All posts by Mike Ellsworth

Branding in the Social Media Age – The Death of the Brand

Note: this is an update of a 2010 update of an original post from 2001 called Breaking the Diamond: The Death of Brand.

When I first wrote this article back in 2001, it was titled, Breaking the Diamond: The Death of Brand, and eCommerce was a relatively new thing. Google was a couple of years old; Amazon was five, but not nearly the dominant giant it is today. Other current trends and concepts such as Web 2.0, social networking, blogging, wikis, and instant messaging were just ideas, if that.

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Back in 2001, I said: “Imagine a day, however, when it is possible to evaluate all these product qualities instantly, objectively, and in real time. Would that not reduce our dependence on brand? And at the same time, would that not reduce the effectiveness of advertising?”

That day arrived a while ago, and brand marketers are still dealing with its aftermath. Their world is rapidly changing around them, and many still cling to a concept that is becoming less and less relevant: brand positioning.

OK, the original title of this post was a bit of hyperbole, but it’s not an unthinkable concept. Of course, there will always be brands, but the days of brand owners thinking they can control what we think about a brand may be ending.

The Brand Diamond

Simon Knox said, way back in 1996[i], “In the future, it is not going to be enough simply to consider how responsive each customer group is to your brand, you will need to know how responsive your company can or should be in meeting the total needs of customers who buy from across the categories in which you compete.” Sounds a bit like a prescription for marketing via social computing, doesn’t it?

Knox continues: “In traditional consumer marketing, the advantages enjoyed by a brand with strong customer loyalty include ability to maintain premium pricing, greater bargaining power with channels of distribution, reduced selling costs, a strong barrier to potential new entries into the product/service category, and synergistic advantages of brand extensions to related product/service categories (Reichfeld, 1996).”

Five years after Knox, authors Gommans, Krishnan, and Scheffold[ii] recognized that brand loyalty was undergoing a bit of a sea change, and discussed a replacement concept: e-loyalty, which leads to behavioral loyalty, the tendency to keep buying a brand:

As extensively discussed in Schefter and Reichheld (2000), e-loyalty is all about quality customer support, on-time delivery, compelling product presentations, convenient and reasonably priced shipping and handling, and clear and trustworthy privacy policies. [. . .] A satisfied customer tends to be more loyal to a brand/store over time than a customer whose purchase is caused by other reasons such as time restrictions and information deficits. The Internet brings this phenomenon further to the surface since a customer is able to collect a large amount of relevant information about a product/store in an adequate amount of time, which surely influences the buying decision to a great extent. In other words, behavioral loyalty is much more complex and harder to achieve in the espace than in the real world, where the customer often has to decide with limited information.

The Internet brings this phenomenon further to the surface since a customer is able to collect a large amount of relevant information about a product/store in an adequate amount of time, which surely influences the buying decision to a great extent.

Traditional brands with high brand loyalty have enjoyed a certain degree of immunity from price-based competition and brand switching (Dowling & Uncles, 1997). In e-markets, however, this immunity is substantially diminished due to how easy price comparing among shopping agents is (Turban et al., 2000) and due to the fact that competition is just one click away.

I updated this post again, in 2010, and said, “Nine years later it is becoming clearer that behavioral brand loyalty is not only difficult to maintain online, but it’s getting more difficult to maintain offline as well. The plethora of online information Gommans, et al. referred to now includes a tremendous wealth of customer reviews, opinions, diatribes, blogs, and wikis such that the potential customer of virtually any product or service can spend days absorbing it all.”

Seven years after that, we’re drowning in content. Social selling is a thing. Brands more and more are looking for a way to hold on to and grow their franchises in a world with significantly more choices than the world of 2001 and even 2010

Marketers are no longer oblivious to this revolution in branding, and brand position. The change has been obvious since 2005, when Nick Wreden, managing director of FusionBrand, said in an article[iii] , “The number of branding failures, many based on ‘positioning,’ exceeds 90%, according to the consultancies Ernst & Young and McKinsey & Co.” The old stuff may be losing effectiveness.

The occasion was McDonald’s announcement in 2005 that it was abandoning brand positioning, which basically is a way that a company seeks to control how their brand is perceived by consumers by pushing messages at them through traditional media. At the time, Larry Light, McDonald’s chief global marketing officer, said, “Identifying one brand position, communicating it in a repetitive manner is old-fashioned, out of date, out of touch.” Light stated his position even more strongly, heralding “the end of brand positioning as we know it,” calling it “marketing suicide.”

