design should never compromise functionality, nor should functionality ever compromise design

Design is something that start ups tend to miss, forget about, or pay little attention to, and this is especially true for those with an engineering background.

Engineers tend to think that as long as it’s functional, and works right, it will appeal to the masses, but these engineers forget that the majority of the population are not engineers and in fact just general folk, and if your product targets the masses, one of the best pieces of advice we can offer is DON’T SKIMP ON THE DESIGN.

Remember the Volvo’s from the 80’s and 90’s? Great cars on the inside, but ugly, real ugly. Then comes Ford, buys the car division, redesigns the body and sales go through the roof, the cars, are now not only safe but cool.

Old example? Look at Android and iPhone OS. Android is open, there are no limits on what you can, can’t do, there is no parent company that strictly dictates what you can put on an Android phone, it’s open. Yet the sales are meager in comparison to the iPhone. Why? Well, it’s cool, the design is sleek and well thought out. Apple more so than any other company is known for the quality of its industrial design, and it shows, just look at the bottom line even during this recession. Now look at Compaq. Who?

Are you starting to see the point?

But thing is as a start up you don’t have the resources to splurge on IDEO, or hire some of the best industrial designers in the industry. Problem? Not really.

If you’re by a major metropolitan area chances are there’s a school which exclusively teaches design, or at least has faculty or a programme that deal with it. Your best bet is to contact them, explain what you’re looking for and see if you can’t involve students in a project, or even hire one as an intern. When it comes to design most of these students will be light years ahead of you and your engineers, they’ll be overjoyed at the possibility of getting some real world experience, and best of all, they’ll make your product attractive to the wider community.

A few things to note.

1. Some designers may go overboard and make it the best looking whatever it is, but completely non functional. Stay away from these and ask to see previous projects.

2. As an engineer, you’ll most likely describe what it is the product does in a way that the designer won’t understand. For this we recommend looking over our older post on value propositions and elevator pitches. Good communication is key.

3. Let the designer do what they’re good at, design. You’re there to get the business going, not micro manage.

4. And remember, design should never compromise functionality, nor should functionality ever compromise design.

And if you’re looking for a design school near you – just click here.

The general thought is that if you’ve got a good idea – and no one has done it just yet, or not in the way you’ve conceived it, being first to market means live or die. Here at F3FundIt we think this approach is pretty much wrong.

There are clear benefits to first mover advantage, but there are also a number of other factors that have to be taken into consideration. The first and foremost of these is strategy.

And by strategy we mean launch strategy, short, medium, and long term. One of the biggest problems that we find wrong with start ups, is that they plan ahead for 6 months to one year, and then wing it. However, after those initial six months when the business is already operational, will the management of the company really have the time to create a thorough scenario analysis for the next six months, year, three? The short answer is no, however, they will waste valuable time doing just that when they could instead be spending that time readjusting the business model to best fit the pre-launch misjudgements.

Take for example the case of Lycos, Infoseek, and WebCrawler that all launched in 1995. Then Google comes in three years later, and the rest is history.

Those first search engines had a three year start on Google, but why did they get relegated into the annals of net history while Google took the undisputed heavyweight search crown. It all comes down to strategy.

The code behind Google has already existed prior to its launch, but they decided to hold off a bit. Why? Well in 1998 the internet was just starting to reach its critical mass, the 56k modem came standard with home PC’s and overall connectivity was cheap, $19.95 per month.

In 1995, the facts were a bit different, the equipment was too expensive and and connection speeds too slow for anyone to really use the net outside of institutions.

So the question you should ask yourselves is, is it the right time, are we ready, do we need to be the first, and prepare, prepare, prepare.

And to close, I will quote David Masó who recently told me during a chat “The good entrepreneur is he that resists and pursues their dreams in a smart way”.

Let’s face it, the days of the IPO are over, the dot com IPO boom (there’s something that you probably haven’t heard in a while) was historically speaking a marvel, both for its rampant and somewhat unfettered investment in anything that housed a .com in it’s name, but also because a major planetary technology was reaching households around the world leading for companies such as Yahoo!, Google, and others to enter a relatively new space with global appeal.

IPO markets recovering, kind of.

While the IPO market did recover from 05-07 the relative amount of companies issuing public offerings was still nowhere at the level of the late 90’s, fast forward to 2009, and you’ve got 76 IPO’s worldwide, and while prospects look marginally better for 2010, this is by no means an indicator that we will see every Tom, Dick, and Harry issuing public offerings.

