Why Does the Start-Up Community Hate MBAs?

Every couple weeks, a thread pops up on Hacker News about start-ups and MBAs.  And the (very hacker/nerd-centric) discourse on the site usually devolves into "MBAs suck" and "MBAs are terrible early employees".

I put forth my $.02 on Quora a couple months ago:

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Why Does the Start-Up Community Hate MBAs?

My hunch is that most of the "hatred" stems from something someone heard from someone else.  And it is probably just misunderstanding more than anything.

Speaking from experience - most MBAs are very much NOT start-up people, which is fine.  Most people in general aren't start-up people, so I don't necessarily think it is fair to single out MBA grads.

That said, I think part of the issue is that the typical MBA grad from a top 20-type program can easily earn $100k+ immediately after graduation and - if they have chops - a helluva lot more after that.  And they can do so without actually "creating" much "value".  Most MBA grads enter their respective programs with a well-above-average level of intelligence/experience, get the degree, and get churned through a two-year consulting/banking/marketing rotation - which is difficult, challenging, etc...but also a VERY well worn path.

Contrast this path with the start-up ethic - creating value by pulling off incredibly difficult things that have never been done before...in hopes of eventually creating value for the founders, shareholders, etc. 

Therein lies the rub.

Lowering Sales Input In Software Start-Ups

For the past 12 months - (Argyle turns one next week) - I've called nearly lead inquiry we've gotten at Argyle.  And I've given one-on-one product demos to lots of them. 

It is really time-consuming and obviously not sustainable/scalable.  But - it is has been a great way for me to build relationships with customers/prospects, get close to the market, and *really* understand the problems that we're addressing with our product.

Lately, we've done a few things to lower the sales input necessary to qualify/close new accounts:

- An email drip campaign.  This was a no-brainer and super-easy to set up.  Even we don't call, we know that all free trial accounts will get a few marketing touches before their trial expires.  We've seen a noticeable up-tick in trial adoption as a result.

- A getting-started wizard.  Step-by-step tutorials are a great way to lower the "getting started" hurdle for new accounts.  We've had this from the beginning, but it was terrible.  Josh - our amazingly talented designer - spent a few hours cleaning it up and turned it into strategic asset.

- Contextual help and demos.  Again - we've had in-line help blurbs and video demos since the earliest version of Argyle.  And we've tended to include lots of descriptive text in our application.  Both are a great way to mitigate support inquiries.

- Immediate value.  We're launching our most aggressive effort to lower sales input in our upcoming release of Argyle Social v2.  (You can read a preview at SocialFresh.com.)  When our prospects log in for the first time today, it isn't obvious that Argyle is aggregating data and such.  First log ins going forward will see data immediately - both real-time updates and historicals.

- A product that markets itself.  In the next couple weeks, we'll have email notifications hooked to key features.  So that prospects (and customers, of course) will get notified by Argyle when important things happen - such as a priority mention on Twitter or a spam comment on their Facebook wall or a runaway success campaign.  These notifications obviously provide business value...but they're also a tap on the shoulder of sorts for prospects that are still deciding!

We'll still do tons of phone calls and tons of demos - but I suspect that we'll do less educating and explaining and instead more convincing and closing.  :)

On Raising Money for the First Time

Argyle isn't my first start-up, but it is my first time as a founder and my first time as the CEO.  And Argyle's $325k seed round was my first time raising money.  So here are a few quick thoughts from the process from the perspective of a first-timer:

Raising money takes forever.  Not sure what I expected, but I expected things to move more quickly.  Patience has never been a strong suit for me...

Product matters...but not that much.  As much as Adam and I love to dote on our product, most of the people that we pitched just assumed that it worked and didn't really want to spend much time talking about the little details of our app.  As conversations progressed, we obviously spent more time talking about product strategy.  But the first conversations were all about market problems.

Paint a big picture.  Per the previous nugget, the more high-level, big-vision our pitch, the more receptive/interested the prospective investor.  The more we focused on the nitty little details of our product that we love so much, the more blank stares we got.

Optimization is expensive.  I think we spent too much time negotiating terms that aren't incredibly important and it cost us both in terms of time and legal fees.  We got all of the big ticket terms squared away pretty quickly, so it was frustrating to spend another couple weeks cleaning up lots of little stuff.  Live and learn - I know better for the next time around.

