Sales Forecasting For a Mobile Startup

I recently answered a LinkedIn question about sales forecasting for a mobile startup.

The question:
"Mobile Start-ups are not as easy to forecast, at least in my opinion, as some other types of businesses. Obviously VCs and investors understand your projections are essentially fabricated and pure guesses, but how would you go about forecasting sales of a mobile application, especially given the environment of the app store hiding number of downloads for potential competitors?"

My response:
"Actually I'll argue that mobile startups are much easier to forecast than most other types of businesses. When you start a business all you have are guesses/hypotheses about who your target market will be, what they want in a product, how you will reach them, how much they will pay for it, etc. In a mobile startup the barriers to test those hypotheses are much lower than in most other types of businesses. In a few months and for a few thousands-not-millions of dollars you can develop a minimum viable product,and begin experimenting with different techniques to drive conversions/sales. This type of validated sales forecasting is worth infinitely more than made-up numbers (wishes which will be thrown out by any investor anyway) and will put you in much stronger negotiating position if indeed you do seek investment.

If you are desperate for comparables, though, check out the Google Play Store, which does publish download numbers."

What do you think, is this a useful answer or just lean startup soap boxing?


Entrepreneurship: Full-time or Part-time?

Someone asked the following question on LinkedIn: "Is it possible to successfully start-up a company while working on a full-time job?"

Here's what I said - what do you think?

"Although we have this mythology built up about "all in" startups that raise venture capital and work 20+ hour days, most "successful" startups (that is, those which ultimately become large businesses) actually began as side projects while the founder(s) continued working on something less risky full-time. This allowed the founder(s) to develop the venture to the point of market validation, prototype milestone, or some other inflection point to reduce the risk (or perceived risk) of taking the entrepreneurial plunge.

Even so, I advise potential entrepreneurs to take the plunge immediately if they believe in the opportunity. By "burning the boats behind you," you create a strong motivation (one that can't be procrastinated around or delayed due to higher priorities) to advance the startup and, even if you fail spectacularly, it really isn't hard to return to the safety net of a full-time job."


Financing Your Big Idea

Someone asked a question on LinkedIn about the best way to finance a new venture. What do you think of my response?

"By far the best way to finance a new venture is by customers paying in advance for your products that may or may not truly exist yet. Each dollar you bring in with this customer-centric finance approach provides more than a dollar of value by also validating your market (In the raise-capital-then-build-product-then-sell-product model there is a much higher risk that you will build something that no one wants to buy.) and creating a group of reference customers to help you sell even more product once you are ready. Recent crowdfunding sites like kickstarter (which is essentially a pre-sales tool) provide this benefit if you are targeting many, smaller customers. If your product is more enterprise in nature, though, you will need to do the selling yourself."


Recommended Entrepreneurship Books

I made the following Entrepreneurship book recommendations on Quora so thought I'd share them here as well:

I use the following two books as course texts in my entrepreneurship course:

Effectual Entrepreneurship - Real data and evidence-based research on successful entrepreneurs

The Startup Owner's Manual - Steve Blank's step-by-step guide to launching a venture (annoyingly only available in hardback)

Additionally, I recommend the following books for additional reading:

Blue Ocean Strategy - Creating new markets instead of scrounging for shares of existing ones

Crossing the Chasm - Old school, seminal marketing work on moving from early success to sustainable growth

Getting to Yes - The best book I've ever read on negotiating

Do you agree with my recommendations? Do you have any others to contribute?


Entrepreneurship Advice: Growing a Consumer Web Business

A friend of mine who recently took the entrepreneurial plunge and launched a consumer web business recently asked me for some advice. Aiming to serve more people than just him with what is hopefully useful advice, I am posting my response here.

This was my friend's request:

"I believe the greatest challenge my company will face in the near future is how to manage anticipated rapid growth. We have a marketing strategy that will be capable of producing an extremely fast growth rate in users of our website, leveraging the power of social media and highly targeted and well-categorized content on a site that is designed to serve the everyday reading needs of all segments of the general public. I would like to be able to make management decisions based not on fears of scarce resources but on confidence that additional capital will become available to continue paying existing staff and to hire the new staff we will soon need after our website goes live. I believe it will be necessary to secure a large amount of capital investment soon after launch, from investors who are interested and capable of assisting the company in various ways to navigate the challenges of explosive growth -- both financially and in terms of business experience, advice, and connections -- or else we run the risk of growing ahead of our ability to run the business in practical terms."

My response:

"It is interesting to see you anticipate that your greatest challenge will be keeping up with growth. Historically this is not the challenge of most entrepreneurs. The challenge of most entrepreneurs is to provide a product that people really want. Then their challenge is to provide a product that people want enough to pay for - or that so many people want for free that advertisers will pay to reach them. With one of those two scenarios emphatically proven, then their challenge is to grow the business sustainably. Sometimes this involves raising capital, which is a very unique process/skillset.

It is getting harder and harder to "make it" with this second type of if-you-build-it-the-advertisers-will-come model and, if you seek additional investment, you will need to show traction with advertisers or at least user numbers (especially high-value users) that are so massive as to convince any investor that SURELY some advertisers would want to reach them. Recently some very public flops of advertising-driven consumer web companies (e.g., Facebook's IPO and Digg's acquisition) have made investors in this space particularly wary.

