Scot Wingo is co-founder and CEO of ChannelAdvisor, a public company in Morrisville, N.C. that helps e-commerce retailers optimize sales across channels. Wingo and team took the company public in May 2013.
This is a regular series, and you can read the kick-off post here for background. Ask him a question by commenting or emailing [email protected]
This is Part 3 of a three-part answer. The original question was from Aaron, a web developer and he asked:
I’ve always had so many ideas swirling around but never felt drawn towards any one idea over the others. How were you able to come up with 3 ideas that were able to create such value? I just bash my head against the wall sometimes trying to think of something that would create legitimate value for someone, so much so they’d give me their money for it.
I’m a web developer, but development is a means to an end for me, with the end being creating something of value, rather than programming for programming’s sake.
In Part 1, I covered the different categories of ideas (b2b, b2c, etc.) and talked about two patterns:
- Business-oriented ideas are more numerous and easier to execute on than consumer ideas.
- The best ‘seeds’ for ideas for business-oriented solutions are add-ons, industry-oriented and solving a problem you have personally experienced (necessity is the mother of invention).
In Part 2, we assumed you had a good list of candidate ideas from part 1 and evaluated them through three different criteria:
- Prospective customers—Call me crazy, but I always like to bounce new ideas off potential customers early and often. Build products that solve customer problems and you’ll be ahead of 90% of the other startups out there.
- What do you want to build?—An important consideration is looking in the mirror and deciding what it is you want to build. Do you want a lifestyle business, or do you want to build a big stand alone business?
- What is the TAM?—Total Addressable Market, or TAM, is an exercise where you calculate the size of the market your idea will address. This helps you figure out if you can build the size business you want to build. It’s also a useful exercise if you ever need to raise VC. And finally, it can help you create a bit of a roadmap for execution.
Finally, I introduced the TAM pattern—you can take your TAM and divide it by $100k to get an approximate number of people it will take to build your business to that scale. This can be a good gut check.
In Part 3, let’s assume that you have your idea from Part 1 and you’ve picked your ‘go ahead’ idea using the criteria from Part 2. Now it’s time for the hard part—execution. In fact I’m a big believer in the old axiom—Ideas are easy, execution is hard.
Getting the startup engine going
One of the challenges I see a lot of founders struggle with is how to get the startup engine going. Many of the founders are fresh out of school or they are moonlighting from an existing job. While there are more angels, incubators and accelerators than ever before here in the Triangle, the odds are pretty stacked against a first-time entrepreneur getting seed funding and having the luxury to just jump into an idea full-time.
One pattern I’ve seen that solves this chicken and egg problem, I call the “Consult to get started” pattern
Startup Pattern – Consult to get started
Instead of waiting for, or relying on seed funding to get started full-time, leverage consulting to help you build your business.
Many naysayers will tell you that this isn’t really pursuing your dreams and it’s easy to get so pulled into consulting that you never create a product. You end up on a consulting treadmill. While this is certainly a risk, I think it’s a minor risk compared to the risk of never pursuing your dream by waiting for funding.
A good way to start on consulting is go back to that Part 2 when you had those discussions with prospects. In those discussions, did you hear one of the prospects say they’ll pay consulting fees for you to build a solution for them. If the answer is yes, you are not only onto a great idea, but you may be able to parlay it into a consulting gig to help you get started.
There are some legal items to consider to make sure you get right with this approach. Whenever you do consulting, you should have the rights and ability to own and productize what you build so that you don’t box yourself in.
Triangle case study: Q+E
My favorite case study of this approach is from one of the Triangle’s startup elder statesmen—Richard Holcomb. In the 1990 timeframe, Richard started a consulting business called Q+E. Richard was interested in the new paradigm of computing called client/server and they started helping companies convert to that model. When doing the consulting, they noticed that they had to keep writing what should be a pretty simple piece of any client/server architecture—the database access. At the time, a new standard was coming on the scene called ODBC (Open DataBase Connectivity) and each database company (Oracle, etc.) put out its own basic driver. But from consulting gigs, Q+E realized that the basic ODBC drivers weren’t enterprise-ready. Plus, once you standardized on ODBC, it made life much easier if you had ODBC drivers for text files, excel files and anything that could be a database.
Q+E took the profits from consulting, built a set of ODBC drivers and started to sell. The product quickly took off and Richard’s company was able to stop consulting within months of releasing the product to focus 100% on its development.
In 1994, Intersolv (a much a larger player in the client/server world) acquired Q+E for $36 million. At the time, Q+E was 100% a product company with > $13.5 million and 100,000 customers. Not bad for a company that started as a consulting firm!
