Category: strategy

10
Aug

Bryan Watson Joins Flow Ventures as Partner

TORONTO, ON – August 10, 2015 – The Partners of Flow Ventures are pleased to announce that Bryan J. Watson has joined Flow Ventures as the newest Partner of the firm, spearheading the growth of the firm, particularly in Ontario
For over a decade Bryan has advised and supported Angel and venture capital investors, all levels of government, NGOs, and companies at all stages of growth – from idea to exit. In addition, Bryan is active on numerous funding review panels for Provincially and Federally funded organizations.

In the past, Bryan has served as Executive Director of the National Angel Capital Organization, Founder and President of the Network of Angel Organizations-Ontario, and CEO Fusion as well as President of EP Enterprises Inc.. In addition to these roles, Bryan has been a Director of Precarn Incorporated and the Canadian Advanced Technology Alliance, and well as an Advisor to the Mississauga R.I.C. Center and hundreds of startups. Bryan continues to be actively engaged in advising a number of organizations.

Bryan completed his Masters in Management, Economics and International Relations at the University of St. Andrews, Scotland, on the only full Chevening Scholarship awarded in Canada.

On Bryan’s partnership, Founder of Flow Ventues, Raymond Luk, commented, “Bryan is an institution within the growth company, financing and innovation management communities. His recent selection as one of 7 finalists, representing Ontario, from across Canada for the 2015 BDC Mentorship Award demonstrates this. We are excited to have him on board!”

“Having worked with Flow Ventures on many different projects,” commented Bryan, “I am pleased to join the Flow Ventures family and look forward to continuing to support my current clients as well as new ones. The holistic, approach that Flow takes to helping clients grow is very much in line with my philosophy for supporting growth companies and companies seeking to better manage their innovation portfolio and activities.”

Bryan will spearhead the expansion of Flow Ventures in Ontario while also advising companies across Canada and internationally. To connect with Bryan Watson, please do so at bwatson@flowventures.com.

About Flow Ventures:
Flow Ventures is a boutique consulting firm with unparalleled experience advising companies throughout the business lifecycle. Whether your company is securing grants and tax credits, raising financing, or planning strategy growth or exit, the Flow Ventures team is at your disposal. Flow Ventures was founded and is operated by serial entrepreneurs, investors, and company operators, and working with us means working with people with the experience and vast international network you need to achieve your goals. For more information, please visit: www.flowventures.com

16
Apr

A List of Corporate Governance Resource for Startups

This post was originally published on the Hockeystick.co blog on April 15, 2013 http://blog.hockeystick.co/2013/03/20/governance-for-startups/

To kick off the Hockeystick.co blog, we’ve compiled a list of resources about corporate governance and investor relations for startups. Unsurprisingly, most governance research is focused on large, public companies. But there are some good resources for startups.

Here’s the list so far:

Can you recommend other startup governance resources we should add to the list?

 

01
Feb

What’s Your Personality Type? Insights for Lean Entrepreneurs

 

The ancient Greek aphorism “Know thyself” is very relevant to entrepreneurs. Most founders don’t give much thought to how their own personality type influences how well they run their startup. Remember, your reality distortion field distorts yourself too.

The good news is that for the first time since I’ve been building companies, entrepreneurs share a common framework for guiding their startups: the Lean startup. Sure, some people don’t use the right vocabulary and misunderstand Lean. But I find that Lean thinking has permeated the entrepreneurial community, so much so that some founders are following the principles without knowing the term “lean startup” at all.

The bad news is that there’s still a huge gap between the understanding of lean startups and the practice. It’s frustrating to see and I think one reason is founders don’t take into account how their own personalities influence the process. I haven’t seen anyone ask: “How is my own personality getting in the way of being lean?

