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The Mean Startup (or a failure in customer development)

A few years ago, almost straight out of college, I was in charge of developing innovative products for a global service provider in the telecom industry. My job was to pitch ideas internally, get budget approval, then work with engineering and sales teams globally until the first sale was made. Getting paid to build corporate ventures and then travel around the world, that was definitely a hell of an experience for someone with not much experience.

The first venture our team built was a huge success: more than 150 mobile operators bought the product in less than a year for a total yearly revenue of $7M. It gave us a lot of credibility internally for our second venture which, as you will see, failed miserably. What I didn’t know at the time though, was that the first product (the successful one) had known features and known customer needs! This product was based on specifications from the GSM Association and mobile operators were mandated to comply with this new specification before a set date. Our job was then to develop a solution with core features as per the specifications, some value-added services, and then try to persuade as many customers as possible that they should comply with this new specification and they should choose our product instead of our competitors’. As I said: known features and known customer needs.

In that sense, our second venture was very different. We were building a business intelligence solution for mobile operators but, this time, without any specifications for the GSMA. Said differently, unknown features and unknown customer needs. In our initial business plan, we had 1 year to sign the first customers and then, for the following years, we were gradually going to sign most mobile operators in the planet as we were convinced this product was going to be a must-have in the ecosystem. In terms of features, we had a small list of features we believed were the core ones and a huge list of features we wanted to test with the first customers. So you know, the core features had been validated by one test customer.

To our team’s defense, we didn’t completely rush to develop all the features on our list without talking to customers. We built a first prototype of the solution in a couple of months and then I started travelling around the world to demo the prototype to as many potential customers as possible. And every time, it was the same positive reception: customers loved and validated the concept. In parallel, our development team was continuing to add more and more features as these were validated every time by the potential customers I was meeting.

It’s only by the end of the first year that we started to realize we were wrong. A few months earlier, we started to sign off potential customers for free trials but very few of them actually tried the product (what is free has no value). Just two potential customers actually came back to us with productive feedback. And God, it was bad. Conceptually we had everything right but all the features were wrong. For example, we thought customers wanted predictive algorithms but they wanted to import their own predictions in the tool (this was in 2009, way before big data went mainstream). And the list went on and on…

At the end of the first year, we had spent more than $1M developing a great product that no one wanted. My management decided it was enough and shortly after shut down the project. I personnally moved to another position within the company. A few months later, I met with one of our former potential customers who told me that he purchased our competitor’s solution. Then he said (I’ll remember this my whole life): “this is really a shame as you guys were right and evangelized the market but did not manage to get the product right”.

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The Corporate-Startup Partnership Maturity Curve

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Since I started to be involved in the startup ecosystem, I have been extremely interested by involving large corporations with startups. Initially, my view was that large corporations had a lot to learn from startups as much in terms of innovation as in terms of energy. On the other hand, startups had also a lot to learn from bigger corporations: being focused on customer and revenue among other things. That’s why my acceleration program, StartUp42, was and is still mainly funded by large corporations.

Since I launched StartUp42 two years ago, it seems that more and more large corporations have discovered (again?) that startups were sexy and that they needed to get closer to them. But, as in any relationships, there’s also a maturity curve for the corporate-startup partnership.

Corporate-startup partnership maturity curve

The figure above is the result of my direct experience involving large corporations with startups, hearing about other programs and a discussion I had last month with someone from Accenture Open Innovation group. I believe that large corporations go through 3 different phases in their attempt to partner with startups: “Amused”, “Worried” and “Welcoming”. Of course, this pattern does not apply to all corporates and not all of them go through the 3 phases in that order but most experiences I gathered tend to confirm it.

The first phase is the “amused” phase. High-level executives, usually HR director or Marketing directors, discover the growing interest for startups. And they’re right! What’s not to like in startups? They’re young companies, founded by equally young talented individuals with big dreams and lots of energy. In that phase, corporates usually tend to sponsor or organize events like startup weekends or hackathons. The main objectives are to increase their brand’s reach to a younger audience, potentially notice young talents to recruit and ideally get wowed by one of the teams’ product.

The second phase is the “worried” phase. Now it’s the C-suite’s turn to notice startups and usually it’s either because they realize that they have troubles coping with innovation cycles or, “worst”, they’re already being disrupted. In that phase, corporates tend to follow the saying “keep your friends close and your ennemies closer”. Instead of partnering with the startups, they prefer to watch them carefully by investing in them or by hosting them in their own acceleration/incubation program.

The third and last phase is the “welcoming” phase. Leaders in that phase understand that the size of their organizations slows down their capacity to innovate and they’re better off integrating startups’ innovations in their portfolio through partnership or M&A.

