market a Product
Work Smarter not Harder
Identifying people with the ability, willingness, and personal clout to help you promote an idea or product is the sine qua non, i.e., must-have quality, of startup marketers. We’ve all heard the saying, “If you want something done right…do it yourself.” For startup marketers, there are two important qualifiers.
1. Do it yourself only if you can do it extremely well.
2. Do it yourself only if you have the bandwidth and energy to do it.
Be smart and work smart. Identify and partner with people who have the skills, energy, and influence you need to succeed with your product and target market. After all, with startups and any other type of venture, “it’s not what you know, but who you know” that determines success or failure. Entrepreneurs don’t lack the energy or willingness to put in 90-hour weeks. Entrepreneurs lack experience, resources, and credibility.
Kimball Wirig, one of the founders of Dentrix Dental Systems, spent two years sitting in dental offices trying to find pain that wasn’t in the dental chair. He discovered, for dentists anyway, the pain was closing the gap between filling and billing. The dentist performs procedures in the operatory, i.e., the chair, and then sends the patient’s file to the front desk for billing. The problem occurs when the information about the dental procedure is lost or confused along the way to the front desk. For example, the dentist’s handwriting may be difficult to decipher or overspray, yuck, may smudge the file. Sometimes files magically disappear! All of which adds up to lost revenue. Dentrix Dental Systems developed the first management software to connect the operatory to the front desk, minimizing billing loss and confusion. But even after successfully developing the software and addressing a sizeable pain-point, the venture would fail unless it found a way to persuasively and efficiently reach the target market – dentists. Dentrix Dental Systems at first thought they had only two choices; (1) hire a company sales force, or (2) outsource the selling to independent sales agents such as dental product distributors or value-added resellers. But Dentrix had a third option when they started looking for leverage. Kimball’s hard work in uncovering and solving everyday pain for dentists gave Dentrix a sharp competitive angle. It wasn’t difficult to find experienced and credible dental-industry salespeople that believed in Dentrix and wanted to take a chance on selling it for a commission and stake in the company rather than for a fixed salary. Dentrix leveraged their leverage and found salespeople to help them do what they couldn’t do or afford to do on their own. The experienced and credible salespeople earned millions. The business became, and still is, a huge success.
Call them what you like - product advocates, brand champions, or the Love Group - we can’t say enough about how important they are to growing a startup business. Think of them as a huge herd of wild stallions that jump to action at your command and set a positive, enthusiastic tone for everyone that sees them. If someone thinks you’ve got a cool product and they have influence in the industry, leverage the leverage.
Klymit Change
Nate Alder, the founder of Klymit, earned $1.6 million in venture capital by leveraging a sharp competitive angle and the interest it generated with community leaders and industry insiders. Scuba diving off the coast of Brazil, Nate learned about how noble gases, like argon, xenon, and krypton are used as insulators inside of dry suits to keep divers warm. Building on that idea, the former snowboard instructor quickly envisioned how the “dry suit” technology could be adapted to insulate winter gear. While insulated clothing is nothing new, using thermostat-valve-controlled linings in clothing to regulate temperature is new. There is no bulk, no layering, just turn the dial up and down. If a skier is cold, add a little argon gas to the jacket lining. If a skier is hot, open the valve and release some argon to cool down. One might think that Nate was only one prototype jacket away from hitting the entrepreneurial jackpot, but much was done to push the idea toward success.
From the outset, Nate understood how to network and recruit product advocates. His biggest successes have been with a local mayor that wants to make his city the skiing Mecca of the US, who has introduced Nate to a number of leading outdoor companies and investors. One of those companies is now a primary development partner, and several of those investors helped fund the business. Nate also was introduced to an industry “graybeard,” an individual with decades of experience in the outdoor markets, who began assisting the company as a consultant. Nate featured the industry insider whenever pitching Klymit to investors. This connection alone has opened a number of closed doors. The team also was convinced early on that they couldn’t bring insulation products to market on their own. They decided to identify large, well-funded “benefactor” companies that would benefit from adopting the new approach to insulation and license the technology. Within a year, the company secured letters of intent from three top outdoor brands that expressed great interest in adopting the patented technology for use in jackets, boots, snow pants, sleeping bags, and other products.
