Don’t Engineer Anything You Can’t Sell

In any startup resources are constrained. In a young product company and especially one that will be dependent on using others (the channel or distribution) to sell it’s product then these constraints are often most prominent in engineering and marketing.

If you have a great team working at the company then frequently team members will come up with new ideas about a feature to add or product to develop. Some of these ideas might be simple and others more complex but all even at a theoretical level will have an impact on the company. As time and attention is probably the most limited resource in any organization it’s good to make fast decisions on whether to implement or not to implement these ideas.

At Data Robotics we had a very simple filter to determine if it was worth considering moving an idea forward :

What would the marketing copy look like for the idea?

There are two pieces of marketing copy to consider. The first is one line feature statement which could resonate with time limited customers such as a channel sales person who might be representing your product. The second piece of copy (especially important if your business is not channel focused) is a brief paragraph on the feature. No need to write it down, just state it out loud. This copy doesn’t have to speak to the low level details of the feature. For example if it helps performance and being a high performer is something your customer cares about then that’s your copy. High level is fine. Without the ability to represent a new feature or product simply, clearly and concisely you wont be able to drive any interest in your offering and thus it’ll have little to no impact on company revenue.

In my experience it turns out to be surprisingly hard for the majority of proposed ideas to be represented this way and most get dropped early on. As a result at Data Robotics we saved a lot of time which otherwise would have been spent on discussions about what was feasible to engineer and what customers might like to have. It helped our focus and meant that the company spent it’s time working on what would most contribute to its growth. Give it a try and maybe you’ll also find it useful.

 

 

Posted in Company Culture, New Venture, Product Development, Testing | 1 Comment

A Lesson in Sales Management From Frank Slootman

A common day for me at BlueArc would include at least two visits a day from members of our sales force. These visits would be accompanied by stories about how we could win the deals they were working on if only we had SnapMirror, or SNMP or support for some third party database. If only we had this one extra feature then sales would pour in and all would be well. From talking with many friends in the industry over the years this is a fairly common pattern. Honestly, it seemed reasonable and at the time I didn’t know there could be another mindset.

When I left BlueArc, I was fortunate enough to be recruited by Frank Slootman the new (and first time) CEO of Data Domain. When I arrived Data Domain was just starting out and had done less than $2M in sales revenue in its first year. The company only had a handful of sales people and the product was at a feature deficit to almost every competitor they had. At the time the product could only accept files via a NAS interface (no VTL) which was a big change for a backup system and didn’t even have a GUI but rather had to be configured via a command line interface (with only 12 hard to remember commands). A diffcult sale for sure.

Almost as soon as I arrived one of the sales guys (who I had actually worked with earlier at BlueArc) came by and told me that things would be a lot easier if only we had some feature or the other (I forget what it was exactly). Later in a meeting with Frank I mentioned this. Here’s my best recollection of what Frank did next which was a shock to me and became the pattern for how I’ve dealt with these kind of situations ever since. Here’s how it went….

FRANK (leaning out of his door) : Hey, sales guy I want to see you in my office right now…

SALES GUY : Erm, yes?

FRANK : Geoff tells me you can’t sell the product without new feature X. Is that true?

SALES GUY : Well things would be much easier if only we had feature X.

FRANK : That’s not what I asked you. Can you sell the product we have or not?

SALES GUY : Erm…

FRANK : Because if you can’t you’re no use to me whatsoever. I don’t have feature X, I only have feature Y so I only need to know if you can sell Y. If you can’t I’ll find somebody else.

SALES GUY : No, no I can sell Y.

FRANK : Thought so. Thanks you can go now.

Simple, brilliant and should be repeated more often than it is.

Here are some related thoughts -

  • Whilst it’s easy to have sympathy for a sale person selling at a disadvantage that’s exactly what the company needs them to do. Either they can do it or you need somebody else. A young company can’t engineer as fast as a larger competitor and even if it could it might be years before feature parity can be reached.
  • Startups are based on feature Y. If it’s not compelling enough to sell the product on it’s own the company is unlikely to survive long enough to be successful and ought to be shut down. Many of the “living dead” companies in Silicon Valley would be closed if more folks accepted this fact.
  • Engineering solutions are slow to create. Sales and Marketing solutions can be invented and rolled out much more quickly. Start there and see if there’s a solution and resort to engineering if there really is no other option.
  • If your engineers are working on “catch up” features they’re not working on your core differentiation. “Catch up” features are the opposite of differentiation and will hurt you efforts to segment to market for your customers.
Posted in Company Culture, Sales, Wacky Silicon Valley | 8 Comments

Writing A Presentation to Raise Venture Capital : The Overview

The Overview

This is the second in a series of posts on writing a presentation for raising venture capital. In this post I will cover the Overview section of a venture pitch (click here for a complete list of the various sections). The Overview should come right after the introduction to the team and in many ways is the most important part as it introduces the following topics -

  • A large and growing market
  • Background on the market
  • A specific pain customers have in the market
  • A channel that would allow a venture funded company to gain a foothold in the market

As promised I’ll walk through the Overview section of the Data Robotics seed funding deck to illustrate how this might be achieved. Click on any slide to see a larger version of that slide.

