Lean Startup: No emprendas

Don't Launch

Eric Ries

Here's a common question I get from startups, especially in the early stages: when should we launch? My answer is almost always the same: don't.

First off, what does it mean to launch? Generally, we conflate two unrelated concepts into the term, which is important to clarify right up front.

1. Announce a new product, start its PR campaign, and engage in buzz marketing activities. (Marketing launch)
2. Make a new product available to customers in the general public. (Product launch)

In today's world, there is no reason you have to do these two things at the same time. In fact, in most situations it's a bad idea for startups to synchronize these events.

Launching is a tactic, not a strategy. In the right situation, it's a very useful tactic, too. In particular, a marketing launch can help you do three things (courtesy, as is most of my marketing advice, of The Four Steps to the Epiphany):

1. Drive customers into your sales pipeline. This is the usual reason given for a marketing launch, but for most early stage startups, it's a failure. That's because a marketing launch is a one-time event, and rarely translates into renewable audiences. Worse, if you are not geared up to make the best use of those customers when the launch sends them your way, it's a pretty big waste. And, as we'll talk about in a moment, you don't get a second chance.
   
   Because this reason is so often used as an excuse, I recommend giving it extra scrutiny. Are you really choosing to engage in marketing in places where your potential customers pay attention? Do your customers really read TechCrunch? If not, do not launch there. Even if you must launch to your customers, avoid the urge to also launch in extra places, just because your PR firm can do it at the same time.
2. Establish credibility with potential partners. In some businesses, especially in certain industries like traditional enterprise software, you simply cannot bring a new product to market on your own. You need to combine your product with others, and this requires partners like OEM's or system integrators. A marketing launch can help you get in the door with those partners, if you're having trouble getting their attention. Again, it's critical to focus your marketing launch on those publications, venues, and channels that your potential partners are paying attention to. If you don't know who the partners are, what they pay attention to, or what kind of message they are open to receiving - it's too early to launch. Do some Customer Development instead.
3. Help you raise money. If you are having trouble raising money, sometimes a little PR can help. But don't be too sure. When VC's and other investors see PR activity, they are going to expect to see significant traction as a result. If you launch and see only mediocre results, it may actually make it harder to raise money. Sometimes, it can be easier to raise money pre-launch, if the launch is not imminent and there is some fear on the part of investors that they might lose the deal when the launch drives awareness of your company to all their peers.

Those are the potential goals of a marketing launch, but those are not its only effects. It also has causes other tectonic shifts that many startups don't consider:

1. A marketing launch establishes your positioning. If you don't know what the right positioning is for your company, do not launch. Figuring this out takes time, and few entrepreneurs have the patience to wait it out, because the business plan does such a good job of explaining what customers are going to think. The problem is that customers don't read your business plan.
   
   When you launch with the wrong positioning, you have to spend extra effort and money later cleaning it up. For example, we did some early press (in Wired, no less) for IMVU that called us the next generation of IM and compared us positively to AOL. At the time, we thought that was great. Now, I look back and cringe. Being compared to AOL isn't so great these days, and IM is considered a pretty weak form of socializing. When we finally launched for real, we had to compensate for that early blunder.
   
   Of course, we didn't realize it was a blunder at all. We were actually really proud of the positive coverage. In fact, at that time we were auditing Steve Blank's class at Haas, since he was an early investor. Since we hadn't shown him much in the way of progress recently, we actually brought in the article to show off. I won't recount what happened next (although your can hear us recount it in audio). Suffice to say I can trace my understanding of what it means to launch to that day. We're lucky we had a mentor on board who could call us on the bad strategy before it was too late. Most startups aren't so fortunate.
2. You have to know your business model. Most startups launch before they've figured out what business they're in. Pay attention to your fundamental driver of growth. If the product needs to be tweaked just a little bit in order to convert users into customers, you want to figure that out before the launch. If the viral coefficient is 0.9, keep iterating until it's 1.1 before you launch. And if your product doesn't retain customers, what's the point of driving a bunch of them to use it? Spend your time with renewable sources of customers and iterate.
3. You never get a second chance to launch. Unlike a lot of other startup activities, PR is not one where you can try it, iterate, learn, and try again. It's a one-way event, so you'd better get it right. Remember the story about IMVU's early encounter with Wired? When we finally did launch the company, even though our product had grown and changed significantly, Wired didn't cover it.

We really did our launch really well, with a great PR firm and great coverage. New York Times, Wall Street Journal, CNN, the works. But it turned into a crushing defeat, because we couldn't capitalize on all that attention. The product didn't convert well enough, the mainstream customers we were driving weren't ready for the concept, and the event fed expectations about how successful the product was going to be that turned out to be hyper-inflated.