Light was right back then, and even more right 12 years later, when brand perception is ever-more deeply affected by social media. When the millions have found their voices – online – it’s hard to compete with push branding messages delivered via conventional media, or frankly, even via social or other online media. Add in the detrimental effect of commercial skipping digital video recorders, the move to mobile as the primary content delivery device, and YouTube as the Millennials’ jukebox , and McDonald’s move back then seems even more prescient.

Even five years ago, the strength of social to affect consumer and business purchase was apparent. A  2012 survey by BzzAgent examined the potential long term effects social media marketing can have on purchase intent. The company examined consumer purchase intent before and even a full year after the social media campaigns ended.  They found  that 61 percent of survey respondents were more likely to make a purchase a  year after a social media campaign.

Is that a brand effect or a social media effect?

In 2017, more and more brands have learned the premise of my first book series, Be A Person, and are turning to influencers as a way to increase the power of their marketing.  On the business-to-business side, social selling is cresting the Peak of Inflated Expectation and heading for the Trough of Disillusionment.

What is Killing the Brand

So what is killing the brand as we knew it? A combination of two disruptive technologies: electronic commerce and social media. Wreden says, “[. . .] consumers now buy based on research and personal value, not on [how] companies seek to ‘position’ their products.” And you know it’s true.

A great example of this one-two punch to branding’s breadbasket is my recent experience buying a desktop PC. Yes, I know. How 2010. But I basically needed a server to automatically back up all my stuff and support two 23 -inch monitors and my appetite for having dozens of Chrome tabs open at a time.

So I was in the market for a powerful desktop. I knew what I wanted, based on online research and a few visits to local computer stores. Many “brand” companies build machines in this class, and while researching HP, Dell, Toshiba, and Lenovo, I read every review I could. I found a refurbished HP that got great reviews for a price I liked and I bought it. This experience was different from my purchase of the machine that preceded it, a laptop.

I had done the same amount of research as for the desktop, and was researching an HP laptop, which was my current frontrunner. I was about all set to buy. But I saw one reviewer who said, “If you really want performance, get an ASUS laptop.” Seven years ago, ASUS wasn’t really in the conversation for most people. I had primarily heard of them because they make motherboards. But back then, they were not a “brand” company; they spent very little to nothing on marketing or brand positioning.

While researching the recommended laptop, I found a gamer’s laptop forum. Early on in one ASUS thread, forum participants were eagerly anticipating the release of ASUS’ N61J, which had actually occurred a few days prior to my search. As I read through the thread, I heard lots of stories about, and respect for ASUS by gamers, who arguably the most discerning of laptop owners. They were sure it was going to be a hot laptop, and, further down in the thread, when one of them actually bought one, the clamor for a review and pictures was amazing.

So I found a gamer-oriented online store in Nebraska, ordered mine, and it was everything the gamers said it would be, until it gave up the ghost last year.

Similar scenarios are playing out all over the Web right now. Big and small brands are being evaluated by actual consumers, and more and more, the little guys are winning.

The revolution against brand is nowhere near over, but, according to Wreden, “Even a top executive at advertising giant Leo Burnett is willing to stand before his CEO peers and admit, ‘the old ways of marketing are not working anymore.'”

Lack of Metrics One of the Culprits

In a very ironic trick, brand positioning has partly been done in by a lack of measurement. I say ironic, because one of the very first objections we get when pitching enterprise social media strategy engagements is, “How can we measure it?”

Social media is exponentially easier to measure than your typical brand marketing effort. Even in “Positioning,” one of the books that started it all 27 years ago, authors Jack Trout and Al Ries stated “mind share is more important than market share.” The authors further equated brand positioning with mind share in this passage: “Positioning is not what you do to a product. Positioning is what you do to the mind of the prospect.” But how do you measure mind share?

Today, you increasingly can. Among the concepts we teach in our social media training are Net Promoter Score and Share of Conversation. Either  is more important and can be more accurate than many other standard marketing metrics, and a decent metric to use in measuring the success of your social media efforts.

Share of Conversation is the degree to which an organization is associated with the problem it seeks to solve. It is measured by the percent of all people talking about a problem online that are talking about you. This is a real measurement, and a fairly good proxy for measuring mind share.

