Startup-CEO.com (Eli Portnoy)

Why is it that there is nothing worse than business travel? For all of the advancements we have made in the past 50 years, air travel has continually deteriorated. And no, I am not just talking about taking off our shoes, or checking in liquids, I mean the entire flight experience.

Last night I flew to Mexico City to visit our customer service office. I have never had such a horrible experience. My flight left at 1:50am and was supposed to arrive at 6am. Not only was the flight delayed, but everything about the flight experience was terrible.

One hour and fifteen minutes into a redeye flight, as you can imagine most passengers were sleeping, yet that is exactly when the flight crew decided to turn on all of the lights to serve drinks. This was incredibly insensitive to the needs of the passengers, and completely unnecessary. It would have been just as easy to serve with the lights dimmed or even off. There was no need to wake up the entire plane.

This might be a unique and extreme example, but it points to a deeper issue; flying comfortably is no longer a concern of the airline. They want to get you from point A to point B, much like they would any other type of cargo.

This is not just a rant against the airlines – there are great business lessons to learn about customer service and customer satisfaction. I believe that the problem’s the airlines are having with customer satisfaction doesn’t stem from the reduction in services (food, blankets, pillows), but from a change in the airline’s culture and attitude towards the customer. When Delta or American Airlines stopped providing pillows, they sent a message to all of their employees that customer service was secondary to cost cutting. The message they should have worked very hard to communicate was that everyone in the company will now have to work especially hard to satisfy its customers to make up for the lost perks and benefits of flying. Think about JetBlue or Southwest, by far two of the most beloved companies in the sky, and neither of them ever served meals. The difference? Their culture and attitude towards the customer.

So as a CEO, whenever you think of your customer don’t automatically think of adding extras and perks to keep them happy, but perhaps consider working on the culture of your business, and making it as customer friendly as possible. The customer knows when a company is trying to serve them because it loves them, or when they are throwing in perks because they want to get more out of each customer.

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There is a prevalent theory that in today’s world of limitless communication the easiest way for a start-up to launch is to rely on viral marketing. The idea is that whatever product or service you are introducing; the main distribution platform should be word of mouth. Proponents claim that the internet lubricates viral commiunication. They point to the successes of YouTube, MySpace, Skype, Facebook, and Flikr and infer that because these sites grew exponentially through word of mouth and they are internet based, that therefore all consumer facing internet properties can and should be distributed the same way.

I read a post in startup-review.com about Myspace. What I found most fascinating is that the launch for Myspace.com was more traditional than it was viral. It was only after it had achieved a certain user base that viral tactics began to work. This is an interesting fact that calls into question how a company should market itself in the internet age.

If we analyze the five companies that I mentioned as examples: Youtube, myspace, skype, facebook, and flikr, an interesting trend emerges. They are all products of the network effect. What I mean by this is that these sites are completely worthless without a network of people. Much like the fax machine is useless unless at least two people have it; these sites need a significant users base to be effective.

Youtube needs uploaders and downloaders. Myspace needs profiles and viewers. So does facebook. Skype needs callers. Fliker needs photos and views.

These sites did not work because of viral marketing, but rather they received viral marketing because they worked. Myspace and Skype are the clearest example of this. They both started with great distribution platforms, and only once they had that core group of users did these sites become more effective and worthy of spreading virally.

A second misconception is that a network site, once it has the network, tends to attract an even bigger crowed because it has a bigger pool of advocates to spread its message. While this might play some role in the equation, the reality is that the more of a network a site has the better product is, and thus it becomes an easier viral sell. As the site gets better and better, it is able to get users to speak about the product, and has an easier time keeping new members. It was only after our example companies became effective through their primary distribution channels that they started seeing their exponential growth.

What I am saying can easily be applied to the pre-internet fax machine. Initially it was difficult to sell a fax machine because there was no one to send faxes to. A lot of marketing and sales efforts were spent getting these machines into the hands of a few businesses, and eventually a network of fax machines was formed. The value of each fax machine increased exponentially, and before anyone knew it, people were jumping to get their hands on one of them. The viral/buzz was created not because there were more evangelists out there, but because the fax machine was becoming a really indispensable product.

Viral, word of mouth, buzz, and all other web 2.0 fads are great in theory, but in practice, if you want to build the next great consumer facing application, and rival the success of skype, myspace or facebook, then make sure you have a strong distribution network in place first.

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On Tuesday of this week I was invited to meet with a substantially large company. We were there to discuss our services and whether there was room for a joint partnership. I sat at the conference table in front of a two sr. executives and a product-line manager. The combined age of the 3 people I met with was around 6 times my own age. For every one of these meetings that I had attended, they had been to hundreds. They knew this and they tried to make the most of their “advantage”.

Experience is critical in business, and there are no books to read, no lectures to attend, and no shortcuts to take. It comes slowly, painfully and naturally.