Worse, we tricked ourselves into thinking that what the press said about our success was actually true. And even worse, we'd cranked up the burn rate in order to be ready to handle all those millions of mainstream customers we anticipated. When they failed to materialize, the company was in big trouble.

Why do startups synchronize marketing launch and product launch? I think it has mostly to do with psychology.

1. Investors push for it. Many investors have a desire to see their companies lauded publicly. This actually makes a lot of sense, if you see the world from their point of view. Third-party validation is one of the few forms of feedback they have available to them. Most investors in startups have a 3, 5 or even 10 year horizon for liquidity. That means they don't really know if they made a good investment for a very long time. Seeing the press talk about what a great investor they are is a great form of feedback. As a bonus, it gives them something to show their partners and LP's.
   
   This trend is so strong, this is actually a question I recommend to screen potential investors: "How do you know it's time to launch the company?" See if their answer is about tactics or strategy.
2. Founders push for it. Who doesn't want to see their name in print? Investors aren't the only ones with ego invested in the company. In some ways, founders are even worse. How do they know they are making progress? They spend so much of their time trying to convince everyone around them that their idea is great and the company is doing well: employees, investors, partners, friends, family, significant others - it's a long list. But when they go to sleep at night, who's there to convincethem that they are making progress? My experience is that many founders actually have a deep anxiety that maybe they are not succeeding. Sure, they are keeping everyone busy, but are they really working on the right things? A marketing launch is a temporary salve for these kinds of worries. Plus, it gives you something you can send home to mom (hi, mom!). Unfortunately, it's not a long-term solution, so it can become a bit of an addiction and, therefore, a huge distraction.
3. There is also fear of the accidental launch. Companies that are thinking strategically sometimes reason like this: "if we do a product launch, members of the public will see our early product. They'll form their own opinions, maybe see our wrong positioning, and maybe talk to members of the press. By the time we're ready for a marketing launch, it will be too late. Better to launch now and get ahead of the story, or stay in closed beta until we're ready."
   
   In most situations, this fear is misplaced. Here was our experience at IMVU, which I have seen replicated at many other consumer internet startups. We did alienate and mis-position to our early customers. Luckily, if your product isn't good enough to have traction, you simply cannot alienate very many customers - because you can't get them engaged with the product. When you finally do get traction, the millions who see the right positioning will dwarf the few who saw the wrong one. And you can get an astronomical amount of traction before anyone will write about your company of their own accord. IMVU was a top-1000 website in the world, with millions of customers and making millions of dollars without getting any significant press coverage.
   
   In fact, we often felt frustrated when new startups with a fraction of our success got terrific write-ups in Silicon Valley-centric venues. We had to resist the urge to launch just to make that frustration stop. And, more often than not, we'd watch those companies flame out and die while we continued to grow steadily every month. If we'd wasted energy chasing their PR coverage, we'd probably have died too.

So don't combine your product launch with a marketing launch. Instead, do your product launch first. Don't chicken out and do a closed beta; get real customers in through real renewable channels. Start with a five-dollar-a-day SEM campaign. Iterate as fast and for as long as you can. Don't scale. Don't marketing launch.

How do you know you're ready for marketing launch?

• When you have a strategy for the launch, which means knowing why you're doing it. Make sure it's solving a problem you actually have, and not one that you think you might have some day.
• Know what the success metrics are for the launch. If you know what the strategy is, you'll know how to tell it was a success. Write it down ahead of time, and hold yourself accountable for hitting those objectives.
• Know what your fundamental driver of growth is. Make sure the math for your model makes sense. That way, you'll be able to predict the future. When customers come in from your marketing launch, you'll know exactly what they are going to do and how that benefits your business.
• Know where, when, and how to launch. If you know what your strategy is, and you know your target well (customers, partners, investors) you will also know where they are paying attention, and what messages they are able to absorb. Hold yourself and your PR agency accountable for developing a high level of understanding of these questions ahead of time.

One last suggestions. Think about the psychological motivations that are driving you to want to launch earlier than makes sense for your company. See if there's anything you can do to address those underlying needs that does make sense. For example, if your employees are feeling frustrated that they don't get much third-party validation for their work, use a board of advisers to fill that role. Bring in people that they (and you) respect to evaluate your progress and make suggestions. In my experience, this has provided an effective boost to morale and also helpful guidance.

When you're ready, enjoy the launch. Until then, resist the urge. 

Linkedin

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Start-Up: Renace la cultura emprendedora

The (Re-)Rise of Start-Up Culture

Are we closing in on a sustainable model?

