One of the most prestigious and highly anticipated events in the hollywood calendar is taking place in Los Angeles tonight, the 86th Academy Awards a.k.a. the Oscars. The event attracts over 1 billion viewers worldwide and the nominees and their respective PR reps that are taking centre stage will face enormous pressure tonight. There are four key lessons you can learn from those under the spotlight tonight and apply these to the way you do business:
- Prepare, prepare and prepare again — just as the nominees tonight will have rehearsed their acceptance speeches and considered all possible scenarios that may unfold so to must you be well prepared in all aspects of your business. You must understand your company’s value proposition in detail, your growth plans and how to sell your idea to potential customers, suppliers and partners at any time. Public speaking is a skill you should refine both to communicate your message effectively to external parties but also to motivate and inspire your team to help grow your business.
- Dress the part — with a global audience of 1 billion the stars surely feel the pressure and do their utmost to dress impeccably. It is important in a business context that you dress the part on a daily basis according to they type of business you run and the customers, suppliers or partners you meet with. This is even more important when seeking investment as dressing scruffy or wearing flip flops when pitching for finance sends a strong signal that you are not taking the investment seriously.
- Be grateful to those who have and continue to help you — a key part of any acceptance speech is to thank those that have been instrumental in helping the winner attain the award. The success of your business similarly is contingent on the efforts of more than just one person. Make sure you recognise those that have added value and continue to add value making sure they are aware of your appreciation.
- Network like crazy — for the actors tonight’s event is a great opportunity to network with their peers which could prove fruitful in the form of new movie roles. Every month there are hundreds of startup events taking place across the various hubs globally. You should where possible attend relevant networking events as it may open more doors or lead to new partner, customer, supplier relationships and possibly even a new member for your team.
Finally, enjoy the ride and recognise achievements. You will feel the pressure on a daily basis but make sure to step back from time to time and recognise how far you have come.
A recurring theme I come across from my discussion with startups founders in London is the lack of importance placed on understanding who the target customer(s) of their company’s products or services are. In most cases, founders understand the broad market they want to serve, have formulated the product or service but have not thought in enough detail as to who will actually use or purchase these services and in some cases have the thesis that their target customer is “anyone interested in my product”.
The majority of the time, founders have formulated thoughts on broad buckets of people that may use their products or service but never in enough detail that when questioned can say with conviction the problem their product it solves for those particular categories of customers.
It goes without saying that knowing which customer segment(s) you are targeting are of vital importance when launching a new product or service, however, many fail to analyse these in enough detail such that their product or service and in particular their marketing strategies can be tailored in order to capture those customers.
Understand Key Attributes Of Target Customers
As a starting point consider the key attributes of your target market including such aspects as:
- Personal demographics such as their age, ethnicity, gender, marital status, family size, education, occupation, salary etc.
- Where they are located which is particularly important if you are targeting specific geographies.
- Consider psychological aspects of your users such as types of personalities, their attitudes, values, interests, hobbies and general lifestyles.
Understanding the key elements above will allow you to define your target market. For market value sizing search online for research on the specific industries and geographies that you are targeting — for example Pew Internet publishes a number of reports on global internet usage.
A great example of a company that understands its customers is Skull Candy (Headphone company) who’s founder knows who his customers are — aged 12 to 26 years, they are hip, they love music, they ski, surf and skateboard.
Understand The Problem Your Business Is Solving For Your Target Customers
In order to formulate your selling strategy and value proposition it is important to understand why and how your customers will use your product or service.
Take time to research any competing products including what customers like about those products or services and what they don’t — use focus groups or interview users of competing services if possible.
At the end of this exercise you should have a clear value proposition that you can use to sell your product or service to the client including its unique selling point particularly if there are competing products or services.
“no matter how good your product or service is if you cant convey its value to potential customers they will never buy or use it”
Consider How You Will Reach Target Customers
The one area which a number of founders do not consider in much detail is the most cost effective and efficient route to capture potential customers. Understanding this is essential as it allows targeted marketing on specific channels used by your customers thus preventing wasted marketing spend.
At a minimum consider the following channels:
- Social media — which platforms do your customers use (Facebook, Twitter, LinkedIn, Pinterest etc) and what is the best way to reach them through social media?
- Email — are there any email lists of potential customers that would be interested in your product that you can get hold of to send targeted marketing emails?
- Blogs / Online Magazines — are there specific blogs aligned with the industry within which your products and services are sold that you could target for advertising or sourcing customers?
- Search — consider what key search terms are used to find products or services offered by your business and focus on SEO optimisation as well as paid ad campaigns if appropriate — Google Trends is a great resource to understand keyword trends by geography.
- Print Magazines — do your customers read any specific print magazines where an ad campaign could generate new customers?
