Sick Start-up Syndrome

While managing DSX Labs for the past year, I have come across a variety tech start-ups in South Florida, mainly because we were running tech start-up pitch events in Boca Raton at The Greenhouse.

They range from 1 guy with just an idea to 3 people with a full blown app or website. They can have 100 years of combined experience or none at all.  We had a few 15 to 17 year olds interested in starting their own tech company.  There have been 1 or 2 where the entrepreneurs were in their 70s

Out of the 100 start-ups we met with, there were common patterns you could immediately identify.  These patterns can be success related or potential failure related. I call them patterns because they appear over and over again.  This is a generalization. I am being specific about a start-up.  And you know that generalizations could be wrong.  So this is just opinion.

Here are my list of start-up syndromes you need to look out for.  It’s like looking at your body in the mirror.  Some symptoms are obvious, some are not.

No Strategic Advantage
I have run into this myself.  You get going in some specific tech start-up direction.  You have a product.  You have built out some serious code!  Yet, you or you and your partners can not come up with a strategic advantage vs. a competitor.  Face it, you are building a commodity product at this point!

How To Fix: If it is early on, you can pivot or change something slightly that makes you competitive.  But pivoting will take some serious pain and some capital.  It may not be possible. You have to have a compelling reason or value proposition for customers.  Find it immediately.  Sometimes it is right in front of you and you are ignoring it.

Tech Svengali Has Taken Over The Show
This I have seen many times.  The actual business owners have been mesmerized and persuaded by some tech guy to let him make all the decisions. Yet, either he or she is not really all that he says he is or really has no clue what the market wants.  The tech Svengali may actually have their best interest at heart for you. But they are not you!

How To Fix: Sadly enough, if this has gone on too far it could be the death of the start-up.  Start-up owners need to be in charge of their ventures and give it direction.  The solution is often to let him go and if it is too late, it could be time to shut down the operation.

Money Looking For A Place To Spend It!
Sometimes in some rare cases, there is a partner or a person with a boatload of personal wealth looking to hit the next one out of the park.  They are looking at Facebook and saying “hey I can do that!”  But they are forgetting one thing; they don’t know anything about tech, or their knowledge is cloudy because they themselves are not the demographic they are serving.  So they spend like crazy, hire tons of people and find themselves in a pickle.

How To Fix: My recommendation to these want to be billionaires is stop being the owner and start being the investor when you have the capital. There are a good 20 ventures in south Florida right now that could use $50k and have a great start-up that needs capital.  Instead of spending $300k on your “idea” (which is just an idea) become the investor and invest in 6 start-up ventures. At least then you will have 6 lottery tickets and not 1.

One Feature Does Not Make A Solution
I have had a bunch of start-ups come to me with a concept that is simply a smaller piece of a larger puzzle.  For instance, I have heard of a few improvements to dating businesses.  So the start-up concept is a small piece of what dating sites do, and can’t really be a product unto itself.  Or another good example is a site that just does nice 3D products for sale.

How To Fix: Typically I would recommend that the start-up goes back and rethinks the whole idea.  Just a small part of something bigger is not enough.  One way to fix this is to pivot into being a B2B software provider. So instead of selling 3D products yourself, your start-up provides the technology for other e-commerce companies. Different market, but then you can focus on a narrow feature you offer!

Nobody Is In Charge
A single person building a start-up without a partner or team is an issue. What is a bigger issue is a group of founders with nobody actually in charge.  When they ask you, the consultant, to be in charge and be the decision-maker, you know they have bigger issues than you can really deal with in one session.

How To Fix: One of the partners has to be the CEO.  There has to be an ultimate decision-maker.  If you can’t make that decision, then maybe the start-up should end now.

Can’t Describe What You Do
I have had this problem myself several times.  It is a common problem. Why does this happen?  My answer to why it happens to me is if you spend a year or longer on a start-up you start to lose you way (and you mind) and you end up changing the business around,  You get lost as to what you ultimate do. This is especially true if you are pivoting or evolving to something else. And we are always evolving. What is your service and can you describe it?  If not, you have to recognize the problem and fix it.

How To Fix: Best to meet to mentors and advisers and figure this out.  I had a great question asked of me recently about my start-up. That question was “What Was The Aha Moment?”  At that moment I went back in time and thought carefully about that moment. This is the moment when you first had the idea.  Sometimes that moment describes the problem you are solving and ultimately putting together a solution statement solves that problem.

That’s it for now.  I could add a hundred of these items to this blog, but I am publishing anyway.  Maybe there will be a part II.

Have a great day!

Tech Mind vs. Business Mind

I heard a great quote from a client running events over the past 25 years which went like this:

“You tech guys come up with cool ideas and try to find a way to make it work for the market.  [Putting his hands in the air and staring up at the ceiling] I start with who’s got the money and how can I take it from them!

When I first heard this from this person, I laughed because it is so true.  And since I have heard this quote I have repeated this quote to clients, friends at Caffeine Spaces and at Gold Coast Capital Ventures and everywhere I network at least once a week for the past 6 months!

