Cogblog

The Official Blog of Cogmap, the Org Chart Wiki

 

Archive for the ‘Building A Start-up’ Category

 

What is the best first step for starting a new company?

Wednesday, February 9th, 2011

When I was a senior in college at the Wharton School of the University of Pennsylvania, already hard at work on my first start-up, I found myself standing next to the Dean of Wharton, Thomas Gerrity. Dean Gerrity was a pretty impressive guy. He was renowned for being the only Dean of a business school that had actually run a huge business. He had gotten a double undergrad from MIT, been a Rhodes Scholar, then gotten a PhD from MIT, but then he started the Index Group and grew that to be a billion dollar consulting company.

Yeah, he is a lot smarter than me.

So I told him that I had a consulting company and asked for his advice on starting a company and he said simply, “Have your first customer before you start”.

It doesn’t get simpler or truer than that. The first paying customer is always the hardest one. Now you have a reference-able client, you have revenue, you have success stories. That is half the business right there. Getting that first customer is similar in many ways to finding a co-founder. If you struggle to find a co-founder and can’t find someone that is interested in buying before you start the company, you might be barking up the wrong tree. These are all good gating criteria to tell you if you are ready to be an entrepreneur or if your idea is credible.

How Do You “Flow”

Thursday, February 3rd, 2011

Recently, a budding entrepreneur sent me the following question:

How valuable is “the zone” to you – that working flow state?  If it’s extremely valuable how do you protect it (closed doors? headphones? etc.)?  How do you protect it without alienating family?

I thought this was a fascinating question and syndicated it out to some of my fellow entrepreneurs and people I know and respect. Here were their answers:

Brian O’Kelley

I sit smack in the middle of the AppNexus office. We don’t have cubes, just lines of tables. It’s my job to be the nexus of communication for the company, to hear the  sales pitches and creative ideas (and dumb ones). I think I exude a “don’t bother me unless it’s important” vibe, but let me tell you: if somebody interrupts me when they know I’m in the zone – it’s important, and I want to be bothered.

Some of my developers say the buzz and murmur of the office is annoying, so they wear headphones. I don’t like headphones, because you don’t hear anything going on around you. There’s a lot of ambient information floating around. I can tune out the noise, and I’d argue that selective hearing is a skill that entrepreneurs need. I think it works well at home (and not just when the baby is crying). My family is priority #1, so they get dibs on my attention – but they also respect my need to focus.

Finally, I’d say that the ability to context switch quickly and fully is imperative. I can’t type and listen fully to someone, so I need to stop typing, give you my full attention, and then go back to total focus. Cooperative multitasking, if you will. That mitigates the need for “the zone” to be protected. If I can pop in and out easily, interruptions aren’t that big of a deal.

Dave Troy

It’s all about planning how you’re going to use your time. I block out each day in terms of what I plan to do; if I’m doing email, I plan a couple of hours to focus only on that. If I’m doing programming, I set aside a block of time for that. In general, bigger blocks are better. Also, if you really want to program creatively, there’s nothing worse than having something hanging over you – like a phone call at 3pm. Block out the whole day and leave yourself an open end-time. Amazing how creative you can be in that context.

Mike Subelsky

When I am feeling stagnated, I tend to leave my house and go to a coffee shop.  I can get a lot of things done outside the house, even though I have a pretty sweet office setup.  When I’m home and working I turn on a loud white noise generator app that blocks out all sounds, so I’m less tempted to stop what I’m doing every few minutes to see what awesome things my kids are up to.

But, I just recently started to change my mind about the importance of all this.  The Zone is extremely valuable to me, but there’s only so much I can do to get it. As much as I want to be in the zone all the time, I don’t want to miss out on a second of my young children’s development.  My wife also works and we share the childcare duties 50/50, so there’s a real limit to how isolated and creative I can be on a given day.  So, I’ve started to squeeze what productivity I can out of the short intervals that I do have.  I guess I’m saying that while nothing beats being in that flow state, I’m finding I don’t have to be in a flow state to be creative and get things done.

