what constitutes an attractive market?
sizing
& validating market opportunities
page three of four | previous
page
Q: My name is Tom Hasler with a startup called
Intelligence Resources. We had a great first customer in the
European side of McKinsey & Co., but, post-9/11, that died
with the global recession. We turned around to address the needs
of the US intelligence community and developed a system with a
major software company targeted at the CIA that lets you search
any newspaper or electronic media in any language and get a
translation within 24 hours. We’ve also learned about other
government security applications for it, but part of getting money
from In-Q-Tel is that you have to show a corporate market. We are
speculating about two areas, business intelligence and corporate
intranets for global companies that have content in different
languages. We face the need to do a quick business plan and
project out 18 months to three years. We need proof that they need
it. What do we do?
Mr. Silver: I was at McKinsey for four or five years, so I would suggest you go tell
them to do it. By definition you’ll have no proof, although
business intelligence at large is a well-traveled space. There is
a lot of software development now in the area of business
intelligence. CRM is one aspect of business intelligence, so is
data mining. The question is not so much how you reposition your
product, but what kinds of business intelligence are companies
like McKinsey looking for. McKinsey is a perfect example of a
referenceable client, but perhaps insufficient in that regard
unless they intend to roll the product out to their own customers.
Like Paul’s earlier comment, the customer’s customers may be
one thing you might want to talk to the firm about.
Q: Good morning. I’m Daniel Odio with DVLABS. Speaking
of naked, we are the company that hosts the video for
NakedNews.com. My question is, as the market size pertains to
sales, what thoughts do you have on setting and enforcing quotas
for a sales force? How should the company compensate a salesperson
fairly according to market standards when the company doesn’t
necessarily have the resources to do so?
Ms. Conti: That is one of our big issues right now. It depends upon what stage your
company is in. We’re at the very beginning of launching a
product. We are working with pilot customers right now, and we are
hoping to turn very big growth in the next two or three quarters.
The fact of the matter is that you can’t compensate them the way
they were compensated in the past. That is the reality of the
situation for where the company is right now, so you do other
things for them. There are stock options and things like that. How
you compensate your sales people is going to change as you move
further out, such as when you start developing new territories and
when you have different products in addition to your original one.
Consider where you are in the life cycle of your company right
now, but it’s going to change.
Q: Isn’t the difference between better, faster,
cheaper versus newer sometimes just marketing? If it is marketing,
isn’t it better to steer your product into the newer category?
Mr. Meyers: The ROI argument is what we always fall back on. Newer, better, faster
has to be defined by a user, and the ROI is compared to their
alternatives. One alternative is always to do nothing. Their
existing product or solution or business process may be fine, and
the better, faster, cheaper product may be a new market, or it may
be reworking something that has been in place before. The answer
is no, it’s not just marketing. You have to define the
particular problem you are trying to solve for that customer in an
ROI model.
Q: Good morning. My name is Keith Bickel. Having been a
programmer in a former life and having spent 15 years doing market
research and strategy, I continuously find an absence of a
discussion of substitutability between new and better. There is a
parallel product the customers have been using that is easier to
keep on using. How do you make companies more aware of this?
Ms. Conti: One of the things we did with ObjectVideo was to make a very clear
decision early to position ourselves as a drop-in solution. We
didn’t want to compete with the camera companies and DVR
manufacturers, so we specifically architected this product to work
with any DVR and any camera. We don’t call it a substitute for
what they’ve already invested their money in, we call it an
enhancement.
Audience Member: So, a semantic workaround?
Ms. Conti: A lot of organizations are spending a lot of money putting in video
surveillance systems now. You can’t ask them to rip everything
out. We’re telling them we can enhance the value of what
they’ve already purchased by providing a tool that will help
analyze their video surveillance. When we architected it as a
drop-in solution it was a no-brainer because a lot of our
customers had already said up front, “I’m not ripping anything
out, so tell me how this is going to work with everything I’ve
got.”
