|
|
| Information |
|
|
Go Slow to Go Fast - Why Over 80% Of High Tech Startups Fail And What To Do About It
With billions of dollars of venture capital residing down the street on Sand Hill Road, two Stanford professors are attempting to answer a fundamental question "why does it always take longer and cost more to build a hi-tech company than anyone ever expects?" For all the intellect, experience and graduate degrees in the venture capital industry, the sad truth is that 80% of venture capital investments do not pan out. While the reasons for this high attrition rate are too numerous to list here, a simple fact defines every successful investment - the company figures out how to bring in more money than it spends. The secret to solving this fundamental equation these two professors believe lies in the Sales Learning Curve. Mark Leslie, an entrepreneur turned Stanford lecturer who took a startup company, Veritas, from nascent stages to over $1B in revenues and a recent $13.5B merger with Symantec, and Charles Holloway, the Kleiner Perkins Caufield & Byers Professor of Management at the Stanford Graduate School of Business have developed a framework, that goes a long way toward answering the question "why it always takes longer and costs more?" Leslie and Holloway call this framework the Sales Learning Curve (SLC) and believe that it will prove as powerful a construct in the high tech sector as the Manufacturing Learning Curve (MLC) was to the manufacturing sector in the early (date?). Today, manufacturers wouldn't think of running their operation without tracking the MLC because of the dramatic improvements in productivity that it offers. Similarly, Leslie and Holloway believe the SLC holds the potential to fundamentally change how high tech companies are managed and will lead to more high tech companies reaching the promised land of "positive free cashflow." Increasing the number of cashflow positive companies should lead to greater venture capital returns, more capital being allocated to the sector by LPS, more early stage company formation, more innovation, more jobs, and increased productivity. So what is the Sales Learning Curve? [Note to Editor -- there are 2 graphics that were stripped out when I pasted in the article into this form] As illustrated above, the Sales Learning Curve tracks the contribution margin per sales rep (Sales Yield) against the number of customer transactions. The shape of the curve will be different for every company and every sector but the central tenant of the SLC remains constant - the "go-to-market" phase is when companies should "Go Slow to Go Fast" (which is some advice from a Nordic skiing expert that I recently received when I asked for some tips on improving my performance prior to an upcoming race - Google the phrase and you will find that triathletes, grade school teachers, executive coaches, swimmers, and karate instructors are all well aware of the Go Slow to Go Fast benefits). Leslie and Holloway believe the "organizational learning" that occurs as sales reps interact with customers to close initial sales is crucial to the ultimate success of the organization. The classic "go-to-market" strategy involves hiring a VP of sales once the beta product is complete and then hiring as many reps as the balance sheet will allow in order to "drive revenue and get to breakeven." According to Leslie and Holloway, this strategy is doomed to failure because the company has failed to take the time to understand the shape of the SLC for its product in its market. Some reports generated over the last two years by Fenwick and West, a prominent Silicon Valley law firm, bear out their assertion. There is a consistent pattern of inflated B round valuations; the percentage of down rounds for C and later rounds is always greater than B rounds. As Leslie and Holloway state, "One inference from this is that both entrepreneurs and VC's underestimate the cost and time required to move up the SLC after completion of the Beta product. VCs and entrepreneurs often assume that the company is ready to gain market traction at this stage when in fact the company is only ready to begin the SLC learning process, which like product development stages has a somewhat indeterminate duration." When moving from beta release to first release, Leslie and Holloway argue that only a few technically versant sales reps should be hired. These sales reps should serve as a conduit between the initial customers and the engineering team and compensated not on revenue targets but on the "organizational learnings" that are achieved. Only after enough of these "learnings" have been incorporated into subsequent releases of the product and the organization knows how to sell the product (defined as the point at which each sales rep's contribution margin is twice their fully burdened cost) does it make sense to aggressively hire additional sales reps. Leslie and Holloway posit that the SLC is immutable and can point to numerous theoretical models and concrete examples that indicate that until you have reached this pivotal point on the SLC, the capital invested in hiring additional sales reps is simply wasted. My firm's principals have served as executives, investors, board members, and consultants to nearly 50 early stage companies in the technology sector - some successful (Microsoft) - some not. We have