Role of Early-Adopters
Early-adopting customers also can be powerful advocates. Don’t use time and energy to fight cynics and hecklers. Learn to focus on the love and take your product to the market through the eyes of those that love it. We frequently ask aspiring entrepreneurs, “Who is in your Love Group?” We rarely get back a focused and definitive answer. The fact is that most startup marketers, similar to most Big Business marketers, can’t identify who faithfully purchases their products beyond offering up a few demographics like average age, gender split, and regional sales percentages. Startups can’t afford to be that unobservant. The Love Group is their lifeblood. Just like a political candidate, startups must know and retain their Love Group while at the same time helping the fence-sitters see their product through the eyes of the Love Group. New companies don’t need 50% of the popular vote to succeed, but do need a strong group of core customers that they thoroughly understand. By thoroughly understand, we are talking about drawing together a profile that looks more like an ethnographic Mona Lisa than a demographic stick figure. What do customers look like, how do they express themselves, what do they read and watch, where do they live, what vehicles do they drive, what are their hopes and aspirations, and most important, which of our product features and benefits really get them going? Several years ago, the plastics industry was struggling with growing public concerns over recycling and resource use. Special interest groups were successfully encouraging legislation to reduce, phase out, and even ban the use of plastic packaging and products. The American Plastics Council (APC) came to the rescue with a flashy advertising campaign to inform the public about the substantial efforts the industry was making toward recycling and reuse, and that products and packaging made of plastic actually saved resources compared to other alternatives such as paper or metal. Millions of advertising dollars were spent, expectations were high, but success was nowhere to be found. Directly attacking the concerns of the Hate Group didn’t convince anyone and ultimately led to the APC being ordered by a dozen or so state Attorneys General to desist in their “false” advertising claims about the availability of plastics recycling. The APC failed because managers ignored the Love Group in favor of attacking the Hate Group, but they learned their lesson. The next round of advertising built on the beliefs of plastics advocates. These messages highlighted the noble qualities of plastics - personal safety and health - that researchers had identified in personal interviews with the plastics Love Group. This time the positive results were staggering. Tens of millions of Swing Group households jumped on the plastics bandwagon, positive media coverage outweighed negative media coverage by a two-to-one margin, anti-plastics legislation was pulled, and plastics usage hit all time highs. Entrepreneurs need to discover what politicians, and successful advertisers have known for generations, the Love Group holds the keys to victory.
No Love Group, No Worries
Startup marketers like the simple Love-Swing-Hate approach to attacking the marketplace, but often point out that their new products, many of which are just in the idea stage, don’t have a Love Group. They raise an important point and put themselves on the threshold of discovering what really sets a successful startup marketer apart from a frustrated would-be entrepreneur. Successful startup marketers don’t expect their Love Group to find them; they aggressively seek out their Love Group. “Build it and they will come” rarely works in today’s world of information overload and product proliferation. Realizing we don’t know our Love Group is the first step in beginning to prospect to find a Love Group. There are many ways to prospect for a Love Group, but we suggest bringing eight to twelve people together that may benefit from the new product, feeding them pizza, and soliciting their impressions. After explaining the product concept, ask questions like, “Who would love this product? What would they love about it? Where and how would they use it?” Or if a little more adventuresome, you might hand out some blank paper and crayons and ask everyone to draw a picture of someone really loving the product. Then as people show off their artwork, ask questions like, “Who are they; what are they doing; why are they so happy?” Listen and note the responses, but more importantly, observe the participants and look for those few who are completely engaged and articulate. Ask them back to another session so that you can find out more, because they are your Love Group. One prospecting session will not be enough to establish a detailed profile for the Love Group. In our experience, about three to five prospecting sessions are needed, and they should be spread across a variety of geographic regions.
Sometimes prospecting doesn’t yield much gold. If that happens, then it is time for some careful reflection. Do I need to change my message? Do I need to change my target market? Do I need to set this product aside for a time and pursue another opportunity? But don’t resort to thoughts of exerting personal pressure, manipulation, and coercion.