So, yes, it’s ironic that a metric that could measure the effect of brand positioning arrives on the scene and hastens the demise of this marketing staple.

 

The Death of Marketing Departments?

Not to dwell too much on Wreden’s excellent article, I was especially struck by this item – remember this was written 12 years ago: “[. . .] Forrester recently reported that companies are looking at disbanding marketing departments and distributing its function among sales, customer service, etc. While that is definitely eyebrow-raising, it’s a logical outcome for a function that represents the second biggest outlay for most companies, yet cannot generate the metrics to justify those expenditures. ‘Awareness’ and ‘position’ just don’t cut it anymore in executive suites.”

Wow. Can’t say I’ve noticed this trend in the intervening 12 years, but it could happen.

But I’ll leave you with a bit more from Wreden just to show that some brands get it:

McDonald’s advocates “brand journalism,” or tailoring products and messages to both targets and media.

By recognizing that it is better served by adapting itself to customer requirements instead of preaching a “position,” McDonald’s is definitely on the right track with “brand journalism.” but the term is awkward for several reasons. A better term for this customer-driven strategy that reflects today’s branding realities is “brand wikization.”

Born from the Internet’s ability to link an archipelago of people and information, wikis are the mirror-image of blogs. While blogs reflect one person’s worldview, wikis, written collaboratively by contributors from all over the world, reflect a common judgment on an issue. Definitions depend not on what Funk or Wagnall or Webster say they should be, but on what thousands or even millions of people agree on what they are.

In much the same way, brands today are collectively defined by their customers.

I really couldn’t have said it better myself. Wikis for brands haven’t really taken off, but brand communities are accelerating.

So what do you think? Sound off below.

 


[i] Knox, Simon. ” The death of brand deference: can brand management stop the rot?.” Marketing Intelligence & Planning. Emerald Group Publishing, Ltd. 1996.AccessMyLibrary. 25 Apr. 2010 < http://www.accessmylibrary.com>.

[ii] From Brand Loyalty to E-Loyalty: A Conceptual Framework, Marcel Gommans, Krish S. Krishnan, & Katrin B. Scheffold, Journal of Economic and Social Research 3(1) 2001, 43-58

The Future was Then: On Being Early

Way back in the day, 1999, I worked at the Nielsen Company, then called ACNielsen. Having created the company’s—and the industry’s—first web application in 1995, my marketing counterparts and I had succeeded in getting the company interested in doing more on the web. The fact that we had, for the first time, gotten a Nielsen client to pay for data delivery blew the president’s mind.

To set the stage a little bit, back in 1999 the web was a far different place. They called it the Information Superhighway. (Al Gore did NOT say he invented it. ) People would often respond “the World Wide What?” when I talked about the web. Recommended hardware was an IBM 486 SX25 or a Mac 68030 series with 8MB of RAM.

Google was barely on the radar; we used AltaVista, HotBot, and Northern Light to find stuff. (In fact, late that year, I met a guy from Google and asked what he did. When told that Google was a search engine, I said, “Good luck with all of that. AltaVista’s got it pretty wrapped up.”)

IRC and Usenet were where we could chat, if we could figure out how to. To get online, you needed to subscribe to a national Internet Service Provider like AT&T, EarthLink, MCI Internet, Netcom, Prodigy, Sprint, or SpryNet—most are gone or swallowed by others by now.

Commercial entities were not officially allowed on the Internet until 1995, so a mere four years later, there were few big sites. Big (a relative term) entertainment sites included Sony.com, Avenger’s Handbook, Driveways of the Rich & Famous and Famous Birthdays. The Dancing Baby was all the rage.

dancing-baby

On the eCommerce front, Amazon had just started selling things besides books, and eBay had just 3 million items on auction. High-speed Internet connections were becoming available, but were expensive and boasted speeds up to 1.5 Mbps.  Most home users, however, used dial-up modems running far slower, at 28.8 kbps. Netscape 4.0 was the dominant browser and Microsoft had only recently stopped charging users for Internet Explorer.

A big concern for the people who ran Nielsen’s network and its Internet connection was applications like PointCast, which a couple of years earlier had threatened to swamp corporations’ internal networks with a new technique: pushing news articles to a desktop application in real time. The Internet was seen by many as a Wild West filled with unknowns.