To help answer that question, I’ve created a list of the top 5 personality archetypes I come across, as well as some things to watch out for if you recognize yourself in one (or more than one) of them:

  • “Smartypants” – You’re very knowledgeable and you want people to know it. You love complexity. You believe that superior intellect and knowledge will close the sale, investment etc.
    • Watch out: you’ll ignore the simple solution (which is often the best one) in favour of something more impressive. You’ll discount what customers say because they aren’t smart enough. You’ll be attracted to innovation vs execution.
  • “Intelligent Architect” – Most engineers have this personality type. You like to build machines and you like it when they work as planned. You like the design phase of projects because there are no customers in the design phase…
    • Watch out: you’re going to be very uncomfortable when your startup is trying to find a business model vs building a product. You can’t architect a solution when you don’t know what the problem is yet. Pivots will drive you crazy because there’s nothing wrong with the code.
  • “The Advocate” – Most sales people (and almost all entrepreneurs) are strong when it comes to selling their vision or advocating what they believe in. In a meeting, especially a brainstorm, you talk rather than listen.
    • Watch out: when you’re trying to find product-market fit, you’d better hone your shutting up skills. You can’t hear your customers’ voices when you’re still talking. You already know your own position, it’s time to listen to others.
  • “The Dreamer” – I saw a pitch deck recently for a hyper-local startup. Great deck, nice screenshots, but within 5 minutes the entrepreneur admitted he probably would never use the product, nor did he think anyone else would. It’s easy to envision success IF everyone used your product. It’s harder to make it so.
    • Watch out: you get excited about building an empire but you have a blind spot when it comes to actual customers and their problems. You’ll overestimate how well your product solves their problems.
  • “Mom and Pop” – One great thing about Lean startups is that founders are getting in close proximity to customers to validate their businesses. Most people start with people they know in their community. If you’re a natural hustler, you’ve probably walked down Main Street knocking on doors and signing up beta customers.
    • Watch out: You’ll hold as proof of your business the fact you signed up 10 restaurants in your neighbourhood. Instead of using (and possibly abusing) them to test your hypotheses, you’ll want to make them happy and get pulled in many directions. Be careful you don’t lose sight of the goal. You’re trying to build a scalable business, not a local consulting company.

Spend a bit of time thinking about who you are. Better yet, ask the people around you and make sure there are no sharp objects close by. There’s no value judgment here. There are no “good” or “bad” personality types. But the sooner you recognize your own personality type(s) the sooner you can get out of your own way.

nosce te ipsum

12
Jan

Hiring for Lean Startups: The First Few Hires

 

I was having coffee with a founder the other day and we started talking about his hiring plans. Since he’s a non-technical founder (which Ben Yoskovitz claims is a dead-end to begin with) he had several top coders in mind, all of whom were earning big bucks with larger companies.

“I’m paying them a little bit of money but they’ll join full time once I can raise money,” said the founder. It’s something I hear a lot, especially from non-techie founders.

I went back to review some blog posts on Lean hiring, and I came across Eric’s post “Lean Hiring Tips” and Mark MacLeod’s “Fat Hiring for Lean Startups“. Both are worth your time. But I think they’re also written for startups that are already up and running and need to expand. I’m interested in very early stage hiring, e.g. when you’re one person looking for a co-founder or you’re two people looking for your core team.

Companies always take on the characteristics of their founders and in the rush to scale, I find many startups don’t stop to consider how they’re establishing the DNA of their company. The first few hires are the most important ones you’ll make.

  • Hire for an experimental mindset – Look for people who enjoy encountering problems, designing ways to solve them, and finding proof of success or failure. Skill at building, whether it’s software or a marketing plan or a sales funnel, is irrelevant at this point. You need people who will volunteer to scrap their plans, not fight you when you want to change course.

How? Join a hackathon, Lean Machine or just create your own (laptop + Starbucks = hackathon). Give your (potential) team a crazy challenge and see who exhibits the right behaviours.

  • Hire generalists – A lot of people will disagree with this advice. If you can find the best Python developer in the country go for it. But only if she’s also willing to cold call customers, crank out some Web site copy and help you whiteboard the business model. Your #1 focus is to find a business model that works. The latent technical talent on your bench won’t help you unless you graduate from this first phase

How? Again, hackathons are great practical tests. No matter what their skillset, look for passion about your business model and solving customer problems.

  • Prioritize UX over development – This is easier said than done since there’s a shortage of UX talent. But it’s better to have a kick-ass UX person and a mediocre developer than the other way around. UX will help you find your business model and most (good) UX people already have an experimental mindset and generalist attitude

How? Actively seek out UX people, not just developers. You may need to work at a distance if you can’t find local talent. Consider working with less experienced people if they can prove themselves through testing.