BY RICHARD WHITTAKER,

Remember the Nineties? That was when all you needed for a start-up was one smart innovator with one smart idea, and the money would come rolling in, right? Ask Eric Ries, author of The Lean Startup, and he'll tell you straight: It never happened. In his words: "There's no documentary evidence that I'm aware of for the heroic 'great man' theory of entrepreneurship."

That's the message he'll try to get out to every bright-eyed innovator at the Startup Village, South by Southwest's new hub for wannabe entrepreneurs at the Hilton Austin Downtown (www.sxsw.com/interactive/startupvillage). According to SXSW Interactive director Hugh Forrest, the village has attracted more attention than any other component of the convention, and the reason is simple: "The general economy is fairly stagnant, but the start-up market is very robust, very vibrant, very sexy."

But sexy can be dangerous. TechCrunch Editor-in-Chief Erick Schonfeld has warned that while there may not be a new dot-com bubble, there's definitely some worry frothing in the start-up market, and someday soon, the froth is going to pop. Ries says, "I always tell entrepreneurs to be ready, that winter is coming. Because the seasons will change at least once more before we get to a sustainable way of working." That's why he's organizing the official SXSW Lean Startup track. Last year, he and his fellow innovation experts led a one-day event out at the AT&T Conference Center designed to help change how people think about new businesses. This year, they relocate to the Hilton, right at the heart of the conference. That's where Ries wants to be, and it's not because he'll be closer to the parties. "We're in a battle for the soul of the industry right now," he says.

His concern is with the number of smart, creative, hard-working people laboring on projects that are "fundamentally doomed ... I'm not talking about the people who are trying to invent teleportation and the science is too hard. Those people get a special exception because that's a noble fight. It's everyone else that's working on a consumer product and customers just don't want the thing."

It's not that these start-ups are run by idiots but that there are still no clear metrics to gauge their success. "In a normal product, you make it a bit easier to use, you make it a little bit better and customers are happier," says Ries. "In a start-up, you're making something that nobody wants. So making it easier to use just makes it easier for them to not want it." He argues that firms need new ways to research what works, dump what doesn't, and, in his terms, pivot the company: staying true to the strategy but changing the tactics. By sticking to old business models, he says, "We're in The Twilight Zone, where things that are normally seen as virtuous don't help."

The struggle to change the model is not helped by the hagiographic coverage of start-up icons like Jobs and Gates and Zuckerberg. For Ries, it's all summed in the montage sequence in The Social Network. "They're writing on the windows and they bang on some keyboards. We skip over that part because it's much too boring to fit into the movie, but actually the decisions that get made during the montage are all the decisions of consequence." Take the first flush of private Internet service providers in the Nineties: "Talk about being in the right place at the right time," Ries says. "You have the foresight and the vision to create an ISP at the dawn of one of the biggest booms of all time. And yet most people that I knew that created an ISP at the right time made very little money." No one writes Oscar-winning screenplays about the slow-and-steady sloggers or the exciting failures. Instead, all the glory goes to the self-promoters getting rich off an IPO. Ries says, "For those of us who have start-ups that fail, it gives us the instant and best excuse ever. 'Oh, I guess I just wasn't destined for success.'"

That leaves a lot of entrepreneurs struggling in the dark, and Kathryn Minshew has been through those wars. The founder and CEO of The Daily Muse grew up around hardware start-ups, her father was an electrical engineer. "He often played a [chief technology officer] role," she explains, "but as a kid, I never really knew much about it other than he worked really hard and that it was risky." However, even that personal experience did little to prepare her for the emotional impact of her own start-up experience. "So many people in start-ups learn the hard way how partnerships and relationships can go wrong," she says. In her case, she missed obvious warning signs and failed to protect herself, "and that lead to something that was personally pretty devastating."

For Minshew, the biggest perils are a lack of coherent planning and internal structures. "I see so many companies that are started as three people who all make decisions, or even worse, four people or five people," she says. When it all implodes, people internalize the blame. "There's this common sense that they're alone, that what happened to them is particularly embarrassing because they're sure that it couldn't have happened to anyone else." Some solutions – like keeping accurate accounts – are fairly obvious, but Minshew warns that every decision needs to be "an active decision, rather than a passive decision." For a start-up, that should even extend to picking who attends SXSW. Her first trip took place because she was the only one in her office who wanted to go. She says, "I've known of several situations in which one person attends and starts to meet people who can help the business, who might be partners or investors, and if it's not really clear who in a team whose role it is to have those connections and manage them."