So, in this environment, I started floating the idea of creating a Nielsen portal. I had released the first Nielsen website in 1995, under the radar, and an official site in 1996. After running a project to create what was to become Nielsen’s fastest-growing Internet app, I had the attention of the company president, who came up to me at a meeting and asked, “What is a portal, and why do I want one?” I guess my answer was satisfactory. My marketing partner (now a big noise in marketing at Microsoft) and I were given an $800K budget ($1,173,093 in today’s dollars) to build a portal.

But what was a portal? That was the question that was eventually impossible to answer. The VPs of Marketing and Development couldn’t provide any answers. Jacob and I tried several times to produce a product plan.

My first idea was heretical: use the Internet to retail Nielsen’s marketing information. Nielsen sells marketing information derived from point-of-sale scanners to consumer packaged goods companies. In those days, and to a certain extent today, consumer packaged goods brands would contract with Nielsen, paying millions of dollars to create customized databases of consumer purchase information. Clients used this information to track consumer behavior and trends. You had to be a pretty big corporation to be able afford Nielsen’s services. At the time, our biggest customer paid $30M a year for Nielsen services.

I saw the web as a way to sell reports based on standard databases containing the same information, just not customized for the client. Thus, a small dog food brand could buy quarterly or weekly reports on how and where their product was selling, just like the big boys. The way I saw it, more-advanced analysis and insights could be priced additionally and Nielsen would have a new revenue stream, basically reselling data they were already producing, for a huge markup.

I was told I was crazy.

Nielsen did not get the concept and could not even consider changing their business model—charging big brands millions for access to their databases—to a model involving retailing their information.

My second idea was also crazy: a service that would rewrite articles on cooperating news sites on the fly to link mentions of brands to Nielsen tables, graphs, and reports on the company. Kind of like what you see now, with ticker links on Forbes, the Wall Street Journal or others. (See my post I Invented the Sponsored Keyword for the whole story.  )

The way I saw it, the hyperlink in, say, an article about Kraft macaroni and cheese, would go to some basic information about the performance of the brand, and on that page, there would be a link to purchase a report, either on the company or on one of its brands.

We got nowhere with the second proposal. “Give away our stuff for free? You must be mad!”

We proposed allowing Nielsen clients to access their databases via the web.

No dice.

We proposed integrating other information sources in a portal with Nielsen opinion pieces, similar to current sites that aggregate blogs.

Nope.

We proposed a portal that clients could use to upload their own information and create reports incorporating Nielsen and other data.

Not gonna happen.

We suggested that clients who had both Nielsen Media (TV ratings) and Nielsen Marketing (our company) subscriptions be able to analyze and correlate their data online.

Not a chance.

As we went through other iterations, each idea was turned down, primarily because it proposed a new way of doing business.

We eventually decided that it was hopeless. Nielsen executives, having seen the rise of CNN and Excite (still alive!) and other portals, knew enough to think that the portal concept was trendy, but they couldn’t wrap their minds around the opportunity for the company because they couldn’t see how to change their paradigm.

We decided to give back the $800K and close the program. I often point to this as the highlight of my career at Nielsen: knowing when to stop.

So imagine my surprise when today, more than 17 years later, I found out that Nielsen has something called the Nielsen Marketing Cloud! Announced in April, 2016, the product is described as combining “world-class data, management tools and analytics applications into a single destination, allowing marketers to more effectively manage their marketing spend.”

Here are the Cloud’s features:

The Nielsen Marketing Cloud’s core set of applications include the Nielsen Data Management Platform (DMP) and DaaS, Multi-Touch Attribution (MTA), and In-Flight Analytics for automotive, CPG and retail, as well as integrations with over 150 third-party media and content activation and optimization applications. All applications enable cross-platform analysis and centralized data access. Additional Nielsen and third-party applications, including Nielsen Media Impact for cross-platform media planning, will be integrated in the coming months.

The details are modern, but this is the same idea we killed in 1999.

It just goes to show what I’ve said elsewhere: It doesn’t matter if you can see the next big thing if you can’t make others see the path beyond the horizon.

So if you want to see beyond our current horizon, and you want help getting there, look me up.

 

(Many of the 1999 facts are courtesy of ARS Technica’s Time capsule: The Rough Guide to the Internet… from 1999  )

 

Wanted: One Unicorn

If you’ve tried to hire IT resources recently, you know that, in addition to a generally low unemployment rate nationally, in IT, the rate is practically negative.