Venture Pitch Overview Slide 1

Here is the first Overview slide from the original Data Robotics deck, entitled Opportunity. The top level bullet[2] mentions that the small business channel had little in the way of storage solutions despite strong demand, thus identifying our overall target market as Small Business Storage. Underneath are more details starting with the fact that the SMB storage market was growing very rapidly and that the overall market size was measured in billions of dollars (this is the right level of scale to get venture folks interested). Growth from $2B to $7B certainly qualifies this market as large and growing. Next the slide explains that the existing products were created with a technology unsuited for small business employees being designed instead for the enterprise market. Also it’s mentioned that the price point for these products is too high. So now we’ve identified a pain point both for the customer and channel. Finally it mentions that the channel is looking for new products for this market.

So we’ve already, in one slide, met all of the points that I outlined above as the goals for our Overview. Is our work here is done? Not so fast…

At this point we’ve expressed a lot of opinions about our target market but assuming the venture folks being pitched aren’t already subject area experts we’ve done little to add any credibility to our claims. Now we need to provide proof points and more detailed analysis.

Venture Pitch Overview Slide 2

The next slide introduces IDC’s analysis of the market. IDC was the first large scale analyst firm to look at the growth of small business storage. Seeing their landmark presentation in 2004 on how most of the storage revenue was moving from high end and mid-range business systems to the SMB and home storage markets was certainly instrumental in my decision to found Data Robotics. This slide is a copy from their presentation[3]. Having a large firm like IDC backing your market predictions provides a solid foundation for your claims.

We were in luck as, at the time, enterprise storage was already well understood to be a hot opportunity for investment so a new emerging storage market which was going to be even larger but was underexploited was very attractive.

Venture Pitch Overview Slide 3

This next slide is from an IDC storage report and was included to establish that the market size figures provided in the first slide in the Overview were correct ($2B growing to $7B) also providing the timeframe for the change.

Venture Pitch Overview Slide 4

This next slide was designed to preempt the almost obligatory VC Question – “Why wont one of the large companies in your market prevent you from being successful?”. The slide shows the major storage companies of the time and how Data Robotics market would be segmented from them. Also the slide shows that the number of units shipped in Data Robotics sweet spot would be the largest of all of the market segments (units, not revenue but still attractive).

Venture Pitch Overview Slide 5

Okay. So now we’d established that the main storage players weren’t in our market but clearly somebody already was. The next slide showed the players in the market at the time and placed them on a graph of Fit For Environment vs. Price Suitability[1]. By Fit For Environment we meant RAID which we felt was easier for customers to use vs. NAS which we felt was more difficult. By Price Suitability we meant affordability. My memory is a little hazy but I think these terms were coined by Ken Rosen (@ken_rosen on twitter) one of the Data Robotics co-founders. The important thing was that our solution was top-right on the chart, the best place on any Gartner chart! We were the most affordable and very simple to use. It’s worth noting that we were establishing this positioning well ahead of any discussion about what we were actually going to build. This is different from most initial pitches I see but always works well in my experience. Establish the $$ available and then explain the technology that will deliver them.

Venture Pitch Overview Slide 6

So we’re top right but given we have to assume that our audience isn’t a subject area expert we now need to provide the details on why. This slide segments the low end of the storage market into two parts – NAS and Storage Arrays – the two main product categories for SMB storage. The points listed are all designed to reenforce the earlier chart: NAS is complex to use and storage arrays based on RAID are expensive. Note that everything listed is jargon free and should be able to be understood by somebody outside of the industry.

Venture Pitch Overview Slide 7



At this point we’re almost ready to get into how our technology operates but first we need to explain how the current technology works to set some context for the comparison (the most common comment we got from do a demo of our first product Drobo to somebody who didn’t know how actually storage worked was “Doesn’t all storage work this way?” A good sign in retrospect). This slide show a simple example of how RAID (the cornerstone of all storage products) worked and why it cost a lot and didn’t scale well. You could start with two disks but then needed to add disks in pairs or start with three disks and then add single disks but had a much higher entry cost. There were lots of other things wrong with it which we would talk about too but cost was the easiest factor for everybody to understand.

