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A bit of background

I am an admirer of Costco and how they usually provide high value to customers. They are masters of merchandising and negotiating with their vendors to get packages and prices that are truly revolutionary in the “brick and mortar” retail world.

The target market

Costco targets shoppers with families that can leverage their (often) larger package sizes in a warehouse environment to get better prices. Costco is obsessed with providing value to their customers and leverages intense pricing/packaging negotiations with their vendors to help achieve it.

The issue

With that perspective on Costco, you can understand why I was so surprised by the lack of customer insight and identification of a consumer benefit that I saw in their recent product/service offering of the Costco Pay Fob. When a company is developing a new product or service offering, they must ensure that there is a true customer need for that offering, if they hope to drive usage and adoption of it.

Can I beat the gas line?

Recently, I made what has become at least a twice a month visit to Costco to stock up for the family. Before entering the warehouse, I made a stop at the gas center to fuel up my vehicle – impressed by Costco’s 40-50 cents lower price per gallon of gas – prepared for the usual seven to eight vehicle wait at the pump line.

When I got to the gas pump, I noticed a new sign on top. Costco was featuring a new product/service called Costco Pay that was promoted as “A faster way to pay for gas” and was free and available at the membership counter.

Check out their Facebook promotional video here:

At first, this struck me as an unusual offering. I would like the gas line at Costco to be shorter and wish I could move through the line faster, but putting my credit card into the reader was not the biggest impediment. Instead, this fob seemed like a burden – to carry yet another piece of hardware just to enable me to save mere seconds in paying. This was not a valuable solution for my customer problem of waiting in the Costco gas line.

How successful was the new offering?

After paying for my fuel using my Costco Visa card and arriving at the warehouse entry, I noticed a set of tables with lots of information on this new product/service and five Costco employees ready to sign members up for it. Clearly Costco was putting a lot of effort behind the new product launch. What I didn’t see was any Costco members showing a modicum of interest in the tables, the employees, or the new offering.

Running the numbers

On exiting, I noticed a write-on board at the front of the warehouse. On it, the Costco team was tracking sign-ups for their new Costco Pay Fob (a fascinating piece of analytics that Costco displays to both employees and “members”). Despite the late afternoon hour, Costco had exactly 2 sign-ups for the Costco Pay Fob that day or about 0.4 sign-ups per employee dedicated to it. Not quite the ringing success that the executives about 200 yards away at Costco’s Issaquah headquarters might have hoped for.

What was the customer benefit?

Let’s look at this new Costco offering from a product management perspective. This seemed to be a failed product introduction. Despite significant investment in resources, members seemed to have rejected this new product/service.

This product/service clearly provides a benefit to Costco. If members carry the fob, there is instant access to their Costco payment account and a reminder of Costco every time the member reaches for his or her keys. Furthermore, it might reduce bottlenecks that come up in any queuing around payment for Costco items or enable members to more easily use their Costco payment methodology at other retailers.

It appears that Costco did not do enough homework to understand the customer need in this situation. Costco identified a customer problem that needed fixing or at least some modification – waiting in long lines at the Costco fueling center. However, the solution of a payment fob did not provide enough customer value in solving this problem. The benefit of shorter interactions at the pump was not enough to cover the customer cost of carrying the fob. Costco members are making that painfully obvious, at least at this warehouse, and with fairly negative comments on Reddit.

Increasing the value by reducing the customer “cost”

What could Costco have done as a potential solution to this customer problem without adding another burden to their members? They could have provided information to ease customer anxiety and cost of filling their vehicle from a pump on the wrong side of their vehicle (they already invested in long and very flexible hoses to easily reach both sides of a vehicle) or leveraged the Costco employees they already have at the fuel centers to even off the lines more smoothly – or even provide fuel line wait times in the Costco mobile app. What they clearly needed to do was to understand that having members make an “investment” in Costco by carrying a fob must be counterbalanced by a clearly demonstrated value. Does the pay fob deliver a benefit worth the cost of the burden of carrying the fob around?

Wrap Up

So, in coming up with solutions to identified customer problems, we must be cognizant of the customer value – the ratio of costs to the customer vs. the benefits received. In order to have a customer make an investment in a solution to a problem, they must see a benefit from that investment. Lack of this clear benefit for at least a segment of the customers will lead to low adoption and likely product failure – as Costco is exhibiting with their Customer Pay Fob.

The angel community takes a lot of heat in Seattle — we are too conservative, biased against direct-to-consumer and hardware startups and, in general, not willing to do what it takes to add vibrancy to the startup community in our area.

Well, life is tough for Angels too! I am re-posting a blog from  Joseph W. Bartlett that might give some insight into the conservative-ness of our local Angel community…

Take a sample of 100 venture-backed companies successful enough to undertake an initial public offering. In a high percentage of the transactions, the prospectus discloses that the earliest stage investors (founders and angels) wind up with close to trivial equity percentages and thus, puny returns on their investment in the company. One would think that these investors are entitled to the lushest rewards because of the high degree of risk accompanying their early stage investments, cash and/or sweat. The problem, however, is dilution. Most early stage companies go through multiple rounds of private financing, and one or more of those rounds is often a “down round,” which entails a disappointing price per share and, therefore, significant dilution to those shareholders who are not in a position to play in the later rounds.

The problem of dilution is serious because it has a dampening impact on angels and others who are thinking of financing, joining or otherwise contributing to a start up. Estimates put the relationship of angel capital to early stage investments by professional VCs at five dollars of angel capital going into promising start ups for every one dollar of VC investment. But if angels are increasingly discouraged by the threat of dilution, particularly since the meltdown, we don’t have much of an industry; there is no one to start the engines. ^[1]

There are a variety of fixes for the dilution issue open to founders and angels.

• Make sure you enjoy pre-emptive rights, the ability to participate in any and all future rounds of financing and to protect your percentage interest. Pre-emptive rights can be, of course, lost if you don’t have the money as founders and angels often do not to play in subsequent rounds.

• Try to get a negative covenant; this gives you a veto over the subsequent round and particularly the pricing of the terms.