So I got a request in my inbox today wondering if i would be interested in a program manager position in charge of a Program Management Office in a large national company.

I took a look at the job req and busted out laughing.

Unicorn Picture

For those who aren’t familiar with program management, which is what I do, generally these managers aren’t in the trenches, wrangling code, creating architecture and managing techies.

They tend to be big picture people who rely on project managers and development managers to handle the technical details. Even at that level, these managers aren’t necessarily as steeped in the tech as the people they manage.

Take a look at the minimum qualifications for the program manager position, and maybe you can see why I laughed out loud:

Minimum Qualifications

  • Education:
    • Four-year college degree in related field or equivalent combination of education and experience
    • Graduate degree preferred
  • Experience:
  1. At least 7+ years of professional experience as a Project Manager or equivalent position responsible for defining and managing project scope, timelines, profitability, and effective delivery of digital solutions
  2. Strong grasp of current web technologies as well as related business issues
  3. Experience in agile/iterative environments
  4. At least 2 years experience managing FTE project management resources. Including administrative duties, reviews, and career planning.
  5. Experience solving business problems with technology
  6. Excellent written and oral communication skills
  7. Must be confident working with all levels of management, and understand the demands and responsibilities of those roles
  8. Experience effectively working with external clients and internal client teams
  9. At least 2 years of experience working on projects that include 50% or more of the following:
    1. Informatica
    2. Cognos
    3. Numerous programming languages (Java, JavaScript, C#, PHP, Objective-C, Python, Ruby, etc)
    4. Enterprise level content management and/or collaboration tools (Adobe CQ, SharePoint, Jive. etc)
    5. Content distribution networks and other media delivery platforms such as Scene 7, YouTube, Bright Cove
    6. Browser performance testing, load testing
    7. Rich internet development (AJAX, Flash, Flex, Silverlight)
    8. Mobile development (Phone Gap, Titanium, mobile web and application development)
    9. Social integration or Apps with Facebook, Twitter, etc.
    10. Web analytics packages (Google Analytics, Omniture / SiteCatalyst, Unica)
    11. Search engine optimization techniques and tools
    12. Behavioral targeting or end-to-end marketing optimization (CRM type tools, A/B testing, etc)
    13. E-commerce or other monetization technology integration (experience with Insite a plus)
    14. Integration tools & techniques (ESBs, Orchestration, SOA, XML, JSON, SOAP, REST, etc)\
    15. UNIX, Windows, and Mac Oss
    16. Hosting / Cloud / SaaS offerings
    17. Vendor management
  • Licenses / Certifications / Registration:
    PMI certification a plus

This is hilarious because to require experience with all of these technologies and tools for a program manager, who manages project managers and other high level resources, is insane. It’s like asking a grocery store manager to be familiar with several different types of forklifts in use in the warehouse.

The job posting also ensures that nobody in their right mind would join this organization that asks for a program manager but has no idea what one does.

This trend toward tremendous specificity in job postings has been accelerating for years. It’s one reason why businesses complain that they can’t find talent with the right skills. It reminds me of when I was hiring a Java programmer back in 1997. Java was a new language then, having had an initial release in 1995, and the development kit released in January, 1996. It was hot, and everybody thought they needed experienced Java programmers.

I was no different. I needed to create a job posting, and so I cruised the job boards looking to see what others were putting in their Java programmer postings. I came upon one that made me LOL.

In addition to a laundry list of many very specific technical qualifications, was this line:

Must have 5 years of Java development experience

In 1997, the only people on Earth with five years of Java experience were the people at Sun Microsystems who began creating the language in 1991. And neither I nor the clueless job poster could afford them.

So what this job posting, and so many more like it, is really saying is: “We want a unicorn, a mythical beast with super coding powers that doesn’t really exist.”

Forget the Unicorns

If you’re a hiring manager, take a look at what you’re asking. Don’t throw in requirements for every technology that your organization  supports. Accept that plenty of good people without every requirement can quickly come up to speed on whatever you’ve got.

Because chances are, you can’t afford to hire a unicorn.

 

Thomas Aquinas walks into a bar . . .

Frustrated after a recent viewing of the TV show, Madam Secretary, in which the first line is delivered, but we never hear the rest,  I took it upon myself to create the mystery joke . . .