  • Get skin in the game – Leaving a six figure job to join your startup for a paycut is not skin in the game, or not enough in my books. Hire those people later when you’ve found your business model, have money in the bank, and need to scale. Skin in the game means working full time, just like you are. It means putting their reputation on the line, raising Ramen funding from friends/family/spouses and saying “I’m going to see this through until we fail.”

How? Stop feeling like you’re a poor startup that can’t afford to pay top salaries. Those aren’t the droids you’re looking for. Think of finding your co-founders like raising your first round. You need to get them excited to invest in your business.

I know this advice seems to apply better to “Web” startups than general technology startups, which is a common criticism of Lean startups in general. But I think it applies more broadly. If you hire for the right attitude, you not only solve the critical product-market fit problem, but you set the DNA of your business right from the start. I guess I haven’t seen too many examples of startups failing because they lacked a specific technical skill. They probably think they failed because of it though.

In the end, I guess “hiring” is the wrong word to begin with. You’re looking for people to co-found a business with you. You aren’t buying their skills, you’re asking them to invest in helping you shape the course of your business from the very beginning. Maybe not all of them (including yourself) will be able to scale up with the business. That’s a problem for another day.

10
Jan

Startup Metrics in Plain English

 

It’s a positive development that startups have figured out that metrics need to be at the core of their business and their pitch. Thanks to the Lean Startup, Dave McClure’sStartup Metrics for Pirates” and investors who are asking for a dose of proof with your passion.

I find that startup founders are more at ease with acquisition funnels, the viral coefficient, and cohort analysis. But many are getting lost in the weeds and losing sight of the big picture. You have a 3D cohort analysis graph (you know who you are…) but I have no idea what it means.

When you’re launching a new product, I think all of your key metrics can be derived from asking three simple questions:

  1. What is your core value proposition?
  2. How do you know people care?
  3. What’s the proof you’re delivering on your value proposition?

A shockingly large number of people still can’t define their value proposition in simple terms. E.g. we do A for B. The problem is, if you can’t even describe the core promise of your business, you can’t focus your product development, or market effectively, or measure your performance.

Customer acquisition is the time to test the promise of your business before actually having to deliver anything. This is where the fake “Buy” button works. If no one clicks on it, you don’t need to build anything. If your Facebook ads get no click throughs and no one makes it through your sign-up form, that’s the market telling you they don’t want what you’re promising and they don’t care if you can deliver it.

“Once I build my product I’ll be able to prove that customers want it.”

          – misguided entrepreneur

If you’re able to acquire customers that’s great news. But now you need to create metrics that prove that users are engaging in your product in a way that demonstrates value creation. This could be daily active use, amount of user-generated content, referrals to other friends or, obviously, spending money.

But you need to avoid the temptation to create vanity metrics that paint a rosy picture. You can’t build a business on 100k tire kickers from TechCrunch. But if you can find a few users that are truly engaged and truly getting value, you can probably find more of them. Make sure you set a high bar for what constitutes an “active user”. It doesn’t jive to say you’re disrupting an industry while making active user = “logs in at least once per week”.

Many products have more than one type of user. Not just “average users” and “whales” but people who derive different types of value from your product. In a marketplace product (real estate for example) you have buyers, sellers and brokers. All define value differently and need to be measured differently. The point is, you’ll probably have more than one metric that constitutes proof that you’re creating value overall.

Some Plain English Metrics

First, write down a 1-2 sentence value proposition. Seriously, stop avoiding it and do it.

  1. What acquisition metrics indicate a positive reception to your value proposition? Eg. effectiveness of paid and organic users; virality; activation rate.
  2. What is your definition of an “active user” and does this absolutely prove that you’re delivering on your value proposition? More clicks can be due to high engagement or bad UX… This is the toughest metric to design.
  3. Are engaged users maintaining or increasing their engagement over time? If not, how come?
  4. What % of acquired users never become active? Why?
  5. What % of engaged users drop-off? Why?

The most difficult metric to gather is why people stop using your product. By definition, these people are hard to talk to. Bend over backwards to talk to these people: offer them incentives or a personal email from the CEO or a compromising photo of the CEO. The data you get will be qualitative but you’ll be able to spot trends and make changes.