In fact it’s just the reverse, those companies that will make an IPO will typically be extremely specialized. The vast majority of current startups, simply put don’t have a strong enough business model nor product to do so.

Options outside of an IPO.

So what’s the option? This doesn’t mean that the entrepreneurship scene is dead, but with the credit crunch still firmly holding its grip over lending, investors being more cautious and no evident new market to exploit, entrepreneurs have to think of different and more creative exit strategies.

One such a strategy is acquisitions, large multinationals are the ones who have the cash to invest in new enterprise, and start-uppers need to identify those companies whose products and strategy would tie in well with the needs of their customers and whose own product are complimentary to those of the larger multinational.

This is not a new model by any means but one that has been employed and tested within the pharmaceutical industry for years, and is now being employed by hardware manufacturers and telephone companies among others.

Are you ready to sell?

But what and when is a company ready for such an acquisition? I would say that revenues in excess of €2m, would signal the possibility of an exit, but more than just revenues, the HR structure of the company, it’s growth potential, international reach, and scalability threshold of the company are possibly the most important factors.

Meaning, if said €2m/ annum company has 30 full time employees on it’s roster, and another 10-20 freelancers, it’s non agile (cannot respond to market fluctuations quickly), and has a stagnant revenue curve, well, Houston, we’ve got a problem.

Stagnant revenues aside, you may be asking yourself why HR is important, aside from the simple answer of wages digging into your cash-flows it also dictates that you’re revenue per employee is lowered.

Say we employ the 30 full time staff model, the revenue per employee will be €2m/3o = €66.6k per employee, just above the average salary, now if we’re to cut that number down to 10 full time staff the revenue per employee jumps to €200k, a much better metric indicator of company success.

In reality, you should always try to strive for a ratio of revenues to employees that will be on the plus side of €200k per person because.

1. You will have limited employment issues
2. You will be agile and portable
3. You will have a more flexible business
4. Your chances of selling your enterprise will be higher
5. You will have more time to spend on the actual business itself rather than HR issues
6. If you sell, your sale costs will be low due to simple due diligence

So whether you’re a company that’s out of the valley of death, or just starting out writing your business plan, be sure to assess your plans for an exit and ask yourself the following questions.

1. What is the market like now, and what will it be like in the next five years?
2. What sector am I in, and what overlapping sectors are in my market space?
3. Is / will my business be agile, and how can I make it more so?
4. What are the possible exit channels? VC, buyout, merger, etc…
5. Do you want to sell? And if so, how will you approach buyers.

Months of hard work, sleepless nights, sweat, stress, and who knows what else have all culminated into one day, the day that you bring our product to market and see what the average Joe thinks of it.

Stressful indeed, but there are ways to cope with it.

1. First and foremost it’s done. You’ve done what hopefully you can do and you did your best. So pat yourself on the back, getting anything to market is typically not an easy feat and you should be proud of yourself.

2. Know that problems will arise, the nature of man is to err and nothing that launches will be without error. As such be sure to have a plan designed to deal with those errors, be they service oriented, website oriented, or even a physical product. Remember that the customer is the most valued piece of the chain and that providing them with the best post-launch service will likely make any minor errors or bugs that you experience irrelevant if their concerns are met with a fair and decent response.

3. Examine and assess your launch strategy. If you’ve released a product and it’s failing to sell, seek out the root of that problem. Perhaps it is your marketing strategy that isn’t doing its job; perhaps your distribution network is not targeting the right customer. Analyze, assess and augment your action plan.

4. After launching your product you may a bit ambiguous as the focus of your role is inevitably going to shift now towards more marketing and sales oriented activities as opposed to internal development and overall more theoretical strategic formulation. And while it’s important not to lose hindsight of your overall company strategy, prepare for your workday to look a bit different than it did before.

5. Don’t panic. Keeping a cool head about you is pivotal not only to your well being but also to the product and your company. Of course you’re worried that things won’t go as planned, but even so, your employees, partners, mentors, investors, etc… need to see that you’re composed and analytical. You are the face of the company and the product and turning hysterical will help no one through this stressful process.

In any case, well done, and why not round the launch out with a launch party, if you’re a small startup remember, it doesn’t have to be something akin to New York Fashion week, but inviting your investors, friends, co-workers, mentors, supporters and a bit of press to a chic lounge in order to celebrate your hard work can help add some wood to the PR fire.

Competitive Intelligence? What’s competitive intelligence? According to Wikipedia “Competitive intelligence (CI) is the action of defining, gathering, analyzing, and distributing intelligence about products, customers, competitors and any aspect of the environment needed to support executives and managers in making strategic decisions for an organization“.

