Anything's Possible

I love my iPad.  I have discovered some great use cases for why I “need” it.

Now that I have that disclaimer out of the way, let’s talk about why the iPad is a terrible example for startup founders.  Apple has violated all of my deeply held beliefs about innovative product development and marketing.  It may work for Apple – time will tell – but it won’t work for the entrepreneurs that I know.

The challenge is that the iPad was not designed or marketed with a clear use case.  I think this has been the cause of much of the negativity about the iPad that I’ve seen in blogs,  and on Twitter.  Because Apple failed to present a clear use case, we have been left to imagine the use case for ourselves.  This has led way too many users to think of the iPad as a laptop replacement.  Unless a customer only previously used a laptop for consumption, and not productivity, the iPad falls way short of that use case.  Given that many people have now realized this, potential customers are wondering whether they need a computing device that sits between their smart phone and laptop or is the iPad just a cool extravagance.  Moreover, without a clearly articulated use case, marketing to find the right customers is expensive and inefficient. Without that focus, the company is pretty much marketing to everyone hoping that users figure out what to do with it. 

This can work for Apple, but I don’t believe it will work for my fellow startup founders.  Apple has an unmatched brand and loyalists (me included) are buying the iPad and figuring out their own use cases.  Apple also has an incredible marketing engine that not only inspires people, but also spends way more money than any startup can afford.  Apple has an unmatched developer community trying to create killer apps for the iPad.  Finally, Apple has terrific distribution that no startup can match.  For all these strengths, the iPad may succeed despite lacking a clear use case.

Let’s rewrite this story with a hypothetical startup.  Imagine that a product equivalent to the iPad was created by a startup called Pear and no one has ever seen such a device before.  Pear has no proven distribution and a very limited marketing budget.  Let’s assume that Pear had the extraordinary hardware design, software UX and supply chain expertise to create something as beautiful, low cost and multipurpose as the iPad and was the first in the world to market such a product.  Let’s call it the PearPad.  Let’s even assume that Pear is reasonably well financed for their launch with $15MM in fresh venture capital.  Would anyone buy the PearPad?  Besides a small group of fringe early adopters, I think the answer is no.  I think PearPad would be lucky to sell 1000 devices in its first month; far from Apple’s 1MM.  It would be a stretch to imagine how PearPad would ever recover its enormous R&D investment to create such a high quality product. Put another way, an innovative device marketed at everyone is likely to fail because it doesn’t solve a clear problem for anyone.

What would PearPad have to do to be a success?  Pear would need to design the system around a clear use case and market to customers that had the strongest need for that use case.  Over time that use case can broaden to target more customer segments.  However, at the beginning, a lack of focus makes it unclear what one does with the device, who should buy it, and how to market to the right customers.

The following are some pretty half baked examples of use cases, but hopefully the point is clear: the PearPad could be the world’s best mobile multimedia device, and will effectively replace the market for portable DVD players; then Pear could target family travel.  Or perhaps it is the world’s best lightweight road warrior device and will disrupt the netbook market; then Pear could target business people taking commuter flights and the product specification would emphasize productivity tools instead of entertainment tools, as in the last example.  Maybe it is the best home web surfing device; then Pear could target stay-at-home parents and focus the software on the browser – it may even need Flash. Pear might be the best portable gaming device; the specification would maximize graphics and marketing should be tilted at gamers and likely a younger demographic. Obviously any of these focused use cases would require a different product specification to maximize value and prove out the benefits.

Entrepreneurs beware.  You are not Apple and won’t be successful following its example.  Figure out who your customer is.  Focus the design of the product at a use case that creates clear value for this customer and utilize your very limited marketing dollars to gain the attention and admiration of that customer.  Otherwise, you’ll end up having the sad outcome I imagine for Pear; raising obscene amounts of money and never finding a market for your extraordinary but ill-defined product.

After we sold Brontes in 2006, every venture capitalist I bumped into would ask me how soon I would be free to do something else.  From their perspective, the only reason that I would stay at the acquirer was financial, and we had already cashed out.  Therefore, it was obviously time to go start another company and chase another pot of gold.

I had little monetary incentive to stay after the acquisition. Yet two years later, I was still at the company and so were 29 of the 32 employees who were with us at the acquisition.  We actually had less attrition in the two years after the acquisition than in the two years before.

I know many VCs who scratch their heads at the fact that we gave up so much opportunity for so little upside as part of a Fortune 500 company.  For the venture capitalists involved in the Brontes, the day of the acquisition was their last day at the company.  As investors, their motivation was solely monetary.  While, for the team, the monetary benefits of a win were very exciting, they were far from the only motivation for spending day and night building the company.  We loved the creative process of imagining a product and the future of an industry and trying to make our fantasy a reality.  We envisioned our product in tens of thousands of doctor’s offices benefiting millions of patients.

Had financial rewards been our only motivation, we would have given up before the company ever started.  The founding team began working together in October 2002, and we were first financed in January of 2004.  We had near death experiences during that time and more in the years after financing.  If any of us were just pursuing the pot of gold, we would have quickly concluded that there are easier and certainly higher probability ways to make money.

Strong companies are not built by people who hope to get rich quick, but by people who are motivated by creating something of value and executing an exciting vision for the future that makes some meaningful difference to customers.  Founders motivated by money alone are almost sure to fail, as they are unlikely to endure the trials of building a company.  I believe deeply that the mission of the startup needs to be the primary motivation, with the assumption that meeting the mission will have many rewards.  Our mission wasn’t over the day of the acquisition. 

A few years back, I was chatting with one of my investors at a social event and he was describing one way of looking at startups and VC.  He said that until startups are funded, they are basically just fantasies.  I responded that startups with VC funding are also fantasies – they’re just fantasies with money.

When I started Brontes I was very confident in our market opportunity and product concept.  That confidence helped us convince people to join our team and investors to put money into our company.  However, I confess that I had many sleepless nights over whether I was simply wrong about the premise of the business.  My recurring nightmare was that I was leading everyone off a cliff based on a narrative that had come from my imagination.  Perhaps this is the courage it takes to be a startup founder.  On the other hand, it was impossible to deny that everyone was betting on my business plan which might never amount to more than a fantasy.  Raising money didn’t change this.  It only made the nightmare worse.  It was still my fantasy, just now with money.  Had I misled everyone?  Was there really a business here?  No doubt my investors frequently wondered the same thing.

The challenge is that it typically takes years to transform a startup from a fantasy into a real business.  Sure there are small milestones along the way that help make the startup more real, but the road to reality is long.  At the start there are questions about building the team; then about the product’s market fit.  Once a product is launched and adoption begins, there are questions about achieving early sales.  Once early sales are achieved there are questions about whether the company will become profitable.  Once profitable, there are questions about whether the startup scales and how fast.  These fears pretty much prevail until the company is large and profitable or achieves liquidity. In my case, I had some reassurance that the company was not a fantasy when we received the first acquisition offer four years after we started the company.  However, once we sold Brontes, the nightmares came back, as I was operating the company for 3M and realized that we were still a pre-revenue fantasy. 

The only thing that made me feel better the morning after each of these nightmares was to get into the office and ask myself – What can I do today to make my company a little less of a fantasy? What can I do to make the company a little more real?  These are the key questions for any founder at any stage of a startup.  It is often unclear what milestones will make a company more real.  A successful founder must discover the right milestones and spend every day chiseling away at the fantasy and finding reality.