found consistently the go-to-market stage (more so than product development or market expansion) is where there is the highest degree of uncertainty and the greatest potential to burn through finite cash resources typically through a misallocation of sales & marketing resources. Needless to say, once we were exposed to the SLC, we immediately began working to develop the tools and constructs needed to apply the theory behind the SLC to the day-to-day operating reality of rapidly growing companies. The last thing most CEOs and venture investors want to hear is "Go Slow" when they have a product that is out of beta testing. Having become intimately involved with the SLC and Leslie and Holloway's thinking, we are firmly convinced that is precisely what companies must do whether they are a start up launching a brand new product or an established company starting a new line of business. When companies are pushing a product out of beta, it is not unusual for a startup to have a relatively poor handle on questions such as the following: Most management teams feel like they have a strong grip on these topics based on a few "high touch" initial sales, the feeling that it is time to put the "pedal to the metal." Typically, when "v1" is shipped, it is a time of rising excitement, enthusiasm and confidence within the organization. There is also an expectation from investors that with rising expenses that management is going to push to get to breakeven in the shortest time period possible. Since revenue is only generated from sales activity which is directly related to the number of sales people in the field, there is a tremendous amount of pressure to hire and deploy reps ASAP. Unfortunately, these sales reps are frequently deployed before the product is grounded in market reality and an effective sales and marketing process has been developed. Consequently, these sales reps are unproductive, "sales activity" never turns into revenue, and precious cash is wasted at an alarming rate. What is the alternative? Our experience, which is echoed by the SLC, has shown that taking a much different approach to sales when introducing a new product into the market can result in far more favorable out comes. At this stage, management should focus on capturing market and customer feedback rather than strictly on generating near-term revenue. The rate at which this customer feedback is acquired and assimilated into the product is critical to a company's ability to move up the SLC. Defining sales success in terms of the "amount of feedback collected from customers" influences the type of sales people hired at this stage as well as how they are compensated. How does a company know the shape of its SLC and how to gauge its progress along it? A number of primary drivers of the SLC exist: readiness of the product, sales and marketing, product type, market structure and macro-economic conditions. In tandem with the Venture Dynamics Group, we have developed a dynamic simulation model that estimates the SLC under different scenarios. The model helps entrepreneurs and investors model the shape of the SLC given a certain set of assumptions and then see the resulting impact on cash flow. There are several actions an early stage business should take to apply the SLC framework that my firm, as well as Leslie and Holloway, are espousing. The following are some highlights: The management team can then mobilize their entire organization towards learning and accelerate their path up the SLC. While some of the management team may believe that this process will slow the rate of revenue growth, it is important to remind them that this process is intended to accelerate the process by which companies reach the ultimate corporate goal, cash flow positive. Though it can seem counterintuitive to slow down the go-go energy upon initial product delivery, a well-grounded approach that keeps the SLC principles in mind will end up being the fastest path to rapid market penetration and sales growth. This will ensure you avoid the old saying, "haste makes waste" while giving your team and investors the kind of financial return you desire. If you would like to see a complete SLC presentation given by Mark Leslie at a recent event, go to http://altusalliance.com/ceoInfo.html. Dave Chase is a partner with Altus Alliance, which specializes in driving revenue traction for emerging businesses. He publishes a blog entitled Chase Market Velocity that focuses on how emerging businesses can gain market traction via the Enterprise Sales Learning Curve principles espoused by Mark Leslie. Before joining Altus Alliance, Chase spent nearly 20 years in the industry with over a dozen years at Microsoft in various senior marketing and general management roles, including his role as MSN's managing director for industry marketing and relations. In that capacity, he was responsible for MSN taking a leadership role within the Interactive Marketing industry to grow Online's share of the overall ad market in concert with AOL, CNET, Yahoo!, Google and other market leaders. Chase played leadership roles in launching several new businesses within Microsoft including Microsoft's entry into the enterprise software and server business which is now an $8B business. He was integral in Microsoft's entry into Internet businesses that achieved both critical and financial success.