Andy Monfried

“the zone” is hugely valuable to me.  it comes in two ways.  one is verbal — which is phone time, and the other is idea, or email, writing time

i like to make my commute in, and drive home (and drive 60-90 minutes each way in and out of nyc, and its only a 15 mile drive) my “phone zone.”  i use this time to connect with employees, clients, and people i need to speak with.  i typically make a list of 2-3 calls i MUST make — and make sure i call them (scheduled or not) then.

second is writing emails and/or jotting down ideas.  most of my ideas come to me at odd times, therefore i leave myself long voicemails, and then the next day listen to them, and briefly transcribe my thoughts.  i will leave myself generally 3-5 essages on my phone per week (i call my office number and leave a message) — and, i’ve done it in the middle of the night, or while watching a game.

my REAL zone of thought and output typically comes from “solo” time (commuting, traveling on a plane) and 99% of my ideas are not good — but the 1% is important that i can capture the “lighting in a bottle” to remind myself and DOCUMENT when the “goodness” of the zone happens.

Capturing and documenting sometimes is AS IMPORTANT, as finding the zone….

Jonathan Mendez

best way to protect is get your flow on from 9pm – 2am when you can’t be disturbed

Jerry Neumann

It’s very valuable to me, when I can find it.

I protect it by:

(a) having an office (can’t get it when kids are around)

(b) having blocks of time when I don’t plan any meetings or calls, either whole days or half-days

(c) occasionally turning off the internet, when I’m having trouble concentrating

A Personal Note On The Deconstruct/Verve Acquisition

Wednesday, February 2nd, 2011

Hey, it’s great to have you here on my blog. I think today we have a lot of new readers, so I am happy to announce a number of exciting new things. First, my blog last year had the fewest posts it has had since I started blogging three years ago and now I can tell you why: I left Aol to start a company in the online advertising space: Deconstruct Media. I am also happy to announce that that company has subsequently been acquired by Verve Wireless.

It is a great day for Deconstruct, for my team, and for me personally. I think every start-up wants the outcome to have a few components: Great growth opportunities for the team, good financial outcomes, and the chance to take the technology that you have built and distribute it to a huge audience. Being a part of Verve will allow us to bring really great online advertising tools to thousands of publishers and advertisers and I think that is why we build these things. Everyone likes to see their technology used and we are no different.

I imagine that people come to blogs like this one hoping to get a little bit of insight into, “what it’s like”. It’s hard. As Brian O’Kelley told me the first time I met him, “There are only two emotions: Utter euphoria and abject terror, and you alternate between these two extremes rapidly.”

Two quick stories to illustrate this with some color:

I had an original technical co-founder that I started working on the project with. When I left Aol and went full-time on Deconstruct, we met and I said, “ok, quit your day job and let’s do this.” Unfortunately, given his circumstances, he felt like he couldn’t pull the trigger. So there I am, unemployed, without a technical person on my project. I started beating the bushes for a technical co-founder and within two weeks Dimitrij decided to jump on board. Everyone talks about the value of a quick yes or no from investors, but when you are recruiting a tech lead for your project and sitting around burning cash while you do it, having someone rapidly decide to take a huge risk and give you their time is an amazingly precious gift.

Much later, as I was attempting to raise our first round, I met with a well-known seed stage VC trying to find a lead for my deal and they asked who else was investing. One of the names I gave them was Jerry Neumann, which of course made them say, “Oh, Jerry is awesome, we will call him to reference check”. Then I got a call from the VC saying, “We chatted with Jerry and he said he wasn’t in.” My heart almost fell out of my shoe. I called Jerry– freaking out– and we agreed to meet the next day. I thought I was going into that meeting to find out my round had now fallen completely apart while I had wandered the country looking for a lead investor. I kick off my meeting with Jerry with a statement along the lines of, “Can we post-mortem this so I can understand what I am supposed to do next time?” and he discusses common mistakes in fund-raising. Then he says, “We gotta get moving on this. I will lead this round, I am sending you a term sheet right now (click), ok, you have it, and I will get <well-known VC> to participate as well.” When I got up to walk out of that meeting, I found that my feet did not touch the ground.

