This is Part 2 of the series: 5 lessons from 150 startup pitches.

What if someone copies your awesome business idea? About twenty people on Answers OnStartups have asked this question in one form or another: When I meet an angel investor, he may ask: "What if a big company copies your idea and develops the same website as yours after your website goes public?" How can I answer this question? No, the question is: What are doing now knowing that a big company will copy your idea? No, wait, the real question is: What are you going to do when another smart, scrappy startup copies it, and gets $10m in funding, and is thrice featured on TechCrunch? No, wait, I'm sorry, the real question is: What are you going to do when there are four totally free, open-source competitors? No wait, I forgot, actually the question is: What happens when employee #2 makes off with your code and roadmap and marketing data and customer list, moves to Bolivia, and starts selling your stuff world-wide at one-tenth the price? The good news: There are good answers to these questions! The bad news: Almost no one I talk to has good answers, but they think they do. And that's fatal, because it means they're not working towards remedying that situation. Which means when one of the above scenarios happens, it will be too late. The first step is admitting you have a problem. Last week I detailed the most common misconceptions about competitive advantages, so go read that if you haven't already. To summarize: Anything that can be copied will be copied, including features, marketing copy, and pricing. Anything you read on popular blogs is also read by everyone else. You don't have an "edge" just because you're passionate, hard-working, or "lean." The only real competitive advantage is that which cannot be copied and cannot be bought. Like what? Insider information They say the only way to consistently make money on Wall Street is to have insider information. Unfortunately it's not a joke, and although it's illegal (and people occasionally go to jail for it), those in the know will tell you it's the norm.

Fortunately, using intimate knowledge of an industry and the specific pain points within an industry is a perfectly legal unfair advantage for a startup. Here's a real-world example of how this advantage manifests. Adriana has been a psychiatrist for 10 years; she understands the ins and outs of that business. During a lull in her practice she got a serendipitous opportunity to shift gears completely and ended up leading software product development teams.  (Turns out that for big-business project management it's more valuable to be a sensible thinker and counselor than to be an expert in debugging legacy C++ code.) Now Adriana has an epiphany: Traditional practice-management software for psychiatrists totally sucks; she knows both the pain points and the existing software first-hand. But now she has the vision and ability to design her own software, capitalizing on modern trends (e.g. a web application instead of cumbersome installed applications) and new interpretations of HIPPA regulation (which allows web-based applications to store medical records like patient histories). Adriana holds a unique position: Expert in the industry, able to "geek out" with her target customer, yet capable of leading a product team. Even if someone else saw Adriana's product after the fact, it's almost impossible to find a person — or even assemble a team — who has more integrated knowledge. At best, they could copy. Of course by then Alicia has moved on to version two. Single-minded, uncompromising obsession with One Thing A popular comment on the previous post was that a "Unique Feature" could be a competitive advantage in some circumstances. Some examples of a feature being a company's primary advantage are:

Apple compromises everything in the name of design. Their products are over-priced, buggy, lacking features, and every experience I've had with their tech support has been atrocious, but man their stuff looks and feels nice! (I'm typing this on an Air and there's an iPhone in my pocket, so no Apple fan-boy mail please.) Google's search algorithm was just better, therefore they won the eyeballs, therefore they were able to monetize. Sure Bing and Yahoo are good now, but the advantage lasted long enough. Photodex is a little company you've never heard of I worked for in Austin in the 90's. We made an image browser with thumbnail previews so you didn't have to open each file individually to see what it was. (In the 90's, y'all, before that was built into all the operating systems!) Our advantage was speed. Not the best, not the most stable, didn't read the most formats, didn't have the most features, just "fastest." For many users of that product, speed wins; Photodex now makes tens of millions of dollars a year, and "speed" is still the only point on which they will not compromise.