So far, I’ve seen very few organizations capable of being in the 3rd phase (think Google, Facebook, Cisco). The reason is not because they’re necessarily evil agains startups or because of incompetence but mainly because it demands a commitment of the organization at every level to be able to work with or integrate startups. Entrepreneurs react almost opposite to corporate executives and it demands a lot of work from both sides. But anyway, as in any relationships, they don’t really have a choice. In the end most startups will need to work with big corporations (or get acquired) and most big corporations will need to work with startups. We’ll need to make it work ☺

Should accelerators nurture or challenge?

StartUp42 v0.4 is now over and until we start a new season, I wanted to use this quieter time (at least on the acceleration side) to share some thoughts about acceleration and the birth of (very) early-stage startups.

During this last season, I had a very interesting discussion with one of the teams. Just a month into the program, the founders had a disagreement with their CTO who decided to leave the company. The founders immediately came to seek my advice on how to peacefully solve the disagreement. When they told me, my reaction was as follow: “I will of course help you on solving the disagreement but I’d like to warn you that if you don’t find a new CTO in the next 2 weeks, I will have to kick you out of the program”.

Indeed, since we only accept teams with a CTO at StartUp42, I couldn’t keep a team who’s not building their product. It’s bad for them as they don’t benefit fully from the program but it’s also not fair to teams with CTOs that were not selected. The founders were very surprised by my ultimatum. They came looking for comfort and they left with pressure. They said they were not expecting me to act like this.

In my opinion, accelerators are here to push you to your best. We’re not protective parents that help you cope with the difficulties of the entrepreneurship world. We’re here to make you feel these difficulties as early as possible in the process. Entrepreneurship is hard, very hard, and not everyone is fit for it. This is also why I made StartUp42 as a toolbox for entrepreneurs instead of a set program. I have no catalogue of available services and mentors but if you ask for it (or use us to fetch it), you will have it.

I think not everyone can feel comfortable in such environment but again, I don’t want entrepreneurs to ever feel comfortable anymore.

And by the way, that team took just 1 week to find a new CTO ;)

Start your company in college: a good idea?

This post was originally published on Medium.

French newspaper Les Echos published today a series of articles on student entrepreneurship. According to the article, 24% of new company founders in France are below 30 years old and 9% of them are below 25. In 2002, only 20% of founders were below 30. While the explanation of this new trend is relatively easy to find (more and more role models a la Mark Zuckerberg, using the auto-entrepreneur status to do freelance jobs, a desire of Generation X to be more in control of their lives), I wanted to take some time to reflect on starting a company while being in college.

When I started StartUp42 accelerator 2 years ago in partnership with EPITA, it was obvious to many that most of the projects we selected would be founded by EPITA students. In reality, and since we’re open to all, EPITA applications represent more or less 20% of all applications received and just half of them are founded by students (i.e. have not yet graduated at the time of application). Nevertheless, over the past 4 batches, we consistently selected at least 1 student startup per session (EPITA or not). Here is what I found out.

Why College is the perfect time to launch your startup

  • The trade-offs of starting a company are definitely lower: at 21, you don’t have a family to feed, a loan to pay back or already high living standards. So living of noodles until you startup grows and working nights and weekends will not affect much your lifestyle
  • The fear of failure is also lower: no one will ever blame you if you fail because, hey, who can blame a 20-something to start a company. More experienced people might fear for their reputation in the marketplace and difficulty to find a new job in case the startup fails
  • Everyone wants to help (sometimes not necessary the most helpful though)
  • With hundreds of other students, teachers, researchers, you’re in a perfect micro-climate to test your idea before releasing it to the world

Why College is not the perfect time to launch your startup

  • As very well said by Paul Graham in his recent guest lecture at Stanford (and subsequent essay), “starting a successful startup is similar to having kids in that it’s like a button you push that changes your life irrevocably […]. You can do things in your early 20s that you can’t do as well before or after, like plunge deeply into projects on a whim and travel super cheaply with no sense of a deadline.”
  • You only come up with ideas to change your life (I mean your student life) and miss out on an enormous amount of other business opportunities
  •  Some people want to take advantage of you, since they think you’re young and unexperienced (and they will probably succeed)

So?

Well I believe the answer is inside yourself and, as summarised by David Cohen in his Do More Faster book: “if you can quit, you should”. In other words, if you can’t stop yourself from starting your company, do it!

Startups: take some time to celebrate small successes

celebrateThis post was originally published on Medium.

Sometimes, success can seem very very far away for a young entrepreneur. You know exactly where you want to go, you see the big picture but the road to get there is still so very long and nothing moves as fast as you’d like.

While this situation is quite normal for young startups at the beginning of their journey, some entrepreneurs are so focused on the long-term goal that don’t actually feel their progress (since the goal is so far away). And, as an entrepreneur, if you don’t feel progress, desperation and depression are around the corner.

