Category Archives: Lean

What Makes Dumb Money Smart?

Some time ago I decided to write a series on how to raise funding from angel investors. It is a broad topic. I start with this lengthy blog post where I explore the ways an angel investor can add value to a startup beyond mere money.

So, please grab a cup of coffee and let us begin.

What a business angel invests and expects?

An angel investor can invest dumb money, relevant knowledge or both. The combination of money and knowledge is called smart money.

  • Money. This is the easiest element to evaluate and compare alternative offers against each other. How much? What’s the funding structured (equity vs. convertible)? What is the valuation and other key terms?
  • Knowledge. A relevant knowledge is rare. Almost any investor will claim to be investing smart money. Smart knowledge applied at a pivotal point can either accelerate success or prevent a failure. Knowledge matters!

An angel investor doesn’t offer a free lunch but expects to get something back also. 

  • Return on Investment. The investor expects to get paid if a startup gets off the ground and later on gets either acquired or IPOs.
  • Control. Traditionally investors have wanted a degree of control in the companies they have invested. The latest trend is less contractual control or no control at all. The control, or ability to influence, comes through mutual relationship between the founders and the investor.

In spring time 2012, I was asked to keynote in a local startup event. I decided then to talk broadly about business angels; where do they come from, how they differ from each other, and most importantly, how to evaluate and measure their value add. Here I will present and discuss the distinct contribution dimensions and angel profiles I quickly generated back then.

I acknowledge this is not an absolutely coherent presentation of the topic but I do hope you will still be able to derive some value and gain fresh insight from this.

What are the typical angel investor profiles?

  • Super Angel. These are highly influential and rare creatures. They are mostly based in the Silicon Valley. They are prominent and deeply networked individuals with access to proprietary information through their relationships. Super angels have deep pockets and they have a diversified investment portfolio, and they like to co-invest with other super angels, and double down when initial bet turns out to be successful. Super angels are super busy and thus their contribution beyond money focuses on creating access and increasing credibility. We don’t have a single super angel in Finland. The best super angles have highly proprietary deal flow and they have a very detailed picture on what happens in the market. Their failure tolerance is high because they are the players and know the rules of the game.
  • Startup Specialist. That’s me. This is a hard position to be at. You fight against people with money and reputation. You have to be better or work harder in areas that require considerable use of non-scalable sweat i.e. time. Startup specialists have in-depth understanding how startups are built. They have been there. Preferably in the role of a CEO as nothing replaces CEO experience – nothing. The key contribution takes place in defining the product, helping the team identify and prioritize tactical steps, and being a close leadership mentor to the CEO of a startup. Good startup specialists with product sense and nuts’n bolts level understanding of the business and technology are rare.
  • Professional Manager. There are large corporation executives most of whom are taking their first baby steps with startups. Oh boy, different world! Very few professional managers have been able to cross from large corporation to a small startup without doing major damage to startup(s) in this process. They just don’t get it easily what hands-on and being lean means. A prominent CEO of a public company will always increase credibility of a startup but do be careful to follow their tactical and/or strategy advice.
  • SME Founder. If you have successfully founded a small company and made an exit, that must count for something. You probably know how to be hands-on. Having said this, most SME founders who have gotten rich but do not have background in high technology, they may be nice persons but their money is dumb as building a fast food chain don’t qualify you as a savvy tech investor. The same rule applies to successful technology entrepreneurs who were successful because they were in the right place at the right time. Luck plays a major role!

When evaluating the value add of an angel investor, please do look beyond the track record and celebrity status. Try to understand what are the specific areas he excels at and what are the basis for his claimed particular competence.

What are the key value contribution areas?

Time Usage

Most contribution areas require considerable investment of time. This is the underlying reason why sweat equity investing doesn’t scale at all. If as an entrepreneur you are looking for a strong contribution in areas that clearly require heavy usage of time (like helping you to build a go-to-market plan, or refining the core product), do ensure your angel investor is ready to spend the time needed. Measure output but be aware that certain type of output require enough time spent as input. Being smart, experienced and knowledgeable is only the prerequisite.