However it's not enough for a feature to merely be unique (like my mini-browser) because it's still easily duplicated. Indeed, most of the innovations we've made at Smart Bear in the art of code review have already been duplicated by both commercial and open-source competitors. Rather, this requires unwavering devotion to the One Thing that is (a) hard, and (b) you refuse to lose, no matter what. Google has spent hundreds of millions of dollars on their search algorithm, the single biggest focus of the company even today, a decade after they decided that was their One Thing. They refuse to be beaten by competitors or black-hat hackers, whatever it takes. 37signals can build simple — almost trivial — software and earn three million customers because they absolutely will not compromise on their philosophy of simplicity, transparency, and owning their own company, and that's something millions of people respect and support. Competitors could build trivial web applications too (as Joel Spolsky is fond of saying, "Their software is just a bunch of text fields!"), but without the single-minded obsession it's just software with no features. To remain un-copyable, your One Thing needs to be not just central to your existence, but also difficult to achieve. Google's algorithm, combined with the hardware and software to implement a search of trillions of websites in 0.2 seconds, is hard to replicate; it took hundreds (thousands?) of really smart people at Microsoft and Yahoo years to catch up. 37signals' ranting platform — a blog with 131k followers and a best-selling book — is nearly impossible to build even with a full-time army of insightful writers. "Being hard to do" is still a true advantage, particularly when you devote your primary energy to it. P.S. For more, here are detailed examples of how this mindset also sets up your sales pitch. Personal authority Chris Brogan commands $22,000 for a single day of consulting in an industry (social media marketing) where all the information you need is already online and free. Joel Spolsky makes millions of dollars off bug tracking — an industry with hundreds of competitors and little innovation. My company Smart Bear sells the most expensive tool of its kind. How did we earn this powerful authority, and how can you earn this overwhelming advantage? I'm a great example of someone who wasn't an authority on anything, but built that authority over time to the point where now my company (Smart Bear) is untouchable as the leader in both revenue and ideas in the area of peer code review. Not only was I not an expert on code review prior to building a code review tool, I wasn't even an expert on software development processes generally! I didn't give lectures, I didn't have a blog, I didn't have a column in Dr. Dobbs magazine, and most interesting of all, I didn't even know "code review" was going to be what made the company successful! Unfortunately all this "authority" crap takes years of expensive effort, and even then success is probably due as much to luck as anything else, so is it worthwhile? Yes, exactly because it takes years of effort and a little luck. Authority cannot be purchased. You can't raise VC money and then "have authority" in a year. A big company cannot just decide they want to be the thought-leaders in their field. Even a pack of hyper-intelligent geeks cannot automatically become authorities because it's not about how well you can code. But how does authority convert to revenue? Here's one tiny example: I give talks on peer code review at conferences. My competition pays thousands of dollars for a booth, then spends thousands advertising to attendees begging them to come to that booth, then gives sales pitches at the booth to uninterested passersby who are also being bombarded by other pitches and distracted by the general hubbub. Whereas, because I'm a known authority on code review and software development, I get to talk for an entire hour to a captive, undistracted group of 100 people, self-selected as interested in code review. After the talk typically 5-20 people want to chat one-on-one. Some head straight to the booth to get a demo; for many I give a private demo of the product on sofas in the hallway. It's not unusual to get $10,000-$50,000 in sales over the next three months from people who saw me at that talk. That's just one example!  Now add to that: What's the effect of a blog that tens of thousands of people read? What's the effect on sales of my writing the book that's the modern authority of code review? Authority is expensive and time-consuming to earn, no doubt. But it's also an overwhelming, untouchable competitive advantage. (P.S. I'm hoping that the authority I'm slowly earning from this blog will help when I launch my next venture. That's not why I blog, but I certainly will leverage it when the time comes!) (P.P.S. I apologize for blatantly abusing the word "authority," considering I just lambasted everyone who does things like that.) The Dream Team The tech startup world is littered with famous killer teams: Gates & Allen, Steve & Steve, Page & Brin, Fried & DHH. In each case, the founders were super-smart, had complimentary skill sets, worked together well (or well enough to get to important success milestones), and as a team represented a unique, powerful, and (in retrospect) unstoppable force. Of course that's easy to see in retrospect, and retrospect is a terrible teacher, but the principle can work for any startup, especially when your goals are more modest than being the next Google. Take the success of ITWatchDogs, the company I helped bootstrap and eventually sell (before Smart Bear). The elements of our Dream Team were obvious from the start:

Varied skillsets. One experienced startup/business/salesman (Gerry), one proven software developer (me), one proven hardware developer (Michael). Common vision. We agreed what the product ought to be and that the ultimate goal of the company was to sell it. Insider knowledge. Gerry had done another successful startup in the same space, I had deep experience with the language and tools for embedded software, and Michael had decades of experience building inexpensive circuits and processors.

Of course a Dream Team doesn't guarantee success but it significantly reduces the risk of the startup, and furthermore is difficult for the competition to duplicate. This is especially true when someone on the team is already successful in their field, e.g. with a massively successful blog or a big startup success under their belt or a ridiculous rolodex. Since those are the kinds of competitive advantages that can't be bought or consistently created, having that person on the team is by proxy a killer advantage. P.S. This is the primary competitive advantage in a new startup I'm working on right now (to be announced soon), so shortly you'll see another example of this theory and — better yet! — you and I both will witness over the subsequent months whether or not this really resulted in a killer advantage! (Yes of course I'll share details!) (The right) Celebrity endorsement Hiten Shah's third company is KISSMetrics. On the surface, it's yet another "marketing metrics" company. This is a crowded, mature market with hundreds of competitors in every combination of large/small, expensive/mid/cheap/free, and product/service/hybrid. But Hiten has something none of those competitors has: Investors and mentors who are celebrities in exactly the market he's targeting. Folks like Dave McClure, Sean Ellis, and Eric Ries, all of whom not only help via conference call but actively promote KISSMetrics on their blogs, Twitter, and personal appearances. How much advertising will it take for competitors to overcome Hiten's endorsements and exposure?  Even if a competitor also wanted celebrity endorsement, these guys are taken, and in any field there's a limited number of widely-known and respected authorities. Many competitors have more features than KISSMetrics has. I can see the sales pitch now... The customer objects: "Gee it would be nice to have all those features," and Hiten responds "Well not really, because Dave, Sean, and Eric all say that those features are actually distractions and don't add to your bottom line. Our features are the right ones, as evidenced by these 20 companies that have shown increases in revenue." Just on the basis of these advisors, Hiten will get hundreds if not thousands of customers. You can't buy that kind of jumpstart, not even for millions of dollars, because it's not about faceless leads who saw KISSMetrics in an ad, it's people who trust Hiten because of his association with other people they already trust. P.S. If you're raising money, investors love to see a co-founder or even just an advisor who has been successful before. The VC game is more lemming-like than most care to admit. Existing customers ...or as Frank Rizzo says: Open your ears, jackass! Everyone you've ever sold to (and those who trialed but abandoned) possess the most valuable market research imaginable, and it's the one thing a new competitor absolutely will not have. This is kind of a cheat, because everyone says "I listen to my customers," which (nowadays) is just as bullshit as "We're passionate," but it's true that if you're actively learning from your customers and you never stop moving, creating, innovating, and learning, that puts you ahead of most companies in the world. As a company becomes successful it gains momentum, which means that it's going in one direction with one philosophy. Like physical momentum, change becomes harder to affect. It's logical; for example at Smart Bear we have 35,000 users, so making a drastic change to the user interface or typical workflow would mean too much retraining, even if the end result is better. Even "cool, agile" companies like 37signals are trapped. They've been so clear and confident in their philosophy of "do less," they cannot go after markets where "less" is not more but, actually, just less. For example, with more than a few sales people in a traditional sales organization it's impossible to use Highrise — the folks-of-many-signal believe pipeline reports and geographic domains and integrated campaign management are unnecessary complications, but actually it's Highrise that is unnecessary. Of course the world is changing, and in particular your customers are changing. Normally this leaves room for the next competitor, but if you're already entrenched you can leverage your existing status, insider knowledge, and revenue stream as long as you're willing to change too. You have more money, you're better known, you have existing happy customers to help spread the word, you have employees to build new things, and you have more experience with what customers actually do and actually need, which means you should have the best insight. Any new competitor would kill for just one of these advantages. If you're not using them, how silly is that? Zoho made exactly this argument to explain why they're not terribly worried that Microsoft is now a direct competitor: Companies don't get killed by competition, they usually find creative ways to commit suicide. Office 2010 will be the end of Zoho, if we stop innovating, stop being nimble and flexible in our business model. Then again, if we stop all that, Zoho will die anyway, no Office 2010 needed to do the job. 37signals is trapped inside their self-imposed philosophy, but you don't have to be. Go git 'em Imitation might be the sincerest form of flattery, but it's still sucks when someone does it to you. Of course you can still battle it out in the marketplace, but you need something that can't be duplicated, something they could never beat you on, then hang your hat on that and don't look back. Don't despair if you don't have an unfair advantage yet. I didn't either when I started Smart Bear! But I built toward having some, and eventually earned it. What else? What other competitive advantages can't be easily copied, or if they are copied it doesn't matter? Leave a comment and join the conversation.