You don’t want to kill the goose of course, meaning veto a dilutive round and then once the Company fails for lack of cash; however, a veto right at least will you the opportunity to make sure the round is fairly prices; that the board casts a wide enough net so that the round is not an inside trade; meaning that the investors in control of the Company, go over in the corner and do a deal with themselves. Those rounds can be highly toxic to the existing shareholders (cram downs, as they are called). Finally, if you don’t have cash try to upgrade your percentage interest with derivative securities, options and warrants (a warrant is another word for option, they are the same security, a call on the Company’s stock at a fixed price but options are if the call was labeled if an employee is the beneficiary is the holder and the warrants are for everyone else). If you are the founding entrepreneur therefore, make sure you are a participant in the employee option program. Often the founder will start off with a sufficient significant percentage of the Company’s equity that she doesn’t feel necessary to declare herself eligible for employee options. This is a major mistake. In fact, I am likely to suggest founder client consider a piece of financial engineering I claim to have invented; the issuance of warrants in favor of the founders and angels at significant step-ups from the current valuation, which I call ‘up-the-ladder warrants.’ To see how the structure works, consider the following example:

Let’s say the angels are investing $1,000,000 in 100,000 shares ($10 per share) at a pre-money valuation of $3 million, resulting in a post money valuation of $4 million ($1 million going into the Company). We suggest angels also obtain 100 percent warrant coverage, meaning they can acquire three warrants, totaling calls on another 100,000 shares of the Company’s stock; however not to scare off subsequent venture capitalists or, more importantly, cause the VCs to require the warrants be eliminated as a price for future investments. The exercise prices of the warrants will be based on pre-money valuations which are relatively heroic win/win valuations, if you like. For the sake of argument, the exercise prices could be set at $30, $40 and $50 a share (33,333 shares in each case).

Let’s use a hypothetical example to see how this regime could work. Since the angels have invested $1 million at a post-money valuation of $4 million, they therefore own 25 percent of the Company–100,000 shares out of a total of 400,000 outstanding. The three warrants, as stated, are each a call on 33,333 shares. Subsequent down rounds raise $2,000,000 and dilute the angels’ share of the Company’s equity from 25 percent to, say, 5 percent–their 100,000 shares now represent 5 percent of 2,000,000 shares (cost basis still $10 per share) and the down round investors own 1,900,000 shares at a cost of $1.05 per share. Assume only one down round. Finally, assume the Company climbs out of the cellar and is sold for $100 million in cash, or $50 per share.

Absent ‘up-the-ladder warrants,’ the proceeds to the angels would be $5 million–not a bad return (5x) on their investment but, nonetheless, arguably inconsistent with the fact that the angels took the earliest risk. The ‘up-the-ladder warrants‘ add to the angels’ ultimate outcome (and we assume cashless exercise or an SAR technique, and ignore the effect of taxes) as follows: 33,333 warrants at $20/share are in the money by $666,660 and 33,333 warrants at $10 a share are in the money by $333,330. While the number of shares to be sold rises to 2,066,666, let’s say, for sake of simplicity, the buy-out price per share remains at $50, meaning the angels get another $999,999–call it $1 million. The angels’ total gross returns have increased 20 percent while the VCs’ returns have stayed at $95,000,000. Even if the $1,000,000 to the angels comes out of the VC’s share, that’s trivial slippage … a gross payback of 47.5 times their investment, vs. 47 times. If the company sells for just $30 a share, the angels get nothing and the VCs still make out.

Establishing the foundation of your startup’s brand is an integral of part of a successful startup, but one that too many founders neglect. Not only does your startup’s brand foundation solidify what your company is and does, it defines nearly every aspect of the operational side of your company, from marketing to engineering and more.

I keep running into companies–both startups and mature businesses–that exhibit a disappointing level of confusion about who they really are (or who they’re trying to be). Whether it’s engineers contemplating what product features to focus on next, or the marketing team arguing over what to say on social media and how precisely to say it, an ambiguous emotional fog often permeates the space where a clear structure ought to stand. This is bad. Very bad. It’s one of those “ghost” problems that is easy to never bother addressing, but which eats away at the soul of your company over time and causes a myriad of seemingly unrelated, frustrating problems all over the organization. So solve it. It’s easy.

There are some great books about this, of course, but the people who could most benefit from them often don’t stop to take the time to actually read them. As a result, I’ve decided to share a one-sheet “Brand Foundation” template that I’ve used at companies in the past. Once you fill it out, you’ll have a simple document that distills many of the important elements necessary to defining and building your brand. It’s short enough to be posted on cubicle and lunchroom walls and easily referred to by anyone seeking quick clarification. Call me an enabler.

To be clear, I didn’t invent this. This template is basically a distillation of the brand foundation described in “Brand: It Ain’t the Logo” by Ted Matthews, which you won’t read but you should. It’s a great book. [Go to Amazon and buy it. Buy it now.] I’ve only made some very minor tweaks/edits to his foundational elements based my own experience. The genius is all his.

So here’s the template. Download it.

Now read on to learn how to use it…

OVERVIEW

First of all, set aside a lot of time to build your Brand Foundation. I’d suggest 1/2 day at least. If you have cofounders, you should all do it together as a team. Second, take wording seriously. Words matter. One of my favorite quotes from Ayn Rand’s prescient tome Atlas Shrugged comes when hero Francisco D’Anconia tells villain James Taggart, “You ought to discover some day that words have an exact meaning. ” In your Brand Foundation, you should agonize over the exact wording of each item. These words will be with you for years to come, and if your Brand Foundation is used properly, then their interpretation will very much matter.

My recommendation is to complete the document in order, from top to bottom. In most cases, you can’t complete an item well without having completed the ones above it already. For example, your habits flow from your BHAG, which flows from your Purpose. As a result, the hard stuff is at the top because it is more permanent and has a greater impact, so don’t worry: it gets easier.

PURPOSE

The purpose is your big “why?” It should be inspirational not just for you as a founder, but for your future employees, partners, and customers. It’s not about your personal financial success or fame. It’s not even about being a market leader or having a billion users or building a cool product. It’s something that makes you want to get out of bed in the morning; it’s big, and it’s impactful. Let’s look at an example from probably the world’s most respected entrepreneur, Elon Musk. The purpose of SpaceX is described as:

To revolutionize space technology, with the ultimate goal of enabling people to live on other planets.