Mr. Silver: It is an interesting question because buried in it is a price point
discussion. As a product becomes more expensive, the
decision-making authority goes higher. Who has to make the
decision as to whether or not to acquire what it is you’re
selling. Companies are built to say no, not yes. If you’ve ever
walked into a store at closing time, the guard will keep you out
and the CEO will let you in. Right? That is because corporations
are built to say no. What you’re trying to do in the question of
substitutability, which is really the question of decision-making,
is to figure out who in the organization is the decision maker.
That is the first point. The second is the extent to which you can
architect or re-architect your product to fit a price point where
a decision maker is likely to say something positive.
Q: If an entrepreneur has been in business for a few
years, doing pretty well and facing certain market dynamics
changes, what is the approach or reasons for re-evaluating the
market? In other words, if it ain’t broke, do I need to fix it
relative to market opportunities?
Mr. Finke: I would fall back and ask, “What is the end goal?” As Jonathan said,
is it a lifestyle business or growth company? Let that lead you.
Ms. Conti: Prior to ObjectVideo, I had a software firm in Reston that I started in
1994 called Aurora Enterprise Solutions. It started off as a
government contracting company, something to pay the rent. For a
couple years it was a lifestyle company, then we started winning
projects and SBIR programs and research programs, and we built a
product that people wanted. The whole focus of the company changed
once that happened, and all of our decision making changed with
it. The end game changed. My advice would be to decide what you
want, and whether you’re willing to go through what you need to
go through to get to that end game.
Mr. Sherman: In addition to those comments, there is a certain risk of complacency in
this market. We’re not talking about minor changes that have
taken place in the last nine to 10 months; we’re talking about
major sea change. You want to make sure that if you are going to
plod along that path, that there isn’t a risk of complacency
that will sweep you up. That is the downside risk. The upside
risk, of course, is lost opportunity, which is what Clara was
touching on.
Mr. Silver: This lifestyle versus growth company issue may sound like a soft,
qualitative area, but it’s not. It’s important. The reason is
because you can find yourself at cross-purposes with investors on
this topic very, very quickly. I urge you to look inside yourself,
as Clara did with Aurora, and figure out which of those two you
want. If you really want a lifestyle company, and if you don’t
articulate that to yourself and your potential investors, then
somewhere down the road you are headed towards problems with the
investors who are not interested in investing in lifestyle
companies. We can only solve our problem in that equation one way,
and none of us wants to go there.
Mr. Meyers: I’ll just add one thought. I don’t think there is a great company
that has been created that has the original business plan it
started with. Every great company has morphed at least once or
twice a year in one major element of its business. I would argue
that if you are going to be a venture-backed business, you have to
go into this knowing that you are going to change almost yearly.
Q: My name is Jay Bartlett. I am a product development
guy with Demand ID Systems, a music industry information startup.
How much validation of a market opportunity is enough for a
potential investor, and what kind of validation is preferred? For
a startup with very limited resources, information gathering has a
cost, so it is a resource allocation question for us. We can
develop very good information about a very small sample of
customers. We can go out and talk to people and get a fairly
precise definition of their needs. It’s also relatively easy to
get a general market information from standard statistical source
that can tell us things about the overall size of a market.
Linking those two kinds of information is expensive and time
consuming, however. How far down that road do we need to go?
Mr. Meyers: It depends on the stage you are in the process. If you are trying to get
an investor interested, it’s the vision and the passion that the
management team can show, as well as some market proof that what
you have will sell, that the people are willing to buy, and that
the market is growing. As you get further down the path, there is
never enough market validation, so we will continue alongside the
companies we’re looking to invest in to define that market,
potentially add to it, and expand the vision if at all possible.
In our opinion, a company needs to have a grand vision but a
really focused execution strategy. You sell the vision, but you
plan to the execution strategy. In that regard, make sure that
what you are planning to do over the next 12-24 months is doable
and that you’ve done the research to get there. Know who your
customers are going to be in the near term and how to get to them.