Thomas Aquinas

An Original Intellectual Joke of the Day (for better or worse):

Thomas Aquinas walks into a bar in Northern Ireland. “Barkeep, make me a Virgin Mary,” he says.

“Sorry,” says the barkeep. “If He couldn’t make one, neither can I.”

I Invented the Sponsored Keyword

I invented the highlighted sponsored keyword in 1998. You’ve seen them all over, in news articles and blogs—the keywords in an article that have the double underlining that leads you to more information or pops up an ad. In the picture below, you can see that HP has bought the keyword “led.” Whenever the word is used on the Website, a user can mouseover the double-underlined word and see an ad.

Double underlined link popup example

First I tried to get the Nielsen Company and later, a startup I was in, to understand the value of the concept. Of course, this was way before there was the TextEnhance code, AJAX and the javascript support that would make the mouseover feature work.

My concept for Nielsen, who sells marketing information derived from point of sale devices to consumer packaged goods companies, was to rewrite cooperating news pages to feature links to Nielsen tables, graphs, and reports on the company. Kind of like what you see now, with ticker links on Yahoo, the Wall Street Journal or others.

Yahoo keyword popup example

Nielsen did not get the concept and could not even consider changing their business model—charging big brands millions for access to their databases—to a model involving retailing their information.

My concept was the hyperlink would go to some basic information about the performance of the brand, and on that page, there would be a link to purchase a report, either on the company or on one of its brands.

I got nowhere.

Later, at an early SaaS startup in 1999-2000, I tried again. Again I got nowhere.

Now as I say in another blog, having a great idea is not enough. This sure proves that point. For a variety of reasons, I abandoned my quest to monetize this invention. Instead, marketers with more stick-to-itiveness than I, such as IntelliTXT, an “in-text” advertisement platform developed by Vibrant Media, or AdChoices, went ahead and made businesses out of this idea.

And so, alas, I’m not a millionaire . . . Yet.

Startups: What Not to Do, Part 5 – Company-Killing Mistakes

In parts 12, 3, and 4 I looked at Mistakes 1 through 14, learned between my first startup, and when working inside and outside startups.

In this final part, I take a look at some final, serious, mistakes.



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Mistake #15: Understand what you should keep secret

In 2008, another startup I advised, and was briefly president of, was based on a keen understanding of the growing power of smart phones. The technical founder (see Mistake #13) had worked out a way of delivering very high-value services over a smart phone and insisted that we had to create our own hardware, despite the fact that the iPhone or even the early Android phones would have worked just fine.

When I suggested this to him, he’d go off on all the reasons why this was a bad idea. The guy really loved to talk about the technology, and to show how brilliant he was.

So he goes to a meeting with an established player in the space that was delivering the same service using trained agents. This company was quite large, and he was talking to their top people. Before he went on the trip, I told him not to get too detailed about the tech when talking with company.

Yup. He white-boarded the whole thing for them and, guess what, they came out with a very similar product for the iPhone about nine months later.

The guy got sued by two of his consultants, got investors to pay them off, and then disappeared, and nobody knows where he is now.

Mistake #16: Get the market timing right

In early 2009, I figured there was money in teaching business people how to use social media. I decided to offer in-person and online training, and by late spring, I was making a little money doing this.

One of my partners had tried to get me interested in this business back in 2007, but I wasn’t interested.

Well, by the end of 2009, there were so many people giving away social media training that the bottom fell out of the market. What used to cost hundreds of dollars was difficult to sell for $19 and I exited the market.

Mistake #17: Nobody will work as hard on your vision as you will

I’ve alluded to this in the preceding, and it really has been an underlying theme throughout my experience with startups. You may have co-founders or partners; you may have the cream of the crop of talented people working with you. That’s great. Just don’t expect them to match your passion.

Look for that passion in those you work with, and surround yourself not with the merely or even supremely competent, but with people who will outwork you and who will drive you to excellence.

The Last Mistake

The last mistake you might make is to assume that these are all the mistakes you need to watch out for in your startup. Heck, another half dozen or so mistakes occur to me now, off the top of my head.

None of this stuff is gospel, and I’m sure you’ll discover a few mistakes on your own.

But if I can leave you with just one more piece of advice, it’s this: Constantly challenge your assumptions.