Clearly though this defines any organization, however, it is typically interpreted as some classified top super secret information on your competition and utilized to gain a competitive advantage. Sure it could be that, however, we’d like to think that CI is an ongoing process that defines the market sphere and accumulates relevant knowledge that can be put to use by members of the company and board in formulating a concise strategy.

So how does or should a startup go about collecting CI, read, talk, visit trade shows, collect “relevant” information on the industry, as well as other industries that directly affect yours. i.e. if a new technology launches which can lower your production costs, see if you can implement it, your competitor may not be able to or may not know the new complimentary technology was launched, and you can beat them on price. Starting to see the need for CI now?

That said – different industries need different levels of CI, that in a number of ways are relevant to the following factors.

Competitive Intelligence Criteria

1. Level of capital investment – low investment startups need worry less about CI than ones requiring a million+ to get to market? Why? Simple, with little investment your clients should be virtually at your doorstep. If you have long lead times, and are in a competitive industry, well… there’s a good change there exist a few competitors trying to do the same thing you are.

2. The Blue Ocean approach – if your business is simply not looking at your market’s competition and going after an entirely new or competitor irrelevant market segment (think MSFT XBox, Sony PS3, Nintendo Wii), your level of CI involvement may not have to be as high as other industry competitors. In the above example, Nintendo basically made the Xbox and PS3 irrelevant as they targeted a totally different type of home video game user. Notwithstanding, this approach requires a deep understanding of the industry.

3. Identifying specific types of CI – are partnerships necessary, is your business based on intellectual property (IP) or perhaps human capital? Are there technology opportunities, risks? Identify and assign roles to each to base and develop your CI strategy. There is after all no need to expend resources where they are not needed.

However since, we’re focusing on Biotech this week, we found a great list of CI requirements at nature.com for any Biotech Startup, the list can be found via above link and continues now.

Types of Competitive Intelligence

1. Intellectual property. Depending on the company’s resources, one should do a comprehensive patent literature search at least once a year. When searching for patents, it is useful to start with the European Patent Office, which publishes all patent applications within 18 months of when they are filed, usually after one year, whereas the USPTO will not publish patents until 18 months after they are filed. This is valuable information, because most countries do not make a patent available to the public until it has been reviewed by the patent office.

2. Market need and size. Identifying target market segments will allow the company to know what markets competitors are planning to move into or are ignoring. During the long development periods required for most biotech products, the market needs and size will change. It is therefore vital to keep CI up to date by regularly consulting with key people, such as members of a carefully chosen Scientific Advisory Board and a broad sample of experts in the relevant fields. Networking at professional or industry conferences is a good way to do this.

3. Partnerships. By monitoring new technologies entering the market and in development, the company can identify possible partnerships with other companies and academic institutions. Scientific journal and patent literature searches along with professional conferences can all be potentially fruitful sources of new partners.

4. Competitive environment. It is important to continuously monitor the competition. Some players will drop out, while new, potentially disruptive technologies developed by small firms may enter the market that may not be readily apparent as competitors. The company has to be very expansive in thinking about the possible kinds of competitors. By attending conferences and examining relevant ads, the company can assess competitors’ product strategies.

5. Marketing and distribution. By talking with distributors’ and competitors’ sales forces, the company can determine how competitors are getting their products to market. This information can help the company develop its own more efficient and targeted strategy for product marketing and distribution. The company can, for example, look at how much competitors spend on advertising or how big competitors’ sales forces are to create benchmarks for its own goals and performance. Although most people will decline to talk to a “competitor,” many will talk to their “peers” in other companies if the questions are asked in the right way.

6. Technology opportunities and risks. By reading the publications of competitors’ scientists and their academic partners and talking with them at conferences, the company can identify the bottlenecks that competitors have encountered when developing similar technologies.

7. Regulatory and reimbursement issues. Surveying the regulatory agencies is one way to determine the current regulatory requirements and identify new issues that might affect the approval of a product or the way it is labeled and marketed. With a CI process one can examine the various factors in the regulatory environment and anticipate changes that may profoundly affect the enterprise.

8. Financing options. One of the most vital tasks for the leader of any startup is ensuring the resources that the firm needs to operate are available. CI can help determine which venture capitalists are investing in the firm’s technology area and what organizations might be interested in acquiring those technologies. This data can better establish the value of a company during financing and can potentially strengthen a firm’s negotiating position. In addition, CI can be used in examining merger and acquisition candidates, government grants and joint-venture partners that could provide alternative sources of funding, thereby increasing the firm’s negotiation leverage.

