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For consumers, the deal is simple. Sign up for free, and get an email every day or so with a “groupon” – an offer for a deep discount on a local purchase, good only if some minimum number of people participate. Discounts cover a broad array of products and services, including restaurants, gyms, spas, supermarket shopping sprees, etc. Most customers are well-educated, single (49%) women (77%) under the age of 35 (68%).
For providers of goods and services, groupons generate significant one-time revenue, and the chance to attract potential repeat customers. As an example, a NYC day spa recently ran a groupon for hot stone massages. They reduced their retail price by 59%, from $120 to $49. In return, they sold 2,267 massages, generating over $110,000 in revenue (time to hire more masseuses!).
For groupon itself, the business model is highly attractive. They take a 50% cut of groupon purchases, and are supposedly on track to generate $350 million gross / $175 million net revenue in 2010. Better yet, groupon is highly viral. Since consumers only get their discount if others purchase, they eagerly spread the word via email, twitter, Facebook, etc. That’s enabled groupon to attract millions of customers with little to no marketing expenses.
How’s it working? Groupon launched late in 2008, sold a million groupons in their first year, and have sold three million to date. They reached break-even in just six months, and the business supposedly throws off $1 million per week in profits. Originally in Chicago, groupon has since rolled out to 40 cities. And investors have noticed. Groupon has raised over $130 million, most recently at a valuation in the range of $1.35 billion. 60+ other companies have copied the Groupon approach, including GroupSwoop, ScoopSt, SocialBuy, BuyWithMe, SwoopOff, MyDailyThread and LivingSocial. And at least two companies have created aggregators that scour the web for the best offers each day.
How much room is there for growth? It’s anybody’s guess, but the evolution of the email newsletter business may hold some clues. In that space, a few major players dominate big categories (e.g. Daily Candy for 20-something women, Thrillist for 20-something men) and a long tail of niche companies concentrate on particular market segments and product / service categories – with varying degrees of success.
Many founders struggle through product development, fundraising, sales, and team building and think they’ve got it made. But when it comes time to lead and manage the troops, they find themselves clueless. Here are a few tips to consider:
1. Leading and managing are different. Leading is about sharing your vision for the future, and getting your team motivated to make it happen. Managing is about making sure everyone is doing what they should, the way they should, on a day-to-day basis. Every company needs both. That said, some founders are great at both, while others find they are better at one than the other, and a partner or key lieutenant to fill in the gap.
2. This is not something you can outsource. As a founder, you MUST be involved in leading, managing, or both. One of my clients loves to sell but hates to manage. The minute she gets to the office, she closes her door and picks up the phone. She lands a lot of customers, but not without a lot of headaches. Her operations aren’t running as smoothly and efficiently as they should. Several top employees recently left for other jobs. And she’s even missing new business opportunities because she’s not on top of the details of what happens on the front lines. My advice to her: Find a great person to run operations, and manage employees. Add visionary leader to your role. Go to every staff meeting and fire up the troops, sharing your view on where the business is going.
3. Get the right talent in place. Marcus Buckingham wrote two books on management I recommend, both based on information gleaned from The Gallup Organization’s study of over 80,000 managers. In Now, Discover Your Strengths, Buckingham argues that people in business should put themselves in roles where they can take advantage of their natural talents. Instead of trying to fix their weaknesses, however, they should assign responsibilities to others who have the right stuff. Keep his advice in mind as you screen new hires and assign roles.
4. Give your people what they need to excel. In another book entitled First, Break All the Rules, Buckingham explains that employees reporting to great managers answer yes to the following questions:
- Do I know what is expected of me at work?
- Do I have the materials and equipment I need to do my work right?
- At work, do I have the opportunity to do what I do best everyday?
- In the last 7 days, have I received recognition or praise?
- Does my supervisor seem to care about me as a person?
- Is there someone at work who encourages my development?
- At work, do my opinions seem to count?
- Does the purpose of my company make me feel my job is important?