We ultimately were acquired before we ever closed our seed round, but I will remain indebted to Jerry for life.

Terror/Euphoria/Repeat.

That is how it goes when you are an entrepreneur. Every one of us has those stories.

At a moment when my blog readership will never be higher, it is a good time to thank some people. Deconstruct Media was a company for less than a year, yet in that year I participated in more than 500 meetings. There are literally hundreds of people that helped shape the good things that happened, but these are a few special people:

Dimitrij Denissenko: You could not ask for a better technical superstar to be involved in your company. I always tell people that a great architect is someone that recognizes when you need to design a part of the code for flexibility vs focusing on shipping features quickly. Dimitrij made great tradeoffs. And he put up with me.

John Medforth and John Adler: nuff’ said.

Jerry Neumann: Best angel investor in NYC.

Greg Yardley: Online advertising superstar, opened doors without asking questions, and a good friend.

Gil Beyda: You know an investor is good when he passes on your deal, but takes the time to introduce you to potential customers.

Mike Subelsky: I would not have done it without him. I consider him a better friend than I think he gives himself credit for.

Connie Hwang: My wife is a saint. She makes me a better person and she puts up with all this.

The list is so much longer, I could write a book. People that committed to participating in the round, investors that passed quickly, people that returned calls, our awesome beta publishers and the advertisers that bought campaigns from them.

I am immensely grateful for the success of Deconstruct and super-excited about the things we are going to do at Verve. Many new blog posts chronicling more of these tales are coming.

Interested in Cogmap? This is an org chart wiki that I built because the world needs a wikipedia for organization charts. If you think the charts you found seem out-of-date, don’t write off Cogmap, update it. The only solution to better data is better community.

How To Build An Incubator That Wins

Wednesday, January 26th, 2011

There has been much talk on the periphery of my vision about building more incubators. Some people say to build 500. Some people say to build one in Baltimore.

Building an incubator is super-hard. To point to the success of TechStars and Y Combinator and think that this demonstrates that building an incubator is easy is simply a fallacy.

First, what is an incubator: An incubator is typically the earliest kind of investor involved in a business. Typically they invest a small amount of money and some amount of in-kind services in exchange for a small stake in the business. Typically these services will include providing office space, some small amount of legal, accounting, and business consulting, and some kind of “graduation party” that is designed to introduce their graduates to potential investors.

More important than the question of what an incubator is, is “What is the value that an incubator should deliver?”

I think the primary value that any investor can provide consists of three areas:

  • Strategic advice/services that improve the viability of the business
  • Helping the business exit
  • Helping the business raise money

Now, that third category could theoretically be part of the first bullet, but I wanted to break it out due to the critical importance of that specific topic.

In my mind, the primary value that an incubator provides to a start-up is that it allows the start-up to raise money at a valuation that is a premium to the valuation that it would have raised money at prior to participating in the incubator – either through the pedigree of the program or the services provided by the incubator, the valuation has been increased significantly.

Why is Y Combinator the hottest thing going on today? Because 12 weeks after you start the program, you are virtually assured of being able to raise $1 million at a $4 million pre-money. The pre-money increases substantially and the odds of raising the money at that price increase. The result: You have to be in Y Combinator if they will accept you.

Is it possible for other incubator’s to replicate this value proposition? It is probably hard – in theory not too hard, but in practice quite hard. You need incubator leadership that is extraordinarily well-connected into the seed stage financing community.

Further, there is the concern that incubator’s model the VC community: The market is a “To the victor goes the spoils” where all of the good deals go to the top 20% of the incubator market, leaving bad deals for the rest of the market. This is not bad for the small businesses – any incubator may be better than no incubator for unsophisticated entrepreneurs, but it means that many of these incubators will discover that their business model is unsustainable. Deprived of “access to good deals” as good deals flee to the TechStars and Y Combinators that can assure them of financing, remaining incubators invest in companies far less likely to succeed, leaving them insolvent.