Failure Tolerance

Guess what happens in a startup where things go south and the future doesn’t look that bright anymore? People, including investors, panic. The more experienced ones armed with better failure tolerance panic less. An angel investor, with fear of failure and lack of failure tolerance, can become an incredible pain in the ass for a startup.

Angels who fear – both losing their money and more importantly losing their face – stop doing intros, may become hostile, and in worst cases start talking behind your back to kill your reputation while saving their own face. This is just a normal human behavior yet it shows how so few angels in practice understand the true nature of early stage investing; most will fail and there is nothing wrong with that, it’s part of the game.

Luckily, there are exceptions. Those few angels who understand the rules of the game. The ones who continue to back you up even when you are facing a certain death. My advice is never to take any angel onboard who fears failure. It is contagious and makes your life miserable.

In addition, it might be a good idea to request all angel investors to sign a memorandum of understanding in which they acknowledge that most likely outcome of the venture is that they lose their investment in full. Should this be an issue a question should be raised about their suitability of being an angel investor in the first place.

Corporate Governance

The in-depth understanding of startup legal is absolutely critical. If you are building your first startup, you don’t know what you don’t know and that’s a big problem. One of the areas where this shows is legal. An angel investor with tons of experience in startup legal is a great asset. Most angel investors, however, don’t know well enough this stuff. It is so specific with all nuances and details. Even most lawyers don’t understand this area well enough and their advice is oftentimes not good at all.

Credibility

Any new startup without proven founders and market traction has a credibility issue that prevents it from either closing early customers or raising funding. Increasing credibility means increased chance of success. Thanks to social psychology, you can enhance the perception of your company’s credibility via social proof. A prominent, important, distinguished person joining to the company as a director to its board or an advisory director. This must mean something! If you bring in a brigade general or almost any prominent person who is appreciated by your target market, tech press or your prospective customers, the credibility goes up – even if there would be no real basis for his reputation or value add to your startup. It is about the perception. Perception matters.

A prominent angel investor with good track record and reputation always increases the credibility of a startup. For an angel, this value add dimension is the most scalable way to invest knowledge (or reputation) as it doesn’t necessitate any use of time.

Network

Some angels are taken onboard because they claim or are known to have a vast network with breadth and depth. This network is further expected to translate into meaningful meetings and business opportunities through introductions. It all depends. It is not a done deal. Very few people, in fact, have a good cross-industry international networks to top decision makers in large platform companies (e.g. Facebook, Apple, Twitter, Google etc.), startups, and venture capitalists.

If you are building a mobile app or a Facebook app in Finland, if someone can introduce you to a right person in a platform company it can be very valuable. A typical Finnish angel can’t do that, as his reach stops at the border.

Influence

The network alone has almost zero value. You are looking for introductions that have impact. Introductions that will get you the meeting or a quick phone / Skype call with a decision maker right now. Many people have large networks, very few people have great influence at the highest echelons. Seek angels with influence!

It takes a lot of time (10-15 min) to write or call a good introduction. It doesn’t sound much but if you  are known for your network, the queue of introduction requests is endless. The more prominent you are, the more people ask introductions from you. Luckily, this is an area where increasing influence greatly decreases the need to write lengthy introductions.

I mainly do introductions to my inner circle, which means I can cut off the nonsense and just write “Qintro” standing for quick introduction to the email subject line. I never do an introduction if I don’t see there a fit and trust on the integrity of the participants, and neither should you.

Funding

The best angels not only know a lot of other angels but they also have experience and track record on how to raise angel and venture capital. They know what are the milestones you need to achieve to become fundable. Trying to raise capital when a venture is non-fundable is waste of everyone’s time yet companies do it all the time.

Lean Startup Strategy

Helping the founders to put together an executable plan is very valid and important value add. Things like:

  • Understanding the big picture and helping the team to define a competitive business strategy.
  • Defining meaningful customer and product development steps that are reachable yet stretchy and well aligned with the funding requirements.
  • Changing strategy in case the existing assumptions are tested and shown invalid.