- Are my co-workers committed to doing quality work?
- Do I have a best friend at work?
- In the last six months, has someone at work talked to me about my progress?
- This last year, have I had the opportunity at work to learn and grow?
If your employees feel the same way, you’ll probably find they do better work, share positive views of the company, and stick around for the long haul.
- I have a flawed and incomplete understanding of what it feels like to work for me.
- Having ambitious and well-defined goals is important, but it is useless to think about them much. My job is to focus on the small wins that enable my people to make a little progress every day.
- One of the most important, and most difficult, parts of my job is to strike the delicate balance between being too assertive and not assertive enough.
- My job is to serve as a human shield, to protect my people from external intrusions, distractions, and idiocy of every stripe — and to avoid imposing my own idiocy on them as well.
- I strive to be confident enough to convince people that I am in charge, but humble enough to realize that I am often going to be wrong.
- One of the best tests of my leadership — and my organization — is “what happens after people make a mistake?”
Got a tip on managing? Please share.
Top MBA programs go to great lengths to prepare students to be successful entrepreneurs. But for some reason, many don’t teach sales – one of the most important skills for founders. When you build a business, you sell constantly. You sell to bring on partners, customers, investors and employees. You sell when you talk to the press, go to trade shows – even when you chat with the person next to you on a plane or at a cocktail party.
So, what do you need to learn about selling? Here are a few basic tips, brought to you via the school of hard knocks:
1. Call on the right customer. No matter how good you are at selling, you’ll probably get nowhere pitching to a customer that’s a bad a match for what you are offering. Instead, do your homework. Network your way to ex-employees, investors, suppliers or other people who can give you the inside scoop. Learn about the company’s goals, the challenges they are grappling with, and the approaches they’ve tried in the past.
2. Understand the politics. At a small company, you may simply sell to the CEO or head of purchasing. But big companies can be tricky. Find out who the real decision maker is (Hint: That’s not always just about who is the “boss”). You may need to identify a “champion”, someone willing to bet on you, and shepherd you through the selling process. Also identify any haters—people who look at you and see more work, more headaches, or worse, a threat to their job. Think about how to get them on-board, or they may become an obstacle now, or later when it’s time for the customer to implement your solution.
3. Timing is everything. Learn about the customer’s planning cycle, so you approach them at the right time. Many big brands plan far in advance, so you don’t want to pitch them last season’s merchandise. Also, understand their tolerance for risk. Some companies want to see proven track records before they buy. If you are just starting out, better to find customers with a history of buying from innovative startups.
4. Define a “win”. Going into your sales call or meeting, know what you want out of it. A test order? A second meeting with the final decision maker? Other?
5. Go second. When you show up for your pitch, ask a few key questions, and listen carefully to the answers—including the way those answers are delivered (tone of voice and body language can help you read between the lines). Questions like: What would you like to do better, why, and what would happen if you got what you wanted (e.g. saving time, money, aggravation, etc.)? Also ask follow up questions, to show you are listening, and to get to the heart of the matters. Take notes, and run your synopsis by the customer to make sure you are on the same page.
6. Pitch against their problems. Don’t just roll out your boilerplate lines. Restate the problems your customer just mentioned, and explain both how you can address them, and what they’ll stand to gain by working with you.
7. Ask for the sale. No lesson in sales would be complete without a wink to Alec Baldwin’s line in Glengarry Glen Ross: “A-B-C… Always be closing, always be closing”. Tell the customer what you’d like do next, and listen for a response.
To learn more, read Spin Selling by Neil Rackham. Got other tips or recommended reading? Please post suggestions.
This week, two UpStart coaching clients told me the same thing: “It’s great having someone to help me think through tough issues.” One is based in the middle of Manhattan; the other on a remote Pacific island. But they both effectively said “it’s lonely at the top.” Even the greatest athletes need coaches. The same is true for founders. That’s why I recommend that founders build advisory boards.
