Thoughts On...

Startup Lessons Learned with Cameesa

We embarked on this journey a long while back and learned a lot about crowdfunding and startups. Crowdfunding lessons learned from can be found here. This post is geared towards startup lessons learned. 

1. Always engage in customer development and obtain the validation up front and throughout your development cycle. 

I’ve made mention to Steve Blank’s “Four Steps to the Epiphany” in a previous blog post. The methodology encourages interaction with your customers and market so you can quickly find out what the focus of the product should be or whether the product is worth building at all.  Solving your own problems is always a good start as you will be addressing one of your own needs that you have intimate knowledge of. Even in this scenario I would highly recommend getting prototypes up in a quick fashion to solicit feedback prior to making a significant investment. In addition, obtaining feedback throughout the product life cycle and analyzing metrics will allow you to improve the product in a way that’s valuable to your customers. 

Some may argue that the customer development model doesn’t produce revolutionary products as customers don’t know what they want. People typically reference the following Henry Ford quote: “If I’d asked people what they wanted, they would have said a faster horse”. A modern day is example would be Steve Jobs and Apple. Their tightly controlled product design approach under Steve Jobs is void of any customer collaboration. However, many of us are not Steve Jobs or Henry Ford. These are extraordinary individuals. A number of factors and circumstances had to come together for their success to occur. In addition, they may have held tight reigns on their product ideas but they certainly did not isolate themselves from people and ideas that ultimately shaped their products. They understood the “why” of their products. In Ford’s case that people would like to get from A to B efficiently and in Jobs’ case the idea that technology products are cultural products where design plays a critical role. In short nothing is created in isolation and it takes extraordinary circumstances to develop successful products in the absence of customer development. Keep in mind that customer development does not replace vision. It can’t. You need a vision. Customer development will help you figure out whether you are on the right track. 

With Cameesa we identified a couple of key trends trends that were going on. Micro-finance sites such as Kiva and music funding sites such as Sellaband were collecting small increments of funds from the public to achieve a larger goal and had traction. In the case of Kiva the funding of third world entrepreneurs and with Sellaband the funding of musical acts to get their album professionally produced and promoted. The other was the rise of crowdsourced T-Shirt sites such as Threadless and Design By Humans. The basis of the Cameesa idea was taking Sellaband and Threadless and putting them together. Sellaband was attracting financial supporters which they called “believers” and Threadless was growing at a fast pace and provided a unique product in the T-shirt space. We thought that taking both models and putting them together would create a successful product based on the fact that both of the models above were successful. So we did any eager entrepreneurs/developers did. We started building and went online. We didn’t do customer development. Despite our lack of customer development our initial customers gave us amazing feedback and some great ideas. With that being said our fundamental assumption was wrong. That crowdfunding would be produce a better product. It doesn’t. Curation is extremely important. More on this can be found in my Cameesa lessons learned post. 

What we failed to consider was the following: 

We were web guys starting a retail business. One in which margins increase with scale. Inventory management and logistics are crucial to success. None of us had retail backgrounds to leverage.  In addition, T-Shirt sales are and always will be a low margin business. Volume is required to keep the business afloat. Our model involving artists, supporters and buyers required all three to have significant volume for the business to scale. 

Retail challenges aside we had another major hurdle. We never actually knew whether the crowdfunding model was actually sustainable and whether or not it would be able to sustain the business moving forward. Sure, Sellaband had a large handful “believers” donating money to artists but does Sellaband make enough to keep the platform running? Kickstarter, the poster child for crowdfunding has had tremendous success in terms of growth, user base and the number of successfully funded projects. Is the transaction fee they charge on successfully funded projects enough to keep operation moving forward without outside money? I am by no means trying to single these companies out. What I am hinting at is that the model is new, unproven and presents another risk in terms of sustainability. We are all still trying to figure it out. 

Crowdfunding although an excellent tool for getting projects financed is not ideal for products with a low price point. The most common piece of feedback we’d receive was as follows: “The project is still trying to reach the goal but I want the T-shirt now!” or “I don’t want to support the project to eventually get a shirt. I just want to buy it now.” Crowdfunding is great for fund-raising for creative endeavours however I don’t feel it has the same impact in the consumer products space. When people want to shop they don’t want to support a project. They want to buy now. Not tomorrow. 

In the end our experiment came down to a question of reliability versus validity. We obtained feedback and refined Cameesa to be a better Cameesa. The validity of Cameesa should have been questioned sooner. Should we have even created Cameesa in the first place? I think if we had done the initial customer development we probably would have come up with a more valid idea to run with. 

