Field of Dreams
Ever see the movie “Field of Dreams?” Kevin Costner gets a spiritual message to build a ball field in the middle of nowhere. The ghost of “Shoeless” Joe Jackson tells him, “If you build it, they will come.” And they do.
But that's Hollywood. In reality, if you build it and wait for them to come, they may stay away in droves. And then where's your business?
My friend Pete is a smart guy, has a lot of domain expertise, self-confident, touch of gray at the temples. Perfect founder material. His startup got funding from VC's, rented an office, hired more smart people, and started building product. Every time someone mentioned marketing to Pete, he said, “Not now. Later.”
Finally Pete's company got their product into beta testing. By then 90 percent of their A round funding was gone. They did a product launch on a shoestring. They couldn't afford PR. They could only afford one outreach campaign. Too late they discovered their sales cycle was six to nine months. Sales meetings showed them fatal flaws in their product positioning, competitive landscape, and pricing model. Customers wanted stuff they didn't have: better query tools, integration with legacy systems, support for different platforms. Soon all the money was gone; without customers investors didn't want to put more cash into the company.
Game over.
What Does the Product Equal?
Many of us begin with the assumption that the product equals the company. No product, no company. That's true, but the reverse (if product, then company) isn't necessarily so. As Pete found out, just having a product does not a company make. He hadn't created any ability to find customers and deliver the product to them. He hadn't reserved resources to create awareness of his product. He hadn't let his customers help him design his product.
In retrospect (and hindsight, as we all know, needs no corrective lenses), Pete could have capped his development budget at, say, 50 percent of his A round funding. The other 50 percent could have been allocated between operating capital and sales/marketing expense. Now I don't believe for a minute the VC's who funded this startup planned that 90 percent of the A round would go to development costs. Mistakes, as Bart Simpson likes to say, were made.
Living on OPM: A Small Digression
Two of my neighborhood kids decided to set out lemonade stands this weekend. We're having a heat wave, after all.
Trevor gets $10 bucks out of his piggy bank, buys a sack of lemons and some paper cups at the store, borrows a cooler from his Dad, throws a couple of boards over some sawhorses and covers them with a tablecloth, scrounges some ice from the freezer, and goes into business. He sells 50 glasses of lemonade for 50 cents each and nets $15 pure profit plus his $10 startup costs.
Ernie doesn't have a piggy jar, so he strikes a deal with his mother: if she'll fund the enterprise he'll split all the proceeds with her. He buys a sack of lemons, some paper cups, an electric juicer, five bags of ice, a 30 qt Coleman cooler, folding table, ergonomic chair. While doing this, he puts himself on salary at $5.00 per hour. It takes him a week to get everything ready. By the time he opens for business, he's invested $500 of his Mom's money. To recover her investment, he decides he has to price his lemonade at $2.50 a glass. He sells two: one to Mom and one to Dad. Mom's out $497.50, Ernie's up $200 in salary, plus his half of $5.00 in sales.
Having been “Mom” on some projects in the past, I know how this works. I see it over and over, even now after the dot com bust.
Sooner or Later?
Imagine a startup. Everyone has a similar picture of what that looks like: people working crazy hours, trying to get the product done, hoarding funds. Now imagine one with lots of customers. Whoa, big difference. Suddenly there's cash coming in the door every month, which cuts the burn rate. You've got market presence, publicity, buzz, referrals, case studies, feedback from real customers.
Why not get that earlier instead of later? Why wait?
The Norm Syndrome
You've heard of the China syndrome, now meet the Norm syndrome. A long time ago I worked for Norm, whose last name will remain secret. I still remember Norm standing in my office, wearing a plaid suit with too-short pants, tie with a picture of Jaws attacking a swimmer, and a striped shirt, telling me he didn't need to read the business classic Dress for Success. “I could write that book,” Norm said in all seriousness.
In 1999 two psychologists from Cornell, Justin Kruger and David Dunning, demonstrated that people grossly overestimate their own competence in areas where they have the least competence.
In other words, the truly monumentally clueless don't have a clue how clueless they actually are.
To a certain extent we're all guilty of this. Way too many things I look at and think, “Jeez, how hard can it be?” Marketing is the same way. I remember a development manager writing up a description of a product, then telling the marketing department to “just put some marketing spin on it.” He thought that would sell the product. In Dilbert the marketing guys are always promising stuff the engineers can't possibly deliver. They don't value what engineering brings to the product. In reality that, and its inverse—that development and engineering don't understand or value what marketing and sales bring to the product—are often true.
The Omega Syndrome
If you worked at Microsoft in the early 90s like I did, this was a familiar phrase. Omega was the project to create the first Windows database. Microsoft was way behind market leader Ashton-Tate because they had no database product at all. Omega was the code name for this product.
Since the market was mature, the product had to have lots of features to achieve parity when it shipped. Trouble was, by the time it was designed the market mix had changed, requiring more features to be added to its design. When that design got done, the market had evolved still further, requiring, well, you get it. According to the theory of the Omega syndrome, the product could never get shipped because once it was designed, it would still take like 18 months to build it, by which time it would be obsolete compared to other products. This trap became something to be avoided at Microsoft at all costs.
The opposite of the Omega syndrome was to get to market quickly with a reduced-feature-set product, then iterate like crazy. With Visual C++ we actually moved to a quarterly release cycle. It drove the development team nuts, but customers loved it. Every 90 days they got something new.
Bringing it Home
Where am I going with all this? Just this: the field of dreams is a swamp. Building the ultimate product and then trying to get customers is the old way. It doesn't work in today's reality. Today you need to run lean, get customers early, ship a scaled down solution and then rev rev rev. You have to put a big chunk of your money aside for sales, marketing, and operations, so you don't run out too early.
Because no matter how well you build it, you still have to get customers.
“Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments,” Journal of Personality and Social Psychology by Justin Kruger and David Dunning. See http://www.apa.org/journals/features/psp7761121.pdf to read the article (Adobe Acrobat required).