Mr. Sherman: With the advent of the Net you have so much more data available than you
did five years ago. It’s a dilemma. Do we go out and do an
expensive market research study to get these guys interested? Now,
at least, a lot of that data is available to you with a few mouse
clicks.
Mr. Meyers: We will usually do that for you. We usually don’t rely on what comes
in the business plans. We see too many of them that say, “We are
going from $5 million in revenue next year to $100 million the
following year.” That usually doesn’t sell.
Q: I’m Richard Adler
with Arius Internet Solutions. I’d like to ask Paul, with value
propositions, when you strip away the rhetoric, doesn’t it come
down to three interrelated points that the business driver wants
to know about your product or service: How you are going to grow
my incremental revenue, cut my costs, or help me bond better with
customers?
Mr. Finke: I think fundamentally you are right. You have to do a value proposition
that you believe the CFO of your customer will accept as a
no-brainer. You have to do it in such a way that the CFO can say,
“I believe you.” Whatever level of detail you can get to make
that happen is the right thing. You mentioned two distinct things,
cost reduction and revenue generation. They’re really two
separate issues in the way you sell, but it boils down to ROI. For
the amount they can grow their revenue, how much does your product
cost, or, for the amount they can reduce their costs, how much
does your product cost? You summarized my thoughts better than I
did.
Mr. Sherman: Any quick words of wisdom from any of the panelists as we wrap up?
Mr. Silver: Commencement is not an end, but a beginning.
I always like
to say the same thing to entrepreneurs when they come into our
offices, which is that what you are embarking on is frightening
and terrifying, but incredibly exciting. It is the engine that
drives this country, and it’s part of what makes my job
exciting. However, I urge you not to start a company, irrespective
of its value proposition or anything else we’ve talked about
today, if you don’t have a passion for it. You are going to
spend 24 hours a day, including the time you’re asleep, thinking
about this company. If you don’t, we are going to spend
24 hours a day keeping you awake thinking about the company. If
you don’t have a passion for it, don’t do it, but if you have
the passion, what could be a greater thing to do in the whole
world?
Mr. Finke: As I said, I have been involved in six different startups. It’s
fundamentally got to be fun. If you don’t like what you’re
doing, or if it’s not fun to you, then stick with your day job
because it is 24x7, but it can be exciting and rewarding. It’s
got to be fun.
Ms. Conti: My business advice today has to do with talking to your customers. Once
we made the decision to go out and start talking to folks about
what they needed for physical security, it changed the entire
direction of the company. We have champions and people who are
rooting for us out there, customers we are working with, and that
can make all the difference in terms of passion, what you believe
in, where you think the company should go, and how your investors
feel about your company.
Mr. Meyers: I would re-emphasize that passion is a great thing, and so is the
ability to turn on a dime and morph into something else, but
always keep it within the core of your knowledge. Be the smartest
in whatever space you’re going into. Know it better than your
competitors, know it better than your customers, and you will be
in a much better position to be a leader.
Mr. Sherman: I’ll reinforce that. Passion and ability are important things. They
were very important in 1999 and 2000. In fact, in those years they
were enough to get you through. Don’t be blinded by your own
passion, however. You have to have more than passion and
commitment. You have to be able to show people that there is a
real business.
I want to thank Mary and
the Netpreneur team for a great job in pulling this together, and
I want to thank the panel for a fantastic job. You don’t have to
clap for this one, but thank yourselves for great insight and for
showing up. Okay, you can clap if you want.
Finally, I have stepped
down from this podium a couple of times as your moderator and
brought Mario up. I mentioned at the beginning that people like
Tim and Jonathan have been mainstays in this entrepreneurial
community, and they have put a lot of time into supporting it. If
they’re mainstays, then Mario is the backbone. I’ve known him
for five years, I have tremendous respect for him, and I want all
of us to thank him in an appropriate fashion for the time,
support, resources, passion, and commitment he’s brought to this
community. Mario, thank you very much.
|