Raising money isn't a milestone, it is a means to a milestone.  I'm excited to be done, but I'm more excited about what we're going to do with the money.  Adam and I have welcomed the congratulations from friends and family...but I'll be much happier to accept the congratulations of more product and more paying customers.

Relationships raise money.  We have six investors in our deal and - to a varying degree - I knew five of the six well before we pitched them.  (I received a glowing introduction to the sixth through a trusted mutual acquaintance.)  I didn't set out with the goal of building these relationships to one day ask them for money...but it sure didn't hurt when the people that we pitched already knew me, my bio, and my M.O.

How Start-ups Should Think About Competition

The short answer is:

1.  It is good.
2.  Bring it on.

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The long answer vis a vis web start-ups is:

Competition validates.  If you're building a start-up and have no competition, then one of three things is happening:

1.  You're a visionary Picasso-type.  This is possible, but amazingly unlikely.
2.  You're targeting a market that is so teeny tiny that no one else cares about it.
3.  You haven't yet Googled to look for competitors.

In other words - there are very few original ideas when it comes to Internet products and there are always competitors.  Ideas that are somewhat original and potentially lucrative end up with immediate copy-cats.  (The small army of Groupon and flash sale clones come time mind.)  Attractive markets that don't have competitors at the start eventually end up with lots.  (Dodgeball, Foursquare, and the location-based game/service craze are a great example.)

Soooooo.  Having competitors means that you're on to something.  This is a good thing!

Competition isn't a risk.  I wish I had a dollar for every time that someone has said "But what about Social Media Co?  Aren't they a competitor?" because it happens a lot - mostly because we're in a hot space.  (See above.)

We're early enough in the market such that I'm not worried about a single company (or a handful of companies) drinking all of the milkshake.  Our market is going to play out over the next few years and have a few big winners and a handful of good companies.  On the contrary - if I were building a new search engine, then of course competition would be a pretty big risk.

For companies like Argyle, the majority of the risk lies in execution.  Can we build a great team?  Can we augment our product with the right features?  Can we generate sales leads?  Can we convert them?  Can we do so at a large scale?  Can we do all of this at blinding speed?  Those are the risks that I'm worried about.  Not what the other guy is going to do next.

Competition sharpens iron.  True playaz don't let competition define them, they use it to get stronger.  

Great competitors drive great companies to work harder, sell faster, etc.  For start-ups especially, great competitors can create a singular, easy-to-understand "enemy" that can galvanize a team to achieve great results.  You gotta think that NetFlix had a "Kill Blockbuster" sign hanging in their office during the very early days.

Note that the Biblically-derived "competition sharpens iron" has a counterpoint based in 10th grade chemistry - "Competition melts sodium".  Sodium is an extremely soft metal and can be easily cut with a kitchen knife.  (BOOM!  Thanks, Mr. Legget.)  

In other words - if you don't have game, then you worry unnecessarily about your peers and you eventually lose focus as a result.

More Product Or More Customers?

Earlier this week, a very smart person asked me if I would rather have "more product or more customers" - in effect asking if it made more sense for Argyle to make very near-term investments in product development or customer acquisition.

I said "more product" without hesitating and then proceeded to give what was probably a rambling, incoherent justification for my answer.

Here is a more structured argument:

1.  The best marketing program is a great product - especially considering the social media-fication of the Internets.  And doubly especially considering that we're selling a social media marketing product to social media marketers that LOVE to talk about social media marketing to other social media marketers.  The better the product, the more people talk about us, the more people talk about us, etc.  Phil Libin - CEO of Evernote - makes a similar case in this video.

2.  I'm not interested in filling a weak funnel.  We're already generating revenue, but I'm not ready to crank up the marketing spend just yet.  Our website is OK and getting better.  Our app is good and quickly becoming great.  We can keep humming along with a primarily hustle/social driven marketing program, grab the dollars that we can, sink a couple more months into product development, and then make big marketing investments once we feel better about the payoff economics.  Why spend money to drive targeted traffic to a semi-complete site/product?

3.  We don't have a lot of resources.  Given our stage, we need to spend on things that build permanent value.  $10k on software development builds a feature that we'll always have and that makes our product much more compelling.  $10k spent on marketing will give us some customer acquisition insight...but only temporary insight and at a very small scale.

Note that I'm not a "build a product and worry about making money later" kind of guy.  On the contrary, I LOVE selling and look forward to selling/marketing Argyle like the rabid wolverines that we are.  We're just not there quite yet.  But we will be very, very soon.