Now that’s an inspiring purpose.  It’s huge, but specific. It’s something you could be dedicated to for decades andstill feel excitement about. Compare it to this purpose that a founder recently proposed to me:

We believe we can make a successful global scale company, big valuation with just a small team. Just like           how whatsapp or uber did it.

Here’s a bad purpose statement. It’s a random soup of useless abstractions and uninspiring features. A few phrases could have been used as ingredients for something palatable, but that’s like saying that Gallagher could have been preparing a gourmet meal. Make yourself a note: it’s hard to inspire people with three separate bullet points and an “80%.”:

1. Modernize the equipment rental industry POS software to the 21st century technology to give users anytime/anywhere access.

2. Reduce equipment rental support operations cost by 80% using state of the art technology

3. Provide equipment support guides for the rental customers in the field for on-time completion of the construction related jobs.

A list isn’t a purpose statement, and using terms like “state of the art” and “21st century technology” just makes you sound like a lazy consultant. Can you imagine Elon Musk–or Richard Branson, or Steve Jobs, or Mark Zuckerberg, or Bill Gates, or Jack Dorsey, or Name-Your-Successful-Entrepreneur–saying that his or her purpose is to reduce “operations costs by 80%?” Me neither.

Let’s again look at Elon Musk’s purpose for another company – Tesla Motors:

To accelerate the world’s transition to sustainable transport.

Okay, so no planetary colonization here, but still an inspiring purpose. As the founder, part of your job is to communicate your passion and your vision to stakeholders. Don’t sound like a worn-out middle manager at a government contractor. Make us dream.

BHAG

I really don’t think I should need to explain what a “Big Hairy Audacious Goal” is.  Jim Collins and Jerry Porras, inventors of the term, describe it thusly:

A true BHAG is clear and compelling, serves as unifying focal point of effort, and acts as a clear catalyst for team spirit. It has a clear finish line, so the organization can know when it has achieved the goal; people like to shoot for finish lines.

The idea is to pick something that could possibly take decades to achieve and that will inspire stakeholders to action. Wikipedia has a good list of examples. Your goal should be “just shy of impossible,” which implies really, really big. Note that it must also be something measurable, so that you know when you’ve hit the goal. The classic example is NASA’s goal in the 1960s of “landing a man on the moon and returning him safely to the earth.” Conspiracy theorists aside, no one was questioning whether NASA had met its goal on July 20th, 1969: the entire world watched them do it. [Technically they hadn’t met the goal until July 24th, when the crew returned safely to Earth.]

Collins and Parsons define four categories of BHAGs: Target Oriented, Competitive, Role Model, and Internal Transformation. If you’re interested in more detail, this blog post does a good job of describing  them and includes examples of each. One caveat is that I think inspiration is a crucial component, and so I recommend being extremely careful, especially when choosing a Target Oriented goal. Many founders simply use some easily measurable metric–usually a financial one–as a goal. But numbers are almost never inspiring, especially if they’re not even your numbers. No one wants to stay up late working “to earn enough money for the founder to afford a private jet.” And however you word it, that’s basically how every financial goal sounds to most stakeholders (even the founders).

The authors touch on this issue briefly, but then they go on to praise Walmart’s goal to become a $125B company by the year 2000 as an example of a great Target Oriented BHAG. I completely disagree. It’s a horrible BHAG. Walmart may have coincidentally met this goal, but I am extremely dubious that the average Walmart employee was ever inspired to work any harder by imagining a $125B market cap for the boss’s company. You can almost hear the internal dialogue of the cashiers. “Whatever; I’m still getting paid $5.15 an hour.”

Pick a goal that a typical employee can get emotional about. Think of it this way: imagine that you are a player for Blackpool FC. You’re out of breath; your legs ache, and your heart is pounding from that last practice drill you ran. You know you should be mustering the energy for the next drill, but you just feel like giving up and collapsing on the grass instead. How motivated will you be to push yourself when your club’s BHAG flashes in your mind and it’s, “to earn another £10M for Karl Oyston” [Chairman of Blackpool FC]? Not very much, huh? That’s why Blackpool FC’s goal is to “reach the English Premier League.” Achieving this goal will also probably result in more money for Mr. Oyston, but the thought of reaching the English Premier League is a hell of a lot more inspiring if you’re the one wearing sweaty shorts.

HABITS

Your BHAG and your purpose tell you what kind of habits you should strive to instill in your company culture. Think of habits as a set of actions distilled down to only those that are necessary and sufficient to organically achieve your BHAG. In other words, the opposite of these habits recently submitted to me by a founder:

• Continuously improve to build a great product
• Customer [success] focus
• Ready for challenge

Here’s a no-brain hint for defining your company habits: use verbs. Habits are actions, so you need verbs to describe them. “Customer [success] focus” is not an action.  Neither is “Ready for challenge.” [And don’t tell me the implied verb there is be; that’s one of the few non-action verbs.] “Continuously improve” is a verb phrase, at least, but how does that realistically translate into something actionable that employees can do?

“Hey, you, over there! Don’t forget to continuously improve!”

“Uh…okay, boss.”

Lame.

For an example of habits done right, let’s look at Zappos.  Early on, Tony Hsieh articulated that part of the company’s goal was to “build our brand around the best customer service and customer experience.” So what habit did he instill to achieve that goal? This one:

We’re always listening [to customers] with open and attentive ears

Think about that for a moment. If everyone in the company is always listening to customers, then they’re always learning what customers want, need, love, and hate. Eventually, all this listening will ignite empathy, and soon they’ll be relating to their customers on a very personal, emotional level. And so customer service is bound to improve. Only a company full of sociopaths would build so deep a connection with its customers just to turn around and treat them like Comcast does. With the right habits, Zappos achieved its goal almost naturally.

Don’t think that means you can just write down a bunch of things you want to focus on for the next few months and then call them “habits,” like this founder did:

Working on the beta version, thinking how to improve upon the beta, the plans that revolve around finding   investors, accelerators, thinking about the possibilities of the startup.