Answering the above five questions isn’t easy. One word of advice is not to worry about getting real-time data (you don’t need it) or perfectly accurate data (which you can’t get). You’ll probably have to throw in some qualitative data and wild guesses. That’s ok because at the beginning you’re looking for big obvious things. You’ll have plenty of time to optimize later.

Also, it’s expected that many of your metrics will suck. You’ll be trending down, not up. This is information you can use to change, fix, and pivot your way to success, or at least the next release.

Conclusion

Get back to basics by defining some plain English metrics for your business. If they’re well designed and information gathering isn’t crazily difficult, you’ll not only have a better view of your business but you’ll find it much easier to create meaningful projections. You’ll be able to have more intelligent conversations with your team and your investors, which hopefully are also taking place in plain English.

 

05
Nov

Playing for the Tie

Like Playing to Lose, Playing for the Tie is a strategy that doesn’t lead to winning. The difference is that people inadvertently playing to lose think they’re aiming their boat at the far shore, instead they’re heading for an iceberg. Playing for a tie means you’re more scared of losing than winning.

Why is not losing (but not winning) a bad strategy for a startup? Because:

  • Opportunity cost – What aren’t you doing while you’re not succeeding? What next great startup idea are you not working on while your current one treads water?
  • Survival is not (necessarily) a milestone – Survival is a huge achievement for any startup, but it’s not the goal. You have to be able to tell the difference.

Many startups have a strategy to win at the beginning but this gets diluted to a strategy for a tie when things get operational. Here are some telltale signs:

  • You’re afraid to say that you are or will be a world leader in your category (ask yourself why)
  • You never hear your team talk about being the best
  • You gravitate towards any type of validation (“they like me!”) even if it’s too scattered to truly prove your business value
  • You’re risk averse. I’m a firm believer that many risks, like operational risks, can be mitigated in a startup. But you just can’t avoid the fundamental leaps of faith that will be required in proving your business. If you’re afraid of leaping ask yourself what you’re preserving by avoiding risk. If you’re still proving out your business then you really don’t have anything to protect (yet).

Caveat: I’m not saying swing for the fences every time. Be iterative, i.e. get out there and see what sticks. But don’t forget that getting a little traction reduces some risk (a few people like me) and sets you up for new risks (how do I get everyone to like me). See Crossing the Chasm.

Next up: Playing to Win

20
Jul

The Thinking Behind Starting Up: 10 Posts

The Flow Ventures blog has been up and running for over six months and during that time it’s naturally gravitated towards topics for early-stage startups. Partly because that’s our focus at Flow and partly because people still overlook all the difficult work that happens right at the start of a startup. Things like idea screening, brainstorming, finding strategy, and finding competitors are all things entrepreneurs should be doing for themselves, not just when requested by outsiders.

I often tell people that the very first step in a startup is relatively risk free. You haven’t committed your time and money yet and you haven’t made promises to others that obligate you to a certain path. You have time to noodle around finding great ideas and discarding bad ones. This is the time to spend at whiteboards, in cafes debating your ideas, and doing research on the Web and in the real world. This is the time to assume your idea stinks and try to convince yourself that it doesn’t (not the other way around).

We’re going to keep focusing on the early stages of startups but here are 10 blog posts we’ve written so far that provide some practical ways to think about idea and business creation:

Writing this list makes it obvious that there are lots of gaps in our coverage. Hopefully, we’ll fill in some of those gaps over the rest of the year.

06
Jul

The Value Net as a Tool for Competitive Analysis

Having talked about the goal of competitive analysis

and being better, not just different, it’s time to talk about a framework for doing competitive analysis. The Value Net, developed by Adam Brandenburger and Barry Nalebuff, is inspired by Porter’s Five Forces. It’s easy to understand but includes a lot of depth that will allow you to more fully understand the competitive forces surrounding your startup.

Let’s take a look at the graphic above. It shows 4 sources of potential competition surrounding you: Partners (whose products and services complement yours), Rivals (who compete with you), Suppliers (whose “raw materials” you require), and Customers (and distributors) who are the destination for your products. The horizontal items are the players in your industry and the vertical items are your supply chain.