2. The right model.

If you are able to get paid from day one than you are on the right track. I made reference to this when I discussed standalone utility vs. network effect utility in a previous blog post. If you cannot generate revenue from day one it will be extremely hard for you to keep working on the product or working on finding the right answers. The funds generated buy you enough time to pivot and change course by creating a product that is valuable to your customers. We had never gotten the model right with Cameesa and it limited the amount of time we were able to put in. Revenue is also a good feedback mechanism. It’s a points system more than anything else. If you’re not making the money you thought you would, chances are you’re working on the wrong thing. This leads me to my next point:

3. You can’t do it part time.

We’ve had Kamil and Andy work on Cameesa full-time during certain periods. I would also set aside weeks at a time to help out. The problem was these moves were a gamble as we were not on the right track to begin with. As a result of not having the right model that could give us the funds to all work on the product at the same time we’d work on it when we could. By not being able to work together we lost out on some great opportunities to collaborate and make the best of each others skills. Making releases became tricky as well. One example is when Kamil wanted to improve the platform, he would undertake back-end development and ask me to put together a UI and the front-end templates. A lot of the times I wasn’t around to do this work and Kamil would have to take it on himself. Kamil didn’t like doing this as it was outside his skill set nor was it an effective use of his time. It also caused a lot of frustrations for the team that could have been avoided. If we had been able to work on it full time versus part time, we could have got our answers and initial prototypes vetted in a couple of months versus the eight to ten months working on weekends. 

4. Stay lean and keep iterating.

Keeping lean and evolving your product as mentioned above are critical for any startup. You are forced to be lean as you have limited resources and need to focus your efforts and funds on activities that deliver the highest value. The likelihood of success is also based on your ability to keep evolving the product (Or pivoting). You need to make the right moves early on that generate the funds necessary to keep the business moving forward. The getting paid on day one principle. Depending on what stage you’re at with your product you will need to test the validity and reliability of your assumptions. 

Testing validity happens before you start building. As mentioned above. The step we skipped :). You identify what type of product you’re going to build versus what you’re not going to build. It should have an associated model that can sustain the business. As you produce the product and iterate with customer feedback you are testing for reliability. Taking your valid assumption and fine tuning to make it more reliable. 

In our case we never tested the validity of our idea. We also didn’t have a model that could sustain the business in the long term. We thought the idea was good enough and iterated on the product to see if it would improve things. We kept focusing on improving the product. Outsourcing to different vendors and re-designing the site when what we really needed to do was change course. In the process we wasted a significant amount time. What we really needed to do was search for a more valid service offering.   

5. You don’t need five founders.

When we first started Cameesa we had more founders than we needed. I think all that is required are two founders. However, I wouldn’t say three’s bad either. One of the founders should have a strong technical background in engineering the other should be a products person (Fred Wilson described it well). You both need to be business savvy. I think anything more than this to start is overkill. If your initial assumptions are right and there are funds to start scaling the team than you can bring on additional team members. However, they do not need to be founders. 

6. Ensure that everyone on your team can make an impact today.

As related to the previous point. We had more than enough founders but a couple of them did not have the skill set to help with an early stage company. They had corporate backgrounds and were employed at very large organizations. Ones that need “professional management”.  Our little start up did not require professional management. What we needed were people who could get their hands dirty by either working on the product, crushing it by blogging and reaching out to the community, working with our third party outsourcing companies to develop a better product, etc. We didn’t need people to help get us funding, to manage us or do spreadsheet modelling. I think having someone work on pitching VC’s would have been better if we were on the right track to begin with.

7. Getting coverage in major publications does not mean you are on the right track.

As with any company in a new space such as crowdfunding there is a lot of hype and publicity. We managed to get into the print and online editions of The New York Times, The Wall Street Journal and Time magazine. However, the amount of traffic we received from those publications was minimal and didn’t usually result in repeat visits. Every time, we made it into these publication we somehow felt a sense of validation and thought there was still hope if we could get enough people onto our platform and things would eventually work themselves out. This is not the case. It is far better to get favourable reviews and write ups in niche publications. The referrals from these sites tend to have a higher likelihood of conversion than those from a larger more general publication. I think it hindered more than it helped us. It made it harder for us to let go of our initial idea and experiment with new ones.  

8. Forget about funding. 

I think if you are a second or third time entrepreneur it probably makes sense to get funding if you’re trying to tackle a bigger problem. With that being said, you should have a viable product and the funds should be used to amplify your success. In other words they should be used to scale  up. This is typically a good option for second or third time entrepreneurs who have significant experience in successful start-ups. David Hansson of 37Signals tends to have a really strong view on not taking funding and I understand where he’s coming from. But, I do believe the silicon valley adage “If you want advice ask for money and if you money ask for advice”. I would personally give a large portion of my equity away in order to get the coaching, advice, mentoring and support network that comes with having investors. I think the learning experience would be great irrespective of the outcome. In the case of Cameesa, we were never in a good position to obtain funding. All of us were 1st time entrepreneurs, none of us had been funded and I don’t think Cameesa was the platform to invest in. I think we needed to focus our efforts on exploring a myriad of sustainable product ideas versus being concerned with funding. Get your product working first and produce strong results. Then go seek funding if it’s needed. For us it was a distraction more than anything else. There’s also a lot to be said about running a lifestyle business. 

