startups Archives - NeilSoni.com

Customer Mirage: Risks of Signing A Large Company As Your First Customer

Imagine you’re in a hot, dry desert and desperate for water. You’ve been walking all day and the thought of drinking nice, cool water makes you ecstatic. Suddenly, you see it! A pool of water in the distance. You hurry towards it, running as fast as your legs will carry you. But when you arrive, all you find is sand. Damn sand!

You’ve just experienced a mirage. And this is exactly what it feels like when you’re looking for that first customer and close a whale. You’re desperate for validation and revenue. If only you could get that big name-brand customer, investors would be tripping over themselves to give you money! TechCrunch would write about you! The cash would be rolling in and all your worries would be over!

After weeks or more likely, months of emails, calls, negotiation, and nervous waiting, you finally land a deal with a WHALE, a well known publicly traded company. Not just any deal – this deal starts with $100k+ in revenue and has the potential to bring in much, much more. This is the inflection point right? It’s all #winning and *crushing it* from here!

Unfortunately it usually doesn’t work like that. If your first customer is a large company, the deal is more likely to be a mirage than the start of a winning streak.

The Art of Rejecting Startups

Corporate innovation people get pitched by startups All. The. Time. In theory, a startup may reach out or be introduced and they’re a perfect fit at the perfect time, leading to a quick deal. I’ve personally never seen a deal happen that smoothly and certainly wouldn’t bet on it. The far more likely scenario is you’ll be rejecting startups that reach out to your corporate innovation group.

Startups are rightly rejected by large companies for a variety of reasons. The startup may have misinterpreted the corporation’s existing capabilities or the corporation is already building a similar solution, internally or with an external partner. But many times, a startup with an objectively needed capability comes around – and yet, the timing isn’t quite right so a deal doesn’t get done. Sometimes the issue is budget. Other times, it could be an attention problem – decision-makers are focused on another, more important problem.

No matter the reason, the world is always changing and corporate needs are no different. Smart corporations (similar to VCs) are great at saying no while leaving the door wide open for future collaboration when a need arises. There’s a fine line between misleading a potential partner and clearly saying no but leaving the door open for future opportunities.

Corporate Startup Lab Demo Day 2019

Last week, I had the pleasure of attending and keynoting Carnegie Mellon University’s Corporate Startup Lab Demo Day. My friend and mentor Sean Ammirati first shared the Corporate Startup Lab model with me in 2017 and I’ve been a fan since Day One. The idea is to bring together Fortune 500 companies with interdisciplinary teams of students to build internal startups solving problems and developing new business models.

Inside Outside Podcast Interview

I recently had the opportunity go on my friend Brian Ardinger’s podcast, where we spoke about The Startup Gold Mine. We were able to get into a few different things, including:

Startups and corporates speak a different language

Different timeframes
Size of deals
Response times
Number of stakeholders

Corporate incentive structures for successful partnerships

How comfortable is the corporate team in innovating? If comfortable, they’ll have a higher tolerance for misses. Look at the entire portfolio.
Companies that allow intrapreneurship give employees new outlets to thrive.
Allow more employees to scout for deals – innovation can come from all parts of the organization.

What are the benefits of startups-corporation collaboration?

Inside large organizations (10,000+ employees) it’s an echo chamber. They only see direct competitors.
Need someone looking outside of direct competition. Expose the corporate team to new ways of thinking.
Startups also get exposure to see how their tech can apply to different domains.

You can listen to the podcast on iTunes, Spotify, or your favorite podcast player. Learn more about this and other great innovation episodes on the Inside Outside Innovation website.

Make sure to grab a copy of The Startup Gold Mine at your favorite bookstore!

Hustle to Freedom Podcast Interview

I recently had an opportunity to chat with Ryan Helms on his Hustle to Freedom podcast. It was a pretty wide-ranging conversation that included lots of background on Unlimited Brewing as well as The Startup Gold Mine. In particular, we got into how to start a business as a side hustle and de-risk it along the way. This episode should be useful to anyone interested in side hustles, beer, and problem solving.