The first time I got to hear Josh Kopelman‘s pitch for FRC (probably four years ago), he described FRC’s value proposition as, “helping you raise your next round at a substantial premium”. If you don’t think you can do that, then your incubator will fail. It is that simple. The amount of money invested by an incubator typically necessitates raising money shortly after a start-up exits the program, therefore helping your investment raise money is the single core competency most crucial to an incubator. $25,000 does not go far.

Some incubator’s have touted that they will invest more money – in some cases six figures – as a tool for differentiating from programs like Y Combinator. This is probably an erroneous strategy. Funding companies at such an impossibly early stage without traction or the social proof of a round of investors makes placing big bets on relatively fewer companies a strategy that has a much higher beta than current incubation approaches. There is a reason people write smaller checks at an earlier stage.

I want to end this post with a few things that Y Combinator and TechStars have done that seem incredibly smart. While I have bashed the prospects of incubators in this post, if you think you can pull this off, there are some best practices that I would obviously rip off. (Caveat: If you didn’t already know this stuff, then you are probably not going to be able to do it. I have not been funded by these incubators, I do not know anyone who has participated as a company in these incubators, I know basically nothing, but I know this stuff.)

Here is the most important: They involve super angels early. Many different super angels are brought in as “consultants” to spend time with the incubatee’s. After spending a day with a variety of teams, many of these consultants invest in the one or two ideas that they like the best. The result is that the fund-raising begins with very warm meetings and by the time the team shows up for their demo day, they already have prominent investors that are leading their deal.

What are the other best practices of the incubator’s? Discuss.

The Problems With Startup Digest

Tuesday, January 18th, 2011

I get Startup Digest every week and at various points when I traveled a fair bit, I got it for many cities at the same time. One thing I realized was that, despite it’s popularity, quality varied widely and coverage tended to be lopsided. Dave Troy runs Startup Digest for Baltimore and the result is that it is filled with Rails events and the various things that Dave is involved in directly such as Bicycle Baltimore.

I thought that the lists that I saw felt very driven by the owners: either the types of events were slanted or a paucity of events implied that the list owner was not as wired into the community as one might like.

Here is a graph of the number of activities listed in Startup Digest. There are data problems here. Assume that empty weeks were, in every case, weeks that I lost the email as opposed to weeks with data points that were actually zero.

New York’s list tended to be not much bigger than Baltimore’s. That cannot possibly be right. Further, in DC, the list had virtually no items. What that says to me is that the volume of items in Startup Digest is really a proxy for how “at the epicenter” a given locations author is. Finding more events is not too hard: go on Meetup.

Einstein Thinks Entrepreneurs Are Insane

Tuesday, January 4th, 2011

A budding entrepreneur sent me a few questions the other day and I wanted to blog one of my answers up for you:

How do you decide when to pull the plug in one way or another?

This is a hard decision as well, with no obvious answer. I always tell people that the most important part of being an entrepreneur is know when to pivot. Every business plan is a little (or a lot) wrong and what you are doing that first two or three years is trying to figure out what dimension of wrongness you did. The hard part is that even when you are doing it right, it is usually quite hard, so the key moment for an entrepreneur is:

“I have been banging my head against this wall for a long time. One of two things is true at this point, either I should keep banging my head and the wall will crumble soon, or I should do something different and hope things get better.”

Einstein once said, “insanity is doing the same thing over and over and expecting different results.” Entrepreneurs must be insane because every entrepreneur will tell you that there comes a time when you have to keep pushing. So there you go: Do you keep pushing or do you pivot? Is this moment one of those moments? Is is incredibly hard to tell. People tell you to push and they tell you to pivot, but recognizing which of those you are supposed to do at any given point in time is incredibly hard.

I won’t try to fool you and tell you that the great entrepreneurs know the difference. My impression is that it is mostly luck.

You never really know.

