Startups: The Concept Stage

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Last week there was a little flare up in my twitterstream.  Seem’s there is frustration and a difference of opinion on the terms used to define the various stages of a startup.  Surprisingly, there is little literature on the topic (stepping up what I call FoG).  So I thought I would offer a framework for technology entrepreneurs to explain the operational stages of a startup.  As a framework it will generalize the complex. It will not apply specifically to every situation (and I welcome comments to broaden the structure).  My hope is to provide a foundation to help entrepreneurs make their startup successful.  I believe there are four startup stages; concept, seed, early, and growth, and scale.  This article focuses on the concept stage.

The concept stage is the earliest stage of a technology startup.  It is also referred to as the formation, idea, or pre-seed stage.  And for that matter, the napkin stage.

The key element being addressed in this stage is what is the basic value proposition.  What are you going to make?  Who are you going to make it for? Why is someone going to buy it? How big is the market? (Even though the answers to all these questions will change if the company progresses).

The business focus is ruthlessly testing the concept with personal advisers, potential co-founders, and potential customers.  Market research is your guide.  Your guide to answer the question if you want to invest the time and money required to take the concept to the next stage.

Notice the use of the word you. The team is often a sole founder, or a founder that has recruited one or two people to join the effort with no pay.  On a part time basis.  You and your potential partners in crime have not quit your day jobs.  Yet.

Another key question.  Are you the right person to lead the effort?

There is no product or service.

Which obviously means there are no customers. Unless you are doing consulting, which is not a bad way to go.

There is no intellectual property protection.  In research university situations there is invention disclosure.

Funding at this stage is less then $100,000.  Often much less.  It comes from the founder(s), family, friends, grants, and SBIR.  Concept stage investors such as Profounder, Shotput Ventures, TechStars, and Y Combinator may be involved.  Pay particular attention to the word may. Valuations are well under $1 million.  More common is $250,000.  Note the words angels or venture capital are not mentioned.  Founders own over 90% of the company.  100% of the company the vast majority of the time.

The concept stage lasts three to six months, at which point the concept either is abandoned or advances to the seed stage. All startups go through the concept stage.

Unless of course your last startup resulted in the rare 10x return for your venture capital investors.  Pass go.  Throw down 5% of your winnings.  Collect the rest of a $5 million round.

For the rest the much more complex seed stage looms.

February 11, 2009  |  Comments  |  Tweet  |  Posted in Entrepreneurship, Startups

Transforming Caterpillars into Butterflies

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Next Tuesday morning I am participating on a panel entitled “Transforming Caterpillars into Butterflies: A Study of Emergent Organizations”.  Jake Messersmith, an Associate Professor of Management at The George Washington University who wrote his doctoral dissertation on the same subject will be giving the keynote.  In his presentation Dr. Messersmith will present research
results from a study of small and relatively young new ventures in the technology sector. Specifically, he is going to address the role of human resource management practices, managerial philosophy, and strategic posture as potential influencers of sales growth, turnover, and levels of
innovation.

Sounds a little academic.

There was a desire to have someone with a bit of a more practical point of view and experience working with early stage executives to join in on a panel.  They asked me.  I said “sign me up.”

If this sounds interesting to you, click sign me up.

February 10, 2009  |  Comments  |  Tweet  |  Posted in Entrepreneurship, Presentations, Startups

Quote of the Week

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“We’re trying to focus it on spending that truly helps stimulate the economy.”

Susan Collins

Speaking for a bipartisan group that drafted a list of nearly $90 billion in cuts to sharpen the economic stimulus bill.

I have reached the conclusion that the size of the stimulus bill is disturbing and am going to vote against my senators when they come up for reelection if they vote for it in its $900,000,000,000 form.

Why?  Nancy Pelosi, who has claimed twice, yes twice, that 500 million America jobs (there are only 330 million people in America) will be lost if the bill is not passed, has not created a bill designed to stimulate the economy.  She created it to push through a bunch of new programs quickly without thoughtful debate.

Of the burgeoning bill only $317,000,000,000 is slated to be spent in fiscal year 2009.  The rest comes in 2010 and 2011.  The majority of the bill is to do other stuff then stimulate the economy now.  Stuff that may very well be worthy, but is also worthy of discussion.

And while the current economic situation was brought on by many things, at the moment it is all about jobs.  The reason why corporations are laying off people is because they are seeing a drop in demand. The nation’s Gross Domestic Product (GDP) is falling. The main driver of GDP is something called Personal Consumption Expenditures (PCE). PCE hangs out in the 70% range of GDP.  That’s what makes it the driver.

PCE is dropping like a rock.  At the rate of about .5% a month since September.  And the rate of decrease is accelerating. To put this in dollars, in November and December PCE fell by $170,000,000,000.  And while I am no economist it seems to me the aim of a stimulus package should be to reverse this decline in PCE.  But it should not take spending $600,000,000,000 in 2010 and 2011 to accomplish that now.

Of course one of the ways you stop the fall in GDP is to increase Government Spending. I get that. But the amount our current congress wants to spend is spiraling out of control.