Habits should not just be another way of saying, “do the things that need to get done in the short term. Here – here’s a list.” They need to be focused actions that will result in the achievement of your long-term BHAG. This founder’s habits are completely useless. Should you be working on the beta version, or thinking about how to improve the beta? Or should you be planning how to find investors or get into accelerators? What if everyone worked on the beta version? Well, I guess that means you’d eventually have a beta version. Of something. But then what? Is that your goal? A beta version? Or getting into an accelerator? Imagine Tony Hsieh rallying his employees: “Okay, everyone, we’re going to build our brand around the best customer service in the world. Now to do that, let’s all sit around and think about the possibilities of the startup!” If that’s what Hsieh had done, you’d have never heard of Zappos.

If deriving habits from your BHAG is proving too challenging for you, you can always try the reverse. Pick some habits, and then imagine a company full of people living those habits–without the context of your purpose or BHAG. What would become of this group of people? Over time, would they organically make progress towards your BHAG without even knowing what it is? If the answer isn’t, “yes, of course,” then go back to the drawing board and pick another set of habits. Lather. Rinse. Repeat.

VALUES

Values are pretty straightforward. They’re what is most important to you. Here’s the catch: everything can’t be equally important. I don’t like when companies list more than 3-5 values, because after that people can’t seem to remember them, and if people can’t remember them then they become basically useless.  So that means that you have to choose the 3-5 that matter most to you.

If it makes you feel any better, just because a value doesn’t make your list, that doesn’t mean it’s not important to you at all; it just means it is less important than the ones that made the list. You might value honesty, for example, but it’s down at number six on your list, which means it didn’t make the cut. That doesn’t mean you’re dishonest, it just means that you need to emphasize other values at your company.

So why have values? The short answer is that values guide decisions. You and your employees will constantly have to make decisions: “Do we sell our customer data to Citibank for $10M?”  Or perhaps a more subtle example: “Which feature should I implement first, the customer feedback button or the new payment option?” Values can help tell you–and more importantly, everyone else–how to make those decisions. You may be the founder, but you can’t make every decision all the time. You need to communicate how decisions are made, and values are one of the ways you do that.

Choosing the right values can be difficult. To make matters worse, many founders have a hard time separating what values really matter to the company’s purpose and goals from those that will sound good to other people. They think of values that will impress the press, rather than values that will empower employees to make the right decisions. Don’t fall into that trap. If “diversity” isn’t actually that important to achieving your BHAG and realizing your purpose, skip it as a value. That doesn’t make you a bad person.

PROMISE

Believe it or not, the promise is what your customers are actually buying. Entire books have been written about it by people more knowledgable than I. Nevertheless, the promise statement can be templatized into something quite simple. There are several different templates out there, but most of them share the same key elements. You can look them up and use a different one if you’d like, but make sure that whatever you use it includes at least all the elements of the template below:

We are the <category of business> whose <differentiated solution> offers <the customer> <emotional benefit>

Category of business: This is pretty straightforward. Are you a mobile payments business or a transportation business or an online apparel business?

Differentiated solution: This should be a short description–often a short list–of specific attributes of your solution that differentiate you from other solutions and solve a specific problem for your customer. These are the things that make you unique and special.

The customer: Believe it or not, this is what people get wrong most often. Your customer should be a particular archetypal person, not a company or a business category or the general public, or a concatenated list of any of the above. A person. You don’t sell anything to “Fortune 500 corporations.” You sell to an HR manager frustrated with an inefficient hiring process, or to an IT director looking for mobile security solution for email, or to a working mom who cares about health but doesn’t have time enough to prepare dinner for her kids. You also don’t sell to “everybody.” When you try to sell to everybody, nobody buys.

Many founders have trouble with this one because they have vivid imaginations about all the things their product will do in the future and all the adoring fans it will eventually have. They envision a world in which everybody really will want their amazing new app. Then when they’re told that they need to narrow their customer definition down to an archetype, their starting point is “everyone” and they slowly and reluctantly make it more specific. The conversation with these founders usually goes something like this:

Founder: “Everyone is a potential customer for my new Rent-a Pug app!”

Me: “What about people who don’t even have smartphones?”

Founder: “Well, not everyone, I guess. Only everyone with a smart phone.”

Me: “What about people who don’t like pugs or are allergic?”

Founder: “Well, only people who love pugs and have smartphones.”

Me: “What about people who have pugs already?”

Founder: “Well, only people with smartphones who love pugs but don’t have one.”

Me: “What about people in rural areas that are too far away?”

And so on. Instead of starting with an entire universe of customers and trying to narrow down your customer definition, I suggest the opposite approach. Start with a single person. Literally. Find one real person who actually loves your product because it solves a specific problem. Your best, favorite customer. And then simply describe that customer. You’ll start with “Rick Gonzalez,” and end up with something like, “thirty-something urban professional males who love pugs but live in apartments where pets aren’t allowed and who want to bring small dogs to the park on Saturday afternoons in an effort to spark conversations with single women who also like small dogs.” Or something like that. You’re trying to define your optimal customer, so get specific.

Emotional benefit: Many founders have trouble with this one as well, possibly for no reason other than it’s not just about a rational benefit, but one which also evokes an aspirational emotion. Imagine how your product will make your customer feel, and describe the benefit in a way that will communicate that feeling. I can’t help but think of a series of old television commercials for Sure deodorant. Proctor & Gamble’s slogan for the product was, “Raise your hand if you’re Sure!” The commercials featured people stuck on trains and on crowded elevators in awkward positions with their armpits inches from the faces (and noses) of others. Users of Sure deodorant had confidence because they knew that their armpits smelled fresh and clean. Those who didn’t use Sure were afraid to lift their arms for fear of exposing others to their supposedly dreadful body odor.

So Sure’s emotional benefit would have been something like, “the confidence that comes from knowing you’ll never have body odor.” This isn’t a marketing slogan that you’re trying to construct here (see below), but it should reference the emotional reasons for using your product, not just the intellectual ones.

The promise is basically a positioning statement, but I think it’s important to call it a “promise” because it reminds you that these aren’t empty words, but rather a binding contract with your future customers about what you intend to provide. Although I reference an advertising campaign in the last example, the promise is NOT a tag line or a marketing slogan or any kind of customer-focused messaging. It’s an internal, factual, foundational statement upon which all of your marketing and messaging will be built. Thus its inclusion in the Brand Foundation.