And the correct answer to the "more product or more customers" question is actually "both - as quickly as possible".  :)

Zombie Good Times

The Sequoia Capital "RIP Good Times" presentation is about a year and a half old.

In the past few weeks:

• Quora - which most of you have probably never heard of - raised $11M at a $84M valuation.
• FourSquare is rumored to have gotten a $100M offer from Yahoo! with less <1M users.
• Groupon supposedly raised another round of capital at a $1.2B valuation.

These are all great companies, but - based on nothing but an uninformed hunch - these valuations seem awfully frothy to me.  Perhaps the good times have risen from the dead...

The Four Stages Of A Startup Web App

We're getting close with Argyle Social.  Close as in I can sign in to a functioning application, poke around at some stuff, create interesting graphs, etc.

Needless to say, we still have a long way to go before we're going to ask our users to pay for our product.  But we have a plan for getting there. 

Here is our four step history/plan for launching Argyle Social.  It is worth pointing out that the rationale behind this approach is driven by equal parts product development and marketing.

Prototype

My business partner Adam started kicking around a side project in the Fall of 2008.  The side project got big enough that people started to use it, so Adam invested more time developing it, and so on.  He and I joined forces in Fall 2009 and used his prototype app to jump start our thinking.

Adam never tried to monetize the prototype app.  In fact, it is still out there and people are still using it.  (800+ registered users when we last checked.)  Adam has kept it running and plans to keep it running, but he hasn't made any updates to it and most likely won't make any updates going forward.

But that doesn't mean that it wasn't enormously valuable.  The prototype app helped us:

• prove to ourselves and others that we (read: Adam) can build/maintain a web app.
• validate that people have a problem.
• figure out that that we can build a product to solve it.
• think much bigger vis a vis the problem and the product.
• show enough momentum/committment to win a grant from NC IDEA.

Alpha

Our alpha is more or less the minimally viable version of our app.  (I guess this is the universal definition of an alpha product.)  It features our core functionality, reporting, navigation, etc. and is functional, useful, and stable.  It is by no means ready for prime time, but certainly ready for users.

That said, the app still has plenty of big holes.  We already have plans to fill most of them and hope that customers will help us decide the best course of action for filling the rest...that is if they're worth filling at all.

And that's the most important part of the alpha period - figuring out what creates value for users and what doesn't.  Thanks to some local buzz and my/Adam's network (and thanks to launching a product in a white hot market), we haven't had to work that hard to line up interest in our alpha app.  But we have worked hard to make sure that we're setting ourselves up to work with savvy users that are committed to spending time using our app, thinking through how it does/doesn't solve their problems, and then working with us to figure out the next features to develop.

It is also worth pointing out that, in most cases, the alpha can extend from the prototype.  After some thinking, however, we decided to build Argyle Social completely from scratch.  (Didn't seem like the right call to build our business around Adam's spare time, side project.)  We lost a bit of time, but we'll make it up with ability to launch from a much more reliable, stable, scalable foundation that should get us from alpha, to beta, to prime time with minimal interruption. 

Beta

Once we can answer some questions with our alpha customers, we'll make Argyle Social available to a broader auidence.  We'll start with a small group and plan to spend some time delivering lots of extra TLC in exchange for product feedback.  As we find begin to find fit with our product, we'll scale back to normal levels of TLC and start gearing up for a public launch.

One smart thing that we've done is collect beta sign ups on our site.  We're about ~3 weeks away from alpha, which probably puts us about ~10 weeks away from beta.  But we've already got tons of interested people ready to hear from us when we launch.  It is satisfying that we've been able to generate interest around our product and that we'll be able to quickly get it out to the people once it is ready.

Beta can be a bit of a squishy stage.  (Gmail was in beta for five years, for example.)  But we've got some specific goals and expect/plan to spend lots of time in alpha, validate our alpha efforts in beta, and then start charging subscriptions.

Prime Time

Prime time means you're good enough to charge a price and - more importantly - people are willing to pay it.  (We're building a business app, so it is all about subscription revenue.  Consumer apps are much different...)

I fully expect to make a strategic product/market shift within the first year, but I'm actually pretty confident that it will be after we've already got some customers using Argyle Social as we've planned it and as we're building it.  My hunch is that our pivot won't be a brand new product or a brand new customer, but more likely a feature or set of integrations that we hadn't considered before. 

