The kind of spontaneous publicity that makes people

Posts by Reid

Business Model Generation gives you the canvas but doesn’t teach you to paint like da Vinci.

Apr24
2011 1 Comment Written by Reid

Business Model Generation book coverOne of the books getting buzz in the startup community these days is Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Currently it is #158 in Books on Amazon.  I read through it a week or so ago, and it is a useful addition to the entrepreneur’s library.

The book has five major sections.  In the first, the authors introduce their notion of a business model canvas broken down into nine constituent parts.  Some of these parts are obvious things that anyone trying to think about a business model would examine such as customer segments, value proposition, channels, customer relationships and revenue streams.  The canvas adds in the other pieces (key resources, key activities, key partnerships and cost structure) and adds an organizational overlay that lends itself to analysis.  The second major section takes a look at five different business models and fits them into the canvas.  The third section, called “Design,” describes various techniques such as visual thinking, ideation and prototyping, “that can help you design better and more innovative business models.”  The Strategy section then takes the earlier concepts and combines them with other strategic approaches such as SWOT analysis and Blue Ocean strategies in order to determine where opportunities for improving models may lie.  In the final major section, “Process,” the authors lay out a roadmap for running a business model design initiative.

Note that much of the book relies heavily on concepts and work originated by others.  This is actually a great strength since it pulls together a lot of different theories and presents them in an easily digested form.  The writing is accessible, and it may be that many of the concepts are more easily absorbed here than in the original source materials (all of which are conveniently referenced in case you want to explore further).

The notion of the canvas is new, and it does have an organizational elegance about it that is appealing.  One of the points in the first section is that the first five constituent parts of a business model are all about value, whereas the final four are all about efficiency.  This makes it easy to see why it made sense for Amazon to unbundle its businesses into an e-commerce line and an IT infrastructure management line.

Aside from a few styling miscues (tiny white print on a black background on some of the pages, really), the major complaint about the book from me — and many others — is that it lacks depth.  Most of the case studies are short and the answers are dished up without consideration of the iterations that must have been required to get there.  This book is trying to present a generalized way of looking at business models — and I would say that it succeeds very well at that task — but nothing beats seeing the concepts applied in real time rather than in retrospect.  For people that are interested in seeing the canvas in action, I highly recommend reading about the Lean Launchpad project at Stanford on Steve Blank’s blog.  Think about it as an advanced class after you read the book in the introductory class.

Posted in Entrepreneurship - Tagged ,

foursquare’s messy Places database slows adoption

Jun26
2010 Leave a Comment Written by Reid

This probably qualifies as so obvious as to deserve responses of “duh,” but a recent business trip really brought home to me one of foursquare’s biggest problems. The Places database makes my Outlook Contacts folder look like a model of organization. Its cluttered state makes the process of checking in to a new Place pretty tedious. I stayed at the Waldorf Hilton Hotel on Aldwych in London. Right now, there are at least three different entries for this hotel. There is The Waldorf Hilton, Hilton Waldorf hotel London and Waldorf Hotel. Figuring out which one to check into is particularly awkward on the Blackberry app because there is no way of knowing which of several duplicate entries might be the “right” one. You can’t tell that the first entry has been around the longest and has had the most number of unique visitors until you look them up on the main foursquare site, which you are probably not going to do on your phone. All told, three of the places around my hotel where I wanted to check in had duplicate entries. foursquare needs to improve this if they want their business to scale beyond geeks and early adopters, particularly given looming competition from Yelp and Facebook.

foursquareforumGiven how common the problem is, you would think that there was an easy way to propose merging duplicate entries. Being a lean, crowd-sourced startup, foursquare relies on “superusers” to do this work for them. Currently, the only way to report duplicates is to go to Foursquare’s Get Satisfaction forum and enter it into a duplicate merge request thread. I’m not very familiar with Get Satisfaction, but their bulletin board system doesn’t strike me as a good tool to manage this process. My first quibble is that you can’t log in using your foursquare credentials. Second, only the most recent fifteen entries in a thread are visible, so the odds are high that your merge request will get bumped down off the page before a superuser sees it. The coup de grâce? You have to figure out which thread to which you should post your duplicate merge request. That’s right, they have duplicate threads to report duplicate Places!

Posted in Social Media - Tagged ,

High school sophomore raising $4.2 million for Juvenile Diabetes using the Internet and Social Media

Feb10
2010 4 Comments Written by Reid

ZTC_Logo_finalWhen I was a sophomore in high school, my fundraising activities were limited to buying things at bake sales.  Even my more motivated peers were limited to looking for walkathon sponsors, organizing car washes or selling cookies, wrapping paper or citrus products.  While some of them may have wanted to aim higher, they were limited as to the number of people that the could reach in the time that they had to devote to the cause.  Nowadays, the ambitious kids are not content to raise a hundred dollars from neighbors and co-workers of parents.  Instead, they are leveraging technology and social media to raise millions.

