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Author Archives: raymond

The Thinking Behind Starting Up: 10 Posts

July 20, 2009 by raymond

The Flow Ventures blog has been up and running for over six months and during that time it’s naturally gravitated towards topics for early-stage startups. Partly because that’s our focus at Flow and partly because people still overlook all the difficult work that happens right at the start of a startup. Things like idea screening, brainstorming, finding strategy, and finding competitors are all things entrepreneurs should be doing for themselves, not just when requested by outsiders.

I often tell people that the very first step in a startup is relatively risk free. You haven’t committed your time and money yet and you haven’t made promises to others that obligate you to a certain path. You have time to noodle around finding great ideas and discarding bad ones. This is the time to spend at whiteboards, in cafes debating your ideas, and doing research on the Web and in the real world. This is the time to assume your idea stinks and try to convince yourself that it doesn’t (not the other way around).

We’re going to keep focusing on the early stages of startups but here are 10 blog posts we’ve written so far that provide some practical ways to think about idea and business creation:

Writing this list makes it obvious that there are lots of gaps in our coverage. Hopefully, we’ll fill in some of those gaps over the rest of the year.

Flow Ventures Announces Investment in ArtAnywhere

July 15, 2009 by raymond

We’re very happy to announce our second investment of 2009, in Montreal-based ArtAnywhere (www.artanywhere.com). This online art rental business combines a social purpose with a solid business case. The idea is simple. There are artists in cities around the world creating artwork which is rarely seen. There are empty walls in businesses and homes in need of inspiration. ArtAnywhere brings the two together to create new galleries in non-traditional spaces, perhaps the one you’re sitting in right now. The option to rent makes art affordable and accessible for everyone.

© Julian Haber Photography - Ship 4

© Julian Haber Photography - Ship 4

This is the first startup created and spun-out of Flow Ventures itself. Leading ArtAnywhere is CEO and co-founder Christine Renaud. She’s an experienced educator and social entrepreneur who is already well-known in local startup circles. You can learn more about Christine and ArtAnywhere on our blog (or Twitter @artanywr) which will be packed with content leading up to our launch.

(c) Mark Dixon (www.markdixon.ca) - Trees on a hill, 90 x 120 cm, acrylic on board, 2006

(c) Mark Dixon (www.markdixon.ca) - Trees on a hill, 90 x 120 cm, acrylic on board, 2006

ArtAnywhere is currently in private beta and has already rallied hundreds of artists in our launch cities of Montreal, Toronto and New York. Spread the word if you know an under-appreciated artist who wants to participate in our beta program by providing artwork. If you’re a business interested in being one of our “beta renters” you can sign up on the site.

As investors, we’re thrilled to continue finding and funding great new startups under Flow’s unique funding + acceleration model.

Raymond

The Value Net as a Tool for Competitive Analysis

July 6, 2009 by raymond

Having talked about the goal of competitive analysis and being better, not just different, it’s time to talk about a framework for doing competitive analysis. The Value Net, developed by Adam Brandenburger and Barry Nalebuff, is inspired by Porter’s Five Forces. It’s easy to understand but includes a lot of depth that will allow you to more fully understand the competitive forces surrounding your startup.

Let’s take a look at the graphic above. It shows 4 sources of potential competition surrounding you: Partners (whose products and services complement yours), Rivals (who compete with you), Suppliers (whose “raw materials” you require), and Customers (and distributors) who are the destination for your products. The horizontal items are the players in your industry and the vertical items are your supply chain.

Rivals: More than direct competitors

Most new companies do everything they can to say “there is no competition”. I’ve already covered why this is tantamount to saying “I do not know what I am doing.” Just because there isn’t a company that looks exactly like you doesn’t mean you don’t have competition.

Rivals are all the people or forces competing against you for the dollars and attention of your customers. They include:

  • Direct competitors – if you’re a best-of-breed product, look for integrated solutions and vice versa
  • Indirect competitors – if you’re a product company, watch out for service companies
  • Alternatives - like doing nothing, in-house solutions
  • Changing standards and regulation – when standards change, everyone in your industry might suffer

Think of it from the customer’s perspective. If you want to improve employee communication you might build an employee portal, buy one, hire a consultant or put it off until next year. There are many alternatives competing for your time and money.

Partners: Wolves in sheep’s clothing?

Partners are your “friends” in the marketplace whose products or services complement your own. This could be someone who integrates your product into theirs or provides a value-add service, like consulting, that makes it easier for people to adopt your product. Why even consider partners in a competitive analysis?

The reason is because partners, like rivals, are also fighting for customers’ attention. Sure, in the beginning you may specifically go into a partnership to reach markets outside your immediate target. That may be your partner’s strategy too. But the more successful you are, the more your partner might realize that your market (or your business) is something worth emulating. They could become a direct competitor. This is especially true in the type of partnerships startups tend to enter into, i.e. David (you) vs. Goliath (them).

Here’s an example. You build the next great mobile enterprise app. You license a “lite” version to a major portal so they can market it to individuals and SMEs. It becomes a success and the portal decides not only to replace you with something they developed on their own, but to release an enterprise version that competes directly with you in your other markets. For them, you were just free R&D.

Yes, you can do things legally to protect yourself. The point is don’t forget how easily partners can turn into rivals.

Suppliers

How can a supplier be a threat to you? When they decide to work with a rival instead of you. This isn’t as rare as you might think. Exclusivity agreements could lock you out of a key technology. Or a bigger rival could simply eat up so much bandwidth that your supplier can’t pay any attention to you. Employees are “suppliers” too and competitors would like nothing more than robbing you of your stock of talent.