Latest News:Site: Yahoo! News Search Results for news Myanmar's Suu Kyi to get family letters, news mags (Reuters via Yahoo! News) Detained Myanmar opposition leader Aung San Suu Kyi has managed to wring small concessions from the ruling generals in the form of letters from her family and some international news magazines, her lawyer said on Friday. JCDecaux in talks for News Outdoor Group in Russia (AP via Yahoo! News) French outdoor advertising firm JCDecaux SA said Thursday it is negotiating to buy Russian rival News Outdoor Group from global media company News Corp. News Corp tightens grip on Premiere with new CEO (Reuters via Yahoo! News) Rupert Murdoch tightened his grip on German pay-TV broadcaster Premiere by appointing News Corp executive Mark Williams as CEO in a move to get the company back on track. SEC Looks Into UAL Stock Scare; Implications For Online News? (CBS News) A ton of digits have been devoted to this in other spots but the SEC's decision to investigate takes it to another level. The backstory: a six-year-old news story about UAL declaring bankruptcy made it into the Tribune-owned Sun-Sentinel 's current news flow, was picked up by a Google (NSDQ: GOOG) News bot and, via a reporter for a newsletter, made it onto Bloomberg News. After a lot of buck ... JCDecaux and News Corp. in talks to combine outdoor ad groups (International Herald Tribune) The News Corp. chief executive, Rupert Murdoch, has recently expressed nervousness about investments in Russia, where News Outdoor generated the bulk of its revenue last year. SEC Looks Into UAL Stock Scare; Implications For Online News? (paidContent.org via Yahoo! Finance) A ton of digits have been devoted to this in other spots but the SEC's decision to investigate takes it to another level. The backstory: a six-year-old news story about UAL declaring bankruptcy made it into the Tribune-owned Sun-Sentinel's current news flow, was picked up by a Google News bot and, via a reporter for a newsletter, made it onto Bloomberg News. JCDecaux in talks to buy News Corp. billboard unit (AP via Yahoo! Finance) In a deal that would create the world's largest outdoor advertising company, French conglomerate JCDecaux SA said Thursday that it is in talks to buy Russian rival News Outdoor Group from global media company News Corp. Phila. mayor to announce grim budget news (The Philadelphia Inquirer) The Nutter administration is expected to announce grim budget news today, which is all but certain to lead to significant spending cuts - perhaps as high as 10 percent - in some city departments, according to three sources familiar with the budget. News Corp says Mark Williams interim Premiere CEO (Reuters via Yahoo! News) News Corp. executive Mark Williams has taken over as chief executive of German pay-TV broadcaster Premiere in an interim capacity, News Corp. said after the move led to renewed takeover speculation. News Corp. says Mark Williams interim Premiere CEO (Reuters via Yahoo! News) Mark Williams, a News Corp. executive named late on Wednesday as chief executive of German pay-TV broadcaster Premiere, has taken over in an interim capacity, a News Corp. spokeswoman said on Thursday. Site: news - Google News Phil Schiller bringing the news at Macworld - San Francisco Chronicle
MORE RESOURCES: Site: Yahoo! News Search Results for entrepreneurialism Lone Star Library: Green Mountain founder shares entrepreneurial insights (Fort Worth Business Press) Rural Southerner Sam Wyly came by his self-made captain-of-industry status the hard way, developing a passion for business strategy by playing schoolboy football and observing his parents? natural gift for small-business operations and hard-bargain bartering. S.C.'s brightest complete Business Week (Columbia Star) Approximately 200 high school students from across S.C. have successfully graduated from South Carolina Business Week, presented by the South Carolina Cable Television Association, July 13- 18, at Presbyterian College in Clinton. Wellington West opens Montreal branch (CNW Group via Yahoo! Finance) Wellington West Holdings Inc., a privately held, employee-owned financial services firm, today announced the expansion of its national network with the opening of a Wellington West Capital Inc. full-service retail investment branch in Montreal, Quebec. Ctek Selects Kyocera 300 Module for Z4100 Wireless Router (Centre Daily Times) Kyocera Wireless Corp. (KWC), a leading global manufacturer of wireless handsets, devices and embedded machine-to-machine (M2M) modules, and Ctek, a leading manufacturer of specialized communications solutions for industrial and commercial