Finally, after six months, I am finally sitting down and writing about this quote in my blog, because it has so many implications for programmers and kid entrepreneurs I meet with who want to start a small tech internet company and want to succeed but just can’t seem to get a tech start-up right.  And though it is not a hard and fast rule used in making decisions on what business to go in, determining the market potential is still the make or break point of deciding what business to go into.  Most of us techies just have a cool idea, but have no clue of the potential value of the concept or project and really don’t know who is willing to pay for it or what they are willing to pay for it.  Among the successful, there are those who figure this out right away and there are those are just get lucky being in the right place at the right time.  The right timers are the ones to watch out for, since they think they know something and the second time around is not always the same.

A Miniscule Market Inside Of A Tiny Market

Getting together for lunch with one of the founders of JDate about 6 weeks ago, we found some common ground discussing the issue of being in a start-up with a small market, and how this just limits what you are doing and that can kill the potential for investors.  It is important to choose your market wisely, and often techies don’t understand the market.  They just want to start coding.  For instance, the dating industry is generally speaking not the greatest sized market over all.  I am referring to market size by measuring how much revenue a year markets can produce.  I believe the dating industry is like a $2 billion dollar market a year globally (and though I use the word billion… it is not a good word when it comes to markets, because you never get 100% or even 10%, we are often lucky to get 2% market share).  E-commerce sales is $4 trillion a year globally and that market is terrific!  And if you were to create a Jewish dating site within the dating business, that will pretty much leave you with a $30 million dollar potential market size and basically 95% of that is already going to JDate, so what is your Total Addressable Market (the possible chances of a market)?  It’s really crap for creating THE next Jewish dating site since you will not unseat the leader  It could be a $5 million market, of which maybe you can capture 5%.  That is looking like $250k a year in revenue as your max potential and with an employee and a 40% margin… Get a real job.  It will pay more! Really not a place you want to go!

So, Why Do People Jump Into Crappy Markets?

This is where the tech mind overcomes the business mind!  I know, I have done it several times.  Techies and rational people get caught up in not the revenue size but the finesse of the project, how cool would it be to do x, y or z and either we have no marketing skills at all or we ignore the exit signs on the highway.  I guess we like to hear ourselves talk in the mirror about a cool technology or like to tell people what cool problem we will solve.  And yes tons of cool problems can be solved with tons of cool technical solutions, but the facts are the facts, market size is market size.  I had an MBA finance professor at Farleigh Dickinson in Madison, NJ who looked around the room and asked us what industry we worked in.  I was in Telco, and he said “maybe”.  Some people were school teachers, he shook his head no.  Stock broker, he shook his head no.  As soon as somebody said they worked in the pharmaceutical business he simply said, “I don’t care if you are going to be the bottom secretary, stay in that industry and you will retire rich…”  Point is, choose your market wisely.  Yachts and golfing are terrific markets for instance!

A Product In Search Of A Market

This is where tech guys and gals like me start.  We start with a cool thing and try to apply it to markets.  Stop right there!  Now, sometimes a cool invention or technology accidentally finds a market, but 90% of the time it does not.  Me thinks I can take a piece of web code in this market and shove it into that market.  I implore you to start over when it comes to your product, not just switch the website around or change the coding framework.  I have done this as well.  You have to start with the money each time you have a new product and figure out the market size, what they are willing to pay for it, what it is worth to the customer if at all, what the asset value you are creating is worth or what intangibles you are creating.  You see there is also the consideration of what your asset you will be creating and what that will be worth to a buyer, but we are not talking about customers now, we are talking about competitors and buyers of software companies!  Creating a tool that needs to be acquired by a Google or another company is another form of measuring the market before creating the technology.  In fact asset selling, not revenue is the number one way techies make it big.

The Socratic Within ME

Now I am going to reverse directions a bit and give you the upside of being a techie and start with technology and how you can figure out a path to the market.  Like a recent blog article I did on “Why I Don’t Really Know Anything” in the article How To Respond To New Ideas proves that there could be something within the techie cool thing you have been building that can be re-purposed for something real and marketable.  But you have to start from scratch in terms of the final product.  You simply have to match a problem you are solving with different markets, and switch the problem to a different market until you keep increasing the size of the market.  Now you may have to stay in a niche.  I recently met the founder of Veggidate (yes for vegetarians) and its small but that is a good niche to hide in.  So, let’s start again with the dating site.  So you still have not given up on the Jewish dating market.  You are determined, you are a programmer and you don’t listen well. Well, let’s either introduce your product in a new and growing market (mobile) or a new avenue (events) or a new methodology (education) and re-enter the market.  Because if you were able to conquer one of these three areas of markets that JDate site does not have ownership of, you would be able to get maybe a smidgen of a market, but more importantly, your company would be on the target list of successful businesses they are looking to buy along with a bunch of other people obsessed with serving a small market just because you like to…  But leave your expectation for financial success at the door.

 

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