PERSONA

The last element of your Brand Foundation is the persona. Once you’ve defined your values, purpose, and habits, defining your persona should be relatively easy. Think of your company as a person. The persona is how you would describe that person to someone else. Is s/he intellectual, goofy, stylish, brooding, angry, strong, caring, wild, etc.? It includes your voice; what words you use and the style of how you use them. Do you swear? Do you use slang? How extensive is your vocabulary? Are you colorful and descriptive, or matter-of-fact?

Your persona also includes your character; what things do you love and what things you hate; what your interests and habits are; what causes do you support or actions do you take? Are you serious? Funny? Flirty? Stodgy? Many companies even choose a gender, and some take the fantasy as far as defining what kind of car the persona drives, where s/he gets coffee, and what kind of clothes s/he buys. Your persona will be constantly referenced by your marketing team, and every single external communication will first pass through your “persona” filter to ensure that you speak and act consistently.

For too many founders, ideas are a dime a dozen. Founders are constantly coming up with ideas, whether it’s in the shower, on the drive to work, while having dinner with the family, or in any other everyday situation. Even if they’re already running a company, founders are almost always coming up with ideas about other products to build.

However, while it’s important to always have new ideas, to always be innovating, founders must realize that when they set out to launch a startup, they are basically working on their life’s work. Just because you’ve gotten bored with your current venture doesn’t mean that you should give it up and begin work on something else.

Before you begin working on a new idea, you first need to evaluate why you’ve chosen that particular idea to work on. Don’t set out to launch a company if you’re reasons align with any of these:

• You want to be the boss. Even top CEOs have to answer to others, whether it’s a board of directors, advisors, employees, customers, etc.
• You think launching a company will be fun. Launching a company is incredibly hard, stressful, and time-consuming.
• You want to get rich quick. During the first few months, or even years, of launching a startup, you and your company will be scrambling to cover basic costs.

In short, there are much better, lucrative, and less stressful career paths to consider before just launching a startup.

However, if none of the above reasons factor into why you want to start a company, then you may have what it takes to be an entrepreneur. If you want to start a company because you think you can make a positive impact on the world and you are able to stick to that reason even when things are looking bad for your company, your experience will be more rewarding and fulfilling.

Important Tips to Keep in Mind Before You Pitch Your Startup

When you are first startup up, it’s not just investors you’re going to have to pitch. You’re going to have to pitch your company to potential co-founders and team members, prospective customers, mentors and advisors, and many others.

And that’s why it’s so important to have a definitive reason for why you’re launching a startup. That reason is how you can convince co-founders to help bring your idea to life, convince team members to work for almost no money, and convince other companies to partner with you.

Also, there is belief that’s prevalent throughout the startup world, and especially in Silicon Valley, that pitching is all about talking at your audience and that, once done, they will be convinced of your idea. This is wrong. For early-stage founders, pitching should be more of a conversation, one that engages their audience and encourages them to ask questions about the idea.

Basically, instead of merely dumping long sentences about your idea and market size on your audience, approach them in a way you would approach a friendly acquaintance. Start by introducing yourself and your background and ask them about themselves, then gracefully segue into your idea.

Stop Using Superlatives in Your Startup Pitch

Investors hate to be told conclusions. Investors hate to be told what to think. And they hate to be told how great your company is. When pitching to investors, it’s important to only give them the facts of your company and to let them determine if your company is worth investing in.

And the best way to do this is stop using superlatives in your startup pitch. If you don’t know what a superlative is, Oxford Dictionaries defines it as “an exaggerated or hyperbolical expression of praise”. This means that you should stop using words like “revolutionary”, “game-changing”, “disruptive”, and others to describe your company. Not only are these types of words overused in the startup world, but using them makes you sound presumptuous.

Instead of using exaggerated words and phrases to describe your company, focus on how your offering solves a widespread market, why you’re most qualified to lead this company, and any traction that your company has achieved since launching.

Remember, facts will always be more effective than opinions.

Should You Tailor Your Startup Pitch for Different Audiences?

Whenever you’re starting a new company, whether it’s your first or one or not, it’s important to keep the “why” of your startup (the reason you’re launching this company) the same. When you’re meeting with vendors, investors, potential co-founders, first team members, or new customers, your intentions and motivations need to remain static. If your passion for launching a startup changes with every person you meet, you will only put your reputation at risk and establish yourself as disingenuous.

In short, take the time to clearly establish your “why” for launching your startup and be sure to infuse it into the beginning of every version of your startup pitch.

Now, for the later portions of your startup pitch, you should definitely create a variety of talking points tailored for specific audiences. Keep in mind that as you describe what your company is and what it does, that you’re not talking “at” your audience so much as you’re talking “to” them. For example, the details that are important for investors to know may not be necessary for recruiting co-founders, and the pitch you give to co-founders should be different from the pitch your give to vendors, and so on.

Basically, it’s necessary to create numerous types of pitches for your company, as each should have its own distinct purpose.

How Do You Talk to Investors?

Even if you’re an experienced entrepreneur or businessperson, or you have a billion dollar idea on your hands, you still have to put in the work to perfect the overall presentation of your startup pitch.

For example, if you’re meeting investors at an event, conference, or mixer, it’s essential to present your idea in a conversational tone. For beginning founders, it’s tempting to cram your life story and everything that led up to the conception of your startup into one sentence. But blasting a potential investor with a barrage of information is a terrible way to generate interest in what you have to say. Focus on being casual, concise, and friendly, as this will keep investors, well, invested in your idea.

Another tip to keep in mind is that when you giving your startup pitch, investors are evaluating you just much as, if not more than, they’re evaluating your idea. Take brief pauses in between sentences to give them an opportunity to offer feedback. And remember, whatever you do, DO NOT get defensive when they question the viability of your idea, as investors are also gauguing you on how open you are to new ideas and how well you collaborate.

How Do You Find Your Startup’s Secret Sauce?