This is part 1 of the series: 5 Lessons from 150 startup pitches. Listening to first-time entrepreneurs talk about their competitive advantages is as predictably invalid as the local weatherman's 10-day forecast.

Between this blog and reviewing applications to Capital Factory I see hundreds of pitches a year. Every pitch has a section on competitive advantages, and quite literally 95% of the time the claimed competitive advantages are pathetic, unoriginal, and not really advantages at all. The first clue that your competitive advantages aren't actual advantages is that everyone else on Earth claims those advantages too! P.S. Next week I'll talk about what are real competitive advantages. The following are not competitive advantages: We have feature X. This is an advantage only until others copy it, so it's not long-term protection against competition. Indeed, the next company can observe what works well and what doesn't, and than improve on your innovation. End users don't care who thought it up, they just care how it works today. We have the most features. It's common for older products to compete on the fact that they have more features than the competition. Trouble is, customers don't want more features, they want the right features. As the competition also adds features, they reach a critical mass where they have all the features 80% of your customers want, and then just having "more" is no longer an interesting selling point. We're patenting our features. "No one can compete with my blog because it's copyrighted." Silly, right? That's what you sound like when you claim that getting a software patent will protect you from competition. Except in certain industries (e.g. food, drug, medical), I'm unaware of companies who stave off quality competitors through patent holdings. Software patents are especially useless for small, bootstrapped startups. It's even true in hardware: Every mp3 player uses zillions of patents, but that didn't stop Apple from winning. We're better at SEO and social media. 80% of Americans believe they are better-than-average drivers. Can't be true, right? Well 80% of the folks I meet tell me they're way better than average at SEO, Twitter, and "building communities" whateverthehell that means. Social media and SEO is ever-changing quicksand. You're on top of Google today, gone tomorrow. Other companies being good — or better — is completely outside your control, so claiming that you have a sustainable advantage is poppycock. We're passionate. Everyone has passion. What, you think everyone else quits their job, starts mowing through savings, works long hours, and yet has no passion? Passion is necessary but far from sufficient. This is like saying, "My children are going to be more successful because I love them more than you love yours." This makes investors roll their eyes and show you the door. We have three PhDs / MBAs. The landscape of successful startups is littered with people lacking post-graduate education. If you've lived in the software world for a few years you know the stuff they teach you in school is irrelevant, so who cares what degree you have? In all the interviews you've read about founders' success, how many credit their MBA program? How many even have MBAs? It's not bad to have a degree, but neither is it a significant advantage. We work hard. You hear about the 37signals guys working 30 hours per week and Tim Ferris just four hours (bullshit!), so you figure if you work a "healthy" 70 hours per week, you'll win! But working harder is not, in fact, smarter. And even you could work 70 on-task hours per week, that's still blown away by 10 developers at a funded company or even 10 passionate open source developers working part-time. We're cheaper. It's not bad to be cheaper. Indeed, at ITWatchDogs, the company I did before Smart Bear, being inexpensive was critical to our strategy. The key is that you cannot compete only on price, because then all a competitor has to do is lower their price. Established companies can destroy you with the "lost leader" strategy (e.g. when Microsoft put 1,000 developers on IE and gave it away for free, destroying the market for web browsers), newly funded companies can spend ludicrous amounts of money to get market share (even if it means taking you down with them), and anyone can implement a "freemium" model. In the case of ITWatchDogs, the reasons we were cheaper were that (a) we sold direct instead through a channel, so our product wasn't marked up 6x before it got to the customer, and (b) we used the newest, cheapest parts whereas our established competitors had stopped innovating and were using expensive 5-year-old parts. So where does that leave us? Haven't I just claimed that the fruits of intense effort and innovation and one-upmanship isn't enough? Yes. Innovative design and intellectual property are no longer long-term competitive advantages. You live in the era of the flat world where millions of people have access to technology, education, and a powerful sales, marketing, and communication platform (the Internet). You live in the era where the most powerful programming frameworks and tools are free, local broadband and high-availability servers are cheap, and world-class people are willing to work 60 hours/week in exchange for Ramen noodles and the chance to be a part of a cool new startup. There's too much energy, availability, intelligence and opportunity in the world to hide behind outdated notions of intellectual property. Almost anything can be copied. In fact, I'd claim that anything of any value will be copied. It should be part of your business plan that other people will copy you. Fortunately there's plenty of ways to have true advantages that competition cannot readily overcome. Unfortunately, they're difficult and rare. Of course they are! What, you thought creating and running a successful, untouchable startup was easy and commonplace? Next week I'll go into depth on some true unfair competitive advantages — ones that cannot be overcome even by a giant company, a funded company, a bootstrapped company, or an open-source movement. Are these assertions unfair? Do you have more false-advantages to add? Leave a comment and join the conversation.