Levi Strauss provides our favorite Big Business example of prospector turned tyrant. Eric Sevareid, reporting for the television program Enterprise, tells a story about Levi Strauss deciding they should manufacture and market a line of three-piece suits called Levi Tailored Classics. At the time, executives wanted to branch out into new areas of clothing over concerns that too high a percentage of their sales came from jeans. They wanted to grow by penetrating new markets. Levi Strauss did their homework. They examined suit-buying preferences, shopping practices, lifestyles, and demographics for 2,000 men. They uncovered five distinct segments in the market: the traditionalist, the classic independent, the utilitarian, the trendy casual, and the price shopper. The marketing quickly focused in on the “classic independent” as the target, i.e., the tailored suit Love Group. The segment accounted for 21% of male shoppers. They purchased about one-half of men’s natural-fiber clothing products, were not price-sensitive, generally shopped for clothes in specialty stores, and strongly preferred tailored clothing rather than buying it off the rack. The Levi Tailored Classics marketing team put together focus groups of the classic independents to prove the new product concept. The focus group testing went well until it was suggested that (1) the suits would be sold off the rack, and (2) the suits would be manufactured by Levi Strauss. At that point objections flew hot and heavy. Behind the mirror in the focus group facility, the marketing team had answers for every objection. The marketing team pushed forward, even though the product was completely inconsistent with everyone’s existing belief about the brand and because of it, trounced every physical and emotional benefit these customers wanted from the Levi’s brand. The marketing team picked their Love Group, but predictably, Levi’s love was unrequited and the product launch went down in flames.
The Love Group Picks You
One would think that entrepreneurs would have more sense than the Levi Strauss marketing team. But again and again we see the same behavior from entrepreneurs dead set on selling to a particular type of customer. They settle for fool’s gold rather than prospecting for real gold. To make the point, consider the case of an entrepreneur who had invented a device to measure the curvature and other features of human spinal columns. His technology could give doctors the lowdown on backbones. Medical doctors, however, are a skeptical group. They are highly educated, opinionated, and slow to revise best practices. This didn’t stop our entrepreneur. MDs would love his invention, he just knew it. He aggressively pursued them. He pushed hard. They pushed back. They preferred X-rays. In the meantime, chiropractors discovered the new back-measuring device and loved it. It was just what they needed to get a quick read on a new patient’s spinal column and to provide feedback on the progress being made by on-going patients. The entrepreneur, however, didn’t want to sell to chiropractors. He felt they weren’t professionals and that their involvement would diminish the seriousness and significance of his invention. He ignored the Love Group, unsuccessfully tried over and over again to sell his invention to the Hate Group, and ultimately squandered hundreds of thousands in venture capital. His business went bankrupt. Life is funny. We need to be on the lookout for advocates, but we don’t choose love, love chooses us.
Finding Golden Threads
Sales to innovators will not sustain a startup, but will get it going and moving in the right direction. Consider mining for gold with the early adopters; the customers that will get your startup out of the gate and running! Many years ago, Pete Seeger wrote the lines, “Oh, had I a golden thread and a needle so fine, I’d weave a magic strand of rainbow design.” Every entrepreneur needs to find a golden thread to build a successful business. Innovation-loving beta-test customers can be that thread.
“Beta test” refers to a stage in the software development and release life cycle. Software products usually have an alpha stage, that is, a stage in features are added; a beta stage, in which flaws are removed; and a market-ready stage, in which the product is fully groomed and broadly released to potential buyers. The beta version is the first version of a product that gets released outside the business. Beta versions help developers evaluate their products in real-world settings. Beta versions are evaluated by beta testers. Beta testers can be current or prospective customers. In the software industry, beta testers receive the beta version of a product for free or at a “bargain” price.
When we refer to beta goldmines, we are of course referring to more than just the development of software and to more than just the technical development of a product. Beta testing suggests a process useful for nearly all emerging products and has important marketing as well as technical benefits. In an entrepreneurial setting, the three biggest challenges with beta testers are to get them (1) to purchase the product, (2) to use the product, and (3) to provide feedback on the product. In our experience, overcoming the first challenge, that is, getting beta testers to purchase the product, goes a long way in solving the other two. Consequently, when looking for beta testers to transform into beta goldmines, picking customers with a strong need to believe is a key success factor. In other words, the pain-point must be particularly painful for beta goldmines or the need for market leadership must be particularly strong.
Innovators vs. Imitators
Markets for new products consist of two types of buyers: innovators and imitators. Research in this area suggests that the number of innovator-buyers can be very small, sometimes as small as 2–3% of the total number of people that will ultimately make purchases in the product category. Nevertheless, these early adopters can get a new idea moving forward and take a startup directly to the goldmine. According to the research that has been done to help us understand the diffusion of innovations, three product characteristics stand out as must-haves for attracting beta customers.