To fight that instinct, I’ve instaurated at StartUp42 a mandatory weekly event (called the weekly review) where the teams share their challenge, failure and success of the week. If they don’t have a success, they have to find one (even the slighest one) and when they do, the whole team cheers them (very support group, I know).

While this might seem useless, I believe cheering and celebration are very important moments as they help foster an event in one’s memory. After several weeks/months, when the entrepreneur starts to feel depressed again because the long-term goal is still far away, I hope he/she will remember these small successes and that their addition makes already some hell of a progress.

So entrepreneurs, wether you’re part of an accelerator or not, don’t be so obsessed by your long-term goal that you forget to see the road covered so far. Celebrate small successes!

Focus on the road, not the wall

I’m almost done with Ben Horowitz’s book, the hard thing about the hard things, but before posting a full book review I just wanted to share what I consider the best quote from the book:

Focus on the road, not the wall. When someone learns to drive a race car, one of the first lessons taught is that when you are going around a curve at 200 mph, do not focus on the wall; focus on the road. If you focus on the wall, you will drive right into it. If you focus on the road, you will follow the road. Running a company is like that.

 

Don’t build products for people you don’t know

This post on originally published on Medium.

This seems like common sense, right? Well you wouldn’t believe the number of young entrepreneurs I meet that fall into this trap.

Yesterday, young engineering students were pitching me their startup idea and all I could hear was: “We’ll add this feature, I’m sure some people will use it” or “I know it’s useless but I’ve seen it in other apps”.

The best recipe for failure is to build a product for people you don’t know. Even when you know very well the target audience, the amount of guessing is enormous at the start so imagine when you don’t!

People don’t buy shitty products

A common theme within engineers is to think that sales and marketing (understand here bullshit) can make people buy products they don’t want. While I do agree that to some extent, people might from time to time succumb to a salesmanship or advertisement and buy something they don’t want, they will realize it at some point and regret the purchase. But we’re talking here about rare occurrences. As a general rule, people inherently never buy products they don’t want or shitty products.

This engineer’s impulse is one of the reasons I started to give my Sales and Marketing class at EPITA. During this class, when debating with the students about people’s motivation when they buy products, I would always ask the same question: would you buy a shitty product even if the salesman is very convincing or you’re seeing a lot of commercials for this product? The answer was inevitably no. So who buys shitty products? Other people? Come on, most people are smart and want the best for themselves. It’s contemptuous to think that people, other than you, are dumb enough to buy products they don’t want.

In my quest to change that perception, I found a new ally: designer Philippe Starck! In the below video (in French), the journalist is arguing (26:05 in the video) that because Starck is a sweet talker and a fashionable designer, people buy his products no questions asked. Here is Starck’s answer:

There is contempt for society in what you say. Do you really think that because I’m a good speaker people buy my products? No. People buy products because they’re good. That’s all. You can say all you want he’s good, he’s good. If it’s a shitty product, people won’t buy it.

Paul Graham – How to start a startup

Paul Graham, Y Combinator founder (and former boss) recently gave a guest lecture in Sam Altman’s startup class at Stanford. It’s intended for college students, but much of it is applicable to potential founders at other ages. The video of the lecture can be found here but PG also summarized it in an essay.

For those who don’t have the time to watch/read the whole thing, my favorite quotes are below:

Startups are very counterintuitive. It’s like skiing in that way. When you first try skiing and you want to slow down, your instinct is to lean back. But if you lean back on skis you fly down the hill out of control.

The way to succeed in a startup is not to be an expert on startups, but to be an expert on your users and the problem you’re solving for them.

If you start a startup, it will take over your life to a degree you cannot imagine. And if your startup succeeds, it will take over your life for a long time: for several years at the very least, maybe for a decade, maybe for the rest of your working life. So there is a real opportunity cost here.

Do not start a startup in college […]. You can do things in your early 20s that you can’t do as well before or after, like plunge deeply into projects on a whim and travel super cheaply with no sense of a deadline.

At its best, starting a startup is merely an ulterior motive for curiosity. And you’ll do it best if you introduce the ulterior motive toward the end of the process.

I met a lot of interested people

That’s basically the sentence I heard over and over during our first weekly review at StartUp42. Young entrepreneurs going out meeting potential customers or random investors often confuse interest for politeness. Let’s be clear: most people you meet, especially people you don’t know, will never tell you up front that they’re not interested by your product or that you’re doing it wrong. They’ll just smile and tell you that what you’re doing is very interesting.

I don’t blame them, why would you go through the troubles of explaining to a passionate entrepreneur that you wouldn’t buy/invest/recommend his product? My advise to startups: focus on the only way of showing real interest: money!