9. Human capital. Salary surveys and analyses of job ads can provide important insights into competitors’ staffing strategies. Likewise, recruiting agencies, while keeping their client information confidential, may be good sources for industry skill trends and the strategies of non-client firms. This kind of information can allow the company to determine the type of people it needs to succeed in a market niche and what it will take to attract and retain them.

In all CI is a vital part of any business, and as mentioned before should be an ongoing and active process at all organizations, we oftentimes forget that we’re conducting it by talking to people, networking and reading up on relevant industry literature. But the rub is, that if you’re not actively participating in it, you will loose your competitive advantage. Take our recommendation, and have a talk about it at your next board meeting and have one person in the company actively collect CI and make strategic recommendations based on those findings.

BY F3FUNDIT

When you’re developing a service strategy, you have to take a number of things into account. In this post we’ll cover what those things are and how you can apply them.

The first thing to note in developing a service strategy is to identify who exactly is your customer, and what is their perceived value to the service that you’re offering them. Undeniably whatever industry you enter you’ll have competition, be it from a direct competitor, i.e. a new MVNO operator who enters a market that is saturated with MVNO’s or from substitutes, a MVNO whose potential substitutes are landlines, phone cards skype an other VOIP services, and as such you’ll have to identify the customer that would want to buy your product specifically as opposed to those of your direct competitors and substitutes.

To effectively identify your customer take into account these two concepts.

The Service Qualifier: Those Aspects that must be satisfied to a minimum level to hold a position in the market that is alreay defined by other market players. i.e. low drop rate for a MVNO, service coverage, or access to a wide range of mobile phones.

The Service Winner: The competitive dimension used by the customer for a final choice between several competitors. i.e. the costs of SMS’ or phone calls, local, international, etc…

At the end the criteria for selecting a service provider will typically fall into one or a group of the following offerings.

Availability, Convenience, Responsiveness, Personalization, Price, Quality, Reliability, Reputation and Safety.

If you’re a startup, chances are that your quality, reliability, reputation, and safety track records are non existent, these are things that are inherently a part of word-of-mouth marketing, and that you’ll have to build them up over time. At the same time depending on your distribution medium, availability of your service may be an issue as well. Which is why knowing your customer is just so important.

But how do you know who your customer is? This all falls into doing the proper marketing, and breaking the market down into segments. But what is a market segment you ask? and for that matter what is market segmentation?

A market segment is a a group of individuals that is distinct from other segments, has a specific need, responds similarly to market changes, is homogeneous in expressing its needs and can be reached via market intervention. In layman terms it’s the people who you are selling to, it’s your customer base.

To get your market segment you’ll need to do the following.

Research – Discuss, Observe, Interview and Survey those individuals who you assume would be your target customers, and based on their inputs and your findings you’ll be able to identify what is important is to those individuals you’re targeting. Be it Availability, Convenience, Responsiveness, etc… etc…

Be sure to structure your questions and research in a way, that will ID the problem, get you valid information on the current market, any alternatives, driving purchase decisions as well as post purchase behavior. After all, getting customers is one thing, retaining them is another.

Now that you have all those findings, identify two variables that are the most important to your customers, are they image consciousness, price sensitivity, customer service, support, what have you.

Once you’ve identified these who, we recommend putting together a quick 3×3 matrix on a piece of paper, and identifying where in those 9 boxes based on those 2 variables your target customers belong, and boom, market segmented.

Easy peasy right? Good. But now it’s time to start thinking about the strategic vision of your service concept, these are the Service Qualifier and Service Winner we mentioned, and then the operations strategy. How will you develop, operate your service and finally a delivery system. Will you sell your services online, will it be a very personalized person to person thing, do you need a distributor, do you need a store? What about the sales team?

Remember, the design of the strategic vision of a service company goes something like this.

Target Market Segment -> Service Concept -> Operations Strategy -> Delivery System.

In 2002, Joan Magretta published a very interesting article in the Harvard Business Review titled “Why Business Models Matter”, this was right after the internet bubble burst and your everyday investor was keen to stay away from anything and everything that could in any such way be associated with the dot com boom, the term “business model” was one of these and the sheer sight of a “business model” ran shivers down people’s spines.

However, Joan made a very good observation, this was that a “good business model begins with the insight into human motivations and ends in a rich stream of profits”, and whether dot com companies were here to stay, one could not disagree with the fact that human motivation will lead to some form of behaviour, in this – one that leads to purchases. Which is in the end a business model.

