Do you really know your customer?

How well do you really know your customer and her needs?  How do you really understand how she is using your service? Who are the heavy spenders? An understanding of fundamental questions like these will help your entire team make better decisions on products, features, partners, and overall priorities.

This post is inspired by a recent post by Andrew Parker, Observing the Typical Internet User. where he talks about getting qualitative data (vs. quantitative data from ComScore, etc.) around user behavior on these questions:

• What needs does the internet fill for people, on average?
• Where do they go to fulfill those needs?
• How long do people spend online, on average?
• What are the means of access?

While Andrew tries to answer these questions for the internet as a whole, these are similar to questions you should be asking yourself about your business everyday.

So how do you get there?

If you have time or the resources (ahem, likely post Series B), you will want to do some “Customer Discovery” work, a fancy term for figuring out what your audience cares about.  This may include:

Sitewide survey – starting with your existing users is a great start.  It’s always great to expand that to people who have never heard of your company, but they are harder to target. Here is an example of a survey summary I worked on in 2008).

Surf-alongs – Actually watching how people navigate your site or similar sites can generate some surprising insights. This is best done in people’s homes on their own computers, but a usability lab can also be very effective.

Segmentation - Developing customer groups that are similar based on individual characteristics and behaviors - this is great to figure out what each group is doing on your site or at least see if there are any distinctions between user groups.  This is usually a combination of both survey results, the quantitative data and surf-alongs, the qualitative data. I will write more on this in a future post.

The shortcut.

If you are in startup mode or resource constrained, doing some customer discovery work will take some discipline.  When there is a million other things to do its really hard to say, lets call a few customers and chat. But that is what I am urging you to do. You will need to pull yourself away from your existing product and with an open mind do the following:

Call your customers – People share a remarkable amount of information.  Your customer/member will likely be flattered that you care about their opinion and spend some time telling you what they like, don’t like and want to see.  Calling as little as 5 people, you will likely find some trends that will be valuable to you. 

Quick survey – Ideally you will find out exactly who is answering the questions (some demographic information, etc.), but if you want some fast answers sending a few questions to your members can yield great insight. Email can work, but some argue can a slider that asks randomly selected people the questions right on your site works even better.

User testing - Test drive new features is a great way to get feedback.  Find local people in your community using your product and offer them an Amazon gift card or small amount of cash to spend some time using your site. I’ve seen companies recruit from Craigslist, ask people in the Starbucks line, beg friends of friends – do whatever works for your company and product. This is also a great way to find people who have never seen your site – fresh eyes.

Mine your data – Can you get any information on what features are used most? Most frequently asked support question? Top selling categories? Spending a little time mining the data that is right in front of you can often quickly point you in the right direction.

Poll your employees – I am a big fan of anonymous feedback. Open meetings are great, but once a company gets bigger than a few people some may be intimidated to go against the popular belief.  This includes contractors, interns, etc. Don’t let them sit on a pile of valuable information.  Make it easy for them to give it to you.

The earlier the company, you may want to do this quick analysis of your user base more frequently.  Your customers 3 months ago may not be the same today.  Do you have any other quick and dirty tactics?

4 Signs You're In a Great Start-Up Neighborhood - and 5 Signs You're in a Bad One

I posted yesterday about the sale of Hot Potato to Facebook and why this represented a victory of sorts.

I also mentioned that I thought they were able to get a relatively high 'talent' multiple in part because of the NEIGHBORHOOD they were in as a start-up.

Neighborhood is a really critical concept to consider as a founder - here are some further thoughts on it...

‘Neighborhood’ is a handy metaphor roughly equating to ‘market.’ Not in a Porter’s 5 Forces kind of a way - but more casually - are you in a market that has enough heat to tangibly increase your odds of success?

Here are 4 signs you’re in a good neighborhood:

1. New Entrant Volume. There are lots and lots of new entrants popping up and everyone is getting some degree of traction, even the suckers. (social gaming?)

2. New Entrant Diversity. The crop of new entrants is multi-faceted – there are multiple levels of vending around the opportunity and the market just might spawn a whole new ‘industry.’ (mobile advertising)

3. Media Love. The market is emerging as a press-driven ‘movement.’ (social commerce/deal space)

4. Big Incumbent Anxiety. You see big companies making ‘strategic investments,’ developing copy-cat solutions, and kicking tires. (social mobile/location - read that link!)

And 5 signs you’re in a bad one (aside from these hooligans):

1. New Entrant Suffering. Not a big healthy crop -  competitors are going out of business, or there's lots of carnage from previous attempts to solve the problem.

2. Press Sucks. The press for you or your competitors is sporadic and dispassionate or skeptical.

3. No Funding. Not a lot of professional investment money is flowing into the space.

4. No Acquirers. You can't think of at least 3 obvious & viable acquirers.

5. It’s Hard and Never Gets Easier. Every effort seems manual & outcomes are ruthlessly linear to the effort put in.

The disadvantages of being in a bad ‘hood, aside from life just being harder, include that when you run out of gas – you just go out of business. No ‘talent’ sale for you matey!