Guerilla Marketing 101: Hijacking Hackathons

Tuesday, November 23rd, 2010

I spent the weekend at the Baltimore Hackathon (more on that later) and learned a valuable lesson that I would offer up to almost any company whose business consists at least partly of marketing APIs: Hijack a Hackathon.

Tropo was a sponsor of the Baltimore Hackathon and their strategy was simple: They didn’t just show up with T-shirts (although there were plenty of T-shirts), they showed up with a bunch of developers and some sweet random prizes (A Kindle! OMG!). They then announced that the project at the end of the Hackathon that best used their APIs would win the random prizes. Virtually every hacker in the building went from “I want to make something great” to “I want to make something great using Tropo.” If Facebook had shown up with a Macbook Air, they would have had 50 developers cranking away on the Facebook API. Instead, Tropo had talent and dominated the hackathon.

The Tropo engineers were around all weekend ready to help developers hack on their stuff and answer questions. And they liked being a part of a Hackathon, so it was probably a job satisfaction win for Tropo.

It was a stroke of genius. People needed focus and people love prizes. By showing up with sweet prizes in exchange for attention, Tropo gained several advantages:

  1. This whooped “sponsoring” cold: They actually have developers that are not just aware of their API, but they have experience with it. The next time people at the Hackathon have a situation that calls for Tropo-like tools, they will certainly think of Tropo. Further, assuming the product was good, they will be favorably inclined relative to competitors like Twilio.
  2. If they had sponsored their own Hackathon, probably nobody shows up. By hijacking the Baltimore Hackathon, they maximize spreading the mindshare.
  3. They can cherry-pick talent. This was like an extended interview for some people. Tropo engineers got to see a bunch of geeks at work. That could turn into job offers.

The next time I have a product with APIs, I am definitely going to fly around the country hijacking hackathons as part of our marketing strategy.

The Four Hour Business Model

Thursday, October 7th, 2010

When I go through books that I really recommend to people, one key book is the Four Work Week:

Here is my personal book review for the Four Hour Work Week:

The first 30 pages make it sound utterly hokey, but press on, there is something good! Not only did I find many practical lessons on how to streamline my life, presented in a way that made me rethink common practices I engaged in frequently, but I spent quality time pondering an important lesson:

It is time to do the things you always wanted to do.

The quintessential logic is this:

If you make a great salary, say $200k, if you were saving $50k a year you would be socking away a ton of money. So if you socked away $50k for 20 years, you have (drumroll please) one million dollars. So in 20 years you might have a million bucks. You are probably not saving that kind of money today. So your average person should probably assume that they will never be rich and/or retire early. You are going to work most of your life. Hence, whatever your bucket list looks like, you should get started on it now and focus on finding ways to do it affordably.

The more I thought about that the more I realized that there was a lot of truth there.

Regardless, I liked the message, once I got past the first 30 pages of infomercial, and I liked the practical manner in which it was shared. The goal was not to get your work day down to 4 hours, but rather I took away from it a slightly different spin on the classic Franklin Covey “spend time on what is important (living your dreams) and less time on what is not important but may seem urgent (doing expense reports)”

His new book is The Four Hour Body.

While the Amazon description sounds like a snake oil salesmen, in Ferriss we trust, as the saying goes. I loved his blog post on weight lifting and it leaves me committed to reading the book. Go buy it now.

Remember, life is too short to not get started on interesting things now. Get to it.

Why Angel Investing Is Like Selling Narcotics

Tuesday, September 28th, 2010

There is collusion?

Anyway, I knew everyone would want my opinion on how things went down since I was at the meeting and most of these people call me when they are thinking about things like this, so here it is:

Ron Conway: Awesome investor, slightly disingenuous email

Dave McClure: Open mouth, insert foot

Collusion: Probably not that big a risk.

Let’s drill down.  So these two meetings happen to discuss how deal terms could be improved if people agreed (read: colluded) to abide by a collective set of rules.