1. Relative Advantage. The product must have a distinct advantage relative to alternatives. We think of relative advantage in terms of value-in-use. A new product can offer greater value-in-use than alternatives along many different dimensions. For example, compared to existing products, the new product may create greater economic value by being less expensive to purchase, less expensive to operate, less dangerous to use, or less time-consuming to use. Relative to other products, it may also create functional value by being easier or more fun to operate, offering a more complete set of features, or broadening its application to more situations. New products may also create more psychological value than other products by fully tapping into emotional needs such as feeling smart, successful, helpful, confident, productive, and so forth.
2. Fit with Routine. Beta-products should also fit with a customer’s current way of doing things or daily routine. Consider the Dvorak keyboard. Back in 1936, Dr. Dvorak patented a simplified and much improved typewriter keyboard layout to solve the fatigue and inefficiency problems created by the gold-standard QWERTY keyboard layout. In today’s world, the use of computers makes the streamlined Dvorak keyboard available to anyone who wants it; however, the old QWERTY keyboard introduced back in the 1860s continues to dominate. The Dvorak keyboard fails to please because it does not fit with a customer’s current way of doing things which, in turn, usually means that it does not improve a customer’s way of doing things.
3. User Friendly. Usability is another key characteristic. Beta-products suffer when people see them as complex to understand or just plain difficult to use. The IBM PCjr of the mid-1980s provides an interesting example. High price and limited software aside, the product was DOA because of its tiny “Chiclet” keyboard, which made typing almost impossible. Evidently, when developing the PCjr, IBM hired usability testers with some mighty tiny fingers. Beta-test customers become beta goldmines when they become reference points for future customers, provide funding for product R&D, are top prospects for upgraded products, and supply easy access to in-the-field reactions regarding value-in-use, product fit with current practices, and product usability. Beta goldmines are vital for startups. They may provide just enough money and information to keep an entrepreneur limping along on life support until the product and revenue model come into focus.
Selling Innovators
Sociologists tell us that innovators are fundamentally different animals than imitators. When it comes to purchasing behavior, innovators (1) want to buy the next new thing before having to pay full price, (2) believe they deserve special consideration because they are taking extra time and effort to test an unproven product, and (3) refuse to sit back and watch anyone else have something new that they don’t have. Imitators, on the other hand, present their own marketing challenges. Imitators often are apathetic toward anything new and are not shy about expressing their dissatisfaction when something new goes wrong or fails to please.
Sales to innovators can get a new business going. Knowing a little bit about the buying culture of innovators can go a long way in helping entrepreneurs sell to them. First, innovators believe that new technology initially costs more than the old way of doing things, but that costs will come down with time. After all, ENIAC, the first large-scale computer, cost $500,000 back in 1946 and only performed 5,000 operations per second. Today’s home computers perform billions of operations per second at less than a hundredth of ENIAC’s price tag. Second, innovators apparently can’t say no to new technology even when they know it falls way behind on the bang-for-buck buying curve. What a dilemma. Innovators crave new technology, but fear they can’t afford to buy new technology. Entrepreneurs to the rescue! Entrepreneurs can attract innovators by asking innovators for their help. By recruiting innovators as product-development partners, startups can offer opportunities for innovators to move quickly and buy new technology at bargain prices before it is introduced to the general public at nosebleed skim-the-cream prices. But from the perspective of the entrepreneur, offering a bargain price does not mean offering a price so low that their new business won’t be able to make money or at least make payroll.
Sailing the Startup Ship
Anchor customers keep startups going and give it a platform for growing. Finding anchor customers must be a top priority. For a moment, imagine that different kinds of businesses are like different kinds of ships. The Big Business ship likes to drop anchor in a calm and sunny harbor. The heavy anchor and calm waters make everyone on board the Big Business ship feel safe and secure. The startup ship is like a pirate sailing the open sea. The captain of the startup business ship doesn’t like to drop anchor. The captain knows the ship only moves once the anchor is on board. Startup businesses must get an anchor on board before they can start sailing.
Consider the experience of Omniture, a business that helps other businesses understand and manage their Internet marketing channels. Take a look at their customer list. There is Toyota, Cadillac, Ford, Microsoft, HP, Oracle, VISA, Ameritrade, ADP, Xerox, Siemens, Tyco, HBO, Fox, CBS, Walmart, Mary Kay, eBay, and it goes on. Omniture always had great products and talented employees, but their success story really got started with two anchor customers, Microsoft and eBay. According to their CEO, before landing these anchor customers, the Omniture sales cycle was a long and painful nine months. Prospective clients had lots of questions about Ominiture’s financial stability, technology, and service quality. With the anchors on board, however, most of the prospective clients’ questions were answered with two words: Microsoft and eBay. The sales cycle shrank to a manageable three months.