1. What an advisory board is, and isn’t. Don’t confuse advisors / a board of advisors with directors / a board of directors. As a CEO, the board of directors is your boss. Directors take a formal role in overseeing the business, often representing shareholders, approving budgets, and deciding who should act as CEO. In contrast, advisors work for the CEO. Advisors provide feedback, advice and introductions to investors, customers, and business partners – as needed.
2. Who to put on your advisory board. To establish an advisory board, start by picking three to five areas where you really need help. Maybe you want a person who has a “golden Rolodex” of industry contacts, another person who is great at sales, and/or a person with expertise in an area where you are weak, like finance or marketing. Then come up with a list of dream advisors in each group, and network your way to them. Make sure each advisor is the kind of person who will enjoy sharing her expertise and helping you build the business from the sidelines as a mentor or coach.
3. How to structure advisory board deals. Be specific about the role you want each advisor to play, and the amount of time and type of assistance you will want from then. I typically tell advisors I’ll need them to put in about one hour per week on average. In exchange for their help, I grant advisors equity options in the range of one percent of the company, vesting over three to four years. As always, run advisory board deals by your lawyer and accountant.
4. How to work with advisors. Advisors can function both as specialists and generalists. Give individual advisors specific requests for assistance (e.g. please see if you can help me get to the CEO of customer X). Then schedule a meeting or call at regular intervals (e.g. once per month or quarter), and use it as an opportunity to get feedback on general issues, like opportunities, threats, and major decisions. Keep in mind, you don’t have to follow their advice (but if you don’t, explain why).
In venture capital and tech incubator circles, the concept of lean startups is all the rage. We’re fans of the idea, and think it has merit well-beyond Silicon Valley.
The basic idea behind the lean startup approach is to get a product into the hands of customers as quickly and inexpensively as possible, find out what customers think of your product, and then modify that product as needed. The point is to find out if there’s a match between your product and what the market wants, with as little risk as possible. Here are a few lean startup tactics:
1. Design a minimum viable product. Hold off on all the bells and whistles you’ve envisioned. Strip your design down to the bare essentials you’ll need to determine whether customers will like / use / buy your product. By sticking with this minimum viable product, you can determine the fit between what you’ve got and what customers want faster and cheaper.
2. Develop quickly and inexpensively. Making lipsticks, t-shirts or beverages? Start with “stock “materials, like applicators or bottles, to avoid time consuming and costly production set-up. Customize later, once you’ve proven that customers want what you’ve got. Building an online community? Use a platform like Ning that’s free or at least cheap; if customers love it, you can build a custom site down the road.
3. Change on the run. It’s pretty rare for founders to dream up a winning product from the sidelines. More often, it’s necessary to make a series of modifications in reaction to the way customers react to initial offerings. That could mean changing or adding features, pricing, positioning, distribution, etc. One of the keys to doing this well is to set performance targets (we want to sell at least 1,000 units per week by the end of a three month test), measure actual results (we only reached 500 units; customer surveys showed we need to switch our pricing from subscription to a la carte) and then decide whether / how to proceed (change pricing policies).
Lean startups and bootstrapping work well together. For example, both tend to advocate getting a product to market first, and then raising capital for expansion—as opposed to raising a lot of money for design and development, which often takes longer and hampers flexibility.
When I started helping entrepreneurs plan new companies, I discovered something curious—there was a lot of confusion about what, exactly, a business plan should look like. A business plan was once a lengthy, prose-based document written with word processing software like Microsoft Word, similar to a 40+ page college term paper. Sophisticated entrepreneurs and investors moved away from that format, but the typical entrepreneur on Main Street didn’t get the message. That’s no surprise, since many books on business plans still recommended a term-paper-style business plan. Were the books simply out of date?