9 . Passion

As with any endeavor you must be super pumped about working on it. You need to live and breath the product or service. Or live and breath the process of getting a start-up off the ground. Passion can take you a long way. If you are not passionate about what you’re doing you should stop immediately.  Time is extremely precious. I think you can always find a way to recover money. Time however is not recoverable. Once its gone, its gone. There is no way to get it back. This is why I will always feel worse about wasting time versus wasting money. I can always find a way to get the money back. 

I was very passionate about starting a new online product and experimenting. I was also very passionate about working along side like minded people like Andy and Kamil. The one thing I wasn’t that passionate about was running a retail business. One that involved t-shirts. I had always wanted run a pure play services site for crowdfunding such as Kickstarter. We were slow moving and they beat us to it. We held on to our initial assumptions when we should have changed course. I want to make one thing clear. When I say “I wasn’t passionate” it doesn’t mean that I was unwilling to learn or even had a dislike towards running retail operation involving T-Shirts. I liked it, I just wasn’t head over heals in love with it which could have limited my ability to crush it. It’s also the reason why we’ve decided to close up shop. 

To Conclude

In retrospect, do I feel like I’ve wasted my time? Not really. I’m glad to have worked on this project with Kamil and Andy as I’ve gained a wealth of experience that will better prepare me for future endeavours. I do think we could have used my time more effectively if we had done more customer development from the very start. 

The Pivot

Pivot is a term used to describe the ability for a business or product team to change course in response to feedback and certain market conditions.

It is extremely rare that your first idea or startup will be successful. It is usually the case that after a few tries you get closer to success. You increase your chances of success by undertaking customer development and identifying patters in the ways people interact with your product. A good team paired with a lean or agile philosophy is in the best position to pivot. This why you usually hear that investors will usually bet on an A team with a B idea versus a B team with an A idea. The A team will find ways to adapt and eventually turn their B idea into an A idea.

There are far too many examples of startups changing course. Many of which are documented in Jessica Livingston’s Founders at Work. However, I’d like to share some notable examples below.

Groupon the social shopping and group discount promotion platform started off as The Point. The Point is a community site that allows that helps individuals organize for collective action. Examples include getting everyone to petition for a cause or to collectively pool money together to support a cause. CEO Andrew Mason and his team quickly identified a popular use for The Point platform. The community would form groups for collective purchasing which would result in a discount. The team quickly realized that this would be a good opportunity to create a site that solely focused on discount group purchases. They realized there was a positive response and large uptake in the new solution and started diverting staff from working on The Point to working on Groupon. Nice pivot!

Other notable examples Flickr, PayPal and Youtube. Flickr was originally a video game that had a photo sharing component to it. Caterina Fake and team realized the photo sharing was the most popular part of the game and spun it off into Flickr.

Max Levchin started PayPal as a Palm Pilot cryptography and payment processing company. They built online component so that people could manage their Palm Pilot money transfers and send money via email. The majority of customers were enamoured by the online component and Max had pivoted to become an online payments company.

Youtube, started off as a hot or not with video. Chad Hurley and Steve Chen realized that their site had a broader application as a video sharing site and successfully repositioned the site.

Rarely will your 1st products be the best. The point is to get something out there, get feedback, identify usage patterns and use this information to build your successful product. Might take you have few tries. Go out there and build something great.

Developing Products for The Fortune 1000 vs. The Fortune 1,000,000

When brainstorming new product ideas to build businesses around it is important to consider what kinds of customers you’ll be servicing. They tend to fall into two categories: the enterprise and the small business. Both are good but each has a tremendous influence in how you develop your product and grow your business. In both scenarios you must undertake customer development and be agile. 

If the goal is to build a product for the enterprise customer development will include reaching out to the decision makers and CIOs. In this scenario the couple of enterprise customers you are working with will have a tremendous influence over your product and may influence your platform decisions. Example, most IT departments do not want their data in the cloud and would like to host their own information. As a result your development team maybe larger. As a result of having a larger team you may have to implement a more formal agile methodology such as Scrum. In addition, you will eventually need to bring in sales and account managers to grow and maintain accounts. Pricing for such products tends to be higher as it is partly reflects the overhead involved in servicing an enterprise client. Overall, it’s a larger scale operation with more management overhead. It also very likely that you will need financing to scale and grow the operation.

