BarshBits

Accelerate Your Growth by Learning Quickly from Your Wins and Losses

I spent time last week speaking with a number of the new DreamIt 2009 companies.  In several emails and conversations, I was giving the same advice that applied to very different situations: meeting with a VC, getting press coverage, delivering a new beta release, pitching to angel investors.  The advice was around learning as quickly as possible, to help companies accelerate.

If you want to build a great company and accelerate your growth, you need to learn as quickly as possible.  3 easy questions will get you there following every meeting, positive win, negative loss, event, product release, code release, sale, etc.

1. What went right?
2. What went wrong?
3. Where did you get lucky?

Whatever went right, make sure to keep doing that in the future and make sure it's baked into your process.

Whatever went wrong; figure out how to prevent that from happening again and put it on a checklist to make sure it does not happen again.

Wherever you were lucky, figure out how you can make luck happen "on purpose".  By the way, it's this last question I find very few people ask.  Asking "where were we lucky?" often generates some of the best learning that can really accelerate your company.  Again, bake luck into your process so it happens on purpose.

3 simple questions.  Tons you can learn.  It's fast and easy.  Start using them today.

5 Surprising Ways To De-Risk Your New Idea Using Google Adwords - Part 2 of 2

In my earlier post this week, I described 2 ways you can use Google Adwords to test a new idea.  In that post I talked about testing your positioning and how your new idea stacks up against the competition.  Let me expand the concept further with 3 more aspects you can test.

Think about using Google Adwords to also test the following:

1. Pricing -- Once you have the positioning refined, you can start testing pricing assumptions.  Most entrepreneurs make a lot of assumptions about their pricing. Instead of assuming, do some high speed A|B testing and ONLY vary the price across multiple ads (keeping the refined positioning constant).  For example use the positioning copy that you wrote and tested, then write several ads along with different pricing -- e.g., "Only $9.99/mo" "Only $4.99/mo" "Only $19.99/mo". Now look for pricing trends in the click through rates.  You can also test different prices tied to different benefits to see if changing your positioning/benefits changes perceived value and what customers would be willing to pay.
2. Demand -- Will you run the ads and have "no clicks" or close to no clicks?  What will demand be like?  How quickly will you run through your ad budget?  This will help you understand if you have the positioning and pricing right, and tied to the right keywords.  It will also help you understand if you have a viable idea.
3. Cost of Customer Acquisition -- You'll learn a lot about how much you have to pay per click to get visitors to the landing page (they are NOT customers yet as they are not buying, just visiting).  It's a start.  It's not the total cost of customer acquisition (just SEM costs as of today) but if you can be clever and get people to the site for 5 cents, that's a lot different than if it costs you 50 cents or a $1.

Testing on Adwords is not perfect, but you'll usually learn a lot quickly and spend very little money.  And, you can do it before a single line of code is written, a prototype of your product is built, or you have rolled out your new service.  After Adwords testing is complete, it may be a good time to start speaking with potential customers.

Want to know more?  Some great articles on testing with Google Adwords can be found here, here, and here.

If you give the Adwords testing approach a try, please join the conversation by reporting back in the comments section with your experiences and refinements. Enjoy!

5 Surprising Ways To De-Risk Your New Idea Using Google Adwords - Part 1 of 2

I am doing work with a team on a new product / company idea.  This idea would be both consumer and business facing.   We want to test quickly the positioning and value proposition for each target customer's point of view.

Instead of doing formal focus groups or initial lengthy primary research interviews, we'll start with a more informal process that will deliver results quickly and inexpensively.  This is not perfect, but a great place to start in the de-risking process.  It's quick, easy, and capital efficient.

You too can use a similar process on a new idea you have.

Use Google Adwords to test the following aspects for each target customer.  When people click on your test ads, you can drop them to a placeholder landing page.

1. Positioning -- Put together a series of ads where you vary the positioning (e.g., key benefits or differentiators) of the new idea and see which positioning gets the most clicks.  You can quickly test various positioning concepts and instead of guessing which positioning will resonate best with the targets, let the crowd decide.  Also, you'll find out what benefits are most important to your target customers by looking at the click through rates of the different ads and seeing which rank the highest.
2. Competition -- Write a set of ads that simulate your competitors' positioning and then write a set of ads showing your positioning (highlighting your differentiators) and hopefully show solid lift based on your differentiators. If you don't see lift, you'll have to brainstorm and try to refine.  You can capture great data here to use later if pitching for investment money.

Later in the week I'll post again with 3 more uses of Google Adwords for marketing testing including testing price points, gauging market demand, and learning more about your cost of customer acquisition.  Stay tuned...

When can I start speaking with potential customers?

Earlier this week I gave a talk at the TechAviv New York meetup at the NYU Stern School of Business.   About 250 people attended the event.  After my talk on de-risking and turning assumptions into knowledge in a capital-efficient manner, an entrepreneur came up to me to ask a question:

When is it too early to meet with potential customers?