Winning an Anchor
Omniture won anchor customers by “promising the world and then delivering.” Many in the business questioned whether Omniture would make money with such a policy, but the CEO moved forward anyway. Ultimately, eBay and Microsoft did produce profits, but more importantly produced high-margin, quick-turnaround sales opportunities. The need for anchor customers is nothing new. For example, a local bakery got its start by providing low-priced, high-quality bread and other baked goods such as impossible-to-resist giant cookies to area restaurants, cafeterias, and catering services. These businesses were their anchor customers. With the anchors established, the bakery could make their brick-and-mortar retail store a success, charging premium prices for their tried-and-true products, and even were able to add a few new products not offered through other marketing channels.
In the manufacturing world, new factories get built by making commodity goods that “fill the factory” with high-volume, low- or no-margin production. Once the factory is rolling, design engineers and marketers start looking for opportunities to swap out the manufacture of low-margin goods with high-margin goods. Not every manufacturer, however, has the good sense to bring anchor customers on board before investing millions of dollars in product development and/or building a new factory. Recall DuPont’s cautionary tale of Kevlar. DuPont spent $500 million to develop and commercialize Kevlar as a replacement for nylon as tire cord, but did not lock-up tire manufacturers. The tire manufacturers decided on steel as a better alternative and took a pass on Kevlar. This left DuPont with a very expensive product in search of a market; a market they never found. Startups can’t afford this type of misstep. If a company as well-funded as DuPont needs an anchor customer to successfully launch a new product, then entrepreneurs certainly shouldn’t try to survive without one. Anchor customers get your startup going and keep paying the operating bills through good times and bad. No one gets rich from what an anchor customer is willing to pay, but these customers will create a foundation from which to grow into profitability.
Pick Right-Sized Anchors
Be careful when choosing an anchor. Big anchors don’t always suit small startups. An important decision point for a startup is whether the potential anchor is more likely to foster a startup business or let it flounder and sink under the weight of their way of doing business. Unfortunately, we have seen far too many examples of the latter rather than the former. A startup the size of a dinghy goes down fast when they take on an anchor fit for an ocean liner. Every time an entrepreneur walks into our office to announce they’ve landed a big account with a national retailer such as Costco, Walmart, or Home Depot, we get nervous. Don’t get us wrong; these are wonderful companies that provide tremendous value for customers. However, these companies simply are not geared up to foster most startups.
One new business signed a contract with a national retailer, but missed the deadline for delivering their product to the appointed distribution center by several hours. The national retailer declined to reschedule a pickup and told the new business to wait another year before trying again. Yet another new business shipped inventory worth hundreds of thousands of dollars to a national retailer notorious for paying vendors slowly. The entrepreneurs, having taken out second mortgages and maxed-out their credit cards, got nervous and tried to pressure the retailer into paying with aggressive, bordering on rude and unprofessional, phone calls and letters. In response, the national retailer returned the entire inventory. The entrepreneurs were then left with lots of debt, lots of inventory, and few prospects for earning any revenue.
Million-Dollar Question
Early on in the new venture ask the question, “Who will benefit most if I succeed?” Think through the question carefully, because the answer will help you find initial investors, key strategic partners, and perhaps anchor customers. Learning to ask the right questions is fundamental to startup success! If you were in dire straits, who would you turn to for help? Would you try to tap parents, friends, or the local bank? If you were thinking like an entrepreneur, you would look for a benefactor that stands to benefit a lot from your growth and long-term success.