In the rush of launching a new startup, it’s easy for founders to develop the belief that their idea can solve a widespread problem and change the world in the process. This is wrong. Just because you perceive something to be a problem or an inefficiency, it does not mean that it is. Countless entrepreneurs have created “solutions” to what they thought were problems, only to have the product fail in a short amount of time. The problem is that they were solving the wrong problem or that they set out to solve something that wasn’t a problem to begin with. Like putting a bandaid on a bullet wound, building a solution for a nonexistent problem is utterly pointless.

The best way to overcome this feeling, and also to discover what sets your offering above others, is to conduct massive amounts of research into the problem you want to solve. Meet with the people who would actually used your product and take extensive notes on their routines and lifestyles to really determine what problems need to be solved. During this process, you may discover that what you thought was a problem isn’t a problem for your customers.

If you want even more tips on perfecting your startup pitch, check out the resources below:

• Startup Madlibs: Perfecting Your One Sentence Pitch

• The One Minute Startup Pitch Template

Did you know that [CUSTOMER CATEGORY] experience 
[MASSIVE PAIN]? This is a [MARKET SIZE] billion dollar 
opportunity in the US alone. [PRODUCT NAME] is a 
[PRODUCT CATEGORY] that [VALUE PROPOSITION]. Unlike other 
alternatives we, [KEY DIFFERENTIATOR]. The team includes 
[CREDIBLE TEAM BIOS] and we make money by [BUSINESS MODEL]. 
In essence, we are the [WELL-KNOWN ANALOGUE]for 
[ANALOGUE PRODUCT CATEGORY] and our vision is to 
[HOW WILL THE WORLD BE DIFFERENT? WHY DO YOU CARE?]. 
We have already [EXECUTED MILESTONES] and you are must be 
involved because [INVITE!].

• Perfect Your Elevator Pitch with the Pyramid Pitching Technique

What will be different about the firm of the future?

Some companies become synonymous with an era and help to define its characteristics. General Motors—the first company to create a multidivisional structure—exemplified the “professional management” era. GE, with its stock price rising nearly forty-fold under Jack Welch, typified the shareholder primacy era. Today, it is tech-based disrupters such as Google, Facebook, Tencent, Tesla, Alibaba and Amazon—as well more established companies like Vanguard, Starbucks, Haier and LEGO—that symbolize the emerging era. In their own ways, they each exemplify a new firm objective: to compete using the benefits of scale and the benefits of customer intimacy.

This is a change from the past. A long-held central belief of strategy has been that you can be big and low cost, or you can be focused and differentiated—but not both. Studies of dozens of industries have shown practically no correlation between scale leadership and leadership in customer advocacy. In fact, sometimes it’s an inverse relationship—that is, the bigger the firm is in its industry, the less likely it is to be the customer advocacy leader. But what if you could drive scale and experience and, at the same time, learn quickly what customers want and react to their changing preferences? Today, new technologies and analytic techniques are making it possible to minimize or eliminate the traditional trade-off.

Although it is enabled by technology, this change is not just about the tech sector. Nordstrom, the $14 billion apparel retailer long famous for its strong customer advocacy, has grown its revenue by 50% over the past five years in part through a series of investments to get even closer to customers. These include software that allows store associates to communicate with customers via texts and the purchase of Trunk Club, a personal shopping service. Starbucks delivers intimacy through the baristas at the front line while investing in a superior mobile experience, personalization and value based on loyalty program insights. Vanguard, the mutual fund giant, has combined large scale with technology and a focused, repeatable business model to drive down the cost of direct and advised investing. Its industry-leading Net Promoter Score® is based on a rigorous customer insights system and increased investments in frontline service. Figure 1 shows three more examples of firms that enjoy high relative market share and high rates of customer advocacy. Green shoots such as these show that even established companies are learning to transcend the traditional split between scale and intimacy—and to master both.

Underlying the historic trade-off between scale and intimacy is another very real tension—this one between size and speed. A seemingly constant truism for corporations has been that scale matters —particularly scale relative to your competition. Relative market share, properly defined, has been highly correlated with profitability and return on capital in most industries.

For firms of the future, scale will still offer potential benefits. But the dynamics of scale are changing. First, it is now possible even for small firms to access the benefits of scale without owning assets or capabilities themselves. Amazon Web Services, Salesforce, Workday and ServiceNow are at the forefront of a new wave of cloud-based capabilities that others can rent for a price. Second, the importance of speed relative to scale has increased across multiple fronts: time to market, time to gather and learn from feedback, time to make and execute decisions. Speed is now essential to customer intimacy. If people in customer-facing roles can make quick decisions and continuously improve their products and services, they will outstrip competitors. Third, just as digital technology and changing consumer expectations are pushing organizations to raise their metabolic rate, size often gets in the way. Bain & Company studies of organizational fitness reveal that companies with more than $25 billion in sales are more likely to be slower at decision making than their smaller competitors.

The experience curve was an essential tool for realizing the benefits of size: With more scale and experience comes the opportunity to decrease your costs. But firms of the future will have to develop a new kind of experience curve, one that takes speed as well as scale into account. They will need metrics that track their metabolic rate. They will need systems of operation that allow teams to work quickly on a specific problem, solve it and move on, rather than staying trapped inside annual planning and activity cycles. One sign of the pressure companies already feel to speed up is the rapid spread of Agile methods from IT departments to other parts of organizations. For example, National Public Radio now employs Agile tools to create new programming, John Deere to develop new machines and Saab to produce new fighter jets. Agile burndown charts are a rough-and-ready metric that lets teams see how fast they are working. One John Deere unit using Agile techniques compressed innovation cycle times for its next-generation tractors by as much as 75%.

Achieving full potential from such methods requires robust organizational learning systems, and some of the best ones are peer-to-peer. At Enterprise Rent-A-Car, the branch makes most of the key decisions that affect customer satisfaction; branch managers have great discretion to add or change features to improve the service experience, and they have the responsibility to follow up with dissatisfied customers. High-impact ideas are shared from branch to branch: Famously, a complimentary cold bottle of water in the shuttle bus, implemented independently by a driver in one airport branch, led to significant improvements in customer advocacy. News spread quickly via an all-branch phone call, and within 72 hours, every branch had made water bottles part of its service.