Generally the two metrics that an investor will focus on are your Cost of Customer Acquisition (How many marketing dollars do you have to spend for each new customer to join your site?) and Lifetime Customer Value (How much revenue will that customer make you either through paying you directly or through advertising dollars over the entire time that you expect that customer to continue using your site?). If LCV is significantly higher than CCA, it allows an investor to think, "If I invest X, it will generate a return of more-than-X" with high probability. Do you have convincing data to quantify your CCA and LCV - both today and how you believe these numbers will evolve in the future?

Almost every startup that becomes "successful" - that is, grows into a big company with sustainable profits - looks very different by the time it achieves "success" than it did at the time of founding. The key success attributes for entrepreneurs these days are not "great vision" or even "incredible execution to achieve that vision." Rather the most successful entrepreneurs exhibit outstanding ability to test products with their target markets, rapidly collect feedback, interpret it, and adapt or pivot the company's business model based on that learning and/or based on partnerships or other new means that the entrepreneurs are able to bring to their ventures. This has been the case for a long time but recently it has gained traction under the buzz categorization of "lean startup" principles. My favorite book that espouses these principles and provides a step-by-step guide to implementing them in your startup is The Startup Owner's Manual and I would highly recommend that you read it. It is unfortunately only available as a big, heavy hardback, but the process diagrams and writing inside are very valuable.

Another challenge you might face IF you seek additional investment will be your team. Investors tend to invest in teams before they invest in ideas. There is nothing wrong with you being a first-time entrepreneur but it would be ideal if you could strengthen your team with other experienced entrepreneurs (Previous startup experience - success or failure - of the founding team has the highest correlation with the success rate of entrepreneurial ventures and investors know that.), especially those who would complement your skillsets / fill your skill gaps.

Finally, from a cost perspective, I wanted to check with you on your technology infrastructure. I believe I saw you post on facebook before about costs for servers. Are you familiar with cloud computing options? Amazon Web Services, Rackspace, and many others offer virtual servers with ~infinite scalability to entrepreneurs. This helps you avoid some of the costs/risks/concerns of growing your venture on the technical side such that you can focus on the commercial side."

What do you think? Did I provide some valuable feedback?


IMD Alumni Event in Boston

Last weekend was a wonderful trip to Boston, reconnecting with friends, classmates, colleagues, and professors!

I flew up Thursday night and spent Friday in business meetings downtown + catching up with a dear friend / former colleague in Somerville. Lacking a car was no problem because Boston has a very robust public transportation system.

Saturday I turned my attention to IMD, preparing and helping to set up for our opening dinner. We chose this particular weekend because it coincided with the opening weekend of the Academy Of Management's annual conference. I came up with the idea of hosting an IMD all-continent event last year when I presented at the AOM's annual conference and realized that ~1/3 of IMD's faculty were there as well. It is not often that we have so many IMD professors together in the US, so it seemed worth capitalizing on!

In all of North America we have the same number of alumni as there are in Switzerland - but we're obviously much more spread out here! We weren't certain how many people we could motivate to travel hundreds or thousands of miles for such an event but it was worth a try.

We were very pleased with the results: 60+ IMD alumni joined us at the opening dinner at The Top of the Hub, coming from the US, Canada, Mexico - and even some from Europe and Asia! Add to that number 12 IMD professors and some other honored guests and we had a nice group!

Dinner was very nice and a great chance to meet other IMD alumni in this part of the world. My class (2008) tied with 1982 for the most alumni in attendance (3) and it was fun reconnecting with my former classmates. Years go by but relationships pick up right where they left off! We shut down the restaurant, stopped in a bar for some Olympics watching, and then turned in way too late.

Sunday morning began very early. We had lined up seven excellent IMD faculty presentations at the Harvard Club of Boston so we needed plenty of time to squeeze them all in:

IMD President Dominique Turpin - Introduction to the day’s program
Professor Margaret Cording – Identifying, Valuing & Capturing Strategic Synergies
Professor Bala Chakravarthy – A New Type of Country Manager for Winning in Emerging Markets
Professor Martha Maznevski – Developing Responsible Leaders Through Action Learning
Professor Michael Watkins - Moving Up: The Seven Seismic Shifts
Professor George Kohlrieser – Care to Dare: Secure Base Leadership in Action
Professor Maury Peiperl – What Makes a Global Leader Global?
Professor Suzanne de Janasz – Beyond Juggling: Achieving a Sustainable Work-Life Balance

It was a long day but so packed full of great discussion and learning. It was like a shot in the arm, a reminder of what it was like to be at IMD, when every day covered so much ground that you felt almost like a completely new person by the end of it. As someone dedicated to constant self improvement I was grateful for such a "dense" opportunity to learn and grow. And besides, exhausted as we were by the end of it, several of us still found the energy reserves to go out for drinks and plenty of seafood afterward!

It was an excellent weekend and I hope we can build on the success to bring more IMD activity to North America.