Monica Oxenreiter is a sophomore at her high school near Pittsburgh, and she would certainly be counted among the ambitious crowd.  She was diagnosed with Type 1 diabetes at the age of thirteen months.  Her brother also has diabetes.  As a result she has been active with the Juvenile Diabetes Research Foundation.  When she was in middle school, she had the idea that perhaps she could raise $100 from every zip code in the United States, and her project, Zip The Cure, was born.  ”My brother and I were both JDRF Children’s Congress delegates in 2005, and while we were there we met so many amazing people who were really dedicated to finding a cure that we wanted to find a way to connect everyone,” said Monica when I spoke with her the other day.  ”Zip codes seemed like a logical thing.”  Part of the appeal of the zip code aspect was that it would lend itself to having a national map that could be colored in as each zip code hit its goal.  At the time, Monica didn’t know much about Google Maps or even how many zip codes there were in the United States.  It turns out that there are over 42,000, making the idea potentially worth as much as $4.2 million in donations to the JDRF.

Starting when Monica was in the eighth grade, she and her family began the process of setting up a not-for-profit corporation and gaining approval from the JDRF to act as a fundraiser.  She then had to get the Web site built.  While her father could get it going, they needed someone who could use the Google Maps API to build the map.  When Monica had no luck finding help at university computer science departments, she cold-called a programming consultant and was able to negotiate a substantial discount to his normal rate.  PayPal then provided the mechanism to collect donations, and zipthecure.com was ready to go.

“The most difficult thing so far has been getting the word out,” said Monica. Zip The Cure currently has over 900 members of its group on Facebook. Twitter is lagging behind with only about 80 followers.  ”I am more familiar with Facebook than with Twitter, so that was the natural place to start,” according to Monica.  She also feels that blogs have proven to be a potent source of interest,  ”While we have had attention from the traditional press, getting coverage in diabetes-related blogs has been the most successful in driving traffic to the site.”

Although technology and social media have made projects like this feasible, they haven’t become easy.  Monica estimates that she spends about 35 hours a week working on Zip The Cure, including maintaining the site, generating awareness, soliciting donations and keeping volunteers in the loop.  She has to put this time in after school and on weekends.  Monica has also learned “that she shouldn’t take ‘no’ personally.”  All of the hard work is beginning to bear fruit however.  Currently, over 150 zip codes have been sponsored generating more than $15,000 in donations for the JDRF.

What advice does Monica have for other young people looking to do something meaningful?  ”The most important thing to do is to concentrate on the positive and not get discouraged,” she says. “There are so many really generous and great people out there that are willing to help you, and you can make a difference.”

Posted in Social Media - Tagged , ,

Do you know the difference between in spite of and because of?

Dec15
2009 Leave a Comment Written by Reid

Every business has to balance things that its customers like with things that its customers don’t like.  Someone might buy my product in spite of its high price because of its superior quality.  Other people might buy something from Wal-Mart in spite of its lack of social prestige because of its low price.  Sometimes, these relationships are counterintuitive.  That $100 designer T-shirt?  People may buy it in spite of the fact that it is just a T-shirt because of its high price.  In these situations, managers can get confused as to which is which.

Last week, I went to Otto Enoteca Pizzeria down in Greenwich Village.  This is a busy place where the menu consists of three pages of wines and one page of food.  While one of my fellow diners consulted with the sommelier on our wine, I perused the food possibilities.  The food selections consisted of a variety of elaborate pizzas and pastas.  Although there were a few things on the menu that caught my eye, what I really had a hankering for was a basic pizza with sweet Italian sausage.  There was no such thing on the menu, so I asked if I could get a pizza margherita with some sausage added on.  Sadly, the answer was no.  The chef did not permit any substitutions.  After we ordered, my three fellow diners commented on how the place had a good vibe.  I allowed as to how that was the case, but then caused a bit of a stir when I added, “but I will probably never come here again because the chef thinks he is more important than the customers.”

The chef probably thinks that people come there because of his ability to mix ingredients into sublime pizzas, so he thinks that it is important that no one else gets to choose how to combine the ingredients.  In reality, his customers come in spite of his unnecessary restrictions because of any number of other things, not the least of which is that they don’t care as much as I do about being able to order exactly what they want.  If the chef were to relax this policy, he wouldn’t lose any of them, and he would gain all of the people like me.

As it turns out, I might go back to Otto in spite of the no substitutions policy because of the outstanding job our sommelier, Krista, did with our wine selection.  The more in spite ofs that you have, the more because ofs you need to have to compensate.  In this case, Otto has just enough because ofs to compensate for its in spite ofs.  Logically, you should eliminate unnecessary in spite ofs whenever possible so no compensation is necessary.  You should also ask yourself whether any of your because ofs might actually be in spite ofs.  The answer might surprise you.

Posted in Marketing - Tagged

What should you tell a VC? Fred Destin vs. Eileen Burbidge

Nov29
2009 2 Comments Written by Reid

In his recent blog post, Fred Destin said that an entrepreneur should never tell a VC three things when fundraising:

  1. How much cash you have and when you are running out of money.
  2. Other investors that you are talking to.
  3. Your detailed cap table and your last round valuation.