So the key takeaways on writing the Overview for a venture deck are -


  • Show the three key items: (1) Large and growing market (2) A simple to outline customer pain (3) A defensible way to enter the market


  • Use overview arguments based on costs and time. Most business decisions come down to these two factors

  • Provide third party data to substantiate your claims

  • Be upfront in your discussion about the competition and how your solution is differentiated and why the customer will ultimately choose you (see the second bullet above)







  • Footnotes

    [1] Ironically I now work at Overland Storage which sells two of the products listed as unsuitable on this slide. The world is a small place, the storage market doubly so…

    [2] If I wrote the presentation again I’d remove the bullets as there is only one headline bullet so an indented bullet list seems odd. I suspect that in some variation of the pitch there were more top level bullets that were removed to make the story simpler

    [3]You can see a miniture version of the orignal included on the slide to prove authenticity

    Posted in New Venture, Presentations, The Pitch, Venture Capital | Leave a comment

    Writing a Presentation to Raise Venture Capital
    An Illustrated Example

    Venture Pitch Title SlideMany new ventures require large amounts of capital in order to reach profitability (but not all). Over the last ten years I’ve raised approximately $230M in venture capital for my own companies and helped many other founding teams (most recently Pancetera) with pitches which have resulted in their successful raises. Over the years I’ve evolved the template I use for seed round venture capital pitches and I thought it might be interesting for me to share this with the reader.

    There have of course been many articles written on raising venture capital and how to write a plan or pitch but few of these (actually none as far as I’m aware) have an actual example of a successful presentation included as an illustrative example. There are many possible reasons for this. Maybe the pitch contains company confidential information or possibly the ultimate company product or financials deviated by quite a long margin from the original vision.

    I’d like to walk you through the original Data Robotics (originally called Storage OS[1]) seed round venture pitch and explain the thinking behind the slides. Fortunately this pitch doesn’t contain any information that isn’t in the public domain and the company is reasonably well know so it makes a good illustrative example. This pitch was also successful (I’ve been lucky enough to have had a 100% success rate so far) and valued Data Robotics at an approximate initial valuation of $12M with nothing more in assets than this pitch and our initial patent.

    The sections of my current seed template are as follows -

    • The Team
    • The Opportunity
    • The Solution
    • How Does It Work?
    • Paths To Market
    • Business Model
    • Summary

    In the coming weeks I’ll walk through the slides in the various sections dealing with one or two sections per post but in the meantime here is a very short summary what what each section should and shouldn’t contain.

    The Team
    This section establishes the credibility of the founders who will be giving the presentation and introduces team members not present to show the overall strength of the founding team. Keep the names discussed to just the core founding team members.

    The Opportunity
    This section of the presentation shows an attractive and hopefully growing market, then outlines some kind of pain the customers in that market have (or possibly some completely missed opportunity) which would allow market share to be captured.

    The Solution
    This section of the pitch outlines a solution (not technology) that resolves the pain experienced by the customer. I like a story based walkthrough of a real world situation if possible showing what the customer experiences contrasted against what they have to do currently.

    How Does It Work?
    This section shows the technology underlying the solution and shows why it’s involved, defensible and has long term value. This description should be kept short and high level for your initial pitch meeting as you’ll be quizzed later by more technical folks and you can whiteboard with them on the details. It’s extremely unlikely that the venture folks you’re pitching will be subject matter experts on the details of the technology.

    Paths To Market
    One of the most important parts of the presentation, this section shows how you expect to reach, educate the customer and ultimately fulfill the resulting demand. Alternative sales strategies might be a channel based model or direct sales force. Marketing strategies might include online, viral or traditional (or more likely in the modern world some blended strategy). The mood on the best go to market models tends to change fairly rapidly here in Silicon Valley so it’s also a reasonable fundraising strategy to outline several options, discuss your preferred model but keep the matter open for resolution in the future.

    Business Model
    This section shows a very simple layout of the company fundamentals to demonstrate how the company can provide a great return within a sustainable business model. A five year income statement example and cash flow should be enough. Sometimes I’ve just used graphs (with numbered tables held as reserve slides) as these are easy to quickly digest. Currently it’s possible to get a new media or social media company founded with little to no idea of where or when income will materialize but I’m a traditionalist and shy away from this kind of venture.

    Summary
    No more than three or four one sentence bullets outlining why the target market is great, what the current problem is, how the new venture solves it and how much can be made doing that.