Give it a listen and make sure to subscribe to the podcast!

Four Common Mistakes Startups Make When Selling to Large Companies

For the typical early stage startup, closing a deal with a Fortune 500 company can provide a huge boost in morale and momentum (and hopefully cash). Enterprise deals are a signal for investors to indicate traction, a common source of free media attention, and a key factor when potential employees will weigh your offer against other opportunities.

Over the past several years, I’ve sat on the corporate side in my role building the External Innovation group at The Estee Lauder Companies, where I’ve worked on 200+ deals with startups of all sizes. Before that, I sat on the startup side of the table and led growth at several venture-backed companies; closing enterprise deals with companies like Proctor & Gamble, LinkedIn, Spotify, and Honda.

With this dual background, I’ve seen (and made) my fair share of mistakes in building startup-corporate interactions. Avoiding the mistakes below just might be the difference between celebrating a deal with a new enterprise customer and sitting on the sidelines wondering what happened. To paraphrase the classic sales quote from Glengarry Glen Ross: champagne is for closers.

Mistake #1: Assuming Large Companies Have Limitless Cash

Yes, you may be pitching to a billion-dollar company but the person you’re pitching to doesn’t have a billion-dollar budget. While corporate budgets may (keyword: may) have more wiggle room than startup budgets, your corporate counterparts are still dealing with many demands on a limited budget. On top of day-to-day budget concerns, large companies, even successful ones, may implement spending freezes for specific departments. It’s entirely possible that your potential customer will be comparing your product with something in a completely different industry, simply because you’re competing for the same budget dollars.
Have some empathy for the budget concerns of your corporate counterparts and it’ll pay off by differentiating you from other salespeople they encounter.

Mistake #2: Trivializing Deep Corporate Knowledge

While it is possible that your startup is “changing the world”, the Fortune 500 companies you’re pitching to have already changed the world and know a thing or two about how things work. There’s nothing more annoying to your corporate counterpart than trivializing the deep knowledge they have of their industry.
You can also run the risk of shooting yourself in the foot by extrapolating current trends in your presentation. Do you really think you’re the first person to tell a corporate innovation director with twenty years of experience that artificial intelligence is going to take over every industry by 2030? Whether you’re right or not, the point is they’ve heard that story before and may view it as a sign of arrogance. Showing some humility and using phrases like ‘our hypothesis’ go a long way towards establishing your honesty and credibility.

Mistake #3: Using Too Much Startup Jargon

True story: the first time I mentioned the word “accelerator” in a corporate R&D lab I was consulting for, a senior scientist gave me a confused look and said he “didn’t realize particle accelerators were funding startups now”. While this may initially make you facepalm, it was a great reminder that those of us in “startup world” truly live in a bubble that most of America, and the world, are not part of. Taking the startup jargon down a notch will help you get your point across.

It sounds cliché but knowing your audience is the key to effective communication. When pitching to individuals who’ve spent their entire careers in large companies, avoid using startup words that they won’t understand and connect with. It’s not the job of the audience to figure out the presenter – but it is the job of the salesperson to make sure their pitch isn’t going over the audience’s head.

Mistake #4: Ignoring Implementation Costs

In the omnichannel world we live in, any large company with a physical retail presence is constantly pitched new in-store technology concepts. While the startups offering these technologies are charging reasonable prices (often as low as $30/location/month), what is often ignored is the cost a company must incur to implement a new technology. For example, a technology that provides customer intelligence via iPad to in-store sales staff so they can sell better requires an extensive training program, troubleshooting, and potentially even in-store hardware upgrades. So even though a technology like this may only cost a total of $6,000 per month (200 locations x $30/location/month), the implementation costs (for things like hardware and training) across 200 locations could easily exceed $100,000.