applications, today announced the selection of the Kyocera 300 Module for Ctek's cost-effective Z4100 Router. The Kyocera 300 Module enables reliable, ... Memphis confident of growth campaign (Memphis Commercial Appeal) One year after the launch of a $64 million economic development campaign, city officials are increasingly optimistic about the impact of MemphisED on the Bluff City. Summer break project: JTCC student lives, learns nonprofit leadership with Pheonix Project (The Petersburg Progress-Index) CHESTER ? Jamie Poniatowski, a Class of 2008 human services major, spent her summer break in Petersburg, participating in the Phoenix Project?s 2008 Nonprofit Leadership and Social Entrepreneurship Program, which transforms committed undergraduate and graduate students into effective social entrepreneurs with the knowledge, skills and connections to succeed in Virginia?s nonprofit sector. Ctek Selects Kyocera 300 Module for Z4100 Wireless Router (Business Wire via Yahoo! Finance) SAN DIEGO & RANCHO PALOS VERDES, Calif.----Kyocera Wireless Corp. , a leading global manufacturer of wireless handsets, devices and embedded machine-to-machine modules, and Ctek, a leading manufacturer of specialized communications solutions for industrial and commercial applications, today announced the selection of the Kyocera 300 Module for Ctek?s cost-effective Z4100 Router. $1 Million Opus Prize Finalists Announced (PR Newswire via Yahoo! Finance) Seattle University and the Opus Prize Foundation today announced three finalists for the $1 million 2008 Opus Prize, one of the world's largest humanitarian service awards. Guided by faith and an entrepreneurial spirit, Marguerite "Maggy" Barankitse, Krishnammal Jagannathan and Michael Woodard are working throughout the world to give people the tools to transform their lives. Scotiabank Online Small Business Contest Last Call (CNW Group via Yahoo! Finance) The chance for Canadian small business owners to win $50,000 in cash prizes is coming to a close. As part of Scotiabank's 'Get Growing to a Million' Campaign, the online challenge has offered small business owners across Canada a chance to win one grand prize of $20,000 and six regional prizes of $5,000. In cinemas this weekend (Guardian Unlimited) RocknRolla | The Duchess | Bangkok Dangerous | Disaster Movie | Sweete Land | El Cantante | Never Apologise | Mera Pind My Home Site: entrepreneurialism - Google News Ohio House Speaker Budish touts regionalism in his first address - WKYC-TV
|
|
|
|
RELATED ARTICLES
Two Types of Business Plan Executive Summaries Companies seeking capital often ask how long the Executive Summary of their business plan should be. The answer depends upon the use of the summary, mainly determining if 1) it precedes the full business plan, or 2) it will be used as a stand-alone document. Outcomes - Thats What You Need to Focus On Successful business owners and managers need to be veryclear about what outcomes they want. Whether you call them goals, objectives or targets, theseare the factors that you're ultimately judged on. Are You An Entrepreneur? With all the buzz about everybody being an entrepreneur these days wouldn't it be nice if you could really find out if you have what it takes?Sure it would.The following profile was adopted over a period of several years of research from successful entrepreneurs worldwide to assist would-be entrepreneurs determine if they have the traits to undertake a new venture. Entrepreneurship as Your Passion Entrepreneurship has been my passion for as long as I can commit to memory to learning how to type, and that started in 5th grade! Strangely enough, I wasn't raised around lots of business owners growing up in New Jersey nor surrounded by many business-minded individuals.Initially, my passion was expressed through the notion that extra money can be made while working a corporate job. Methods of Generating New Ideas for Entrepreneurs Summary: Even with a wide variety of sources available, coming up with an idea as the basis for a new venture can still be a difficult problem. The entrepreneur can use several methods to help generate and test new ideas including focus groups, brainstorming and problem inventory analysis. Entrepreneurs Just Get Better With Age Q: I'm thinking about starting a business after I retire next month. I'll be 65. The Deal is in the Details What Startups Need to Get a Business Loan, Part 2In part 1 of this article, entitled "Three C's", we looked at the overview of startup business loan requirements from the lender's perspective. We read how cash, good credit and sufficient collateral form a joint partnership