Rivals: More than direct competitors

Most new companies do everything they can to say “there is no competition”. I’ve already covered why this is tantamount to saying “I do not know what I am doing.” Just because there isn’t a company that looks exactly like you doesn’t mean you don’t have competition.

Rivals are all the people or forces competing against you for the dollars and attention of your customers. They include:

  • Direct competitors – if you’re a best-of-breed product, look for integrated solutions and vice versa
  • Indirect competitors – if you’re a product company, watch out for service companies
  • Alternatives – like doing nothing, in-house solutions
  • Changing standards and regulation – when standards change, everyone in your industry might suffer

Think of it from the customer’s perspective. If you want to improve employee communication you might build an employee portal, buy one, hire a consultant or put it off until next year. There are many alternatives competing for your time and money.

Partners: Wolves in sheep’s clothing?

Partners are your “friends” in the marketplace whose products or services complement your own. This could be someone who integrates your product into theirs or provides a value-add service, like consulting, that makes it easier for people to adopt your product. Why even consider partners in a competitive analysis?

The reason is because partners, like rivals, are also fighting for customers’ attention. Sure, in the beginning you may specifically go into a partnership to reach markets outside your immediate target. That may be your partner’s strategy too. But the more successful you are, the more your partner might realize that your market (or your business) is something worth emulating. They could become a direct competitor. This is especially true in the type of partnerships startups tend to enter into, i.e. David (you) vs. Goliath (them).

Here’s an example. You build the next great mobile enterprise app. You license a “lite” version to a major portal so they can market it to individuals and SMEs. It becomes a success and the portal decides not only to replace you with something they developed on their own, but to release an enterprise version that competes directly with you in your other markets. For them, you were just free R&D.

Yes, you can do things legally to protect yourself. The point is don’t forget how easily partners can turn into rivals.

Suppliers

How can a supplier be a threat to you? When they decide to work with a rival instead of you. This isn’t as rare as you might think. Exclusivity agreements could lock you out of a key technology. Or a bigger rival could simply eat up so much bandwidth that your supplier can’t pay any attention to you. Employees are “suppliers” too and competitors would like nothing more than robbing you of your stock of talent.

Don’t overlook the fact that the more volume you drive to a supplier the more they might think about competing with you. This is called forward integration and it’s especially acute when your supplier has leverage over you in the form of an exclusive resource, the best price, or some other unique advantage. Here’s an example: you build the next great mobile enterprise app that relies on you licensing a patented mobile synch technology from another firm. This is great for them because you drive sales and they don’t have to do any work. But, the more successful you are the more it’s tempting for them to move forward in the supply chain with their own branded product. Worse, if they cut you off from your supply of technology it will put you at a competitive disadvantage.

Customers (and distributors)

The area of the Value Net above you includes your customers as well as any resellers or distributors you use. Like with partners and suppliers, be aware when these people have power over you in some way. E.g. customers (and distributors) have power when there are a lot of rivals in any industry. Or there may be other industry practices that favor resellers: e.g. brokers in real estate and insurance.

Understanding how your customers buy (from you or from your resellers) is an important aspect to understanding competition. Again, look at it from their point of view. The customer might value on-site installation and customization. Your Web 2.0 SaaS model might be feature-rich and inexpensive but your competitor’s product is sold through local VARs who can provide consulting, installation and after-sales support on the customer’s premises. The point is that competition can occur between different types of sales channels, not only between firms.

Putting it all together

To summarize, here’s how you can use Value Net to do competitive analysis:

  1. Identify your key Rivals, Partners, Suppliers and Customers/Distributors – Be paranoid and build a long list that you pare down later
  2. Look at the red arrows to understand behind-the-scenes competitive dynamics
  3. Look at the grey lines to understand your power relative to your rivals, suppliers, partners and customers – any area where you have less power is a potential competitive threat

The nice thing about the Value Net is that it’s easy to fit onto one Powerpoint slide. Showing this level of depth for your Competition slide will be a huge improvement over what I normally see in startup pitch decks. I’ll post some examples of completed Value Nets in a later post.

25
May

Competitive Analysis for Startups: Being Better, Not Just Different

In the last post I talked about the goal of competitive analysis. In this post I’ll talk about why (and when) it’s ok to compete head-on.