I just reviewed several hundred startup pitches for Capital Factory. Most were on paper and video; 20 were invited to pitch in person.

Interesting patterns emerged:

Everyone makes the same classes of error. Those who avoided just one of those errors stood out in the crowd. These are problems with the business concept or the founder's attitude, not specific to raising angel money.

You're probably making a lot of these errors too. Not that I blame you! After all, these became clear to me only after seeing hundreds of applications; you don't have the luxury of that perspective. So for the next few weeks I'm doing a series on these mistakes and what to do about them.  This post serves as a hyperlinked table of contents, so either bookmark this page or subscribe by email or RSS to get notified when new articles get posted. Here's the list:

Invalid competitive advantages (coming soon...) "Superior SEO" and "unique features" are not competitive advantages. Lacking an unfair advantage (coming soon...) You need one killer advantage that no one on Earth can beat you on. ('Cause you might get beaten on everything else!) No one said they'd buy it (coming soon...) You don't need statistically-significant studies before you begin, but it's astonishing how many founders blaze ahead before they've found even a single person willing to give them money. Incorrect positioning against competition (coming soon...) The two faults here are opposites: Believing that uniqueness means competition doesn't exist, or defining yourself by the competition instead of constructing your own message. No significant route to customers (coming soon...) If your marketing strategy is to run A/B tests and build RSS subscribers, you've already lost.

There's also this list, equally common but I didn't feel the urge to write an entire blog post on each one:

Unable to describe the company in 60 seconds. We've all heard of the elevator pitch, but when asked to produce it almost no one succeeded. This is important whether or not you're raising money because it means you understand your customers and why they buy your stuff. Building for yourself instead of the market. "Scratching your own itch" is how many great ideas begin, but it's not a business strategy. Often you assume your customer is the same as you — sees the problem the same way, wants to solve it your way, and wants to pay for it. But you're explicitly not like your customers; for one thing, you have enough initiative and insight to quit your job to start a company. It's easy to let your idiosyncratic preconceptions prevent you from observing what the larger market will accept. Pretending your faults don't exist. You have all sorts of shortcomings: First startup, inexperienced, ignorant about how "sales" works, buggy software, whatever. None of it's a problem if you're willing to acknowledge and cope with it, but if you persist in lying to me and your customers about it, that's a problem. (And a lie by omission is twice the lie.) Don't know what you don't know. I don't care that your resume doesn't prepare you for a startup — mine didn't either! But if your answer to any question is "How do I know? I just do," then I know right away you're not only ignorant but incapable of fixing that ignorance. How do I know this will result in your business drifting aimlessly until you finally run out of money? I just do.

Stay tuned!  The first post in the series goes up Monday.

You probably think of "tech support" as the bottom of the food chain. "Shit flows downhill" and all that. After all:

Tech support deals with insane customers. Tech support answers the phone; a job even salesmen don't want. Tech support keeps angry customers at bay while having no power to effect change.

Yep, that sounds lowly. Dismal too — how would you like to deal with an irate voice screaming at you when you know how to fix the problem but lack the authority to do it? This is a masochistic job for a poor slob with no other job prospects, right? If this is your attitude, your conception of tech support is completely backwards and you're missing out on important channels for marketing, product development, and sales. The unexpected face of your company We've all been jarred by someone's voice not matching their picture. Take English footballer David Beckham, the quintessential picture of manly sportif — washboard abs, ex-captain of the English national team, and married to Posh Spice. But then he opens his mouth. It's like Kermit the Frog got kicked in the balls. (Oh, sorry UK folk, I mean kicked in the bollocks.) It's so unexpected it's the only thing you remember. Of the 3,204,523 pub conversations where someone said "Have you heard him speak?" maybe only 17 could tell you what he actually said. You assume your home page is the public face of your company, but what happens when you open your mouth? What happens when your bullet points collide with your behavior? For most of your customers, tech support is the only human interaction they'll have with you. Are you really going to leave that up to your worst-treated, least-paid, least-qualified employees? Tech support is sales At Smart Bear we made millions of dollars in both individual and enterprise sales without "sales." Well, at least without the usual definition of "sales" — a collection of processes, personalities, and management single-mindedly focussed on hauling in revenue on a quarterly schedule. How did we get six-figure deals without playing golf or using Salesforce? Simple: Our tech support was sales. You could say the purpose of tech support is to answer questions or to unstick people who are confused, but I say the purpose of tech support is to make your customers fantastic at their jobs, which happen to involve your product. (Yes, I'm flagrantly paraphrasing the legendary Kathy Sierra, but the idea applies as much to tech support as to product development.) So this means you don't just help them locate a command in the menubar, you find out what they're trying to accomplish and help them do that. You don't just explain a feature but help them use the result to impress their boss. You don't just apologize because you don't have the feature they want, you help them work around it and be successful anyway. You know your product and problem-space better than your customers, so it's not that hard to make them far more successful than they would be stumbling around without calling tech support. Enabling your customers isn't just about your product, but rather your entire company. Make your customer awesome and she'll give you money so she can keep being awesome. That's sales. A pleasant surprise Everyone's stereotype of tech support is negative. Oh the tales:

Ask tech support how to change the font and they'll tell you to reboot your laptop. Ask tech support to change your billing address and they up-sell you on three things you don't want. Calling tech support requires a GPS to navigate the labyrinth of menu options (which may have changed), wait-queues, and typing in your account number 3 times "for security purposes," as if someone who stole your account number is incapable of typing it more than once.