The advantages of being in a good ‘hood are MANY –a whole 'nother post! - but they somewhat boil down to the fact that your margin of error is much wider and luck is generally on your side. (Vinnie, want to weigh in with the PR windfall of being in the social commerce space?)

One advantage specifically worth mentioning (and reflecting on as a founder), is the one that I think Hot Potato's Justin Shaffer ultimately fell back on – which is that in a good ‘hood, you develop a hedge on your personal time investment in the form of relevant expertise.

In other words - if your start-up doesn’t take off – not only do you have hopes of a talent sale - but you can also put your neighborhood knowledge to work within a brand-name company that will pay you well for it. Or maybe take a more informed start-up pass at the same market.

In either case, our time is our core asset as entrepreneurs – it’s what we bet with and what we want ROI on - so it’s good to hedge against time-risk by ensuring that your experiences are inherently accretive, regardless of the outcome of your current venture. It took me a couple of runs to understand this. 



Congrats to the Hot Potato Team & Thoughts on their Sale

There was some pretty relevant news announced a couple weeks ago that was met with a surprising lack of discussion on the NYC  Tech Twitter/Blogosphere – the news that Facebook plans to acquire Hot Potato for ~ $10m in a ‘talent’ sale. I was especially surprised at the lack of response because Justin Shaffer & his crew are so active and well-liked around town.

So why the silence? I’m assuming that maybe people thought the sale was a less-than-desirable outcome.

But I didn’t see it that way at all. In fact my first reaction was – WOW, great job guys!

HERE’S WHY:

First, two assumptions:

1. Let’s assume Hot Potato’s market traction was fairly low, and that there was nothing around the bend that seemed reliably able to change that scenario. (btw, I don’t know any details about HP’s user engagement but if anyone does, please correct me here)

2. Let's also say that a best case outcome for a ‘low-traction’ scenario such as this would be a quick ‘talent’ or ‘asset’ sale - usually ranging from ~ $1-5M.

--> So to hear that Hot Potato pulled off a $10M talent sale – twice the upper range of what I would have expected - and in <12 months from the initial A-round - to me that seems like a small victory! Investors probably got 2x out and founding team probably did pretty well too.

While I’m sure the $10m doesn’t represent their original exit target when they started the company – this seems like an extremely graceful landing.

The alternatives might have been just dead-pooling - going out of business quietly - or even worse, going sideways - tying up investor capital and your team's time indefinitely while you try to find the right use case... (this is unanimously considered worst case scenario).

Of course it’s all of our intentions to build significant value in our companies – anywhere from $25M-$1B depending on the play… But the Hot Potato sale gives a great point of reflection in terms of generating value along the way as a hedge in the event that your idea doesn’t take off.

Specifically, there are two potential hedges here to consider:

1) founder personal brand and charisma that gives the company an intangible aura of value beyond its tangible assets;

2) being in the right market NEIGHBORHOOD as a start-up.

I want to talk more about the concept of neighborhood - I’ll do that as a follow-on post tomorrow.

In the meantime – I for one would like to very sincerely congratulate Justin and his team for pulling off such a graceful landing and a great outcome in a situation that presumably could have been tough.

Congrats guys – and if any former Hot Potato engineer wants to come talk to us at Hashable – we’d LOVE to meet you!

(Next up – 4 signs you’re in a great start-up neighborhood…)



How to give good phone

A couple weeks ago, Fred Wilson posted a blog post on his strong dislike for phone pitches.  While I agree with Fred that in person meetings trump phone calls, for most, avoiding phone “pitches” is not a practical reality.  So if a phone call is unavoidable, how do you make the most of them?  Here are a few ideas I have… any additions?

1. First and foremost, remember the goal.  As I wrote on my blog, a phone call “pitch” is not about a go/no go on an investment, it's about a go/no go on investing more time.  That means you don’t need to throw everything out there and cover all the bases.  Instead, what you want to do is provide just enough background to create some momentum.  To this end, Phil Michaelson of KartMe has some fantastic advice on how to nail a first meeting/call.  Check out his blog post here.
2. Go halfway to an in person meeting: video calls.  Anybody up for a little Pitch Roulette?  Kidding, kidding… but seriously: why don’t people do video calls more often?  Still not as good as an in person meeting, but so much better than a plain vanilla phone call.  With a video call, you still get the efficiency of a phone call, but with visual cues and undivided attention.  So try offering a Skype video call.  I know I just ordered a webcam for my work computer and will be suggesting them from now on.
3. Have a prop.  I find phone pitches most effective when there is a prop: a short deck or better yet, a demo.  It helps structure the conversation, and this helps you stay in control and on track.
4. Ask questions. There are two kinds of questions you should feel comfortable asking on a call:
   • Advice.  Don’t be afraid to ask the VC some questions.  After all, as First Round Capital’s Phin Barnes wrote, your objective as an entrepreneur is not just to get money, but to get it from the right firm.  This has the added bonus of keeping the VC engaged.
   • You paying attention?  Don’t be afraid to ask questions like “does that make sense?” (or even “are you with me?”)  It’s a more polite way of saying “stop reading your freaking emails!” and keeps the other person on their toes and engaged.
5. Have a coach.  Have someone from your company listen in on your call.  After the call, get feedback.  Some things to look out for:
   • Did you dominate the air time?  If you’re talking for most of the call, you’re not creating an opportunity to build a rapport with the other person on the call.
   • When asked a question, did you answer the question, or did you ramble?
   • Parts of your pitch that flow really well, and parts that don’t.
6. Know who you’re talking to.  Do a little research on who you’re speaking to (his or her firm, investments, background).  It will help you focus your pitch and build a rapport.