Product

Startups die or fly with the product they build and launch. Adding value to product means working hands-on with the team on all aspects of a product be that its design, feature set, positioning, launch plan, choice of technologies etc.

Product contribution is the highest value adding area but it is also very complex.  An investor must spend a lot of time to truly grasp the intended product concept. The product visions of the in-house product person and investor must be in good alignment. Otherwise influencing the product vision and engineering decisions is not possible or becomes inefficient.

In addition to the above value add areas, leadership development and related contributions can be very valuable. Especially so if the founding team and its CEO are doing their first startup.

I don’t know why but spelling this stuff out from my mind felt like a big effort this time and I am not completely satisfied with the result. Anyways, I decided to get it done and publish it today no matter what.

Let me know what you think about this, and if you think I have missed or ignored something that I should have said here, please do let me know, and I will make this even better.

Top Ten Mistakes of Startups Rising from Nokia’s Ashes

I usually tell people that most everything I learned about being an entrepreneur I learned by screwing up at my first company. Oh boy how I sucked as the first-time CEO. That’s how it usually goes. Therefore it is a great idea to do your mistakes as early as possible, learn, and then move on to build a great company.

I think the sign of a good entrepreneur is the ability to spot your mistakes, correct quickly and not repeat the mistakes.

In my role as sweat equity angel investor (yeah, more knowledge and work, less cash) and startup advisor, I have lately engaged with a large number of Nokia-based startups. I identified the top ten most common mistakes in Nokia-based startups, and decided to openly share and discuss them in a series of blog posts titled as Top Ten Mistakes in Startups Rising from Nokia’s Ashes. This is the summary post. The original introduction is here.

I wanted to share my observations as I believe that increased awareness helps to avoid certain mistakes. I, however, painfully recognize that good judgement comes from experience, but experience comes from bad judgement. So most entrepreneurs just need to do their own mistakes and learning from others’ mistakes thus has limited value.

While I have written the posts with Nokia angle, the mistakes and lessons are relevant for any startup as there is a strong connection to not applying lean startup principles.

So, below is a short summary of the posts.

1.     CEO Who Can’t Sell or Lead The Product

Startup CEO’s job is to transform a collection of raw ideas into a product that can be sold to paying customers. If he is not hands-on with the product and how it is sold – and I mean really, really hands-on – how could he drive the operations then? He can’t. Instead he becomes a helpless figurehead who runs around doing non-essential chores such as talking to press, networking with investors, or spending quality time with a beloved excel. While useful and important, these are not the core of a startup CEO’s job prior there is at the minimum a product prototype available. I have seen a number of these general management focused CEOs in Nokia-based startups. There, however, is nothing general to be managed in a startup until it has a sellable product. At the early stage, a CEO who can’t sell or lead the product becomes the worst-case free rider and cost center whose time has not yet come.

For more details, please read the blog post.

2.     The Free Rider Issue

Each co-founder with a working shareholder status is expected to contribute full time every single day while occasionally working one’s ass off day and night to get the startup off the ground. A co-founder whose skills and contribution are not relevant for a startup on a daily basis is essentially a free rider, or an advisor disguised as a working shareholder who should accordingly have only an advisor stake. Although the free rider issue is common in any startup, it is likely even more common in Nokia-based startups. Why? Nokia’s offsprings are oftentimes co-founded by a team that has been working together at Nokia. While the team’s composition and their combined skill set might have been a good fit in a product line with 100+ people, the fit is quite likely suboptimal for a startup employing five to ten people. The Nokia Bridge Program further negatively influences both the ownership structure and team composition. A free rider situation when it arises must be solved swiftly because if left unresolved it easily develops into a cancer that kills your startup.

For more details, please read the blog post.