Implementation costs are difficult to avoid entirely but there are steps startups can take to help their clients reduce costs and get themselves closer to signing a deal. These steps include negotiating reduced hardware pricing with manufacturers, assisting with or even providing free training, and offering to troubleshoot software issues for sales staff. Whatever you do, the important thing is to make it feasible and simple for the large company to say yes to working with you – and that doesn’t always involve the price of your actual product.

*****

Once you’re able to snag a meeting with a decision-maker at a large company, it means you’ve got their attention. They are interested (albeit at a very high level) in what your product can do. That said, these decision-makers are looking at dozens of other companies who are competing for the same budget. The easiest thing for a decision-maker to do is say no and any of the mistakes above give them an easy out. By always keeping your audience in mind, being empathetic to their concerns, and avoiding critical mistakes, your probability of closing a deal goes way up. And that’s ultimately the outcome that both large companies and startup salespeople are after.

This post originally appeared on the Global Accelerator Network blog. Thanks to Joe Benun for feedback on an earlier version of this post.

Most Business Books Are Unnecessary

Most business books are unnecessary to read if you’re reading to learn something. When I say unnecessary, I don’t mean the information provided in them isn’t helpful. I mean that there’s nothing you can find in those books that couldn’t be learned from a couple of blog posts. I notice this more with newer books than older ones but that’s probably because the older books that have survived and are read today actually have some worthwhile ideas.

Most business books simply repeat ideas that have already been talked about 100 times elsewhere. Now that’s actually fine – IF the book expands on those ideas with longer anecdotes and examples OR it organizes the information in a way that makes it more accessible to the reader.

For example, Traction does a great job of organizing information in an accessible format. Everything contained in Traction can be found online from various sources. The real value of the book and having it available as a reference is that it pieces together information in a coherent format that saves you time and energy. Last time I checked on Amazon, Traction cost $10.64 for the hardcover edition. Would I pay $10.64 to have this set of resources on my desk any time I want? Hell yea – and it’s sitting on my desk right now.

Another example of a business book worth reading is Ben Horowitz’s The Hard Thing About Hard Things. Ben’s been in the trenches with a few companies and has some amazing stories to share – I can’t recommend this book enough if you’re a founder or have any thoughts of becoming a startup employee or founder someday. The book is about 300 pages long but when I finished, I found myself wishing it was longer because the examples and stories were so good.

Benedict Evans and Chris Dixon have some pretty entertaining tweets about business books and I think they’re spot on, Benedict’s quote in particular. Business books make “business people” (whatever that means) feel productive and good about their reading time. Kind of like most self-help books, they’re written in a way that makes sense and has you nodding your head until you actually think about the application and you realize that you just read a bunch of fluff.

Last week, I read Seth Godin’s Permission Marketing, which was written way back in 1999. It’s a smart book and was definitely revolutionary when it came out but probably 75% of it was unnecessary. The entire 200+ page book is about the concept of getting permission from consumers to market to them with the prime example being email newsletter signups. Solid concept but not nearly enough detailed examples to warrant 200 pages. I saw the same thing while reading The Lean Startup by Eric Ries. Another great concept but again, too much fluff.

While you shouldn’t categorically reject business books, be careful which ones you invest your time in. Often, you’re better off spending your time reading books about history, philosophy, psychology, or biographies if you’re reading to learn something. You’ll find that those are usually more relevant to solving your problems than business books are.

The One Thing They Don’t Tell You About Growth Marketing

True or False: Accomplishing your goal 30% of the time is good.

The answer: It depends. If you’re in school and only getting 30% of the answers correct, it’s probably time to stop reading this post and go hit the books. But if you’re a baseball player and have a batting average of 0.300, then you’re one of the better players.