Paying customers seem light years away when you're still making fundamental product decisions...but we'll get there.  Our market is starving for tools that link social media efforts to business outcomes.  And we're working like crazy to deliver.  :)

Introduction Cheat Code

When someone offers to make an introduction on my behalf or - as is more often the case - I ask someone to make an introduction on my behalf, I often write the intro email myself and email it to the introducer, suggesting that they use it as a template.

I do this because:

• It lets me control the message somewhat and ensure that it is short/accurate.
• It saves the introducer a few minutes of writing.
• It just seems like the right thing to do, even though people don't usually expect it.

Do it.  People will use it.  And you'll be glad they did.

The Startup Soundtrack

I LOVE music.  And I LOVE (so far) starting a company.  The two obviously go hand-in-hand - I spend a lot of time at my desk blasting tunes while I churn through my to-do list.

So here are some of my startup workaholic jams.  I welcome your recommendations for more.

Eric
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They just don't make 'em like Ronnie James Dio any more.

I find that the The Sword helps me endure Quickbooks.

Detecting a theme? Aggressive music drives aggressive growth.

Sonny Rollins for late night sessions.

Thinking About Markets And Startups - Part II

I published a mostly-baked thought regarding startups, products, and markets last week, largely driven by my prior experience as an early employee at Bronto Software.  Bronto CEO Joe Colopy added some detailed email marketing industry insight in a lenghty comment.

In summary, new products and new markets are funny things.  The first products to enter don't always win and neither do the products with the most whiz bangs.  Those that win usually do so because they nailed a target segment right from the beginning and/or because they zigged/zagged from their original thesis to follow the market and stay alive.  Financing certainly has some correlation to success, though I'm not going to do the homework necessary to figure out how it played out in the email market.

I took the time to think this through because I think that the social media marketing software market - the market we're trying to crack with Argyle Social - is following the same cycle:

The first market entrants are (correctly) targeting the top of the market.  That's where the money is and also the most obvious application of the core sentiment/monitoring technologies that hit the market first.  Not sure who the first entrants were, but my guess would be sentiment analysis vendors like Radian6, ScoutLabs, et al. and big, enterprise players like Vocus.

There are many apps in the market today and many of them are fairly similar.  The aforementioned sentiment analysis providers (basically) inhale the Internet and/or the Twitter firehose, search for your brand and/or keywords, and then apply some natural language filters to determine sentiment.  I have no idea what makes ScoutLabs different from Radian6 and I'm not entirely sure it matters.  (Interestingly, I've talked to quite a few people that use these apps...and no one has had a glowing review to share.  Pretty sure I know why.)

The first entrants are - for the most part - well funded and duking it out for the top of the market.  Radian6, ScoutLabs, VisibleTechnologies, et al all appear to be thriving, but they're all targeting the same set of customers.  Which is fine by me because it creates big, blue oceans in other parts of the market

Marketers don't know what they don't know.  For the bottom 2/3 of the market, email marketing apps solved problems by introducing a mechanism that created a workflow, presented important information, and - in general - made it a little easier for them to feel like they were doing a good job.  I think that social media marketers are in search of the same set of solutions.  They feel like they're on to something what with all of the blogging and Twittering and Facebooking and whatnot...but they can't accurately measure the impact of their efforts because don't have a decent set of tools to tie it all together.

...and all of that is a big part of the thesis behind the Argyle Social initiative.

Having said that, there are some BIG uncertainties in the market:

• Speed.  The Internet moves fast, but innovation around the social channel seems to be moving extra fast.  We've got to get our app in the market and pronto, lest we risk getting scooped and thus lose a chance at picking up some quick momentum.
• Dependencies.  It has taken me a while to get comfortable with the fact that we're building an app with critical dependencies on other web services.  It compounds our risk and makes it a bit harder for us to carve out a defensible nugget.  That said - all the cool kids are doing it.
• Value.  Many might disagree, but I think that the freemium craze is fine for consumer apps, but nets out as a negative for the business market.  Lots of free apps leaving money on the table drives down value for the entire market.  And there are LOTS of free apps in the low/mid tier of the emerging social media marketing software market.

Note that I didn't list competitors.  That's because competition is good. 

And that's a post for another time.

Thinking About Markets And Startups - Part I

I started working at Bronto back when it was called BrontoMail.  Back when companies featured downloadable .pdf brochures on their website and everyone scoffed at GOOG's overpriced IPO...way before email marketing was an "industry." 