That is kind of what brought venture capital to where it is today.  New angel investors are being born every day in Silicon Valley and NYC.  I confess that if Ron Conway offers you money and the terms kind of suck, I would generally suggest you take his money.  Some people won’t.  As the terms get worse, more wouldn’t.  I don’t think any of these investors think their deal flow is so amazing that they pass on deals that are awesome.

Great entrepreneurs have a lot of ability to drive the terms, I think we all agree there.  Any investor would say there are not enough great entrepreneurs to invest in, so there is competition for those deals (Disclosure: I am raising a seed round for my startup and I am not feeling like FourSquare, so I don’t put myself in that bucket.)  If there is competition, collusion will fail.  Then individual investors start moving the line on individual entrepreneurs (I worked with him and he is a superstar!) and all of the sudden it is all out the window.

So then Dave McClure writes this blog post.

I figure a blog post is one of three things:

  • A denial that the meeting happened
  • A denial that the meeting was about collusion
  • An argument that driving to standard terms among angel investors is good

I was a debater for many years and I have to say, that about rounds out the arguments one could possibly make.

Dave probably should have taken his own advice and had the sense to write nothing.  Instead he writes a rambling version of #2: This meeting was not collusion, it was simply a meeting of angel investors.  Pre-money valuations are too high these days.  We discussed valuations, term sheets, convertible notes, and other things.  But if you are a great entrepreneur none of that will matter.

Sounds suspiciously like “it was informal collusion, not formal collusion”.  If you are going to make that argument, you are better off probably saying nothing because people that love you will think you are ok and people that hate you will find this proof that you are evil.  Which is pretty much what you would have had if you had said nothing.

Further, I think in a situation like this you want to come across as humble, thoughtful, and reasonable.  I think even Dave would agree that his writing style does not really fit that style.  The result is that he comes across as defensive, which you don’t want to do.

Then Ron Conway, probably the most famous angel investor out there, pens this email.  Best thing about this email: He sent it to specific people.  This was not a blog post for the general public.  He was telling certain people that he didn’t like them.  What is not too like about that.  If you can’t keep it inside you any longer, I think it is totally reasonable to send someone an email saying you hate them.  (Although you probably need FU money to decide that you can’t keep it inside any longer.)

Also, as I said, I thought that the email felt a little disingenous.  He has a fund.  He is managing other people’s money.  He does have a little bit of a fiduciary duty.  In the same vein, virtually all of these angel investors are rich by almost any person’s standards.  They are angel investors because they want to be involved in building stuff.  Josh Kopelman didn’t start FRC for the money any more than Ron Conway did.  Josh is probably the only person in this blog post that I actually know and he loves building.  He has a passion for building that gets people excited.  I would put his passion up against any angel.  Peter Thiel didn’t start Founder’s Fund because he was broke.  Aydin Senkut: not broke.

Now, I recognize that none of these people were probably people on Ron Conway’s email thread, but the central point is this: Almost everyone who does angel investing loves building companies.  Anyone with a fund that is not their own money has some fiduciary duty.  Also, as Jerry Neumann says, in a great post, if you don’t make money, you don’t get to fund more start-ups.

A perfect example of, “This blog post was worth what you paid the paywall to get access to it.”  I know none of these people, I love all of them. People make mistakes, I don’t think too much of this molehill.

Customer Development Is Not A Breakthrough Idea

Thursday, February 25th, 2010

http://www.flickr.com/photos/hi-phi/55911511/

Customer Development, Shmustomer Shememelopment.

Let’s talk about books.  SPIN Selling is the single best book to learn about selling that I have ever read.

Why, you ask?

Here is what I like when I read a self-help business book: Data.  Tell me what you think, but don’t just back it with funny anecdotes, although I love a good anecdote.  Back it with research.  SPIN Selling is the most data driven book on sales techniques I have ever seen.  As the subtitle says, “The best validated sales method available today.  Developed from research studies of 35,000 sales calls.”