Software—the easy part
This question was posed by Aaron, a web developer, so I’ve been answering it from the ‘technical founder’ perspective. The great news is that for the technical founder, it has never been easier or cheaper to create a new product. Cloud-based solutions like Amazon Web Services (AWS) have driven the costs of servers and bandwidth to near zero. Agile software, open-source software and tools like Github, Ruby on Rails, etc. make it much easier and faster to solve very hard problems with software.
Thus, another pattern I have seen, I call the technical founder execution blind spot:
Startup Pattern – the technical founder execution blind spot.
As engineers or computer scientists, you naturally will focus your attention on building a great software product. While this is 100% natural and maybe appropriate for the first phase of your new venture, it tends to create an execution blind spot. Even the most awesome, fully functional, amazing software won’t sell itself. Since we’re focused on the B2C software segment in this series, this rule is particularly true. The result of this execution blind spot is that many technical founders don’t invest enough time, effort and talent in the areas of sales, marketing, technical support, finance, HR, etc.
Don’t forget the hard parts of execution: Sales, Marketing, etc.
There are several ways to avoid the blind spot common with technical founders around execution on non-technical parts of the business.
One suggestion that is a great solution to this challenge is to consider recruiting a founder or early senior employee that has experience on this side of the startup landscape. The great thing about the Triangle is we have resources like the Council for Entrepreneurial Development, ExitEvent socials, plus the MBA programs at Duke, UNC and NCSU. These are all great ways to meet candidate non-technical team members.
If you want to start as a technical founder and learn to run the non-technical parts of the businesses as you go (I’m keen on this path as it is the one I took), then I suggest you think of your startup in phases:
- Phase I: Product development—In the first phase of your startup, you are building your product, so you can focus on what you know best in this phase.
- Phase II: First customers / early adopters—Your product is nearly complete and ready for some first customers/early adopters. It’s time to put on your sales hat and build a sales team to go out and sign up customers. Early customer success is critical as you will need those customers for references down the road, so you’ll also play the role of account management and maybe even product management—funneling customer feedback back to the engineering team.
- Phase III: Adding marketing to the mix—Once you’ve created a repeatable sales cycle and have a good base of reference-able customers, it’s time to do some marketing. What events do your prospects attend, what websites do they frequent, where are they based, how do you reach them, what is some compelling content you can create to get them interested in your software?
- Phase IV: Adding the other pieces and scaling—Once you get the sales and marketing engines going, you will find you are in desperate need of HR for recruiting; legal for all the deals you are signing; finance to invoice, collect and count all the revenue, etc. At this point you may still be connected to what is going on with the product, but you will need other leaders managing the day-to-day details so you can build out these last key pieces to your business. Somewhere around phase 2/3 you will realize that you have to trust the team and move to more of an observer/advisory role in the product part of the business.
The final tip for execution you can layer with either the phased approach or the non-technical co-founder is to get a ‘been there, done that” mentor. As I mentioned when I kicked off this column, we are really fortunate in the Triangle to have a set of successful serial entrepreneurs who are quite generous with their time and advice. Thus, if you want to build a business that has 100 people and $10 million in revenue in the healthcare IT space, there are literally 10-20 great mentors right here in the Triangle who would be willing to provide advice and experience that would help you avoid pitfalls in building that business.
More reading on execution.
Hopefully these tips from my experience give you some good ideas into how to start executing against your new business. Over my ~20-year career as a serial entrepreneur, I’ve looked for good books on execution, and aside from some biographies on Microsoft, Google, etc., there really wasn’t anything applicable. Great news—in the last 2-3 years some great books on this topic have been written that I strongly recommend you study:
The Lean Startup by Eric Ries—Ries takes the principles of Lean manufacturing and agile software and applies them to the execution of a startup.
Scaling up Excellence by Sutton and Rao—Sutton and Rao studied the different ways large businesses scaled and put together some very well thought out methodologies. This one is probably best for when you are in the 100-200 person range and maybe a bit overkill if you are < 5 people at this point.
The Hard Thing About Hard Things by Ben Horowitz—Horowitz is the Z in A16Z, the short name for Andreessen Horowitz, a top tier Bay area VC firm. If you are building a new type of software and blazing a new path, this book is perfect. Horowitz also gives a bit of a wake-up call on how hard it is going to be and how much determination, grit and time it may take to be successful.
Traction by Weinberg and Mares—I have this one on order, but the Amazon reviews look strong and I know several of the folks that contributed to the story. They are a great group.
Aaron, thanks for asking such a great question! I actually get this one a lot from technical folks that are looking to start their own companies. Hopefully this three-part answer has given you some ideas on how to pursue your dream by evaluating your ideas, trimming them down and executing on the one that gets you the most fired up. I wish you nothing but huge success in the future!