Good luck!

Curbed.com & the Road Trip that Started it All

My fellow EarlyStagers asked me to write about the early days at Curbed.com.   I struggled with this suggestion since the story of Curbed is not mine alone to tell, and it’s far from complete.  In the end, it all comes back to real estate, used to be our tagline, and the story of the company's founding is no different. 

My first conversation with Lockhart about what-would-become-Curbed took place in his then-beatup SUV on a drive out to the hamptons to look at summer rentals.  Lock had been writing about his neighborhood for years on his eponymous blog and was considering expanding the scope; I was in the midst of buying my first apartment and painfully aware of the lack of hyper-local real estate-y neighborhood news online to help me in my decision-making process.

Someday LTS will tell the tale in full with me, Eliot, Josh, Joey, Amanda and the rest of the team chiming in.  And when we do, I hope this photo makes the playbook. 

In the meantime over a series of posts, I'm calling The Curbed Chronicles, I’ll share a handful of observations from the catbird seat sidecar in the event they may be useful, or at least mildly interesting, to other teams mired in the company creation process.

The first observation is painfully obvious but critical to set the stage:  

1. Start a Company with People You Trust & Admire.  Easy to say.  Harder to do.

The bulk of my professional career, ex-Curbed, involved conducting due diligence on investment funds for endowed institutions and family office-type investors.  While a litany of criteria exists for evaluating an investment; for me, quality, stability and integrity of the management team always tops the list. 

The number one reason why firms blow up is organizational strife.  Unlike ST's first post, I have made no attempt to back this up with statistical evidence but based on my own anecdotal observations through the years I’m comfortable making the claim in this forum. Even if it appears an exogenous event was to blame – such as the collapse of the debt markets – you can usually trace the failure back to an organizational decision made – such as a desire to chase returns – that put the company or fund in the wrong place at the wrong time.

LP fund investments typically have a 10+ year fund life, so you want to be as sure as you can be that you’re getting into bed with the right people because regardless of what the LPA says it’s how the individuals involved act that matters most.    

Today, Curbed's management team consists of four individuals: Lock Steele, Josh Albertson, Eliot Shepard and me.  The composition of this team, along with the caliber of our employees and respect I have for members of our Board drove my decision to join Curbed full-time this year.  But back in the spring of 2004, Curbed for me, meant a chance to work with Lock on a revolutionary idea.

Lock and I met in high school and have been friends for 20 years.  We remain in awe of each other’s talents and brutally aware of each other’s shortcomings.  Much has been written about The Optimist’s Blogger, and rightly so.  He’s one of a kind.

Through the years, we haven't always seen eye to eye. The ability to disagree but remain committed to to a friendship or a goal, through good times and bad is key.  Our disagreements result from the different lenses through which we view the world and having those complementary perspectives is invaluable in building a company whether we're discussing the importance of comments, whom to hire, or which sites to launch next.

Trust plays into every decision we make, big or small.  It is the basis for delegation and is essential (along with a healthy dose of capital) for scaling.  Trust allowed our equity ownership conversation to take about 3 minutes several months after product launch and for both sides to feel good about the outcome.  At various tech meetups these days I hear people struggling to figure out an equitable split with potential co-founders they just met and I cringe at the potential for disaster down the road.  

In the spring of 2004, I wrote an email to Lock telling him I was in as his business partner-in-crime / summer intern, if he'd have me.  Given our shared history, I had no qualms about offering to take on a significant side project in addition to my day job without obvious financial incentive. I didn't know then that Curbed would become a network of 14 sites, and never envisioned it would be my main source of income, but I knew without a shadow of a doubt that Lock and I would still be taking crazy road trips, like our epic no air-conditioning drive through midtown yesterday afternoon in his current-beatup SUV for a last minute business meeting.  Good times.  

Next installment of The Curbed Chronicles: Taking the plunge, or something related with a catchier title...stay tuned.