     

    Here are a couple of final points to consider -

    • Focus your presentation on telling a story. This will resonate with your audience much more than any technology or business details.
    • Don’t allow yourself to get sidetracked. Several times a member of the audience has asked me to just tell the story without a structured presentation or has dived straight into detailed questions. Once the narrative flow is lost it’s very difficult to get your audience to the right conclusion so instead insist that the presentation will cover their questions later and get right back on track. You will of course need to be open to discussion and longer questions following the conclusion of the pitch.
    • I often hear talk about the number of slides being important. That’s not key but the pace and duration certainly is. Try to keep the length of the presentation to 30 minutes or so as a maximum. Venture folks see a lot of pitches and it’s tricky to hold their attention for much longer than this. Much better to use any extra time for discussion.

     


    Footnotes

    [1] Yes, I do know that this abbreviates to SOS!

    Posted in New Venture, Presentations, The Pitch, Venture Capital | Tagged | 1 Comment

    Don’t Ask, Test

    It’s probably controversial to say but I’m not a huge fan of asking customers what products you should build to meet their needs. Truly disruptive products are based on the correlation of a multitude of points of customer pain and market opportunity and putting them all together is a big task. That’s your job not the customers.

    This kind of thinking is generally contrary to the behavior inside of product companies which often look to product marketing for feedback from customers in terms of what should be built next. An analogy I use to show how this often works out is: If you went back 100 years and asked a traveller who made frequent transatlantic trips how to improve those trips you’d get answers like “A Better Stateroom”, “Faster Boat” and so forth. Only a lunatic (read visionary or entrepreneur here) would have suggested “Flying Across the Ocean”.

    Apple is the canonical example here of course. Steve Jobs has said publicly many times that they design the products they’d like to use rather than designing based on customer feedback. Contrast this with Microsoft’s “I designed Windows 7 campaign” where they claim (I suspect somewhat erroneously) that their customers feedback determined all of the key features in their product.

    However, I am strongly in favor of asking customers questions that enable you to determine the correct product to build. Whilst most people would agree with this, it turns out that asking the right questions is an extremely skilled task. Almost everything I learned on this subject I learned from a man named Mark Fuccio.

    I’ve had the good fortune of working with Mark for over 10 years now. We first met when I hired his firm (Tactics) in the early days of BlueArc. Prior to BlueArc I’d been building data centers for a living and had generally been making good money displacing UNIX systems and replacing them with the simpler, more modern and much less expensive Windows NT systems. This had lead to several biases on my part. When Mark was brought in to analyze BlueArc’s initial market opportunity we were only engineering Windows protocols (SMB/CIFS) into the first Silicon Server and ignoring UNIX entirely (crazy in hindsight). Mark knew it would be extremely unpopular to tell the team that we needed to engineer the UNIX file serving protocol NFS into the product but after performing customer testing he did just that. Mark has never been afraid to deliver the bad news very directly. There’s an old adage that a consultant is a person who borrows your own watch to tell you what the time is. There’s also a lesser known and often more accurate adage (unsurprisingly told to me by a consultant) that a consultant is the guy who pulls the watch out of your a*s to show you what the time is. On that day Mark removed the watch for me and without that vital feedback BlueArc probably wouldn’t be in existence today.

    Mark was one of my first hires at Data Robotics and his analysis lead to the accurate targeting of our initial markets and many of the attributes of our product when launched. He’s a master at creating online studies that walk the questionee through a series of paths based on their earlier feedback. These complex studies also often are self reenforcing allowing the results to be quickly validated to determine respondents who clicked aimlessly vs. those who applied some thought to the questions. 

    The most important thing I learned from Mark over the years is -

    The Way You Ask Questions is Critical

    One illustrative example that sticks out clearly in my mind was in regards to the initial pricing for Data Robotics first product, the Drobo, which we could supply with a range of different storage capacities based on the number and size of hard disk drives we included. If we just asked customers which price was best for each capacity then they’d clearly select the lowest price. A common tactic in studies is to ask customers to rate a price range for a product as cheap, about right or expensive but even this is limited. In the study Mark crafted he first asked customers how much storage they wanted in the product and then determined price ranges based on their answer whilst keeping them isolated from the alternative choices and prices. I was amazed by the results….