Telling a Good Story

Creating a business model is like telling a story. Take the example of J.C. Fargo, the president of AmEx who in 1982 during a European vacation identified the need for the travelers cheque.

The story associated with the business model was easy peasy for customers to grasp. For a small fee, the traveler could buy a secured against theft product that was convenient as it was widely accepted. On the other side of the table, AmEx was a trusted name, and businesses happily accepted the cheques, as more businesses accepted the cheques, and more individuals used them, more businesses would subscribe as not to stand on the sidelines and get in the game.

As for AmEx, well, we don’t have to go into details, but surely the equivalents of an interest free loan from customers and the nearly risk free nature of the business (customers always paid in cash), made this one of AmEx better business ideas.

But what’s all this have to do with business models? It’s simple really, a business model represents a better way of conducting something, improving on the current alternatives, it may offer value to a group of customers, or it may revolutionize processes until someone else revolutionizes those processes. In the end it tells a story about how something can be done better than it is now.

Doing the Math: The Numbers Test

Does it add up? Are your profits more than your losses? What is your burn rate? How long until you’re out of the red? Will my customers buy my product or service? Changing something and making it better is one thing, there have been millions of Euros, Dollars, Pounds, Yen or whatever currency you’d like to use, thrown at project that were simply put unsellable. These projects had great technologies behind them, they were innovators in their fields, they were new and something truly special, but they flopped.

Why? Because no one bought them, many were simply too expensive, i.e. various online grocers who’d bet that consumers would pay more for the same jar of jam if it could be delivered to their home, or in the 1980’s when Sears decided it would give its customers the option to purchase financial products. Why anyone would purchase an investment to add into their portfolio while shopping around for a car tire is beyond me, but hey, the exec’s thought it’d work. It didnt.

The moral of all this is basically, 1. Tell a good story, see if there’s a need and reason to develop a product or service you’re thinking about developing, who will your customers be, and will everyone involved benefit, and 2. will it be profitable based on a series of critical what-if assumptions focused on your business and product.

And if after all that, you’ve still got a green light. Well… then it’s time to think about scalability and strategy.

BY F3FUNDIT

One thing that we see time and time again with many European start ups is that they think locally, and while the initial market for any new company will undoubtedly be local, implementing a good internationalization plan in your business plan from the onset is key to truly actualizing the potential of your enterprise.

Compared to the U.S., single European markets are still relatively small, the Spanish think first and foremost of Spain, the Germans of Germany, the British of the UK, the French of France, etc… etc…, and while barriers to entry in your country specific market and language are undeniably lower than in one that is foreign these markets are still undeniably smaller than that of the United States.

Looking at Europe, the largest local market is that of Germany, with 82 million inhabitants, Latvia on the other hand has a market of 2.25 million, compare that to the 300 million of the U.S. and you start to see what we’re talking about.

While a German company may be able to survive strictly within its own market, the Latvian one will have a harder time doing so, simply due to the country’s population as a potential client base.

However, that does not mean that the German company should think locally, in fact the opposite, both the Latvian and German start up should think of internationalization from the beginning, and once established in its own market should then look to move abroad. After all a good service is a good service and should be transferable across borders.

Here are a couple of things to think of when working on your business idea.
1. Is our product or service local, or does it have international appeal?
2. How difficult is it, would it be to deploy our product or service in a foreign market.
3. What are the easiest markets for us to move into, what are the barriers to entry in those markets and what are the needs of those consumers compared to ours.
4. How does the culture of our target international market(s) differ from ours, and how may we have to adjust our product to provide a good value proposition to those consumers.
5. Based on your assessments of the above will we have to adjust our launch strategy or is it easily transferable to adjacent markets.

Obviously expanding into new markets gives your firm an advantage in as far as potential market size is concerned. But with it you can also use your firms experience in these markets to create for yourself a strong first mover advantage, develop linguistic market competencies that can then be transferred to other markets using the same language, and secure additional funding for growth.

Mind you these are just a few simple things to think about, to truly understand and plan the internationalization of your firm you should be prepared, and many books have been written on the subject.

Here’s a list of books that we feel are imperative to learning the ins and outs of taking a small enterprise international.

: Internationalization, Entrepreneurship and the Smaller Firm: Evidence from Around the World
: Innovation and Small Firms
: The New European Rurality: Strategies for Small Firms (Economic Geography)
: The Foundations of Small Business Enterprise: An Entrepreneurial Analysis of Small Firm Inception and Growth (Routledge Studies in Small Business)