3.     The Ownership Problem

If the founders’ pie is distributed evenly, it means in practice that no one is in charge. An equity stake for a co-founder is essentially a prepayment for expected future contributions. If we take an average Nokia-based startup with five co-founders, it is a good educated guess that each co-founder holds a flat 20% stake. So, their expected future contributions must then be equal as well? Not really! They just haven’t had either understanding or balls to talk  how to divide the founders’ pie. I strongly recommend co-founders, prior to founding a company, sit down and engage in these profound what-do-I-bring-on-the-table series of discussions. Potential free riders are spotted and a capital table that is collectively perceived as fair is nailed down. Things change over time, and especially so in a dynamic startup – and there is nothing wrong with that!  A shareholders’ agreement, especially stock vesting, helps co-founders deal with this change in a predetermined way.

For more details, please read the blog post.

4.     Culture Gone Wrong

Building a great startup starts with building a great culture. It glues unique, talented co-founders with diverse backgrounds and values into a high performance team with shared vision, common goals and winning attitude. What makes a great startup culture? It begins with the fact that you are valued based on your ongoing actual performance. This is in stark contrast how things work in any large corporation. In a startup, there are no silos and everyone does everything. A startup co-founder can have a family but when the servers are down, it is the wife’s (or husband’s) job to wait until a critical bug is fixed and the servers are up again. Low salaries, commitment, passion, sense of urgency are all key elements in a great startup culture.  It is a big challenge for any team coming from Nokia without relevant startup experience to succeed in building the right kind of culture for their first-ever startup.

For more details, please read the blog post.

5.     High Burn Rate

High burn rate in a startup means increased requirements for external funding and shortened runway to reach either profitability or critical milestones for the next funding round. I have seen catastrophic burn rates in many Nokia-based startups. I believe this problem starts with people who are used to pay a lot even for mediocre services as they have had the money in the budget, and who don’t have a clue on how to be frugal and run a lean startup. In a pre-revenue startup, salaries should be low, preferably in the range between 2000-4000€/month, with no relation whatsoever to previous salaries paid at Nokia. Other contributing factors are poor startup culture, easy money from Nokia combined with easy public funding leverage from Tekes, and the share ignorance how detrimental high salaries and premature scaling can be for a startup and its culture. High burn rate will kill Nokia-based startups in numbers.

For more details, please read the blog post.

6.     Not Being Close to The Customer

It is hard, if not impossible, to develop a world-class product in a lab far from where the lead customers and key ecosystem players are. The place to be is rarely Finland, often USA, China or an emerging market in Asia or Africa. This is an arena where Nokia-based startups could excel if the founding team has members physically located in target markets to bring instant reach and local customer development. In some Nokia cases, I have been delighted to see this local customer development element in play from day one. In way too many cases, the customer development part is handled from Finland via Skype and email, by using local agents, and once and awhile hopping on a plane to have face-to-face meetings with far away customers and partners.

For more details, please read the blog post.

7.     Minimum Viable Product

For engineers with Nokia background, it seems rather natural to build gigantic MVPs. Nokia is not known for its agile, iterative software development capabilities, but rather on the fact that whatever they were building, it always required a hundred engineers to begin with. It takes a lot of product vision to define a meaningful MVP, and not having lean customer development operations at the vicinity of lead customers and partners makes it even more difficult. I believe that avoiding excess funding, having a small nimble software core team comprising three to five people on average, and establishing a feedback loop with a few lead customers early on are keys to keep the MVP scope reasonable and focus tight.

For more details, please read the blog post.

8.     Product-Market Misfit

I have been thunderstruck that some teams with Nokia background are not laser-focused on end users and their needs. They rather have a product and channel-centric mindset where building an average product based on internal product specification and perhaps on light feedback from prospective channel partners is the way to go. With a long product development cycle this is truly amazing, as it means a team is willing to bet their future on unvalidated product specification. They don’t know if there is any real end user driven demand, and therefore a sustainable market, for the product or not. It would make a lot of sense to pay more attention to end users as they will ultimately decide which products will fly or die.

For more details, please read the blog post.

