Entrepreneur Myths (10 page)

Experienced and newbie entrepreneurs alike are susceptible to the mentality that a great idea is the only thing they need to achieve guaranteed success. In addition to the great idea, you need entrepreneurial experience, market luck and timing, sufficient capital, quick consumer adoption, press acceptance, and many other variables you may not even think about when you launch your idea.

Ideas, especially great ideas, are not easy to generate (see Myth 14). The idea is just the beginning of your entrepreneur journey. You will also go through the journey of assembling the management team, advisory board and board of directors around the idea. Your entire founding team must buy into the idea if they’re going to take the risk of going down the entrepreneur highway. You may have to modify the idea in order to make it investor fundable. You need to build your idea into a product or service, market it, sell it and support it.

The idea journey is difficult at times

There are hundreds of variables that can make or break you. Consumer behavior of purchasing products can change instantly due to economic or market conditions, and force you to change your product strategy and specs. You may not be able to get crucial parts from suppliers if your competition has already secured them. Government regulations could alter certain aspects of your business, creating roadblocks to taking your idea into the marketplace. Even when all of the pieces are put together, if the financial markets are in the toilet, it could be difficult to fund your venture.

If you’re developing a consumer luxury brand today, think twice. Even high-end consumers don’t part as easily with their money during a financial downturn as in previous decades. The age of frugality is here to stay — at least in America. If you enter the luxury market, your product or service must be unique. Target Asia. That’s the new market for luxury goods.

The idea generation process is simple. At least on paper:

As you can see, idea generation is not everything. It’s only one component of the entire entrepreneurial cycle. You can fuck up in any of these stages — and if you don’t have the capital to recover from your mistakes, you’re out of business. Game fucking over. Pushing the restart button is not that easy.

Here are a few examples of where that great idea
just
wasn’t enough.

I once funded a transportation manufacturing company. The CEO was excellent, but some members of the product design team were inexperienced. The initial design of the product was cool but when they got to the manufacturing stage, it lost some of its coolness factor. Still, it was good enough for the market. Consumer response was positive. However, this innovative and promising company failed anyway. And it wasn’t due to bad management, product design or lack of market acceptance. It failed when it couldn’t raise follow-on capital quickly to scale up their manufacturing plant, because their legacy investor refused to agree on the valuation of the next round. This destroyed the entire company cycle of funding and launching the product into the marketplace.

A sports company I funded a few years ago had cool products and a big vision. However, the CEO was not sales and marketing-minded. He depended on other people on his team to sell the damn product — and they had no fucking clue how to do it. Great idea, great product, great everything — but the sales and distribution sucked.

I funded a technology services company that had a terrific idea, even before that market sector became hot. The timing was perfect to launch the venture. Although they had a great idea and a good management team, they had a psycho founder who fucked it all up by focusing on every business idea but the one currently funded. He just couldn’t help himself.

It takes more than a great idea to make it. You have to have some element of luck, coupled with hundreds of other variables in your favor, which may be out of your control. You just have to entrepreneur it, and hope you don’t fuck up too much along the way.

Brain Candy: questions to consider and ponder

(Q1)
After you came up with your big idea, were you able to get it off the ground? How did you do it? Did you fund the first phase yourself or raise capital from others?

(Q2)
Which is more important: a great idea with a mediocre management team, or a great management team with a mediocre idea?

(Q3)
Some VCs believe a good management team is more important than a great idea. Do you agree?

(Q4)
What do you think about the idea generation process outlined above? Did I miss anything?

(Q5)
Who is responsible for coming up with ideas in your venture? Are you the primary source? Do you have a product development team?

(Q6)
Have you read
Developing Products in Half the Time
by
Preston G. Smith and Donald G. Reinertsen? If not, I suggest strongly you do.

Entrepreneur
Myth 16
| Make it and they will come

I’ve seen great products in the marketplace with no sales or limited sales. Building a better mousetrap, or even the best mousetrap in the world, doesn’t mean shit without sales.

Products or services — depending on the sector, timing, customer interest and behavior, etc. — take time to launch, distribute and reach wide market acceptance. You can’t assume that all you have to do is make a better mousetrap and the world will beat a path to your door. Even today, many inventors and techies hold this crazy belief.

Adoption takes time

Product adoption nearly always takes longer than you want or expect. Some product inventions are adopted by the market, years or decades after they were invented. The simple zipper was invented in 1913 but didn’t gain wide market acceptance until 1930. And I’m talking about the damn zipper!