I should note that Fred was not advocating giving false information when confronted with these questions or that you should hope to never have to reveal anything along these lines, just that you should give a “non-answer” answer until a more appropriate point of time in the process.  The comments to his post ran the gamut from well informed to jaw-droppingly naive.  One commenter, Eileen Burbridge, disagreed with Fred on all three counts.  As she was writing her comment, it ran long enough that she decided to put up a post of her own rebutting Fred’s position.  The debate then continued in the comments to her post, including comments from Fred (you have to love the blogoshpere).

In my prior life, I raised a lot of VC money for dozens of clients while at Alex. Brown.  My partners there worked on hundreds of other deals that we talked about constantly.  So, although it has been a while, I know more than a little bit about this stuff, and I thought that I would chime in with my own point of view.

Fred is absolutely right on point 2.  He is also right on point 1, but it may not make a difference.  Eileen is right on point 3.  Let’s take them one by one:

Should you tell a VC how much cash you have and when you will run out of money? Fred’s point is that you should avoid signaling desperation even if you are, well, desperate.  Eileen’s point is that your cash balance and burn rate are not too hard to verify and you risk looking insincere (best case) or dishonest (worst case), when the facts come to light.  My view is that if you come right out and tell a VC you are out of cash in six weeks, he or she will think that you are an idiot.  If you tell a VC that you have enough cash for 12 months when you don’t, he or she will think you are an idiot once they figure it out.  The only way to avoid this situation is to make sure that you do not end up there in the first place.  Make sure that you have at least six, and preferably nine, months of cash before you start fundraising.  If you don’t have that much cash, it is time to hit your existing investors up for a bridge.  If they are not willing to bridge you in this situation, your odds of raising VC money on decent terms are close to nil, so you really need to revisit everything anyway.  Even then, you want to put as brave a face as possible on the situation without actually appearing clueless.  Regardless of how much cash you have, understand that it is generally in the VCs interest to slow the process down.  They get more information about how the business is performing and you get more desperate.  The best way to counter this is to have multiple conversations going at once to foster true competition for your deal.  Which brings us to:

Should you tell a VC about others firms with whom you are talking? Fred says that he always asks this and always gets the answer.  In his case, he says that he only uses the information to make sure that he is not falling behind, but that other less reputable people will collude on terms and drive the valuation down.  Eileen thinks that VCs should compare notes and that it is more efficient when entrepreneurs make this easy.  Let me make this perfectly clear.  You NEVER tell a VC who you are talking to or where you are in the process with specific other potential investors.  As Fred points out, the worst case is that those investors will gang up on you.  Even if they don’t do that, the “comparing of notes” that Eileen alludes to is  bad for the entrepreneur because if one potential investor does not like the deal, it either makes every other investor nervous or informs them that there is little or no competition for the deal.  The only situation where it is to your advantage to have VCs talking to each other early in your fund raising process is if your deal is so hot that they are tripping over each other to get the deal and it turns into a feeding frenzy.  If that is the case, then none of this applies.  Please note that at the end of the process, you can bring two parties together.  Once you have a term sheet from firm A and another from firm B, you can introduce them if you feel so inclined.  You can tell firm B that you are going to go with a firm that offered a better set of terms and offer to see if they can get in if they are prepared to do the deal on those better terms.  Just be aware that you still may end up with both firms signing up to the less attractive set of terms put forth by firm B.

Should you tell a VC about your detailed cap table and your last round valuation? Am I suggesting that you slap down your full cap table including specific option grants to individual employees and related exercise prices at the first meeting?  No, but let’s be realistic.  You probably already have your board members listed on your Web site.  If you have had a prior round of venture funding, it is probably already in Venture Source.  With respect to valuation, there are only three possibilities.  Your last round was either too high, too low or just right.  Although you might not want to get anchored to your last valuation if it was on the low side, the last two really don’t pose much of a problem.  If your last round valuation was too high, you are better off addressing this elephant in the room up front.  Saying that you and your existing investors understand that your current round will be based on current conditions may help convince the VC that he or she won’t be wasting his or her time by digging in on your deal.  In my experience, it would be a real head-scratching moment if you weren’t prepared to talk about these items at a high level even in the first meeting (or phone call).

When raising money, you want to do everything possible to develop alternatives.  Encouraging potential investors to wait until you are on life support or giving them a road map to narrow your  options down to one is suicide.  At the same time, in order to get a deal done, you will have to allow them to perform diligence.  Deal with item three when it comes up or bring it up if it has the potential to derail things later.  Item two will become apparent when you give VCs your financials, but it is fine to put the best face on things until they draw their own conclusions.  Lastly, keep item three close to your vest forever (or until the very last minute if you really want another investor in the deal).

Posted in Venture Capital - Tagged ,
Page 1 of 212

Switch to our mobile site