The Wizard of Oz is a classic children’s story about seeking out benefactors. If you remember the story, Dorothy Gale has been caught up in a tornado and carried to the mythical Land of Oz far away from her home in Kansas. Unfortunately for Dorothy, she lands a house on and accidentally kills the Wicked Witch of the East upon her arrival. Consequently, Dorothy makes quite an enemy out of the dead witch’s sister, the Wicked Witch of the West. Dorothy desperately wants to return to her home in Kansas and decides to travel to the Emerald City to enlist the help of the Great Wizard. Dorothy knows that she cannot make it to the Emerald City on her own because the Wicked Witch will try to slow her down, stop her, or maybe even kill her along the way. Dorothy needs to seek out benefactors and she keeps an eye open for anyone that will also greatly benefit from a trip to the Emerald City. At the journey’s outset, Dorothy runs across a scarecrow at a crossroads. She removes a nail to take the scarecrow down from his post and finds out the scarecrow desperately wants a brain. Dorothy suggests that the scarecrow can get a brain from the Wizard in the Emerald City. The scarecrow joins Team Dorothy. Next, the two stumble on a rusted tin man. Dorothy liberally applies some oil from an old oil can and finds out the tin man desperately wants a heart. Dorothy suggests that the tin man can get a heart from the Wizard in the Emerald City. The tin man is now part of the crew. Not long afterwards, the little group is startled by a lion who attacks the travelers and tries to bite Dorothy’s little dog Toto. Dorothy, heedless of the danger, swats the lion on the nose to protect her dog. Dorothy then has to comfort the lion as he whimpers about his nose, and finds out the lion is cowardly and desperately wants courage. Dorothy suggests that the cowardly lion can get courage from the Wizard in the Emerald City. The lion completes the team, and then the three benefactors successfully get Dorothy to the Emerald City. But the story does not all go in Dorothy’s favor. Turns out, the Wizard also needs a few benefactors. He needs someone to kill the Wicked Witch of the West. When Dorothy and her team arrive, the Wizard gives everyone the royal treatment. He then gives Team Dorothy an audience and finds out Dorothy desperately wants to return home, the scarecrow desperately wants a brain, the tin man desperately wants a heart, and the lion desperately wants courage. The Wizard promises to give each benefactor what they want most if and when Dorothy brings him the broomstick of the Wicked Witch of the West. Like Dorothy, the Wizard is a born entrepreneur. He really understands how to spot benefactors. It is an unwritten law of the universe, apparently hidden from all non-entrepreneurs, that when you give people what they want most, they are happy to give you what you need.
Benefactors in the Value Chain
Products do not stand alone. Products are part of a value chain that extends from components to customers. Understanding the value chain and where your startup fits in can be a powerful tool to give your new business legs. To find benefactors, explore your product’s value chain. Which businesses provide components as inputs to your product? Which businesses use your product as a component for their product? Which retailers sell and service your product or companion products? DuPont Stainmaster is the world’s single bestselling brand of carpet, but not many people know that DuPont doesn’t manufacture carpet. DuPont manufactures the nylon and stain-release sauce that other manufacturers and carpet mills process to make the carpeting we have in our homes and businesses. DuPont found benefactors to transform the carpet industry from a narrow-margin heartbreaker to a high-flying profit maker. DuPont managers fought commodity nylon prices for generations, but then decided to fight back by offering something that every player in the carpet industry wanted most. Every carpet manufacturer and retailer wanted a premium-priced carpet that consumers would recognize and trust. Everyone in the industry wanted a profitable product that would sell itself. Before Stainmaster, all carpeting looked pretty much the same to consumers. Since all carpeting looked the same, consumers bought on price - bad news for the entire value chain. Premium-priced, high-quality, easily recognized Stainmaster brand carpet changed all that and consequently found benefactors all along the value chain willing to promote DuPont ahead of all other brands of carpeting.
The same principle works in the world of startups. MyFamily is a leading online subscription service for providing genealogical information and collecting family photos. Over the past decade, it has grown rapidly into one of the Internet’s top 20 properties. To accelerate their growth, MyFamily raised more than $75 million in funding from benefactors. MyFamily looked at their value chain and asked the question, “Who will benefit if I succeed?” The answers company managers came up with were Intel, Compaq, AOL, and Kodak. Intel benefits because family-history buffs want fast computer processes to digest their mountains of digital photos. Compaq benefits because family-history buffs want new computers with lots of hard drive space, up-to-date memory, and Ethernet connections to access and post online genealogical information. AOL benefits by providing a value-added service to its growing base of family-history buff Internet subscribers. Kodak benefits by repositioning itself in the digital photography sector by building on the traditional strength of family photography. My-Family increases the need for Intel, Compaq, AOL, and Kodak products. In addition to capital raised from these investors, My-Family also received publicity from their association with these companies. At no cost to MyFamily, one national TV spot for Intel prominently featured a shot of the MyFamily webpage.