At the time, there were lots of players clamoring for position in an emerging market that we all expected would get big, fast.  (Turns out it did.)  Funny thing is that everyone's product looked the same and more or less did the same thing - especially from a "checking the box" perspective.  Every product could track clicks, de-dupe lists, dump data to .csv files, etc.  It wasn't rocket science, even though it seemed like it at the time.

The biggest differences between vendors - even though I would never admit it while on the phone with a prospect - were price and packaging.  The core technologies and product concepts were the same across the board.  Some vendors charged $25/month and targeted SMBs with ease-of-use and consumer-esque marketing messages.  Others charged $2500/month and targeted the top of the market with high-powered marketing speak and brand name customers.  Others tried to find their way in between. 

Fast forward to today.

Many of the names that mattered in 2003 are still around and thriving - ConstantContact (which IPO'ed in 2007), ExactTarget (which should IPO any day now), SilverPop, Responsys, Cheetah, and of course Bronto - which mattered to me at the time, but wasn't big enough to matter in the broader email marketing software conversation.

Several other names that mattered in 2003 are MIA - CoolerEmail, iMakeNews, Topica, and probably more if I really thought about it.  If I recall correctly, CoolerEmail was actually one of the first to productize email marketing software.  So much for a first-move advantage.

So why do some players win and some players lose early markets?  I can think of three reasons:

1.) Financing.  Some companies started out with enough capital to out-spend, out-market, and out-last the competition.  

Some hung around long enough to get it right. Others hung around long enough to pay themselves nice salaries while they spent their company out of business.

I'm too lazy to do the legwork necessary to confirm my hunch, but I'm certain that many of the leading vendors in the market today started off with a healthy slug of financing.  Though I think it has MUCH less to do with their success than #2:

2.) Focus.  Some companies focused on a particular market segment and pounded it into submission.

ConstantContact dominated the $20/month segment in 2003 and it still does today.  It never wavered from a stripped-down, simple, easy-to-use product marketed with a "You can do it!  It is so easy!" message.

Bronto didn't have product/market focus in the beginning - we were happy being "a step up from ConstantContact...and less expensive from ExactTarget".  A precarious place to be.  The company finally figured it out a few years ago, re-focused the offering/message around ecommerce, and has been killing it ever since.  Turns out the middle is a tough place to be when it comes to marketing products - customers are either trying to step up their game with a better app or cut costs with a cheaper app.

3.) Fudge Ups.  Some companies just had bad products and/or poor execution.

Stay tuned for Part II when I explain why I think all of this matters.

One Week Down

The Argyle Company just wrapped up its first week at full strength.  A few lessons learned over the past couple months as we've taken the first steps of a (hopefully!) long journey:

Find a partner.  This past summer/fall, I spent a lot of time navel gazing in search of the right first steps toward a software start-up.  I knew the market I wanted to enter and even had a general sense of the product I'd like to build.  But I couldn't really articulate what I was thinking, let alone develop the product.  (I'm a seller, not a coder.)

My then-prospective business partner Adam and I started getting together and stuff just started happening.  The collaboration and accountability was like a shot in the arm after a period of wandering alone in the wilderness.

So - if you're looking to start something, I suggest that you start looking for the right co-founder as soon as you start getting the idea itch.

Don't delay the equity conversation.  Adam and I had the equity/role/expectations conversation over a series of meetings a couple months ago.  Awkward, but necessary...and also done pending some signatures on a handful forthcoming legal documents.  

It would have been really easy to delay the conversation, but it also would have been a mistake. Ownership is a sticky issue that you need to get right at the start.  Plus - it is just the first of many difficult questions that start-up founders will face.  So you might as well just deal with it and move on to the next one.

Regarding roles, we used HubSpot as a model.  Two founders - sales guy CEO and product guy CTO. Hopefully we'll have a fraction of the success that they've engineered.

Don't waste time with a business plan.  Business school is all about business plans.  The real world isn't. People don't read them and you don't have time to waste writing one.  Instead of planning your business, I suggest that you just start building it.

That said, you should definitely start writing.  I recommend that you:

• Write an executive summary that can brief prospective advisors, etc. on your company. 
• Blog to articulate your market/problem/product thesis and to generate search engine juice.
• Set up a wiki to manage research, internal docs, etc.  Way better than doc files.

Put yourself out there.  Once you've refined your market/problem/solution thesis into an actionable nugget, start talking about it to anyone that will listen.  You'll be amazed by how:

• You start to really believe in what you're doing.
• You get better at articulating your thesis.
• People are willing to help.