You may find, as many startups have, that to be successful you need to completely let go of your mission, your plans, your partners and staff, and even your startup’s very reason for being. Being an entrepreneur means being flexible. It means being utterly convinced of your direction, but being willing to turn on a dime. Pivot, if you will.

So those are the mistakes I learned from 17 startups. But wait, you say, I thought you were in 19 startups? Ever the optimist, I’m currently in two startups, with partners. Each has got a unique product, without any real competition, looking for first mover advantage, and if we just can get 1 percent of the market . . .


If you’d like to hear about the other half dozen startup mistakes I didn’t write about, request them below. I’ll talk about one mistake per request.

Also, if you’ve got your own startup mistakes to share, do so below.

Startups: What Not to Do, Part 4 – Money, Contracts, Stubbornness, and Trust

In parts 12, and 3 I looked at Mistakes 1 through 10, learned at my first startup, when trying to start a company by myself, joining others’ startups, and starting a company with a co-founder.

Mistake #11: Not raising enough money

This one seems like a no-brainer, but I assure you, it’s not.

In mid-2004, I joined a startup founded by a buddy of mine and a guy he knew. This was by far the most successful startup I have been involved with, eventually producing six-figure revenues. But the founders didn’t raise enough money.

The company originally set out to raise a million dollar seed round. However, there was such a high demand for shares that the company cut off the round at $300K. “Why should we give away so much equity,” they reasoned. “We’re obviously on to something and won’t need the money.”

Wrong. They held on until late 2005 and then shuttered the company. I lost $30K on that one.

I’ve seen this problem in every single startup I’ve been involved with. So I can’t emphasize this enough. Would you rather have 1 percent of $1 billion, or 51 percent of a failure?

You must raise enough money to be successful. However, I believe if you can do it without involving the vulture capitalists, you’ll be better off in the long run. Remember that most VCs will only give you money if you can prove you don’t need it.

Mistake #12: Not having a contract

I got brought in to advise a biomedical company that had a unique product—imagine that! Their founders weren’t taking any salaries, and they were inches away from FDA approval. The buddy who brought me in was their CFO. He’d mortgaged his house, drained his IRA and was living on fumes when the FDA approval finally came through.

And they sacked him.

He had no legal relationship with his partners, and so he had to sue them to try to be made whole.

Get it in writing.

Mistake #13: Beware of the bull-headed founder

I got involved with a three-year-old startup that was building an online product in the financial services arena. The founder was a software developer, and I almost want to add this as another mistake: Don’t trust technical founders.

The founder was brilliant technically, but he insisted that his ecommerce product be free to all parties. I couldn’t shake his absolute belief that the company could prosper by simply taking the float on the money it handled.

This was in late 2007 and we all know what happened in 2008—the Great Recession. The float turned out to be a fraction of a percent, and his business model was toast.

He eventually came around to my way of thinking, and we found a new business model but by this time, nobody wanted to hear about his financial product.

Mistake #14: Trust but verify

In that financial ecommerce startup, there were a couple of consultants who were advising the group. One was a patent attorney who was handling the patent application for the technology.

Not only did this guy represent that the patent application fee was thousands of dollars more than it really was (to cover his fee that he didn’t disclose), but the patent application showed an LLC he created as the patent holder.

OMG!

Up next: Company-killing mistakes

Startups: What Not to Do, Part 3 – Trust, Attention, and Being Right

In Part 1 and Part 2, I looked at Mistakes 1 through 7, learned at my first startup in 1999 and when trying to start my own company. In this part, I take a look at mistakes learned when joining other peoples’ startups and starting a company with a co-founder.

Mistake #8: Trusting untrustworthy people

In early 2004, I joined a startup led by a guy whom I knew had had some previous business failures. He gave some convincing reasons for these failures, which I mostly believed. However, he was putting together the proverbial “NewCo” without a clear idea of what the company would do—just something in leading-edge tech. I suggested we focus on a then-new technology, Radio Frequency Identification (RFID) that was finally starting to get some traction after years on the verge. Walmart had just begun requiring that every pallet delivered to their warehouses had to have an RFID tag on it.

With my consumer packaged goods and syndicated data background, I suggested that while the consulting and sales of RFID systems were lucrative, the real value was in the supply chain data produced by the backend management systems. I proposed that we focus on that.