When your customers expect a turd sandwich and you deliver a turkey club with chipotle mayonnaise, you earn major bonus points, like users twittering about your service, people switching to your service because of tech support, or customers not only following your Tweets but instructing their followers to do the same. Oh look! Apparently tech support is a better "social media outreach" program than hiring interns to spray comments on random blogs. Are you surprised? They say "under-promise, over-deliver," and tech support has "under-promise" built in! Sure super-fantastic tech support is best, but even if you merely act like a human being you're already ahead. If you just answer email with a non-automated response you're killing it. Why pass up such an easy opportunity to thrill a customer? Isn't "a pleasant surprise" too rare in business, and don't you want to be known as the company where it happens every day? The closest thing to getting "outside the building" while staying inside the building The Internet is abuzz with Steve Blank's phrase that everything you need to know about your customers is "outside the building," meaning that real customer development means talking to folks face to face, seeing their problems in the wild, and watching their faces react to your pitch, not brainstorming around a whiteboard and twiddling the font size in your PowerPoints. And I agree! Still, for the Work-a-preneur or the bootstrapper with no travel budget it's hard to get outside the building. Yes you should try as much as you can — it's worth it — but what about the other 94% of the time that you're at your desk, by which I mean the coffeeshop table closest to the power outlet that isn't loose? Tech support is the next-best thing. Tech support is where people complain about what's not working, what's missing, and what's confusing. But it's not enough to just catalog problems! The insights lurk in the meta-questions. If someone's confused, for example, the immediate task is to set them straight, but there's valuable product development to be had:

What caused the confusion in the first place? Is my customer's world-view different from mine? Is our terminology wrong? Are we using the wrong metaphors? Do I need to optimize the new-user experience instead of the expert-user experience?

Those are tactical questions stemming from the immediate problem, but then there's even more interesting strategic questions:

Does this hiccup belie a customer pain-point I didn't know existed but I can solve? Is there enough evidence of a conceptual mis-match that I should pivot? Is there a new product idea here? If they're abusing my product to get what they really want, can I provide what they really want from the start?

This last line of questioning is exactly how Smart Bear came to be a company about peer code review and not "version control data mining." If I hadn't paid attention attention to these meta-questions, you wouldn't be reading this right now. Yes, it's that critical. To answer these you have to go back and forth with customers to hack into the root cause. You have to see hundreds of emails so you get a gut-feel for what customers are experiencing — something you can't get from a Incident Summary Report or somesuch automation. Tech support is the closest, most honest chance for product development — certainly more straightforward than squeezing it through traditional "sales." Here's where real users discover and report on your product. Are you listening, or just throwing it away? What else? What else can tech support do if you're willing to give it the attention and power it deserves? Or do you think I'm wrong and it really is better to have $1/hour people protect you from those inane customers? Leave a comment and join the conversation.

I remember "disruptive" when it was called "paradigm shift." That phrase died during the tech-bubble along with "portal" and "think outside the box," yet the concept has returned. Don't follow along.