- TV/ Radio — can be a very expensive route however is TV or Radio advertising an effective means of capturing new customers?
As noted above, there are a number of channels that you can consider for your marketing efforts and it is important that at the early stage of your business you focus on the lowest cost first whilst you build proof of concept and a solid customer base.
For any money spent on the above channels ensure you have an effective way to measure your return in the form of new customer acquisitions (Customer Acquisition Cost — CAC). The CAC of a particular marketing campaign is the cost associated in convincing a customer to buy your product or service. In simple terms this should equal your total spend on that channel / total number of new customers from that channel. For example, if your team spent a total of $10,000 on SEO optimisation (includes staff costs) and from this you secured 1,000 new customers then the customer acquisition cost is $10. Understanding the CAC of the various channels will allow you to understand how effectively in financial terms each channel is securing new customers and therefore reallocate your marketing spend more effectively.
Finally, it is important to note that as you refine your business as you scale your target customer segments may change which is ok and is something that you should embrace if you are following the lean startup methodology — as long as you understand why they change and that you take time to learn how your product fulfils their needs.
Bootstrapping in startup terms refers to financing your business without using the financial resources of external investors. The term is derived from “pulling yourself up by your own bootstraps”.
“Bootstrapping is a way to do something about the problems you have without letting someone else give you permission to do them” — Tom Preston-Werner, Co-Founder of Github
The bootstrapping term has been severely overused in startup circles however it still remains one of the best and least expensive forms of financing a startup due to the fundamental focus on investing as little as possible to produce a viable product. You may also have stronger negotiating power to retain more equity when seeking outside investment for a bootstrapped business which has achieved proof of concept with real customers and revenues.
Due to recent large venture fundraising rounds and exorbitant valuations for early stage technology startups, founders are placing too much focus on raising funds rather than focussing on building their core product and value proposition. Venture capital is a very relevant source of funding available to help scale and grow your business, however, at the initial stages of your business you should be focussing on bringing a minimal viable product or service to market at minimal cost. To bootstrap your business you can use a combination of the following methods:
- Personal financing — use of your own savings.
- Personal debt — in the form of bank loans, credit cards overdraft or loans from friends and family.
- Sweat equity — offering equity in the business in exchange for work completed for example to a web designer or programmer rather than a cash payment.
- Receiving trade credit from your suppliers — requesting longer payment terms on purchases of goods and services. It can be difficult to obtain such credit during the initial stages of your business as you build credibility hence suppliers may demand cash in advance or on delivery of goods. Therefore it will be vital to discuss your specific needs with each supplier which includes giving them comfort that payment will be made within the agreed terms. This can involve discussing your business plan in detail and possibly even providing them with extracts from your business plan. The relative cost of trade credit is the loss of any potential discounts offered by suppliers for paying on delivery or within 30 days. The offsetting advantage is that you will not need to rely on outside sources of capital to finance your orders prior to receiving payment from customers.
- Purchasing equipment on credit — agreeing long term payment plans for large capital equipment purchases.
- Letter of credit from customers — allowing you to purchase materials from suppliers with the letter of credit (a document issued which assures payment to a seller of goods or services) from your customers as a guarantee. In this situation you would not pay your supplier for materials order and instead you would provide them with a letter of credit which acts as security against the order placed.
- Factoring your receivables — selling your accounts receivables at a discount to release cash for use in the business.The release of cash from receivables sold can then be used elsewhere in the business reducing the need to seek additional sources of capital. This method of finance is most appropriate where you have long payment terms with customers.
Which methods you use or don’t will depend on the specific needs of your business. For example the development of an app will require significant developer time and therefore you may use sweat equity and some form of personal cash financing whereas a business selling products will have much higher working capital needs and therefore the use of supplier or customer financing will be more relevant.
Some examples of successful bootstrapped businesses include:
- Gawker Media Group — Nick Denton created this company in 2002 and using his own money and initially operating from his NY apartment managed to build the business to be worth over $300m.
- Techcrunch — Founded by Mike Arrington and Keith Teare in 2005 built the technology blog using their own personal finances to be worth over $30m at the time of the sale to AOL in 2010. As a result of bootstrapping the founders retained the majority of the equity with Arrington owning 85% of the business prior to its sale.
- Github — started in 2007 with the small cost of the purchase of a domain and hours of coding by the founders. They continued to finance the site using personal funds until 2012 when Andreessen invested $100m.
At somepoint though, a bootstrapped business will face a large barrier in the form of scaling and growth which typically requires larger cash injections only accessed via external investment. As a founder you will be best placed to decide at what point to pitch for external investment. Always bear in mind though, as much as possible build, scale and grow your business as much as you can with minimal funds while maintaining as much equity as possible.