What this could look like in 2027: Firms will combine big data, which will be pervasive, with human intelligence from frontline interactions with customers, and the resulting information will all be instantly visible throughout the company. Transactional activity will be almost entirely automated; algorithms and machine learning will simultaneously reduce the need for routine interactions while opening up new avenues for customer engagement. Cloud-based service firms will become the default providers of back- and middle-office functions, dramatically shrinking the size of the average firm. Some firms will create enormous variety, with each offering carefully tailored to target customers—who may not even know they are dealing with the same large company. Products, services and experiences will blur.

When I meet with startups, I am often asked about accelerators and incubators and what the differences are between them. Startup accelerators and startup incubators assist entrepreneurs in the journey toward becoming successful companies, but each in their own way. However different these two processes are, many people confuse the two and use the terms interchangeably.

What is a Startup Accelerator?

The most distinct difference between accelerators and incubators is the time frame of each. An accelerator works with startups for a short and specific amount of time, usually from 90 days to four months. Accelerators also offer startups a specific amount of capital, usually somewhere around $20,000. In exchange for capital and guidance, accelerators usually require anywhere from 3 to 8 or more percent ownership of your company. As you’ll see below, these features make accelerators much more structured than incubators.

The accelerator journey is not an all-inclusive road to success. Rather, it is meant to help you get to a point at which you’re ready to raise larger amounts of capital. The goal of accelerators is to grow the size and value of a company as fast as possible in preparation for an initial round of funding. This closely aligns with the equity accelerators require in exchange for their guidance and resources. Some common and increasingly popular accelerator programs that you may have heard of include: TechStars, Y-Combinators and Dreamit.

What is a Startup Incubator?

With mentorship periods often lasting more than a year and a half, incubators focus less on quick growth and have no specific goal in mind for your company other than to become successful at the right pace. In fact, the goal of some incubators may be to prepare your company for an accelerator program. Incubators take little to no equity in your company, and can afford to because they do not provide upfront capital like accelerators. Many incubators are funded by grants through universities, allowing them to provide their services without taking a cut of your company.

Because many entrepreneurs are attracted by the opportunity to keep control of their startup and the absence of a 90-day time limit, you will most likely encounter more difficulty getting into an incubator. It may also be difficult to get accepted by an incubator if your networks aren’t connected in some way, as many only accept pitches from entrepreneurs with whom they already have a relationship. If your goal is to gain the mentorship of an incubator, be prepared to perfect and utilize your networking skills.

Advantages of being part of an Accelerator or Incubator

Whether you work with an accelerator or an incubator, there are pros and cons of both. For starters, the advice and guidance of mentors can help you avoid mistakes that could cripple your startup if you were trying to go your own way. Both options also provide access to capital that may have been otherwise unavailable, whether it’s during or after mentorship. Additionally, both accelerators and incubators provide the space to develop your idea. Lastly, being a part of an accelerator or incubator can provide invaluable connections, and some may also have networking events to help you boost your exposure.

Disadvantages of being part of an Accelerator of Incubator

Many advantages of incubators and accelerators come with an opposing disadvantage. For example, your routine and your vision are completely your own when working with only your team members. Working with an incubator or accelerator can impose the opinions of your mentors and take your idea in a direction your team doesn’t completely agree with. Working with these mentors is also a big time commitment, and will likely require you to spend time away from developing your product by attending meetings with mentors and/or investors. Additionally, your schedule depends on your mentors. Sometimes you may have to spend time speaking with mentors when you just want to get down to work without any outside influence, and sometimes you may want advice from mentors while they are busy helping other teams.

How do you choose?

Choosing whether to pursue the mentorship of an accelerator or incubator is a tough decision. First, you need to decide whether you need the guidance, capital, and other assistance they have to offer. With so many different accelerators and incubators out there, you have many options to find the one that best fits your company. Even so, an accelerator or incubator may not be right for your startup. For instance, if you’re only looking for capital, you may be better off reaching out to an expert to help you raise instead. Or if you have enough capital but need mentorship, you might want to utilize your network to acquire the mentorship of a veteran.

After choosing to pursue one of these mentorship programs, you need to decide whether you’ll benefit more from the quick growth offered by an accelerator or the unstructured progress of an incubator. In the end, only you and your team know what’s best for the future of your startup.

Starting a business is exhilarating. Unfortunately, the “build it and they will come” theory doesn’t hold much weight. Simply put, startup marketing is a unique challenge oftentimes because of limited resources – whether it is time, money or talent.

There are two fundamental truths that exist when marketing a startup: 1) A great product alone is not enough to succeed; and 2) No amount of marketing will make a crap product gain a mass audience. Successful startup marketing requires that you have both great product and great marketing. Or as David Ogilvy said: “Great marketing only makes a bad product fail faster”.

For early stage startups, feedback is more important than paying customers. The faster you can resolve customer objections, improve the product to match market demand the more likely you are to win over the long run.

But let’s say you have created a great product/service, what next? There are seven essential aspects that lay the foundation for an aggressive marketing strategy:

1. Viral marketing and growth hacking. The most successful startup marketing strategies are those that embed marketing into their product. Think of Dropbox, Eventbrite, Mailbox and Snapchat – they all acquired millions of users with almost no money spent on marketing. How did they do that? They built virality right into their product – their products were worth recommending so and they made it easy for their users to find other users and drive exponential growth.
2. Conversion rate optimization. Don’t be afraid to experiment to drive increased signups/usage/purchases. It is not the experiments themselves that are so important, but driving an understanding of potential customer objections. Use tools such as Olark (live chat plugin), Survey Monkey and UserTesting.com or just invite a potential customer to Skype/coffee/lunch to understand what it is that is driving customer objections.
3. Try Facebook Advertising – not so much to drive signups but as an ideal customer research tool. Facebook Ads are the best way to quickly and affordably verify who your audience is and what your cost-per-acquisition is for different demographic groups.
4. Install a customer feedback loop. A simple “give us feedback” form is not enough, use incentive, meet your users and study user behavior data tp understand where people fall off your funnel
5. Follow the innovation and target early adopters. If you go after the “mass market” too soon you may never make it to that next funding round because most users – consumers and businesses – resist change and are not receptive to products and services that are not already recommended by early adopters.
6. Fine tune your message for conversion. The “why” is as important in your message as the what or how. If you want to inspire someone to take action in a new direction, they need a deep motivation and you must begin with explaining why you do what you do and why that is important, not just what or how. Think Apple versus Dell. They both sell hardware, but one drives passion through the why of what they do while the other just sells bigger processors and more RAM at lower prices – which drives long lines?
7. Drive for differentiation in your marketing. When we are exposed to somewhere between 1,000 and 5,000 advertisements per day, how do you compete and stand out? The answer is by being a shepherd, not a sheep. You need to lead and differentiate in your marketing. This is more than just “first mover” advantage but about observing where everyone else is and being the opposite – it will allow you to stand out from the noise. Apply this from the most macro aspect of your marketing strategy down to the micro, and you will be amazed at how significant this is.