The CEO brought in a consultant to help the by now quite large NewCo working group sort out the way forward. Since this consultant was brought in to be impartial, we were told he would be ineligible to join the resulting NewCo in any capacity.

The guy did the gig, half the potential founders decided to go off and found a general IT services company, and NewCo soldiered on along the RFID services path. But now, despite the previous promise, the CEO said he was giving the consultant a seat at the table. Long story short, I challenged that and some other shaky ideas, and got booted out. NewCo never succeeded, but the CEO did manage to eventually create an RFID business with another partner which lasted awhile.

Mistake #9: Don’t take your eye off the ball

In some ways, this next story demonstrates Mistake #6 as well, but this was mostly on us. In mid-2004, I started a wireless Internet company with a partner. My original concept was a Geek Squad for consumer Wi-Fi, but my partner convinced me there was more money in business wireless.

In looking for a piece of infrastructure for our system, we became allied with a local Internet hosting company, who offered to handle all the technical aspects of our business. We landed a local hotel ownership company and built out two of their hotels. We were about to get a third hotel in a no-bid deal, when we became aware of a problem at the first hotel we had done. It turned out the original equipment selected and installed by our partner could only serve 100 simultaneous connections (the hotel had more than 200 rooms plus a full health club). Our partner knew this, and without letting us know, had been for months fielding help desk calls from irate customers who couldn’t log on.

It’s almost as if they wanted us to fail . . .

When we had the “come to Jesus” meeting with the hotel manager, suddenly we were told we were no longer going to be able to even bid for the new hotel’s business. Guess who got that contract? Our erstwhile partner, of course. And they eventually took the business for the other two hotels from us.

And it was our fault. At the beginning of our relationship with the hotel manager, we checked in with him regularly, but, since things were going so well, we allowed ourselves to get distracted by our business development efforts and were unable to nip his problem in the bud, before it lost us the business.

Incidentally, the owner of the hospitality company is now in jail for fraud, so perhaps this was a blessing in disguise.

Mistake #10: Being right doesn’t count if you’re not effective

My wireless company had another partner, one that wanted to run fiber optic cable to the premises in a rural tourist area. They were going to offer triple-play services—phone, Internet, and TV— at a really nice price point and they were interested in us covering the main tourist town and marina in the area with “convenience Wi-Fi” as part of their offering. They originally wanted us to install this right away, before the build-out of the fiber, so they could create buzz for their coming triple play product and secondarily for the revenue.

So we surveyed the town, worked with an equipment vendor to design the network, got all the quotes from installers and such, and were ready to go. We were projecting ROI within 18 months. But then our partner got a new vice president of marketing. This guy took one look at the plan and decided it would cannibalize their triple play product. I argued with him that anyone who would prefer 1 megabit Internet to 1 gigabit Internet plus phone and TV was not going to buy the triple play product in the first place.

I was probably right. Didn’t matter. The VP killed the project. The company began to run out of money, and I did get to meet one last time with my buddy, the VP of engineering, and said, “Gee, it’s too bad you didn’t have some kind of alternative revenue source to tide you over until you found your next round of investment.” He gave me a look, winced, and said, point taken.

What did being right get me? Nothing. Nada. Zip.

Up next: Mistakes learned the hard way

 

Startups: What Not to Do, Part 2 – Great ideas, Partners, No Competition

In Part 1, I looked at Mistakes 1 through 3, learned at my first startup in 1999. In this part, I detail some of the mistakes I learned from while trying to start my own company.

On My Own

I ended up striking out on my own in late 2000 as an IT strategy consultant with a couple of initial clients that kept me very busy. Many people said to me, “Gee, this is a strange time to be going out on your own. There’s a downturn coming.” If figured my two good clients would be enough for me to ride out the downturn.



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Some rights reserved by Stefan Leijon

Continue reading Startups: What Not to Do, Part 2 – Great ideas, Partners, No Competition

Startups: What Not to Do, Part 1

I don’t know if I should admit this or not, but I’ve been involved in one way or another in 19 startups. In some cases I’ve advised them. In some cases I’ve invested in them. In some cases, I was one of the principals.

The reason I’m not so keen on admitting this is because I’m not writing this post from my private island in the Caribbean, but from my home office in Minnesota. Where I have a day job.



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Some rights reserved by Eric Stark

Continue reading Startups: What Not to Do, Part 1