We young entrepreneurs might not have the same experience as those who have been at it for 30 years, but our youth is a strenght as much as a weakness. We are able to bring energy and passion business and as long as we surround ourselves with experienced advisors, I like our chances.

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In yesterdays post I wrote about the importance of good projections when making purchasing and hiring decisions. In some cases though, it is impossible to make even remotely accurate projection.

Take for instance a web-based business about to launch that is trying to determine the amount of users and bandwidth that they will receive six months from now. They will most likely have an excel spreadsheet where they use the size of the market and a few other numbers to determine how many users will be on the site in 1,3,6,9,12 months and even as far out as 5 years. Not even the founders themselves will believe these numbers (most likely because they will think to themselves that they are being conservative). There is a 1 in a 1000 chance that the site will become the next youtube.com and hit the founders projections, but most likely the actual figures will be significantly lower. 

Having worked at a top management consulting firm, and having done countless market sizing projects for Fortune 500 companies, I can tell you with certainty that it is not only startups that have trouble with certain projections.

So the question for a startup CEO is how to make decisions where there is little concrete information, but where being on the low-end of the equation is equally as catastrophic as overspending on overly optimistic goals. 

A simple, yet effective, framework for making such decisions that we have started to use is to find what we call the “upgrade sweet spot.” That is getting to the point not where you can handle your expected traffic, but where you can easily upgrade to handle it later.

This means that you don’t need to spend the bank to be fully scalable today, and don’t skimp out so that you will have a problem tomorrow, but rather spend to the point where you can easily scale-up if it becomes necessary.

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So much is said about how critical it is to be scalable, but probably equally, if not more important, is not over investing in infrastructure. As a startup CEO, some of the most difficult issues that you must consistently grapple with are projections. Most startups live and die by their monthly burn rate, and so keeping costs under control is paramount. At the same time, most purchasing and hiring decisions have to be made a few months ahead.

What this means is that startup companies are always pressed between projecting growth and containing costs, and even the slightest mistake will derail the entire operation. In our early days I was much more optimistic about our projections and tended to plan accordingly. This meant that we had excess office space, staff and hardware capabilities, and it almost killed us. 

At the same time, under planning is equally as dangerous and much harder to swallow. It could potentially lead to the business dying because it couldn’t grow fast enough. That is like loosing out on the lottery because you didn’t have enough gas in the car to pickup the winnings.

After it became evident that our projections were killing us, we tightened all of our metrics, assumptions and growth rates and we gained experience. We also put a lot of emphasis on our projections and assigned responsibility and accountability for the numbers we were getting across our small organization. Over the past few months we have been getting better and better at projecting not only revenues and costs, but also users, bandwidth, hiring needs, and everything else that we depend on. 

If you are just starting a company, I strongly recommend that you do everything you can to manage projections, and to work as hard as possible to make sure that you have a good handle on them, because your business will live and die by them.

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A few days ago someone compared our trajectory to that of an old fashion popcorn popping experience.

Popping popcorn the old fashion way consisted of dumping the kernels in the pot, turning on the stove and waiting, waiting some more and waiting a little bit more. Just when you waited so long that you felt like it was time to just do without popcorn, you hear a pop, and then another, and another and another, until the entire kitchen comes alive with popping sounds.

I think it is the perfect analogy for a start-up. You put in so much time into getting the business ready, and aside from a few very lucky companies, results don’t happen soon or fast afterwards. Rather you wait, and you keep chugging along, until you cant wait any longer, and all of a sudden one good thing happens, followed by another, which leads to another, and before you know it things have picked up.

So if you are just starting or thinking of starting a business, bear in mind that the road will require patience. If you are already in the game and nothing seems to be working initially, don’t give up, it never happens right away. And if you are hearing popping all around you, congratulations, there is no greater feeling in the world!

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This past year has been a tremendous learning experience for me. It is a huge understatement to say that at 24 I did not have the experience necessary to start and run a company. Looking back, if there is one area where experience would have served me well is in how to prepare and run a meeting.

I am by no means an expert in this regard, but below please find some helpful pointers I have picked up a long the way about what it takes to get the most out of a meeting.

1.      Do your homework and prepare for the meeting

This one seems like a no-brainer, but I can not stress it enough. You need to know everything about the person you are meeting with, about their organization, and about their goals for the meeting. Take the time to look them up online, talk to people who know them, find out exactly who will be at the meeting, and think about why it is that they are meeting with you, and what they want to get out of it. 

2. Figure out what you want out of the meeting

Once you know everything there is to know about the meeting, think up a desired outcome. What is it that you are trying to get out of the meeting? What needs to happen at this meeting for you to consider it a success? This is not obvious. You might think you know what you want in general terms, but you need to be very clear as to exactly what you want to come away with. Are you trying to create a partnership? What kind of partnership? What terms? For how long?

3.      Have a plan B.

In some meetings your desired goals will either be shut down or it will become very clear that they are impossible in the first 20 seconds. You need to have an alternative agenda so that you can still assure a productive meeting.