Special-Needs Benefactors
If you are down in San Diego, looking to play a little golf, enjoy a monster dinner buffet, sit in on a concert, or spend some time at the gaming tables, you might consider the Sycuan Resort & Casino, operated by the Kumeyaay Nation. The Kumeyaay Nation extends from San Diego and Imperial Counties in California to 60 miles south of the Mexican border. Realizing that casino customers need easy access to money, San Diego’s Borrego Springs Bank approached the Kumeyaay Nation looking for expansion funds. The Native-American-owned bank had come up dry looking for funds through all traditional means, but the Kumeyaay were happy to help. Growing the bank provided Kumeyaay casinos customers with ATMs and a steady supply of cash. Borrego Springs bankers looked for banking-service-users with special needs. The bank provides quick access to money. What kinds of businesses use money like a light bulb uses electricity? A casino is the perfect solution.
Non-Cash Benefactors
Entrepreneurs don’t ignore benefactors that provide support other than funding. Agilix is a software company that specializes in programs for Tablet PCs. In this high-tech product category, Agilix needs capital to fund R&D, but also needs access to programming code and computer hardware technology. To address the first need, Agilix approached Franklin Covey. Franklin Covey promotes personal planning and saw Agilix as a means to move forward in the electronic planner product space. Agilix got their funding and Franklin Covey got a winning product. Reviewers refer to Agilix-developed TabletPlanner software as marvelous, brilliant, and empowering. Competing with heavyweights like Microsoft, HP, and Corel, TabletPlanner is one of the top 10 best Tablet PC applications. To address needs beyond R&D capital, Agilix has gone to Microsoft and key computer hardware manufactures. They have become strategic partners that have provided Agilix with access to key technologies, allowing them to be on the cutting edge of this emerging field. As a result of these benefactor alliances, Agilix was able to be one of two software companies to have their software applications ready for the launch of Windows-based operating systems for Tablet PCs. The window of opportunity provided Agilix with market access and a tremendous amount of unpaid publicity.
Begin with Advisors
A crucial part of a successful startup is to use a well-connected advisory board. An advisory board can extend your social network of influence to increase its effectiveness in attracting investors, customers, and top employees. No new venture is too small or too large to benefit from an advisory board. Leveraging advisory board experience, expertise, credibility, and connections is the best way to succeed in today’s competitive markets. A startup gains a big boost from building a national or at least a regional reputation. Perhaps one of the best-kept secrets of successful ventures is they know that reputation and experience counts, but that it doesn’t have to be their own reputation and experience. We can’t emphasize enough what we stated earlier about finding and leveraging advocates. Successful entrepreneurs know that hard work, i.e., working 90+ hours a week, rarely leads to a successful new venture. It is the smart work of yourself and others, especially a credible and supportive advisory board, which leads to new venture success.
Many startups make the mistake of developing their board of directors instead of beginning with an advisory board. Advisory boards have two key advantages over a board of directors.
1. Advisory boards often are not paid in equity or cash like formal boards. Thus advisory boards can be a low-cost and high-value alternative for startups.
2. Advisory board members can’t be sued for their advice because they do not have any fiduciary responsibility to stockholders as do members of the board of directors. Thus, advisory boards are usually made up of nonpolitical, fun, and creative professionals who have a genuine interest and sincere desire to see the startup succeed.
Whenever you start a new venture, leverage the experience, wisdom, and creativity of advisory members to accelerate your growth and time to money. Advisory board members should not be limited to businesspeople who have launched successful startups themselves or accomplished other things related to your new business. Also include people who possess local, regional, or national name recognition. For example, prominent politicians, retired executives or managers, and industry gurus make great advisory board members.
Advice really is cheap and advisory board members can save you years of painful and costly mistakes. Advisory board members who are willing to use their own time, influence, and contacts to promote your company are truly priceless. Look for advisory board members who are motivated to help you because they love your product and love to be associated with up-and-coming new ventures. Look for advisory board members that have just walked the path your startup is now treading. Minimal resources are needed to attract participation in an advisory board. Everyone loves a winner, and advisory board members are no exception. If perks like free lunches, dinners, or golf outings don’t work, then attract advisory board members with a nominal 5,000 to 10,000 shares or options; assuming around 10,000,000 shares are presently outstanding. Building a connected advisory network is much more effective than setting out to create your own social network from the ground up.