9.     The Arrogant A**hole

Most startups are broke. To get things done, entrepreneurs need to leverage their own network and the networks of their co-founders, investors and advisors. Sometimes you need to get service from previously unknown service providers at below market price or paying with equity only. People don’t move their asses and do favors just because you say so and some time ago used to have a Nokia’s badge, and certain authority that came with it. To help you out, people want to get something in return – like feel good in helping you out, or get a pole position to offer their services later on when you can pay with real money. A startup co-founder, and this applies especially to the CEO, has to know how to ask help, and how to get people do things for him while most of the time the only instant payback is his gratitude. But make no mistake, earning someone’s gratitude and trust, and thus being able to someday ask help yourself, that’s incredibly powerful..

For more details, please read the blog post.

10.     Go-To-Market Strategy

Selling an unknown product built by an unknown startup is not easy. Some Nokia-based startups do have marvelous go-to-market plans that could work, but only if the startup had both the credibility and resources of a larger, more established company. As they don’t have either, the plans will most likely fail miserably. Every startup desperately needs an entry point to its market, an entry point to close the first customer, then second, and so on. Problems with go-to-market strategies stem from not understanding customers and their needs well enough, and perhaps with Nokia history it is a little bit easier to have an attitude problem and think that distribution and scaling up are not issues – as they never were while working at Nokia. Yeah, right.

For more details, please read the blog post. Not much extra here this time though.

Always make new mistakes!

I have received a lot of interest from startups to work with them on the above described issues. After thinking a while, I concluded that perhaps a workshop is the best way to address this need. The workshop is now available and is called the Tough Love Workshop, and If interested you can read more and order it here.

And here is a condensed set of slides on the topic. You can, for instance, use slides for facilitating important yet tough discussions in your startup.

Nokia-based startups can also have unique strengths.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

P.S. I also want to voice out, before anyone brings it forward, that some of the best startups I have seen lately are Nokia-based, and thus not all Nokia-based startups share these mistakes while most do.

 

Nokia Startups Mistake #10 – Go-To-Market Strategy

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction.

Selling an unknown product built by an unknown startup is not easy. Some Nokia-based startups do have marvelous go-to-market plans that could work but only if the startup had both the credibility and resources of a larger, more established company.

As they don’t have either, the plans will most likely fail miserably. Every startup desperately needs an entry point to its market, an entry point to close the first customer, then second, and so on. Problems with go-to-market strategies stem from not understanding customers and their needs well enough, and perhaps with Nokia background it is just a little bit easier to have an attitude problem and think that distribution and scaling up are not a big issues – as they never were while working at Nokia. Yeah, right.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #9 – The Arrogant A**hole

“Don’t be an *sshole.”  

This article originally appeared on ArcticStartup.

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. This is a somewhat difficult mistake for me to write about as I haven’t personally witnessed it in my interactions with Nokia-based startups. Some angels and VCs, however, have mentioned enough times that they think quite many ex Nokians suffer from being arrogant. This behavioral trait most likely is rooted in how things were done at Nokia Corporation.

Let me first define what is understood with arrogance here.

In authoritarian leadership style a Nokia executive while still at Nokia directed his subordinates and especially external vendors to make various things happen without providing any intrinsic or monetary motivation beyond punishment in case of non-compliance. This style may work in a large corporation where an executive holds undisputed authority over his subordinates, and vendors are at the mercy of the corporation and its dictators.

When a Nokia executive who has lost his beloved badge, and the authority and recognition that came with it, continues to command external people and service providers without offering any other motivation than his lost authority – that’s what we call as arrogance.

Why arrogance can be bad?

Most startups are broke. To get things done, entrepreneurs need to leverage their own network and the networks of their co-founders, investors and advisors. Sometimes you need to get service from previously unknown service providers at below market price or paying with equity only. People don’t move their asses and do favors just because you say so but instead they want to get something in return – like feel good in helping you out, or get a pole position to offer their services later on when you can pay with real money. A startup co-founder, and this applies especially to the CEO, has to know how to ask help, and how to get people do things for him while most of the time the only instant payback is his gratitude. But make no mistake, earning someone’s gratitude and trust, and thus being able to someday ask help yourself, that’s incredibly powerful.