When I get pitched — usually by someone raising money — that they "have something disruptive," a little part of me dies. You should be worrying about making something useful, not how disruptive you can be. "Disruptive" is the in-vogue word for the opposite of "incremental improvement." A disruptive product causes such a large market shift that entire companies collapse (the ones who don't "get it") and new markets appear. Disruptive is fascinating, disruptive changes the world, disruptive makes us think. Disruptive also sometimes generates billions of dollars, which is why venture capitalists have always loved it and always will. But disruptive is rare and usually expensive. It's hard to think of disruptive technologies or products that didn't take many millions of dollars to implement. Most of us don't have access to those resources, and many of us don't care, because we'd rather work on an idea we actually understand and can build ourselves, an idea that might make us a living and be useful to people. There's nothing wrong with incremental improvement. What's wrong with doing something interesting, useful, new, but not transcendental? What's wrong with taking a known problem with a known market and just doing it better or with a fresh perspective or with a modern approach? Do you have you create a new market and turn everyone's assumptions upside down to be successful? Should you? I'm not so sure. Here's my argument: 1.  It's hard to explain the benefits of disruption. Have you tried to explain Twitter someone? Not the "140 characters" part — the part about why it's a fundamental shift in how you meet and interact with people? Hasn't the listener always responded by saying, "I don't need to know what everyone had for lunch. Who cares? What's next, 'I'm taking a dump?'" They don't get it, right? But it's hard to explain. There are ways to elucidate the utility of Twitter, but even the good ones are lengthy and require listeners with patience and open minds — two attributes in short supply. "It's hard to explain" should not be a standard part of your sales pitch. "You just need to try it" and "trust me" don't cut it. That may be OK for Twitter — today — but what about the 100 other social-networking-slash-link-sharing networks that didn't survive? Ask them about selling intangible benefits. 2.  It's hard to sell disruption, because people don't want to be disrupted. If you're reading this you're probably more open to new ideas and new products than most, because you're inventing a new product, starting a company, or you're just ruffled because I'm pissing on "disruptive" and you're looking for nit-picky things to argue with me about. But most people are creatures of habit. They don't want their lives turned upside down. They launch into a tirade of obscenities if you just rearrange their toolbar. When they hear about a new social media craze they cringe in agony, desperately hoping it's a passing fad and not another new goddamn thing they'll be aimlessly paddling around in for the next decade. Change is hard, so a person has to be experiencing real pain to want change. Selling a point-solution for a point-problem is easier than getting people to change how they live their lives. Identifying specific pain points and explaining how your software addresses those is easier than trying to tap into a general malaise and promising a better world. 3.  Most technology we now consider "disruptive" wasn't conceived that way. Google was the 11th major search engine, not the first. Their technology proved superior, but "a better search engine" was hardly a new idea. In retrospect we say that Google transformed how people find information, and further, how advertising works on the Internet. Disruptive in hindsight, sure, but the genesis was just "incrementally better" than the 10 search engines that came before.  (Or 18.) Scott Berkun gives several other examples in a recent BusinessWeek article. He highlights the iPod — an awesome device, but not the first of its kind. Rather, there were a bunch of crappy devices that sold well enough to prove there was a market, but no clear winners. Here an innovation in design alone was enough to win the market. Not inventing new markets, not innovative features, not even improving on existing features like sound quality or battery life — just a better design, unconcerned about "disrupting" anything else. Setting your sights on being disruptive isn't how quality, sustainable companies are built. Disruption, like expertise, is a side-effect of great success, not a goal unto itself. 4.  The disruptors often don't make the money. The construction of high-speed Internet fiber backbones and extravagant data centers fundamentally changed how business is conducted world-wide both between businesses and consumers, but many of the companies who built that system went bankrupt during the 2000 tech bubble, and those who managed to survive have still not recovered the cost of that infrastructure. They were the disruptors, but they didn't profit from the disruption. Disruptive technology often comes from research groups commissioned to produce innovative ideas but unable to capitalize on them. Xerox PARC invented the fax machine, the mouse, Ethernet, laser printers, and the concept of a "windowing" user interface, but made no money on the inventions. AT&T Bell Labs invented Unix, the C programming language, wireless Ethernet, and the laser, but made no money on the inventions. Is it because disruptors are "before their time," able to create but not able to hold out long enough for others to appreciate the innovation? Is it because innovation and business sense are decoupled? Is it because "version 1" of anything is inferior to "version 3," and by the time the innovator makes it to version 2 there are new competitors — competitors who don't bare the expense of having invented version 1, who have silently observed the failures of version 1, and can now jump right to version 3? "Why" is an interesting question, but the bottom line is clear: Disruption is rarely profitable. 5.  Simple, modest goals are most likely to succeed, and most likely to make us happy. It's not "aiming low" to attempt modest success. It's not failure if you "just" make a nice living for yourself. Changing the world is noble, but you're more likely to change it if you don't try to change everything at once. I made millions of dollars at Smart Bear with a product that took an existing practice (peer code review) and solved five specific pain points (annoyances and time-wasters). Sure it wasn't worth a hundred million dollars, and it didn't turn anyone's world inside-out, but it enjoys a nice place in the world and it is incredibly fulfilling to see people happier to do their jobs with our product than without it. Had I tried to fundamentally change how everyone writes software, I'm sure I would have failed. I made less money personally at ITWatchDogs, but the company was profitable and sold for millions of dollars. We took a simple problem (when server rooms get hot, the gear fails) and provided a simple solution (thermometer with a web page that emails/pages you if it's too hot). There were many competitors, both huge (APC with $1.5 billion market cap), mid-sized (NetBotz with millions in revenue and funding), and small (sub-$1m operations like us). We had something unique — an inexpensive product that still had 80% of the features of the big boys — but nothing disruptive. Had we tried to fundamentally change how IT departments monitor server rooms, I'm sure we would have failed. There's nothing wrong with modesty. Modest in what you consider "success," and modest in what you're trying to achieve every day: My daughter convinced me that insisting something be Deeply Meaningful With Purpose can sometimes suck the joy from it.  --Kathy Sierra Of course it's wonderful that disruptive products exist, improving life in quantum leaps. And it's not wrong to pursue such things! But neither is it wrong to have more modest goals, and modest goals are much more likely to be achieved. You must have your own thoughts on this subject! Leave a comment and let's continue the conversation.

In the last post I beat you to death about ditching your business plan but failed to provide an alternative. Okay okay, "Planning == Bad," but the supposed benefits of planning are still important: designing for profitability, understanding your customers and competitors, focusing your attention, deciding what's worth doing next, changing directions, and ensuring the founders agree on important issues. To help you, I'm stealing a trick from therapists.

Cartoon by Andertoons Therapists don't tell you what to do. Rather, they ask probing questions that get you to discover for yourself what is true for you, your situation, and what you want. You're smart. You'll make good decisions. But you also get bogged down in daily minutiae and putting out fires, meanwhile missing the big picture. That's where this article comes in: To splash cold water on your face, forcing you to face reality and continue to defend or change the important choices inside your business. What follows is your startup therapy session. Having to think through and answer these questions forces you to identify what you need to do today to seek profits and growth.

In one sentence, what does your product do and who buys it? In one sentence, why does someone buy your product? These are surprisingly difficult. The shorter and more precise your answers, the more you understand why you exist. If the answer is, "I honestly don't really know why people give us money," that's something to remedy immediately. If you have an answer, is it because you have hard evidence that this is how your customers perceive you and why they give you money, or just because you believe it? "Evidence" means emails and Tweets and testimonials that use those words exactly; otherwise you're likely interpreting their feedback to match your expectations. (I find myself constantly guilty of this disconnect.) If you don't have evidence, it is OK to have a hypothesis but you should be concerned about collecting proof and disproof. If you do know the answer, these two sentences should drive your marketing efforts. If these sentences aren't on your home page, why the hell aren't they? Is there anything else more compelling to potential customers? At the least, these represent the themes that drive your marketing campaigns. What one thing is most responsible for preventing sales? (e.g. people not knowing you exist, pricing, not enough product features, unorganized sales strategy, look-and-feel of website, haven't identified pain points, ...)