4.  Map the meeting

So now you know exactly what you want out of the meeting, but you need to figure out how to get it. Map it out. Set up an outline of what you would like to cover, in a step by step fashion. 

5.      Memorize your opening sentence

Every meeting is decided in the first 5 seconds. No reason to leave this to chance.

6.      Memorize a closing sentence

There is nothing worse than a meeting that goes on too long. When you have achieved what you set out to do, have a closing sentence. This is especially true for a presentation. Knowing when and how to end is critical.

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Everyone is talking about Google’s attempt to go head to head with Microsoft over the office productivity suite, and I just don’t buy it. 

There are three main reasons why I don’t think this will happen:

1-     Large companies, which are the real money makers for Microsoft Office, are not going to make a switch. There is way to much invested from their perspective on the software and training to start experimenting with a new alternative, especially an advertising based product.

2-     Google’s product sucks. I hate to say it, but if you have tried their different office offerings, you would know that they just don’t work well. Not yet at least. I think we need 3-5 times the broadband speed for a applications to really be on-demand…up until then, they are just too limited.

3-     Google is terrible at launching new products. Other than search and maybe Gmail, what have they done lately? 

What this means is that for at least the next 3 years Google won’t even make a dent in Microsoft’s market share. By that point Microsoft will have the time to roll-out the next version of its product and fine-tune all of the collaboration tools they are working on. If they really feel threatened by Google, then they have Live.com to release a striped down on-demand version for the home and small office, with which to compete with Google.

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There is nothing that gets me more excited than developing a new technology. 

There are many aspects of business that I enjoy. I love teaching and managing people, it is hard to pull me away from a strategy session, and I love forming partnerships. That being said, there is nothing that sparks the adrenaline rush quiet like the process of formulating and implementing innovative technology solutions.

I love the feeling that comes with solving a big problem, and it is only magnified when I can get my hands dirty designing the framework for the solution. I love shaping, refining and implementing technology, and doing things that haven’t been done before. 

If you have ever felt the thrill of imagining a new solution and building it from the ground up, shaping it in your head and then seeing it come to life, then you know what I am referring to. It is one of the most rewarding parts of working in a start-up.

A few days ago we solved a significant hurdle for our company, and over the last few days we have been developing the framework for this solution. I can feel it through my veins; I am really pumped to get this going. There will be some very long nights, but the adrenaline is already pushing me to move harder and faster. 

See you at the finish line.

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In the previous post I wrote that everyone has an idea, but you need a lot more to start a successful business. 

While execution is more important than ideas any day of the week, there are certain concepts that are better then others. A good idea won’t build you a company, but it will make your task a little easier. So I thought it would be interesting to write a few lines on how I structure ideas to determine if they workable or not.

As soon as I think of an idea I try to pass it through a number of simple filter questions. 

1 - Can I explain the essence of the concept in 10 seconds or less (not how it will work, but what it does)?

This question is critical, because if I can not say what I will be doing in less than 10 seconds, then I probably will not be able to communicate it to customers, investors, family, friends, or partners. 

2 – Is there a need for the idea? What is the value will it add?

Some ideas are very exciting and cool, in that they make use of very innovative concepts or technology, but at the end of the day they don’t add any real value and thus are not great business ideas. One example is Sony’s dog robot, which was very cool, but did absolutely nothing and thus never worked as a business imitative. 

3 - Do users have to change their behavior? If yes, do the benefits outweigh the current alternative by at least 10 times?

This is one of the central arguments in the book Pip Coburn’s The Change Function. Getting people to change their behavior is tantamount to moving mountains, and so even if the benefits to the customer are huge, I still try to stay away from these types of businesses. Only if the benefits are very clearly seen, quickly realized, and of a huge magnitude, will I even consider passing such ideas through the rest of the filters. 

4 – Is there a revenue model?

It might be a great feature, a useful service, or a fantastic idea, but if there is no business model than I might consider it as an extracurricular activity, but it drops dead as a business idea. 

5 - Who is the customer?

By this point in the filter system I should know very well who the customer is, but knowing isn’t the same as knowing. In order to take the idea further and start spending more time on it, I like to be able to identify exactly who will pay my bills, and seeing if they have the money to spend, whether they will spend the money, and finally, if they will actually end up buying this product/service. 

6- How will I reach the customer?

This is I think the most overlooked filter. There is a general feeling that if you build it they will come, which couldn’t be further from the truth. More businesses fail because of a lack coherent marketing plan than anything else. That being said, this filter isn’t meant to require a marketing plan, but just a quick conceptual idea of how you might be able to reach your customer. Come up with a couple of general concepts at the least.

Bear in mind that these filters are just a starting point. There is still a lot of work that needs to be done. You need to talk to potential customers. You need to get feedback from people in the industry. You need to put together a financial model. You need a business plan. There are hundreds of steps that still need to be taken to get from idea to potential start-up, but before you waste your time, make sure the idea passes these few filters.

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