If partners are bad, customers can be even worse. At accounting service FreshBooks, Head of Magic Saul Colt deals with entrepreneurs carving their own niches in the market. The big plus for start-ups is that there is always an eager crowd looking for the next big thing. The downside is that these early adopters are also early abandoners. Colt says, "We find something really shiny and it captures our hearts and minds for 30 days, 60 days, 90 days, and then there's something just a little bit different." That said, Colt believes those fickle adopters give tech companies a real advantage over traditional firms. "If I open a chair company or a bookstore, I don't have 10 people who are waiting for me to open my door in the morning, but [in the tech community] there are probably 10,000 to 20,000 people who will try anything." The key is to not confuse dalliances with worthwhile business relations. "You try to get as much information out of them as far as how to make this product better, and then you go find your real customers."

For Colt, the question any start-up needs to answer is simple: What do they want? "If your plan is to be successful and sell and flip the company, then you've got an 18-month window," he says. "Otherwise, you're deemed not cool or shiny or fancy." The tougher job is making something that will really last. Rather than running for media glare, true innovators may want to avoid the spotlight. "No product is great when it first comes out. It's a lot of trial and error," he says, "but if you're looking to build something a little more long-term, you invest in your customers way before you invest in PR."

It's that kind of hard-fought wisdom that Ries hopes SXSW will highlight. That way, firms may be able to make better decisions. He says, "I wouldn't call us good at it by any stretch of the imagination. I think we're at the beginning of a transformation, not the end of it, and there will be a lot more fraud and nonsense between here and there."

The Austin Chronicle

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Lean Startup: 8 maneras de pivotar la visión

A Smart Business Knows 8 Ways to Pivot Their Vision

Martin Zwilling 

One of the hottest buzzword for startups these days is “pivot.” The term, introduced by entrepreneur and venture advisor Eric Ries in an article on Lessons Learned  a couple of years ago, is properly used to describe smart startups that change direction quickly, but stay grounded in what they’ve learned. They keep one foot in the past and place one foot in a new possible future.

Over time, this pivoting may lead them a bit away from their original vision, but not away from the common principles that link each step. The pivot has to leverage previous learning about customers, technology, and the environment. The alternative is more risky, simply jumping compulsively from one vision to another, and is likely to lead to a death spiral.

The pivot can be applied to any element of the business model, without changing the underlying vision. Here are some of the most common pivot elements that Eric and others have noted:

1. Customer problem pivot. In this scenario, you use essentially the same product to solve a different problem for the same customer segment. Eric says that Starbucks famously did this pivot when they went from selling coffee beans and espresso makers to brewing drinks in-house.
2. Market segment pivot. This means you take your existing product and use it to solve a similar problem for a different set of customers. This may be necessary when you find that consumers aren’t buying your product, but enterprises have a similar problem, with money to spend. Sometimes this is more a marketing change than a product change.
3. Technology pivot. Engineers always fight to take advantage of what they have built so far. So the most obvious pivot for them is to repurpose the technology platform, to make it solve a more pressing, more marketable, or just a more solvable problem as you learn from customers.
4. Product feature pivot. Here especially, you need to pay close attention to what real customers are doing, rather than your projections of what they should do. It can mean to zoom-in and remove features for focus, or zoom-out to add features for a more holistic solution.
5. Revenue model pivot. One pivot is to change your focus from a premium price, customized solution, to a low price commoditized solution. Another common variation worth considering is the move from a one-time product sale to monthly subscription or license fees. Another is the famous razor versus blade strategy.
6. Sales channel pivot. Startups with complex new products always seem to start with direct sales, and building their own brand. When they find how expensive and time consuming this is, they need to use what they have learned from customers to consider a distribution channel, ecommerce, white-labeling the product, and strategic partners.
7. Product versus services pivot. Sometimes products are too different or too complex to be sold effectively to the customer with the problem. Now is the time for bundling support services with the product, education offerings, or simply making your offering a service that happens to deliver a product at the core.
8. Major competitor pivot. What do you do when a major new player or competitor jumps into your space? You can charge ahead blindly, or focus on one of the above pivots to build your differentiation and stay alive.

In all cases, the change is not linearly adding one more new feature, in the vain hope that this one will cause traction to magically materialize. The key to pivoting is spotting trends from real data and real market experience, and optimizing the basic product/market fit, without leaving a hole or divot in your market or your credibility.

Look for multiple data points before you pivot. You have to learn that no product will satisfy every customer, so don’t make random jumps based on a single customer, friend, or negative blog article. A good internal data point or early-warning is a chronically frustrated solution team.

Get your investors and advisors to do the pivot exercise right along with you, so there are no surprises. Adaptation and dealing with chaos is the key to survival for a startup, and your best competitive edge over large companies. The down side is that it may be bad for your golf swing.

Forbes

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