Cartoon by Andertoons Most little companies aren't honest about this, yet it's possibly the most important question you could ask. For example, I'm an engineer, so my first answer to "Why don't you have more customers?" is almost always:  "Because we need this feature." You hear some potential customer say "we will buy if you do XYZ" so you conclude that if you implemented XYZ people would start breaking your door down. But is that really the case? If you added one feature and maybe satisfied that one customer (assuming they wouldn't ask for a second thing, and in my experience they usually do), would that get you 100 more sales? For those hundreds of people who downloaded your software and never bought — is the reason "not enough features?" For the hundreds of thousands of people who never came to your website in the first place, or hit the front page and left after three seconds, is the solution "more features?" When you honestly ask yourself this question, it will naturally lead into things you can do right away to get more people to the site, into a trial, and/or into a sale. Don't just rest on what comes easiest. What's one thing you could do to get more feedback from customers, potential customers, or sales you've lost? You already know that external feedback is the only way to empirically determine how to build products people want to buy. Maybe you can't drop everything to solicit feedback (although folks like Eric Ries say you should), but surely it's worth one day every month to go out of your way to collection information from the field. To get the ideas flowing, here are eleven ways to get more feedback, most of which take less than a day to implement. If you had zero revenue from now on, on what date would you run out of money?

Cartoon by Andertoons The first thing this does is force you to nail down your monthly expenses and accounts payable. Second, you know the length of your fuse even in event of disaster (if you have revenue) or if you never manage to land a customer (if you're just starting out). More than that, knowing your "padding" as I used to call it is helpful in making decisions like "Can I afford to try this Risky Expensive Thing," such as making your first hire or trying a $20,000 media blitz. Whenever you're contemplating a new expensive idea that could be awesome but could be setting money on fire, your fuse date helps you know how much time you're risking — time to recover if your bet doesn't pay off. Finally, knowing "The day my business could die" helps focus your attention on activities that bring in revenue. If someone handed you $100,000 today, how would you spend it to maximize future profits? This gets you to crystallize what cost-centric activities would most help your business. We get caught up in free-but-takes-tons-of-time marketing and development activities — and most of the time that's a good way to think — but sometimes it's still true that "you have to spend money to make money." Sometimes the "thing you could do" is so compelling, it might mean you should raise a small angel round or consider debt. Typically it's best to get by with minimal debt and investment, but if the "thing you could do" is transformative, you might reconsider. If you were forced to hire someone today, how would you define her job such that she would contribute enough revenue to cover her expense? I know, you can't afford anyone right now, no one can do as good a job as you, and you don't even know that you'll ever hire someone. That's OK, that's not the point of this question. This gets you to ferret out what tasks are being dropped by the wayside because you've got higher-value things to work on, because you're having to fight fires, or maybe because you've got your priorities wrong. If you honestly can't imagine that there's anything a full-time person could do that would generate enough revenue to cover their salary, that's not a bad thing. But often this churns up one or two very-part-time tasks which really ought to be done but aren't. No need for a new employee of course, but maybe you should re-prioritize those tasks next month. Sometimes you come up with a good answer, which means you should contemplate help. "Help" doesn't necessarily mean a proper, 40 hours/week (OK, who are we kidding, 60 hours/week) employee. It could be a part-time consultant. It could be an intern.  It could be an outsourced office assistant. It could be a new partner willing to work for stock. Which of your business operations do you hate? Do you like creating new features but hate tech support? Enjoy product demos but hate cold-calls? Need to have your arms around company finances but hate bookkeeping? Love writing ads but hate dealing with ad sales agents? Get excited about your field of expertise but hate writing blog posts and Twittering? Part of why you're in business for yourself is creating something from scratch and delighting customers, but the fact is that most business operations just suck. You can't justify avoiding important tasks because they're not fun. I know — I'm the worst procrastinator when it comes to those things! It's useful to identify these undesirable-but-necessary tasks because you can do something about it:

If you shut off email, Twitter, chat, and the phone, and just buckle down, you might be able to get through some of these tasks in under 15 minutes. Bookkeeping is like that. Get it off your plate; you'll feel better. Mundane tasks might be outsourceable. I've found that "virtual assistance" services (like Four Star Service in Austin) are surprisingly affordable if you have a lot of little time-consuming tasks. See if your existing vendors are willing to do some of your tasks for a small fee. For example accountants often provide bookkeeping services at a lower hourly rate. Consider an intern or consultant. Before you argue that the cost is too great, factor in the lost revenue due to you working on those tasks. Can you share the burden with your co-founder or employees? Maybe they don't hate it as much as you do; you can trade hated activities. Or switch off.

If you're still stuck on not wanting to spend any money to save time, remember what Dharmesh says: Act as if someone is paying you $1000/hour for any activities that improve sales (making, selling, and your customer's happiness), and for everything else they're paying you $10/hour. It's accurate.  (Before you argue, don't forget about the cost of lost sales.)

What initiatives could be done half-assed without significant impact? I know, this is a shitty question. If you're like me, you are that aggravating combination of perfectionist and control-freak that on the one hand leads to stellar work but on the other hand means some things take too long. Some parts of your business are core to your success: Which features you implement, how you present yourself and interact with customers, discovering how and why people give you money. But the fact is your to-do list is infinitely long and you have to pick your battles. Your "Contact Me" page has to exist but it doesn't matter what it looks like. Every blog post doesn't have to be a work of art. Your Google Ads need variety (for testing), not hours of wordsmithing. It's better to have an eBook about anything than to have no eBook at all. If it can be done half-assed, and it's not going to impact revenue, maybe it should be half-assed. Allow yourself to delegate (because it's OK if it's not done exactly how you would do it). Push more out the door. If you could get one solid hour of advice from a guru you respect, what would you discuss and what would be the goal of the meeting? This is a fun way of asking: "What knowledge/feedback/direction is critical to your business right now, and which you're uncertain about, and which you feel other people are expert in?" Phrasing the question this way also leads to solutions. For example, maybe you should set aside 4 hours to get your hands on that guru's materials (blog, book, podcasts) and immerse yourself not just in advice but in their mindset. Or email them and see if you can get some advice! Or find other people that guru respects and who might be more accessible. Or hell, ask me! I publish my email address you know.