My feeling is that it's almost never too early to start speaking with customers. Whether you are creating a business facing or consumer facing product or service, I strongly believe in speaking with customers as early as possible (being careful, though, if you have any particular intellectual property you are trying to protect via patents).  Think about trying some of the questions below and modifying them to fit your particular situation (whether a product or service; whether business or consumer facing):

• Would you use this product?  Why or why not?
• What do you think are our strengths and weaknesses?
• Does this solve a large, urgent need for you?
• Can you describe how this would help you increase revenue or decrease costs?
• How are you solving this problem today?
• What product(s) would you be replacing if you started using our product?
• What do you think is missing?
• What do you see as the top benefits this would provide?
• Who do you see as a competitor to us / our product?
• What obstacles would you see to implementing / purchasing this product?
• What value do you see this provides?  Can you describe that in monetary terms?  (In other words, "What would you be willing to pay?")

When finishing the meeting with a potential customer / consumer, don't be afraid to try a trial close and ask something like "So, if we fixed the things you pointed out and were willing to sell it at the price we discussed, would you go ahead and purchase it now?"  LISTEN carefully to what they say.  Hear if they throw up and objections / obstacles to the sale.  You may have to drill down a bit more if new things come up but the information will be highly valuable.

De-Risking Your Business Model: A How To Guide

I recently presented to the current crop of companies at DreamIt Ventures -- a pre-seed fund that helps great people with great ideas build great companies.  DreamIt is based in Philadelphia and is very similar to Y Combinator.

During the last few months at DreamIt, many speakers have discussed how early stage companies need to de-risk their business plans, and one of the DreamIt founders, David Bookspan, asked me if I could come in and talk about how to actually do it.  So, I put together a presentation for DreamIt with categories of risk to think about with specific checklists and "how to's" for de-risking particular classes of risk common to many types of business.  The presentation is embedded at the bottom of my blog post.

For more great reading on de-risking, Josh Kopelman of First Round Capital has 2 excellent blog posts here and here.

Thanks to Brett Berson, an awesome summer intern at First Round Capital for his quick edits and feedback as well as his comments and input he offered during the talk.

Please comment below and feel free to add your ideas on how to de-risk, and let me know if / how these techniques work for you.

Finally, don't forget to de-risk the next time you get in your car.  Wear your seat belt!  It's one heck of a value proposition! ;-)

New additions to blog post made 30 July 2008, based on a comment below from James Nelsen:

There are similar techniques to de-risking that I did not point out in my original blog post.  Thanks to James Nelsen for pointing out the Wharton technique of Discovery Driven Planning (DDP).  This is an excellent technique that you can use for de-risking and more information can be found on it here.  Another great technique is called Assumption Based Planning, and that de-risking technique can be found here.  Thanks James!

Derisking Your Business Model Dream It July 2008 V2.1

view presentation (tags: barshbiits.com sbarsh steve@barsh.com barsh.com)

Assumptions Kill Your Estimates. How to Fix the Problem.

Last week I wrote a post as the first step to help solve a problem I see most people have -- creating accurate and reliable estimates.  The technique is called confidence-based estimating (CBE).  When building a product, company, or just about anything, how or why do you expect people to believe your estimate if you are really just "winging it?"  In last week's post I started by saying there were 2 easy questions you need to ask to increase estimating accuracy quickly.

I said that the first question you need to ask is:

What’s your level of confidence in your estimate?

It looks like a simple little question and it is.  But dozens of times I have seen this "little question" be the first huge step to creating highly accurate estimates.  For a detailed discussion on the question above, please read the post here.

I promised at the end of that post to "take you through the 2nd killer question to ask."  So, here we go...

The 2nd Killer Question to Ask:

What assumptions are you making?

Again, it looks like another simple, innocuous question.  But wait until you see what happens as the question starts getting answered!  Here's how it works...

It's great to get a detailed list of all the assumptions someone is making when they are creating an estimate.  In my first post on estimating I talked about asking the person to give you their estimate at a "95% level of confidence" (after they've given you their initial estimate).  When creating that estimate, make sure to capture all of the assumptions the person or team is making.

Categorizing Your Assumptions

I would strongly encourage you to think about classifying / categorizing assumptions.  Here is a simple (but not complete) example for a software development project:

Example 1: Assumption Categories for a Software Development Project

• Methodology (e.g., Agile Development)
  
• Development Framework (e.g, Ruby on Rails, Django)
  
• Development Environment
• Requirements & Scope
• API's
• Widgets
• Interfaces
• Staffing (on shore / off shore)
• QA and Testing
• Other

You would use something like the above to ask about assumptions by category when you are going through the estimating process and trying to get to a 95% level of confidence.  The questions would be phrased / presented using the Assumption Categories using the following type of pattern... "What <Assumption Category> assumptions are we making when we think through this estimate?"  So, based on the Assumption Categories listed above you would end up with questions like: "What Requirements and Scope assumptions are we making when we think through this estimate?" "What API assumptions are we making when we think through this estimate?"  And so on..