To make sure, I decided to ask the experts. I surveyed over 50 people, including venture capitalists (VCs) from leading firms like Kleiner, Perkins, Caufield & Byers, noted angel investors such as the backers of Method and serial entrepreneurs like John Osher, creator of the Crest SpinBrush. The results: 95 percent recommend that startups use a presentation format, not a term-paper-style plan., Here’s why the pitch deck has taken the place of the text document:
- A term-paper-style business plan takes too long to read. In this age of rampant Attention Deficit Disorder and communications overload, asking someone to read a 40+ page paper is pushing it. Why burden someone whose help you are seeking? And why take the risk that your plan won’t be read at all?
- A term-paper-style plan takes too long to write and update. Writing 40+ pages of prose takes months. Plus, a business plan isn’t a static document—startups modify their plan continuously. Updating a page or chapter of text can take hours. Updating a bullet point or graphic in a slide presentation takes minutes.
- Pitching in person is far more persuasive than sending a document for people to read. A deck is made for presentations, while a term paper is about as useful in a pitch as a doorstop. When you deliver a presentation in person, you can see how people are reacting, modify your pitch on the fly, address concerns or confusion immediately, and get feedback.
- Presentations force startups to set priorities. If you are working with a 40-page plan, you can drop in every great idea that comes to mind. But when it comes time to explaining your ideas—and to executing those ideas—you’ll have to focus. Culling your ideas down to those worthy of inclusion in a short presentation is a great way to start prioritizing.
Still don’t believe me? Sequoia Capital is the venture capital firm that backed Google, Yahoo, YouTube, eHarmony, LinkedIn, and PayPal, among many other winners. On their Web site (http://www.sequoiacap.com/ideas), they offer the following advice: “We like business plans that present a lot of information in as few words as possible … 15-20 slides … is all that’s needed.” And finally, New York Angels is one of the leading groups of angel investors in the U.S. They’ve invested over $20 million in 65 early-stage, New York-area technology and new media companies. At www.newyorkangels.com you’ll see the following suggestions about the format of business plans: “Slideshows with under 20 slides are generally most effective … Use the limited time you have for your presentation to emphasize the compelling factors about your investment opportunity and save unnecessary technology details for future meetings…”
 There are exceptions, such as requirements from some lending organizations like banks or the SBA, but they typically lend to companies with at least three years of operating history, not to startups.
 Most of the others said they like to see a two- to four-page executive summary.
Steve Brotman is a Managing Director of Greenhill & Co., and co-founder and co-head of Greenhill SAVP, a fund that invests in early-stage technology and information services companies. Steve currently sits on the board of four companies and the MIT Enterprise Forum’s New York chapter. Steve founded AdOne Classified Network, one of the nation’s leading classified ad Web sites, which was acquired by Hearst, Scripps, and Advance-Newhouse. Steve is a graduate of Duke University and has a joint JD/MBA from Washington University.
UpStart: “In what ways do you think it benefits a startup team to go through the process of developing a business plan?”
Steve Brotman: “A business without a plan is like a boat without a rudder. You’ve got to have a plan! Developing that plan is the critical first step of business creation. It commits you and your team to an explicit strategy and approach. It ensures that your founding team is aligned behind common goals. It defines both what you will do, and what you won’t do. And it establishes priorities, so startups focus time and resources on what’s most critical for their success. Finally, it allows founders to communicate their vision to investors, advisors, employees, vendors and partners. That doesn’t mean the plan can’t or won’t change. So be flexible, and when a major change needs to happen, circle the wagons, and put together a new plan.”
UpStart: “Would you ever invest in a company without a business plan?”
Steve Brotman: “It’s doubtful. In the earliest stages of a company, founders start with the equivalent of an idea on the back of a napkin. But every startup needs help, even if that’s just from the landlord and lawyer. Getting that help demands more than just what’s on the napkin—it requires a business plan. That said, some entrepreneurs go overboard on their plans and projections, and prefer to write about their plans versus doing something about them. That’s not what a plan is about. The goal is uniting your team behind some shared vision and objectives, and how you will likely meet those objectives, and having some document to show parties you’d like to bring on board that will increase the likelihood of your venture’s success.”