to enable a loan request to bond together into a doable deal. 3 Essential Elements of Operating a Successful Business Have you ever imagined what it would be like to live your dream? A good place to start would be to recognize that there are three elements, and only three elements, that separate success from failure. If you exercise one of the elements, you might just be successful. The 5 Senses of an Entrepreneur If you have seen me speak you will know that I believe the word 'entrepreneur' is used way too much these days. People seem to wear it as a badge instead of just getting out there and doing entrepreneurial things. From Employee to Entrepreneur: Taking the Plunge Before you decide whether or not running your own business is right for you, start by pinpointing your area of expertise and assessing your aptitude for business.Starter Questions Ask yourself the following questions:- In what areas do people approach me for advice and assistance? From what parts of my job do I get the most satisfaction?- What do I like doing so much that I would do it even with no pay?- What hobbies or interests could I "spin off"into a small business?- Do I enjoy budgeting and financial planning?- Do I enjoy making cold calls, tele-marketing and selling?- Do I have enough self-discipline to work on my own?- How easy is it for me to bounce back from rejection & setbacks?Proceed with CautionBefore you take the plunge, it's important to "wade in gradually" or you may just find yourself swamped. Entrepreneurship: Insight and Closer Look At The Entrepreneur Life as an entrepreneur is the American Dream. To be able to be your own boss, own your own business, never report to anyone else, work from home, make unlimited earnings and income potential, etc. Enterprising Route is to Go Your Own Way DON'T talk to me about education for entrepreneurs. They're pouring far too much public money into it already - not counting the millions some well-known Scottish entrepreneurs are prepared to waste on it. Message to Prospective Franchisees for Franchisors Many franchise companies fail to send the proper message to their prospective franchisees. This is partly due to the over regulation and intensity of litigation in the industry. Will Your Business Survive Without You? I had a health scare in December.As it turns out, everything's perfectly okay. An Entrepreneurs Biggest Cost When launching a new product or company, an entrepreneur must consider their biggest cost - the opportunity cost. Opportunity cost is an economic term that is defined as the cost of passing up the next best alternative when making a decision. Bring That Difference To Your Business! Romans had a phrase for this- First among Equals.Online marketing has too coined a similar one - when everything is equal the difference is me. Entrepreneurial Traits that Drive Sales Frequently overlooked and hidden deep within our marketing tool box is the ultimate marketing vehicle for your business - you! Many small business owners are so busy figuring out how to increase sales and revenue they forget to grow themselves as business owners. If you aren't evolving yourself, aren't you being counterproductive to your business development? Marketing our businesses isn't just about what ads to buy or what networking event to go to next; it's about us as people, as entrepreneurs. How To Find Focus And Turn Your Talent Into A Thriving Professional Business There are tons of books and articles available to help professionals start up their business, but few that give practical insights on how to nurture your business once it's out of its infancy. At some point, every self-employed professional reaches the same dilemma: how to build a strong brand and grow their business without taking on too many clients, undervaluing their expertise, or sacrificing their lifestyle. Can a Microbusiness Help You Enjoy a Better Retirement? Not having enough money for a comfortable retirement tops thelist of financial concerns among aging Americans, according to a recent Gallup Poll. It even outweighs peoples' worries about having a serious illness or accident. Entrepreneurship Story; Over Regulation in Franchising Part I Jim and Sally run a successful auto business, which they have built up over two decades and have expanded to three stores and many of their friends keep saying, "You should Franchise." They think about this for about five years read a few books, like "Franchising for Dummies," The "E-Myth", "The Franchising Bible" and many others on the shelves of the new big book store in town with the coffee shop inside.
|
| Home | Site Map | Resource Links |