If you’re building a product, you have to be great at saying no. Not “maybe” or “later”. The only word is no.

Building a great product isn’t about creating tons of tactically useful features which are tangentially related. It’s about delivering a cohesive product with well defined parameters.

As Apple’s latest advert points out, there are literally tens of thousands of permutations of your product based on every addition, both minor and major. Most of these variations will flop. Only a select few will properly serve the market.

So many reasons to say yes

When your product gets traction, you’ll find yourself inundated with good ideas for features. These will come from your customers, your colleagues, and yourself. Because they’re good ideas, there’ll always be lots of reasons to say yes to them. Here’s 11 arguments in the style of Don Lindsay that are commonly used to sneak features into a product:

1) But The Data Looks Good

“We’ve tried this feature with a small group and engagement is off the charts.” Often this approach suffers from selective data analysis. Products are complex systems. What appears to be an increase in engagement is really just pushing numbers around from place to place.

Even if the data is solid, and the increase in engagement is good, you still have to question whether it fits within the purview of the product. Add Tetris to your product and you’ll probably see a boost in engagement, but does that mean your product is better?

2) But It’ll Only Take A Few Minutes

The main problem with this argument is that the scope of work should never be a reason to include a feature in a product. Maybe it’s a reason to bump it up the roadmap, but that’s a roadmap decision, not a product one.

Lots of bad ideas can be built quickly. Don’t be seduced. There are no small changes. Also, even the tiniest additions add hidden complexity that isn’t accounted for in the “but it’s just 5 minutes” estimate.

3) But this customer is about to quit

This is feature blackmail. No customer can be more important than a good product. The road to consulting-ware is signposted just this once for just this customer. It leads to the perfect product, for just one customer, provided you keep doing what they say. Delivering extra value to one customer comes at the cost of taking value away from many others.

4) But we can just make it optional

This leads to death by preferences. Making features optional hides the complexity from the default screens in the interface, but it still surfaces everywhere else. The visible cost of this is a messy interface with lots of conditional design and heaps of configuration. The hidden cost is that every optional feature weakens your product definition. You become “a time tracker that can also send invoices and, sorta, do payment reconciliation, but not reporting, yet, I think, I don’t know.”

5) But my cousin’s neighbor said…

This is the “appeal to the anecdote”. It is rife in consumer products, or in a SaaS company that can’t decide what precise jobs they do. Extrapolating from a tiny sample is an easy way to by-pass years of experience, research, data, and behavior to make a statement that sounds reasonable. Saying “my brother’s company use Google analytics, they all use advanced segments” is an easy way to make a case for advanced segments, bypassing the question of what your product actually does, whether your brother’s company are a good target customer, whether they actually use it or just say they do, and whether advanced segments are actually the right solution for what your customers are trying to do.

6) But we’ve nothing else planned

The devil makes work for idle hands. The problem here is that someone sees one or more engineers sitting idle and immediately rushes through a new feature to “keep em busy“. Decisions are rushed and designs are cobbled together all in the name of avoiding idle time. This is a bad way to “improve” a product.

Instead of adding to technical debt here, there’s an opportunity to pay some off. As anyone who has worked in a kitchen knows: “if you’ve time to lean, you’ve time to clean.” Idle time is best used fixing bugs, cleaning up test suites, refactoring, etc. rather than derailing a product vision just to “keep the team productive”.

7) But 713,000 people want it

Always beware when someone falls back to raw numbers to justify something. Any product with any amount of traction can make an emotive claim using numbers. E.g. “You could fill Dolores Park with people who have asked for Excel integration“. Such a claim forces you to take off your product design hat, and be one of the “people”. Are you really going to say no to all those faces?

You have to. Because the majority of your users will suffer otherwise. The question isn’t “could we fill Dolores park with people who want this feature?”, it’s “is this a valuable feature, within our purview, that all our customers will use?”

8) But our competitors already have it

That doesn’t mean it’s a good idea. It could be something they’re trying out. It could be a shit idea. It could be something they’re planning on killing. It’s a mistake to assume that your competitors are in any way smarter or more tactical than you. Obsessing about your competitor’s features relegates you to permanently deliver yesterday’s technology tomorrow.

9) But if we don’t build it someone else will

That doesn’t mean it should be in your product. If someone else builds it, do customers no longer need your product? Will they all switch over? Simply saying “someone else will” sounds good, but means nothing. I’ve caught myself saying it many a time. Often this is the logic used to expand a product because you’re not willing to admit your product stops somewhere. You’re afraid to draw the line.

Here’s an example: A typical date might involve a movie, dinner, and a lift home. If a cinema owner is constantly worried about what other businesses will build, and hungry to capture more value, they’ll put a restaurant into their cinema and start a cab company. Then they’ll be shit at all three. Then restaurants start screening movies…

10) But the boss really wants it

If the boss is also the product manager, and has the necessary time and insight to make smart holistic decisions, then this is fine. However, if someone is trying to earn brownie points by focusing on pet projects that their manager has a penchant for, this leads to trouble.

11) But this could be ‘the one’

Why is ‘No’ Important?

The thing is, no one keeps crap ideas in their roadmap. Identifying and eliminating the bad ideas is the easy bit. Real product decisions aren’t easy. They require you to look at a proposal and say “This is a really great idea, I can see why our customers would like it. Well done. But we’re not going to build it. Instead, here’s what we’re doing.”.

Source: Intercom, Inc.