What then motivates people help each other?

So far we have firmly established the following two things:

  1. To get things done fast on a timely manner, and to operate at low costs in the early days, a startup needs to tap into the network of its co-founders and advisors, and once and awhile source important services while not being able to pay any significant money.
  2. Being arrogant, i.e. trying to exercise authority on people you don’t have any authority, is not going to help you win people on your side.

So, how should you then deal with people?

What are the six weapons of influence?

Robert B. Cialdini is my hero. He is the author of one of the greatest business books ever written: Influence: The Psychology of Persuasion. This book is a must read for anyone who ever needs to deal with other people, yeah – it’s like a bible is for believers. The book is fun to read and reviews many of the most important theories on and experiments in social psychology.

I have just summarized here Cialdini’s thoughts for your convenience, but to truly grasp them you should read the book.

  1. Reciprocation. We humans are unique amongst all animals as we incur debt from services and gifts from other people, and then we feel a growing urge to pay back. Likewise if we say no to someone that tried to sell us something, we become more prone to buy something from the same guy later on.
  2. Commitment and consistency. Once people have made a choice or taken a stand, they are under both internal and external pressure to behave consistently with that commitment. When you get someone to commit verbally to an action, the chances go up sharply that they’ll actually honor that commitment.
  3. Social proof. This is a very powerful shortcut that many smart and dumb people take in the times of information overload. Most investors are sheep that follow one other, and thus getting a lead investor that serves as a credible social proof will get you the rest.
  4. Liking. People love to say ‘yes’ to requests from people they know and like. And people tend to like others who appear to have similar opinions, personality traits, background, or lifestyle. More people will say ‘yes’ to you if they like you, and the more similar to them you appear to be, the more likely they are to like you.
  5. Authority. Most kids are raised with a respect for authority. Authority plays internally little role – yet it has a role – in startups which are meritocracies, and to get external people do things for you just because you say so – yeah, that’s arrogance and probably doesn’t work.
  6. Scarcity. Opportunities seem more valuable when they are less available. This, again, is a very important principle e.g. when raising funding or recruiting new people.

To summarize:

Startups should be meritocracies and thus ruling by authority doesn’t work inside or outside the company. To get outside people do favors for you, besides paying money for their services, you need to offer them incentives grounded to social psychology. Asking for help, for instance, is a very powerful way to empower people. People, in general, like to help other people when nicely asked, as long as the effort required is decent, and you pay back with your gratitude.

And, read the Cialdini’s book – you will have lots of fun, and the probability that you will be able to raise funding from investors or buy services below market rate increases.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #8 – Product-Market Misfit

“Imaginary products based on pure guesswork won’t typically sell well.” 

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction.This post builds upon previous posts about being far from your customers and the minimum viable product.

The single point I want to highlight in this post is the fact that a channel partner is not your customer.  Therefore you should not pay too much attention to their requirements. This is a common mistake for all entrepreneurs but perhaps even more common to Nokia-based startups as both Nokia and its network part are known for designing their products to mobile operator requirements. While this approach back in time was a competitive advantage for Nokia, the same approach won’t work for a startup.

Your channel is not your customer

I have been thunderstruck that some Nokia-based startups are not laser-focused on end users and their needs. They rather have a technology-driven and channel-centric mindset where building a product starts with internal product specification shaped lightly by feedback from prospective channel partners. Unlike a fragile startup, mobile operators with fear of Google and Apple, have all the time in the world to specify imaginary products that would in their dreams help them to stay relevant and compete against Google/Apple juggernauts. Most of these imaginary products can’t be pushed to end users unless they really want them.

Focusing on an imaginary product without true end user pull means typically a bitter death for a startup. Some products, e.g. many telecom products, have relatively long product development cycle, which further increases the overall risk. And this because you burn all the cash and when the real end users reject your product, then the channel rejects your product too, and at the end of the day there simply is no more money left for a pivot.