    Drobo Initial Capacity Expected Price
    250GB $125
    350GB $200
    500GB $400
    No Disks $520

    amounts are illustrative only and not the actual numbers from the testing

    Our testing showed clearly that customers were willing to pay more for an empty Drobo than one containing storage, even though the empty Drobo was of course much cheaper and simpler for us to build. This was an example of a result that you never would have guessed but was very explicable once you could see the data. Prior to Data Robotics all sub $1000 storage systems contained storage and were priced at a very small premium to that storage. Thus a 500GB system was priced more or less at the same level as a 500GB hard drive. The industry had trained customers to think only about the price of the storage and the product’s actual feature set (which was more or less identical in every other system) was ignored. Once initial capacity was removed from the question about the price of a Drobo then the customer taking the survey focused instead on the revolutionary features of the product and priced based on that value instead.

    This data ended up driving our whole strategy to launch Drobo as a diskless system and allowed us to set a price based on it’s value, rather than the alternative of having to compete in a low margin market priced on the storage in the system as did our competitors (who were mostly disk drive vendors and thus at an advantage in this area). We also did some price banding at launch to further test this assumption but I’ll discuss that in a later post.

    In summary -

    • Don’t ask your customer what product you should build but instead survey them about their pain, challenges and opportunities, then design and suggest varying solutions to determine their receptivity to them.
    • Think carefully about every product decision. It is driven by data or internal assumptions?
    • Be thoughtful in how you ask questions and test assumptions. Even the slightest context can bias the results but correctly performed testing can be very valuable indeed.
    Posted in Product Development, Testing | 2 Comments

    How to Make a Disruptive Product In Four Easy Steps… (well factors really)

    Over the last ten years I’ve been lucky enough to have been involved in the design and creation of many new and innovative products. Many of them have been really useful or novel technologies but in order to be a truly disruptive product offering more factors need to be considered.

    For example, let’s take BlueArc. Growing BlueArc’s market was and continues to be hard graft despite the fantastic efforts by the team there and the surefooted leadership provided by Mike Gustafson. The company was founded on a great concept – moving the complete data path for file transactions into hardware and away from software. The company’s product, the Silicon Server, did this and had (and continues to have) a major performance advantage over all of it’s competitors. With such a great technology why then has it taken many $100M’s of dollars to build the company to it’s current level of success?

    My current thought process started to dawn on me when I first took control of marketing at BlueArc. When you run product marketing you start to ask one simple question “Okay, now what messaging do I have to tempt folks to buy this product?”. At BlueArc, on day one, we obviously had and only had performance and we sold on that basis. Early on in the sales cycle if you could draw a direct correlation between storage performance and the customer’s bottom line (companies rendering CGI scenes for the movies for example) then you had a win. If you couldn’t then almost certainly you were beaten out by NetApp and EMC. This was hard and expensive work and the overall market was limited to a reduced customer set.

    When founding Data Robotics I decided it’d be less expensive (in terms of expended capital) if we didn’t have to work so hard to sell the product. So almost immediately after founding the company I put a poster on the wall which read like this….

     

    • Best Technology
    • Lowest Cost
    • Simplest to Use (might be Best TCO for certain business types)
    • Highest Channel Margins (might be Best Partner Margins for certain business types)

     

    Simple huh? I figured that if you had all of these factors you had the best chance to succeed. Making a fledgling technology startup gain traction is hard for all sorts of reasons you can’t control so you might as well give yourself as big a break as possible on the product front where your control is highest. 

    At Data Robotics we always examined any new product feature for all four of these factors before starting development and many ideas from the engineering or product management teams were left on the side not because they weren’t great but because they would have been too expensive to sell as they didn’t contain all four factors. Surprisingly this simple model worked and Data Robotics sales growth was almost unprecedented for the time (the economy wasn’t helping anybody) hitting double digit millions of dollars in revenue in just a few quarters and doubling year on year since then.

    I’m sure these four factors seem so self evident that the reader may feel that they go without saying. This of course often turns out to be literally correct as surprisingly few young companies consider more than one or two of them before starting product or feature development.

    For a large organization, through brute force marketing, it is quite possible to win on one of the four factors. Some startups have managed to do very well on just a few but almost nobody I know of has built a sustainable business from scratch on just one. “The Best Technology Doesn’t Always Win” is a mantra now in Silicon Valley (even though that thought is more recent that folks would like to admit).

    In summary here are the two things worth considering from this post -

    1. Simple filtering rules are extremely helpful when time and money are limited. Create rules like the four factors above and stick to them. Don’t make an exception except for very minor features or projects. You’ll loose a lot less time on debate and avoid development that isn’t directly linked to increased sales revenue.
    2. Growing a new product business is difficult. If you focus you’ll be able to come up with products and product features that meet not only one but all four factors listed above. Take the time to do that up front and you’ll be pleased that you did when it’s time to go to market.

     

     

    Posted in Company Culture, Four Factors, Product Development | Leave a comment