Example 2: Assumption Categories for an early stage Web 2.0 company:
This is just a subset of the assumption categories and yes, there are overlaps in the below...

• Management team
• Marketing
• Positioning
• Competition
• Pricing
• Cost of customer acquisition
• Viral coefficient
• Customer churn
• Customer adoption
  
• Development environment
• Development team
• Product development
• API's / widgets / interfaces (inbound and outbound)
• Business model
• Financial
• Funding / valuation / capital requirements
• Other

Again, use the following type of pattern with the assumption categories.. "What <Assumption Category> assumptions are we making when we think through this estimate?" So questions look like "What pricing assumptions are we making when we think through this estimate?"  "What competition assumptions are we making when we think through this estimate?" "What product development assumptions are we making when we think through this estimate?"  And so on.

Assumptions = Risks

All of the assumptions that you come up with are risks that need to be managed.   As Josh Kopelman likes to point out when he and his firm are looking to invest in early stage companies, one of the things he is trying to do is "de-risk" a company/idea at the earliest possible time and as capitally-efficient as possible.  I urge you to spend time trying to flush out the assumptions and risks.

So, think about how you can verify or de-risk your assumptions.  How can you really justify your assumptions?  How can you be sure?

Recently, I was listening to a pitch and I quickly went through this confidence-based estimating process with the entrepreneur when they stated their estimated product launch date.  This was a May 2008 meeting and the launch was forecast for Q1 2009 (so let’s call that March 31, 2009 – 10 months later).  Assumptions came back along the lines of:

1.    Software will be ready
2.    Hardware will be ready
3.    We’ll have the management team on board
4.    We’ll have the financing closed by the end of June 2008.

Those are 4 huge assumptions / risks. Expectations were being set.  Were they accurate?  I asked him for his confidence level in his estimate.  His response: "65 - 70% confident."  I asked him for a 95% level of confidence now that he was thinking through his assumptions.  He  added 6 months to his estimate with a new projected launch date of September 2009.  That's a huge change!  Think about if he had not really thought through his estimate, raised his first round of financing, and subsequently ran out of cash after missing his originally forecast launch date.  Good time to be raising more funds?  Don't think so.  You don't want to have a great idea but run out of cash due to estimating problems and end up here.

Please post in the comments your experiences on how confidence-based estimating works for you.

I'll do one more post on estimating with some final thoughts.  Stay tuned...

Estimates Are Usually Wrong. Fix The Problem With Just 2 Easy Questions.

In this post, I want to share with you a technique I call confidence-based estimating (CBE). I’ve been using this CBE technique for about 15 years when building software, building companies, managing large teams, building and renovating houses, managing complex projects, and dealing with complex life-threatening medical issues.

Background

I’m amazed how time and again I meet with people (during VC pitch presentations, review meetings on software development schedules, product development updates, financial projection reviews, etc.) and someone gives an estimate, and invariably they are wrong.  Very often, WAY wrong.

Think about it.  How many estimates/forecasts have you provided or heard that turned out to be accurate?  Think about the estimates/forecasts you have given or heard concerning:

• Sales forecasts
• Capital requirements
• Costs to develop a new product
• Product launch dates
• Software completion dates
• Product shipping dates

And, count on your hands how many times those estimates were accurate.   Most likely you only needed one hand. What’s going on?

Estimates = Expectations

So much is riding on the accuracy of estimates!  Estimates set people’s expectations. Those people may be customers, investors, employees, or others.  Managing expectations is critically important. It’s always great to meet or exceed expectations but when it comes to most estimates, more frequently than not, people’s expectations are not met because estimates are missed.

How Confident Are You?

So, how do you apply this deceptively simple confidence-based estimating (CBE) technique?

When someone gives you an estimate (an amount of money, a date, a number of days/weeks/months) come back with a killer follow-on question:

What’s your level of confidence in your estimate?

So, on a scale of 0 – 100%, how confident are you that your estimate is correct?  By the way,100% means you’re willing to "bet your paycheck."

If the answer does not come back around 95%+ (trust me, it usually won’t), use this follow-on question:

If I asked you for a 95% level of confidence, what would you say is the correct amount of money / date / number of days/weeks/months?

As they start to think their answer through don’t be surprised when the new number / date / amount of money goes WAY up.  I’ve seen initial estimates come in with people saying, “That will take 9 months.”  You ask for the confidence level.  They come back with 65%. You ask for 95% confidence.  They come back with 12 – 18 months (by the way, read that as ’18 months’).  So, they went up 30 points of confidence and their estimate doubled!  That’s okay, because now people are actually thinking it through.  If they can’t get to a 95% level of confidence, that’s okay too.  Get as high as possible and realize the risks you are taking with lower confidence levels.

In my next post, I’ll take you through the 2nd killer question to ask.

Stayed tuned…