If you build a product to your channel, you don’t know if there is any real end user driven demand, and therefore a sustainable market for your product or not. You are practically betting your startup’s future on guesswork by a middle man. How stupid is that?

It makes a lot of sense to pay most attention to end users as they will ultimately decide which products fly or die. This is not to say that channels wouldn’t be important – yes, they are – but do design your product with real end users’ needs in mind.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #7 – Minimum Viable Product

“A minimum viable product that is anything but minimum.” 

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. This post is directly related to previous posts about the culture, the high burn rate, and being close to the customer.

For engineers with Nokia background, it seems customary to build gigantic minimum viable products (“MVP”). Nokia is not known for its agile software development practices. On the contrary, according to many Nokia alumni, it always took a hundred engineers to build anything at Nokia – no matter how small.

It takes a lot of product vision to define a meaningful MVP, and not being close to the customer makes it even more difficult.

How to keep the product minimum?

  1. Avoid excess funding,
  2. Slideware, paper prototypes, UI sketches are an excellent way to test market.
  3. Start with a small nimble software team comprising one to five people. If you need a bigger team, it is unlikely that you are building the minimum.
  4. Use agile and iterative software development practices.
  5. Get out of the room and establish a feedback loop with a few lead customers early on.

It is much easier to work with the problem definition and play with various paper prototypes etc. longer when there is only you and perhaps your co-founder. The whole situation changes mentally when you have even a small software team in place, and guess what they start to do?

Yeah, right – they start to code while it in many cases would be much wiser to keep working with the problem definition and cheap paper prototypes.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #6 – Not Being Close to The Customer

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction.

“It is hard to develop a world-class product in a lab far away from lead customers and key ecosystem players.”

Your success begins from understanding who your customers are, and what are their true needs. To be clear on this, your success does not begin from your lab.

In many cases, your lead customers, the ecosystem and its dominant players are not in your home country but on the other side of the ocean. The long distance makes it a challenge to understand the evolving customer requirements, intricate details of the ecosystem and its power structure, and what your competitors are up to.

It is very important to be visionary but it is downright stupid not to try your best to understand what the customer needs.

Why all locations are not equal?

In Finland, with the near end of existence of Nokia and its ecosystem, we are not particularly an epicenter of anything beyond the mobile gaming. The winners are typically born close to dominant ecosystems where all the action and latest knowledge is. Or close to the first few leading customers who are first to take into use a novel or just different approach to their problems due to their innovativeness, or unique external environment circumstances at the time.

Interesting geographies from ecosystem, market size and new tech adoptation point of view include naturally USA, China, and emerging markets in South East Asia and Africa.

How to do customer development from distance?

In some Nokia cases, I have been delighted to see this local customer development element in play from day one. In other cases, the customer development part is handled from Finland via Skype and email, by using a network of local agents, and once and awhile hopping on a plane to have face-to-face meetings with far away customers and business partners.

Outsourced business development or too lean business development from distance is not the way to go if and when your early success depends on closing the first customer out of a handful few whose purchase window is open now. If you want to close deals and accelerate to the product-market fit (or pivot), you better be close to your customers and get used to spending a lot of quality time in planes and hotels away from your family. Yes – time away from your family, until you have some traction and you can start doing things differently.

The Nokia alumni is a vast network that spans the whole world. People who you either know in person or at the minimum share the Nokia experience with. This is a great asset – use it!

To be close to your customers at minimal cost, I suggest the following approach:

  1. Recruit a local business developer, perhaps a Nokia alumni, as part of your founding team or early employee with a strong vested interest to help you understand your customers.
  2. Use external agents only to open doors, never rely on them do drive your sales and customer development.
  3. Don’t use any time drafting lengthy distribution agreements until you have a product/market fit established. And even then rather work with your agents and business partners, close the first joint deal, and formalize the relationship only then.

As the final remark: be lean but, more importantly, understand what the customer needs. 

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic

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