What tips do you have? Leave a comment!

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"You need a business plan" is the mantra of MBA types. As they say, businesses don't plan to fail, they fail to plan! Who could argue with such a clever turn of phrase?

Let's do some quotes:

"Without a business plan, how will you know whether you can make a profit?" (source) "A complete business plan should include five-year financial projections. These projections will assist investors with making decisions about your business and help you to know how much funding you will need to get things rolling." (source) "Many businesses fail due to poor planning. It is important for every business owner to understand the entire depth, flexibility, strength and weakness of their business plan." (source) "Adjust your business plan as needed, but be sure to not stray too far off of your original idea." (source)

Surely those Harvard MBA grads are correct! After all they don't give out those MBAs for nothing — you have to at least start a business yourself! Oh wait, you don't have to do that? Oh. Trouble is, this advice is inconsistent with how real (small) businesses operate, as you can often see for yourself in the same articles that promote the use of the business plan. For example, Kenrya Naasel writing for Latina.com starts by saying "A business plan is the most important document you'll ever create." (And you thought your website's home page was important? Ha.) But later she quotes a successful entrepreneur who admits "We operated with no real plan for years" and "Things don't generally go as planned." That's one thing everyone can agree with: Things don't go as planned. Yeah, so how are you supposed to write a three-year projection with a straight face? Or take Sean Davis of Success on my Mind who tells us "Writing a business plan is your most important step," but then admits that his past two (successful!) projects were "simply an idea I ran with." The telling part comes in the comment section where Sean adds: Now that I think back on it, I've done plenty of marketing that led sites to success... but it was all from trial and error. Had I known BEFORE what I know now, I could have had a plan and reached my goals much earlier." Here inlies the fallacy. You never "know before what you know now." If success is "all from trial and error," how exactly do you write a plan? Marketing is trial and error! Features, messaging, the path to customers, your competitive edge, your pricing model — all this gets figured out as you go. You can't know what's going to work ahead of time, so why is Sean concluding that he should have wrote a business plan? Business plans are just guesses, and they're almost always wrong. The very idea of "planning" is ridiculous:

If you had written a business plan in 2007, what would your assumptions have been? Investors love "Web 2.0," MySpace is how to reach young people, the economy is growing without limit, and products with demonstrable ROIs will get healthy slices of corporate budgets. Of course every assumption in your plan was reversed in 2008. The world economy exploded. Getting money from budgets is like squeezing water from rock. MySpace is dead, long live Facebook. The term "Web 2.0" is passé. Twitter went mainstream and might be more important for "word of mouth" than blogging. Good thing you spent all that time planning. At the beginning you don't know anything about what your business will look like. Your product will evolve to fit the market. You'll test marketing messages on AdWords and make unexpected discoveries about what works. Good and bad luck shape your company. You have no answers, no predictive power. Nor should you artificially pin yourself down! Even a "plan" buried in a drawer makes you less likely to consider the radical new idea that changes everything and makes you successful. Have you tried actually writing a plan? Go ahead, try it! Be sure to include your mission statement, your vision, your five-year profit-and-loss statement, decide who will be your key personnel, define your pricing strategy, explain the risks, position yourself against competitors. Now be honest, where did this data come from? I'm guessing you reached right up your ass and pulled it out. For the five-year plan you were so deep you tickled your spleen. You know this is crap; why are you doing this when you could, oh I don't know, just talk to potential customers?

But enough from me. What do VCs have to say about this? What if you're trying to raise money, don't you need a business plan? What do other entrepreneurs say?

From Venture Hacks, a great blog written by entrepreneurs-turned-VCs: "Don't send a business plan to investors. Nobody reads them and nobody executes them. ... Document your detailed plans on a napkin." From David Cowham, Bessemer Venture Partners: "Nothing slows down a VC as much as a comprehensive business plan." From Mike Moritz, Sequoia Capital in a Guy Kawasaki fireside chat, "Five-year plans aren't worth the ink cartridge they're printed with." I could fill three pages with links to 37signals railing against business plans (did you like that pun y'all?). From When was the last time you looked at your business plan: "[All three businesses] are still alive but have also completely rethought their original plans. They’ve changed focus, services, salaries, partnership arrangements, etc. ... If these companies' one year projections were so far off, imagine how worthless those year three (or five) projections turned out to be." Or, from The only plan is to learn as you go: "Stop presuming you can be right in a world of massive uncertainty. The only plan you should make is to plan on improvising." A study found that "quality of business plans had zero impact on the amount of VC funding being raised." From VentureBlog, VC David Hornik derides an article on Wired and TechCrunch about how to raise money: "VCs tend not to read business plans because a) they are too long and b) your business will likely have changed by the time anyone gets around to reading your business plan." From Business Insider, Kevin Ryan, founder of six companies, says "I don't do a detailed plan. If a VC focuses a lot on the details on the financial model, I won't work with them." From Steve Blank, "In the real world, most business plans don't survive the first few months of customer contact. And even if they did — customers don't ask to see your business plan." And then from an article called Startups are Inherently Chaos: "As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant."

Do I really need to go on, or are you sufficiently bludgeoned into not writing that business plan? In fact, stop reading this article and do something useful like A/B test a landing page. P.S. Next week I'll provide some tips on what you should do instead of writing a plan. What do you think?  Is there value in writing a plan?  Leave a comment.

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