I was re-reading it the other day – “Sharpening the Saw” in self-help speak, when I read a chapter and thought, “Oh, this is the data that shows that customer development is the most effective technique for new product development”.   “Oh, this is the part where they tell you that you have to use customer development techniques to sell things to people”.  FYI, SPIN Selling was written in 1988.

Want data?  Hell yeah, you know that Cogblog is committed to data driven posts.

First, let me tell you a little about SPIN Selling, in case you are not familiar with it.  If you are unfamiliar with it, here is what you should do: GO READ THE BOOK.  If you are the kind of person that likes my blog, then you should read the book.  End of story.

Anyway, here is a key summary:

SPIN = Situation, Problem, Implication, Need-Payoff

There are two kinds of sales: simple and complex.  If a sale is a simple sale, then you should master closing techniques and close the hell out of people.  It works.  If a sale is complex and you try a closing technique on people, it actually makes a sale less likely (42% of sales situations by people without training in closing resulted in a sale (2.7 close attempts per sales situation) vs. 33% for people with closing training (4.5 close attempts per sales situation)).

In a simple sale, successful sales have more implied needs expressed than unsuccessful sales.  An implied need is something like, “the system we use today sucks”.  Salespeople eat that up!  But here is a fact: In a larger sale, implied needs do not predict success.  So if you are selling something complex, and you hear about a guys problem, it doesn’t improve your odds of victory.  Explicit needs are the difference.  “Analysis of 1406 larger sales shows more explicit needs in successful calls”  An explicit need is when a customer goes from saying, “My current thing is bad” to “I need a new thing”.  “I don’t like how our web app loads pages so slow” needs to become “We need our web pages to load faster”.  There is a huge difference between those two statements when closing a complex sale and helping a customer navigate from an implicit need to an explicit need is what SPIN is about.

Asking a customer about their problems makes no difference in a large sale.  (Huge difference in a small sale.) You can ask a lot of “problem” questions or a little.  Doesn’t matter.  Developing the implications of those problems and the value proposition of that information is what separates the winners from the losers.

They specifically relate this back to new product launches by talking about how most new product launches fail because people are stoked to talk about their great product and its awesome features.  Unless you lead with developing a customers explicit needs (i.e. CUSTOMER DISCOVERY), you are never going to close any business.  I think a big part of the customer development process and how it works effectively is getting out there when you have nothing for sale forces you to spend your time developing implicit needs into explicit needs.  In fact, Blank tells you that the most important part of the initial exercise is getting to Need-Payoff – How much does the implication of this problem impact you monetarily?  How much is it worth to solve it?

Features and benefits and how and when to discuss them is something Customer Development talks about a fair bit.  SPIN Selling gives you the data.  In fact, they break it down even more granularly.  A feature is something the product does.  An “Advantage” is a manner in which the feature helps the customer solve a problem.  A “Benefit” is how a feature of the product solves a problem that the customer has said that they have (An advantage they have actually said they need!).  And what does the data show?  If the customer hasn’t told you that they have the problem, then telling them a “classical benefit” (An advantage in SPIN terms), doesn’t do anything to increase the likelihood of a sale.  You have to have developed the customer and a deep understanding of their problems, the implication of the problems and the value that a solution can have in impacting those problems to close business.  If you give them a true benefit: They say they have a problem, they need a solution, and then you say, “My product does that”, the deal is as good as closed.  Now, that sounds, “Duh”, and I know this, but the point is that if they don’t say, “I need a solution”, you are nowhere.  You have to get them to say that.  Customer Development tells you that, SPIN Selling gives you the data demonstrating that this is the case.

Incidentally, and I love that they studied this, the data shows that asking a personal question (small talk – “How are the kids/weather/knicks/red sox/vacation?”) has no impact on the likelihood of closing the sale.  You can just jump right in to talking about the sales call.  A more comfortable situation due to personal relationship, commonalities, whatever doesn’t bear on the outcome.  If you are awkward and do a nice job developing explicit needs, you get the business.  Good news for an awkward guy like me.

Go forth and help your customer understand how their problems require solutions!