If the goal is to build a product for the small businesses you may be reaching out via social networks, community sites, etc. to undertake your initial research. You will also probably meet with many people face to face to gauge interest in your idea and ultimately have them evaluate your product demo. The application will most likely have a smaller footprint as small businesses are more likely to use cloud services (aka software as a service). With hosted solution you are able to choose the technology platform, Ruby on Rails, Django, or any other rapid application development framework. As a result your team size will be smaller. The smaller team size allows for agility. With the smaller team size you most likely will not need additional management overhead. In addition, you are aiming to service a larger client base that most likely will not need professional services. Which in turn allows you to charge for the service at a lower price point. There is no need for sales and account managers for products of this scale. If you are developing a product for this segment it can easily be turned into a lifestyle business. 

In speaking with entrepreneurs I find that they dismiss opportunities that are possible when attempting to build products for the small business segment. Their idea of success is go big and get funded, get an office, hire lots of staff because that’s what successful businesses do. It is very possible to build a lifestyle business that earns enough revenue for you and your team to continue working on the product full time. Also, it allows you to grow the business and product organically without significant pressure from a large client or investor with minimal risk. At a fundamental level I think it’s people’s belief on what constitutes a successful product. It all depends on your definition of success. Will you build something that millions of people will use? Probably not. Is it possible to develop a product that 5000 people might find useful and wouldn’t mind paying $20.00 per month for? Possibly. 

Customer Development

We never started Cameesa with customer development in mind but we should have. It would have saved us time from heading in the wrong direction. 

What is customer development? Customer development is a set of principles that allow you take your business ideas and validate them before scaling by reaching out to your potential customers. Serial entrepreneur Steve Blank (who is now a professor at Berkley and Stanford) identified patters that allowed start-ups to succeed in his book the Four Steps to the Epiphany.

I wanted to highlight what I found to be the most helpful take aways from the methodology on a basic level:

1. Get outside of the building.
2. Minimal viable product.
3. The pivot.

Even though I’m oversimplifying I think if these core items are kept top of mind you will have much more success than if they were not taken into consideration at all. Steve’s book does cover a lot of topics that would be applicable to larger venture backed startups but the principles can apply to a small team wanting to get something off the ground. 

1. Get outside of the building.

This is the most important item in customer development as it presents a fundamental shift in the product development process. So what does getting outside of the building mean exactly? It means not staying behind your computer screen developing your product until you’ve at least gathered some insights from potential customers. It is recommended that you have face to face discussions with people. Your goal is two fold. The first is to validate the product idea, the second to is validate the model. An example is as follows:

Me: I am building an augmented reality real estate application for the iphone? You can point your phone at a property and get the listing details and pricing. Cool right? Is this something you’d find useful? You have a lot expertise when it comes to all things real estate so I value your opinion. 

Potential Customer: I’m not sure if the general public would find it useful as they tend to make rental and home buying decisions once every few years. As a real estate broker I’d find it invaluable as I can see my own listings as compared to my competitors in real time when I’m in the area. 

Me: Would you be willing to $10 to download the application?

Potential Customer: $10?! I’d pay $50 for it if it existed.

Me: That’s great! I will touch base when I have the initial prototype ready.

Keep in mind that a good portion of this can be done over social networks and email initially so you can get a large sample of responses as a start. It is highly recommended that you go out and speak to people face to face. This way you can observe their facial expressions, tone in voice and reactions to what you’re saying. This becomes more important if the business model involves direct payment from the consumer. They may wince when you discuss pricing which is great feedback. Feedback that you couldn’t have gotten from an email response. 

2. Minimal viable product. 

Minimal viable product means building only the key features and nothing more. Build only what you need. The question you should ask yourself is: What is the minimum you could produce in order to get something out the door that still satisfies the need? This concept is crucial in the early stages for the following reason. It reduces risk by preventing you from over investing in going in the wrong direction.  It also sets the foundation for iterative/agile development. This will allow you to get feedback and tweak the product as you go along evolving it in a favourable direction. This is at the heart of Eric Ries concept of the lean startup. Pairing customer development with agile software development methodologies. 

3. The pivot.

Once you have developed version 1.0 of your minimal viable product you can go out and solicit more feedback. As you keep iterating you will notice patterns in how people use the product and what they say about the product. This may present a greater opportunity. The product maybe not be used in the way initially intended but with the data you’ve gathered you may be able to create a new product that better reflects the consumer demand. 

I will most likely write a blog post on pivots alone. As with any successful business, it’s not the 1st idea that made them successful but 2nd or 3rd idea. 

Some other key things to note. If you are solving your own problem or have domain knowledge it also improves your chances of success. As does passion and persistence. You should also look at both your product and consumer feedback with a critical eye to preserve consistency. 

Brant Cooper and Patrick Vlaskovits have done an excellent job of creating a cheat sheet to the Four Steps to Epiphany.