Let’s review why startups spend so much time showing they’re different. Anyone who’s read (and hopefully re-read) Crossing the Chasm knows that it’s important for startups to find a beachhead, i.e. a niche where they can get some traction without forcing bigger rivals to respond. This is a good strategy because it’s easier and cheaper to start generating results, and revenues, in a beachhead.

But what happens when you’re not the only player attacking a beachhead? Some investors pass on opportunities because there are already one or two funded startups in a space. Others only invest when they see that a space is heating up.

Don’t Be Afraid to Compete

You don’t convince someone you’re going to win a 100-yard sprint by talking about how you have a totally unique approach to running that involves your hands, not your feet. In other words, it’s ok to talk about areas where you and your competitor(s) will compete directly. Your job is to prove how your team, your structure and your approach will mean you’ll win. This is almost entirely overlooked in business plans (and business planning) because we’re all too busy showing why we’re Different, not why we’re Better.

Some examples:

  • Funding – I hate to say it as a believer in lean startups, but in some cases more money = more ability to compete. This is true in markets where you’re already competing on price or greenfield markets where there’s a rush to grab open real estate.
  • Focus – You may have the exact same product as a competitor but you may be focusing on a different aspect such as bundling/integration, customer service, ease of use etc. You need to prove how your focus translates into competitive advantage, e.g. the best buyers want the best customer service, not necessarily the most features.
  • Team – This is why recruiting will always be one of the top priorities of a CEO. In head to head competition the better team (e.g. more experience, more industry contacts, more skilled) will always have a competitive advantage. If you have an A team you should be talking about it front and center.
  • Speed – If your startup is built for speed then you don’t need to be first to market. Let your competitor invest in all the R&D and market education. Being a fast-follower is a great head-on competitive strategy and one that’s very well suited to lean startups. Plus it annoys the hell out of your competitors.
  • Best Practices – A great way to nullify the competitive advantage of a bigger rival is to adopt industry standards. Being close to the associations that set standards means that competitors cannot say that choosing your product is risky. You won’t have an advantage over competitors but you’ll level the playing field so you can compete in other areas.

I’d like to see more startups openly talk about direct competition and how they’re designed to win that kind of competition. When you think about it, saying you’re unique is just another way of saying your R&D and product development is better than your rivals. In the end there’s a lot more direct competition than startups like to think. It’s ok to compete head-on (assuming you’ve made sure that you have real competitive advantages of course).

22
May

Competitive Analysis for Startups: The Goal

One of the hardest things for emerging companies to get a handle on is analyzing the competition. Investors grimace when we hear “there is no competition” because outside of the world of patents, it’s just not true. But on the other hand, what’s the point of starting a new company when there are lots of competitors, implying a crowded space? Entrepreneurs often get lost somewhere between “no competition” and “too much competition”. This leads to unconvincing business plans or, worse, a strategy that’s blind to real competitive threats.

What’s the goal of competitive analysis?

For most entrepreneurs trying to convince people about a new product, the goal seems to be to prove, at all costs, that what they have is unique. There’s a standard series of tricks to accomplish this, two of my favorites of which are:

 

 

 

 

 

 

and

 

 

 

 

It’s pretty easy to define your competitive analysis in such a way that you appear totally unique. The question is, are you defining criteria that your customers care about?

“Competitive Intelligence” vs. “Competitive Analysis”

Whether you’re preparing a VC pitch deck or just strategizing about your business, remember that your real goal isn’t to show that you have a competitive advantage. Why? Because you might not. The real goal is to be an expert about your competitive landscape (and a paranoid one at that). The real goal of the Competition section of your business plan is to impress the reader that you are a) an expert about your competition and b) more paranoid than the reader (since the reader isn’t the one running the business).

The bad news is that being a real expert about your competition takes more time than creating a 2X2 matrix. But the good news is that you’ll be much better prepared for conversations with customers and investors who love pointing out that “Product X already does that”.

Stop Being Afraid to Talk About Your Competition

The takeaway is that you shouldn’t be afraid to have a competitive analysis that seems to be full of competitors. Your job is to show that you have a sophisticated understanding of your industry and where you fit in. I’m always more interested in how a startup is going to compete rather than why they don’t have to.