Growth marketing, especially for startups, is more similar to baseball than it is to school. You’ll try tons of different tactics and strategies to grow – the phrase we use is “Throw s**t against the wall” – and most of it won’t improve your growth rate at all. Of the few things that do work, most of them won’t be scalable and allow you to grow 10X. Finding a scalable growth tactic that works is a bit like trying to find a needle in a haystack, except in this case, you don’t even know if there is a needle hidden in the haystack.

So if most things don’t work, how do you find the things that do? By doing lots of customer development and experimentation, which requires a completely different mentality than schoolwork. This was the most difficult leap for me – realizing that my answers were going to be wrong more often than they were right – and being OK with that. It’s hard to overstate the difficulty of this mental switch. We go to school for 12 years and then years of college and/or grad school with the “I should always get the right answer” mentality, which is counterproductive to being a good growth marketer.

The best way I found to handle this leap is to think like a scientist. I start with a theory, for example a new pricing strategy, and then develop an experiment and hypothesis to test that theory in the real world. Testing can only be done by putting your idea in front of customers/users. I try to pick a big enough sample size to make the experiment relevant (sample size depends on what you’re doing/selling) but keep it small enough to where I can speak with the customers individually to learn why they are saying yes or no. Unfortunately, thinking like a scientist is not taught in high school or undergrad, even if you major in science or engineering. It’s something you have to develop on your own.

The last piece of advice I’ll give on this is that successful growth requires thinking outside the box to find something that clicks (terrible pun…). At Mom Trusted, we experimented with phone, direct mail, email, fax, social marketing, SEM, SEO, conferences, and many many more tactics (with lots of iterations in each of those categories) in order to find the channels that worked. Other companies, like Eat24, have gone even more outside the box by advertising on overlooked web properties (including porn sites). All of these tactics were figured out through data-informed (not data driven) experimentation.

Thinking about growth marketing like a scientist is a skill and like any skill, it can be developed through practice and study, with practice being more useful than study. If growth is something you’re interested in, I strongly recommend getting real world experience as soon as possible.

Disruption Is Counter-Intuitive

Question: Pre-Uber, how many startups were trying to disrupt the transportation industry?

Answer: No clue but way fewer than there are right now. Transportation was always viewed as an old school, unwieldy, high investment dollar industry that only fools invested in. The closest we came to transportation disruption was Zipcar and even that seemed like an uphill battle the entire time. However, they paved the way for Uber to come in and fully disrupt transportation and potentially other industries as well.

Today, with Uber being valued at greater than $15 billion, transportation is viewed as a “hot” industry and startups are popping up all over the place.

Never mind that everyone has known taxis were awful since the first time they ever rode in one. It was always just one of those things we lived with:

“Oh man, I gotta carry enough cash for the cab”
“It’s impossible to get a cab in this city” (not in NYC or Chicago but everywhere else)
“I hope this cab takes credit card”

Most of us probably thought, “well this is the way taxis are and have always been”. It’s only in hindsight that the disruption seems so obvious and inevitable.

I can’t see the future but here are some “old school” industries that may be ripe for disruption in the next few years:

Government Services

Arguably, Uber fits in this category since part of the reason for their explosive growth has to be because government has done such a terrible job with public transportation services. Think about how low the bar is with bus or subway service. I’m happy with my BART trip as long as there aren’t any bodily fluids on the seat I’m sitting on.

Parking

Similar to above – how is it that cities have tons of available parking but since they are on private property, no one can park there? That’s lose-lose for both the property owner and the person trying to park. Win-win is so much better and I guarantee one of the parking startups out there (or maybe one that has yet to be created?) will gain mainstream adoption and completely change city parking for the better. As someone who hates (and is terrible at) parallel parking, I hope this happens soon.

Accounting

This one is self-explanatory. Taxes and compliance SUCK for individuals and businesses. Great pain = great opportunity.

There’s probably dozens more that aren’t even on my radar because I just think of them as existing and not as industries to disrupt. More likely than not, the next industry to be disrupted won’t come from my list at all. These things usually aren’t logical. And that’s part of the fun.