Don’t overlook the fact that the more volume you drive to a supplier the more they might think about competing with you. This is called forward integration and it’s especially acute when your supplier has leverage over you in the form of an exclusive resource, the best price, or some other unique advantage. Here’s an example: you build the next great mobile enterprise app that relies on you licensing a patented mobile synch technology from another firm. This is great for them because you drive sales and they don’t have to do any work. But, the more successful you are the more it’s tempting for them to move forward in the supply chain with their own branded product. Worse, if they cut you off from your supply of technology it will put you at a competitive disadvantage.

Customers (and distributors)

The area of the Value Net above you includes your customers as well as any resellers or distributors you use. Like with partners and suppliers, be aware when these people have power over you in some way. E.g. customers (and distributors) have power when there are a lot of rivals in any industry. Or there may be other industry practices that favor resellers: e.g. brokers in real estate and insurance.

Understanding how your customers buy (from you or from your resellers) is an important aspect to understanding competition. Again, look at it from their point of view. The customer might value on-site installation and customization. Your Web 2.0 SaaS model might be feature-rich and inexpensive but your competitor’s product is sold through local VARs who can provide consulting, installation and after-sales support on the customer’s premises. The point is that competition can occur between different types of sales channels, not only between firms.

Putting it all together

To summarize, here’s how you can use Value Net to do competitive analysis:

  1. Identify your key Rivals, Partners, Suppliers and Customers/Distributors – Be paranoid and build a long list that you pare down later
  2. Look at the red arrows to understand behind-the-scenes competitive dynamics
  3. Look at the grey lines to understand your power relative to your rivals, suppliers, partners and customers – any area where you have less power is a potential competitive threat

The nice thing about the Value Net is that it’s easy to fit onto one Powerpoint slide. Showing this level of depth for your Competition slide will be a huge improvement over what I normally see in startup pitch decks. I’ll post some examples of completed Value Nets in a later post.

Bulls*%t, Next Slide…

June 19, 2009 by raymond

We had an entertaining speaker at last night’s meeting of Anges Quebec. Andy Nulman of Airborne Mobile and Just for Laughs fame, spoke about his experiences as an entrepreneur and his thoughts on Angel investing. I don’t know Andy but he’s absolutely hilarious.

One funny anecdote he mentioned was pitching some VCs during the early days of Airborne and being told that their financial projections were not nearly sophisticated enough. They dutifully hired a bunch of experts to create what he described as the most beautiful set of financial projections ever created. At their next pitch to a big strategic investor, they went through their powerpoint and got to the financial projections. As soon as the investor saw the projections he said “Bullsh!t, next slide.

Under “Lies Angels and Entrepreneurs Tell Themselves” #1 has to be that financial projections mean something. Projections are a good way to work out aspirations but they’re not good for predicting the future (in a startup). We’re investing in People right? Entrepreneurs are just as bad. When their pitch isn’t convincing they roll out excruciatingly complex financials to boost their case.

Angels and entrepreneurs should stop lying to each other. Entrepreneurs should be honest about what they don’t know (which would be refreshingly impressive) and Angels should realize that at the earliest stages they’re placing a big fat hairy bet on an individual. People who aren’t comfortable doing this probably shouldn’t be investing in startups.

Andy’s version was funnier…

Lead to Win: An Open source Business Accelerator

June 8, 2009 by raymond

Here’s an interesting idea: take a city that is experiencing high-tech job loss, create a program that helps laid-off workers create startups, run it like a summer school program using local experts, charge nothing for the program and take no equity stake in the businesses. Oh, and Open Source all of the learning materials used!

It sounds too good to be true and it is, unless you live in Ottawa. Lead to Win is an accelerator program created by Dr. Tony Bailetti. Currently underway with about 50 participants, this is actually the second time such an accelerator has been run in Ottawa, the first one being in 2002 during the last tech downturn. That program created about 15 new companies, 300 new jobs and a significant amount of investment dollars. More importantly, it created a new cohort of tech entrepreneurs that have gone on to found new companies.

Here’s a taste of some of the things covered in the agenda:

  • Design your business for success
  • Define compelling customer and partner value propositions
  • Lever ecosystems, open source projects, and open APIs
  • Identify customers most likely to buy from new company
  • Price and brand with confidence
  • Build team and organization
  • Define clear agreements, term sheets, and sales contracts
  • Protect intellectual property
  • As well as pitches and discussions with experts and LTW alumni

Since we all love to classify things, is Lead to Win a startup accelerator? Tech accelerators (remember, we don’t use the term “incubator” anymore…) are on the rise. StartupCFO has a nice post on the subject and First Ascent Ventures has probably the best early analysis of the accelerator space and guesses about early returns (Parts 1, 2, 3). We sometimes describe what we do at Flow Ventures as “acceleration” since we provide a mix of financing and operational services (though no office space!).

What is compelling about Lead to Win is its Open Source business model. It’s not only free (as in beer) but free as in all of their materials are available online. In fact, they’re encouraging other cities to follow suit. This openness allows LTW to easily partner with government, local tech organizations and the private sector. Unlike other accelerators, there is no implied goal of helping the company raise money at the end, e.g. there is no big funding pitch session for graduates. I like this because it emphasises bootstrapping and early profitability. Neither of these is friendly to VC funding models but they’re friendly to entrepreneurs and helping build products that markets need.

I would definitely call LTW an accelerator. After all, they help more people create new ventures quickly while providing some care and limited feeding along the way. Like many other accelerators, Prof. Bailetti has figured out that the most important thing entrepreneurs need is not cash but access to an ‘ecosystem‘ that can support the venture. This ecosystem can provide talent, technology, customers and financing.

Flow will be at Lead to Win later this month providing advice and feedback to entrepreneurs. I strongly recommend you check this program out and if you think this could work in your city, contact Tony Bailetti.

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