few more examples and analyses. Feel free to send me some examples from your startup.

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