Despite rumors that Al Gore took the credit for inventing the internet in the late 1990s (he never made this claim), the U.S. Government developed the backbone of it decades earlier. The computer was invented in the 1940s but didn’t take off until the eighties. Cable TV started in the 1960s but did not take off until 20 years later.

Technology adoption cycles are happening faster than ever before. Look at the rise of Facebook. In less than seven years, it reached a billion people. Google+ reached 25 million users in just a few months. But you can’t assume it will happen with your product too.

Marketing is
everything

No matter what you build, you have to market the damn contraption. You need marketing dollars to penetrate the market unless you have a viral product or service. And most viral products need marketing dollars in order to go viral. I call this the Viral Paradox.

You can get marketing-lucky like Hotmail, Google, Facebook, LinkedIn or Twitter. They leveraged digital network effects to go viral. You will face noise in the marketplace, even with viral components, when you launch a product or service. A viral product or service includes features that enable users and customers to easily market the product as they use it, through word of mouth efforts such as by sharing them online such as “liking” on Facebook.

Marketing timing is crucial or your venture could go down the tubes. I once funded a video hardware company, and the founder believed he could compete against big corporations simply because his fucking mousetrap was just so much cooler. It didn’t happen for him because the larger players introduced a comparable product and already had distribution channels in place.

Sales or die

If it’s not fucking sold, nothing will happen. When you start your venture, develop your sales team as soon as possible, and at the same time as your marketing team. Standard management theory has marketing consisting of the four P’s: product, price, promotions and placement. The theory assumes that sales is part of placement. In most companies, sales and marketing are separate, but sales should report to marketing. Just don’t tell that to a successful salesperson who brings millions of dollars of revenues to the table by beating the doors on the street and dealing with rejections all day long. No matter how great your product or service, you need aggressive salespeople selling the hell out of it in order to succeed.

As a venture capitalist and a former salesperson, the one common flaw I see among high-tech startups is the lack of salespeople on the team during the seed or early phases. Even Twitter, after raising more than $50 million, didn’t have a solid sales team. Maybe they didn’t need one in the earliest stages of their life cycle, but most ventures do. However, as Twitter raised more money, they started to build out the sales team. If they had built their sales team sooner and developed sales revenues in line with existing costs, they would have required fewer funding rounds. Many VCs will differ with me on this comment.

Distribution is the pimp

Your salespeople should be getting you distribution (whatever the distribution channels), or you’ve got problems, captain.

Entrepreneurs and investors should give serious consideration to whether the product or service has distribution, or the level of difficulty in obtaining distribution. For example, in the movie business, distribution is the biggest challenge. You have to figure out how to distribute your film into theaters or straight to video, otherwise you’re SOL (shit-out-of-luck) on the ROI.

I funded one company that had several innovative products, but they just wouldn’t focus on getting distribution. They sold their products direct to retailers; however, no one on their team had retail distribution experience. This lack of experience turned into slow sales and they obviously missed sales projections. I learned a big lesson as an investor: fund ventures that have someone on the team with serious sales and distribution experience.

When launching products or services, look at all distribution options: direct sales (includes telemarketing, direct mail, television ads and infomercials), wholesale, retail and internet. I’m befuddled at how many entrepreneurs underestimate the cost and effort of getting distribution. Worse than that, they underestimate the effort of collecting the money from distribution.

If you’re distributing through retail, you better have (1) enough cash to offer terms (for at least net 60 or 90 days, or even consignment), (2) multiple products, (3) a generous product return policy, and (4) market development funds to launch the product. If you don’t offer some of these marketing and financial components to the distributors or retailers, then you better be married to someone in the Walton family to get retail distribution through Walmart and Sam’s Club.

You could argue against the “build a better mousetrap” theory, giving the examples of Facebook, Twitter, Instagram, FourSquare, Zynga, LinkedIn, Google and a handful of other companies. It’s
possible
to get lucky. Customers
might
discover your wonderful service without you having to spend large marketing dollars to hit the sales inflection curve on the marketing hockey stick. It’s a long shot, and your product or service must have a viral component in its value proposition. Even then, hitting viral liquidity is not easy, especially today when everyone seems to be planning viral campaigns for every invention under the sun. Consumers can only watch so many viral ads each day. They do have a life, my friend. They’re not just sitting around and waiting for the next viral advertisement.