February 6, 2009  |  Comments  |  Tweet  |  Posted in Quotes

Entrepreneur and Venture Capital Research

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This morning I attended the TAG ATDC Entrepreneurs Society meeting.  At the request of Paul Freet I live tweeted the event.  That activity created more replies for more information then I could count on both Twitter and Facebook.

The presentation highlights the results of two research studies regarding the Georgia entrepreneurial community.   The first study asked Venture Capitalists around the country why they do or do not invest in Georgia companies.  The second research study asked surveyed entrepreneurs in California, Georgia, and Massachusetts. You can find more detail on the TAG blog.

This morning Ashish Bahl, Chairman and CEO of Acculynk, John Bacon, founder and CEO of IP2Biz, LLC, Greg Foster, a venture capitalist with Noro-Moseley Partners, and Charles Ross, director of the ATDC shared their thoughts on the results.

Very interested in hearing your comments.

February 5, 2009  |  Comments  |  Tweet  |  Posted in Entrepreneurship, Venture Capital

Twittersheep

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Forgive the indulgence of the Follower Tag Cloud post.  The output of Twittersheep was just to artistic to muddy with mere words.

I found Twittersheep via my friend Tessa.  Twittersheep is a Twitter visualization tool.  It searches your list of Twitter followers and pulls together a tag cloud based on keywords in their profiles.

The big words in my followers tag cloud?  Social media marketing entrepreneur.  It’s kinda what I am.  What I do.  And what the people that follow me do it seems.

Twittersheep was created by Nick Bilton, Ted Roden, and Michael Young.  During the day they do simply amazing work for NYTimes R+D.  On nights and weekends they create things like Twittersheep and pushing the envelope apps like enjoysthin.gs.

Good stuff.

Play.

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Meet the Angels

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Yesterday The New York Times published an interesting piece entitled "Angels Flee From Tech Start-ups" that profiled angels and entrepreneurs across the country.  While the title nicely sums up the article, it's not exactly the story I am hearing in Tech Square.

To provide a more specific understanding of what's happening with angels in Atlanta, ATDC is putting an interesting twist on its Meet the VC series.  They are bringing in three active angel investors to discuss the state of angel investing in Georgia.  Mitch Free, founder of MFG.com, Sig Mosley of Imlay Investments, and Gordon Rodgers, angel investor, will sit on a panel for February's Meet the VC event.  The session will
take place on Wednesday, February 11th from 7:30 to 9:30 am.

A great way to gain insight into the current state of the angel market.

Please register to attend.

February 4, 2009  |  Comments  |  Tweet  |  Posted in Angels, Entrepreneurship

Yes, Master (The Only Brand Strategy for Startups)

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Early stage technology companies should only implement a master brand strategy. 

Let me explain.

There is such a thing in the world called brand architecture.  Brand architecture is just a fancy and quick way of saying "this is how we are going to name our company, products, and services so that customers can find what they are looking for and understand what we offer."  There are generally two ways to go about this.

One is to pursue a master brand strategy.  A master brand strategy is one where all the companies products and services are branded with the corporate name.  For the most part this is the strategy that Google has pursued with Google Alerts, Google Blog Search, Google Calendar, Google Checkout, Google Chrome, Google Docs, Google Earth, Google Maps, Google Patent Search, and I could go on.  Yes, as Google has gotten bigger they have started buying lots of companies such as YouTube and keeping those brands and using sub-brands such as Gmail.  But for the most part they have pursued a classic master branding strategy just like Lysol. Lysol's master brand strategy is "Lysol" followed by "this is what the product does" (though Lysol is actually owned by a company called Reckitt Benckiser, but who has ever heard of them.  The dreaded secret corporate brand strategy).

Two is to pursue a sub-branding strategy.  A sub-branding strategy is one where the master brand is not reflected in the the sub or product brands.  Think Apple and their iWhatever.  iMac, iPhone, iPod, iTunes.  And Airport, Cinema Display, MacBook, MacBook Air, MacBook Pro, Mac mini, MacPro, and Mighty Mouse. They have pursued a classic sub-branding strategy much like Coca-Cola.  Coke has over 2,800 products, most with distinct non Coca-Cola company branding.

And while Steve Jobs is one of the most brilliant business people and marketers of our age, personally I think Apple's branding strategy is a bit of a mess.  And I am not alone. It's even been called sloppy. Think about that.  Steve Jobs, one of the best marketers of our age, has totally dorked a sub-brand strategy (though he did a pretty good job at Pixar).  And Apple spends $500 million annually on marketing.  Are you Steve Jobs?  Do you have $500 million to spend?  

Only one person can answer yes to both those questions. And unless you are that person do not try to implement a sub-brand strategy at your technology startup.

Implementing a sub-branding strategy is exponentially more complex.  It decreases the chance of effectively communicating your brand promise and brand identity in the marketplace, requires disciplined thought that could be better spent on more important issues, and costs more money.  It often creates confusion in the market for potential customers and partners.  It make it harder for employees to rally around what you are trying to achieve. Why make it hard?

Early stage technology companies should only implement a master brand strategy. 

February 3, 2009  |  Comments  |  Tweet  |  Posted in Marketing