Risk Identification: How Much Risk Are You Really Taking on With Your Startup?


“Startups are risky.”

This sentence may be one of the most dangerous in the business founder’s lexicon…

Each year, similar statements lead smart founders to create startups taking on absurd (or unexpected) levels of risk.

Although as many as 90% of startups fail according to certain studies, that number can be hugely misleading.

Risk levels and failure rates vary by industry, segment, experience level, and several other factors.

According to a study by the Harvard Business School (2008):

  • Serial entrepreneurs have a 30% chance of succeeding in their next venture;
  • First-time entrepreneurs have an 18% chance of succeeding;
  • Entrepreneurs who have failed before have a 20% chance of succeeding.

As you can see, starting points are not equal, just like risk levels are not equal.

Top-line stats about startup failures say very little about the risk level of individual startups.

Risk Identification: Fatal vs Recoverable Risks

The myth of the successful founder who comes up with an idea, sticks with it, and wills into existence a successful organization making little to no changes to his/her original vision is pervasive. It’s also more myth than reality.

According to a study by Harvard Professor Clay Christensen, nearly 93% of the products that ultimately became successful started off in the wrong direction. In startups, pivots are the norm, not the exception.

Going through the customer development process is one of the hardest things you can do.

To be able to keep your team (and yourself) motivated, you want to avoid dead ends and keep failing forward, ever closer to your goal.

You’ll encounter fatal risks, when there is no option but to go backward and change one of your business’s foundational assumptions.

Although founders with sufficient startup runway and motivation can always muster a pivot, fatal risks – like vision pivots – can cost you a co-founder, a funding round, or the will to keep going. They’re obviously best avoided:

Risk 
 Identification: The B2B Startup Pivot Pyramid
Risk Identification: The B2B Startup Pivot Pyramid

How to Do Proper Risk Identification for Your Startup

“You don’t want to create your own momentum; you want to ideally ride on momentum that already exists.” – David Cancel, Serial Entrepreneur.

Idealab co-founder Bill Gross founded over 100 companies in the last 30 years. Analyzing hundreds of startups using 5 key dimensions – idea, team, funding, timing, and business model – he found that the biggest factors influencing the success or failure of businesses were the Timing and the Team / Execution:

Risk Identification: Top 5 Factors in Success Across More Than 200 Companies
© The single biggest reason why startups succeed | Bill Gross

Creating a successful business means achieving success in many areas:

  • Timing;
  • Team;
  • Execution;
  • Idea;
  • Business Model;
  • Funding;

But also…

  • Market Size: Are there ways to expand beyond your original customer segment and grow the market?
  • Channels/Go-to-Market: Can you repeatedly reach buyers and prospects? Can you scale that process?
  • Competition: Can you create sustainable differentiation in the market?
  • Pricing Power: Do you have the ability to increase prices and capture additional revenue from existing accounts?
  • Recruiting Power: Can your business recruit top talent in the market?
  • Value Proposition: Is your value proposition sustainable in the long run?
  • Costs: Is your cost/revenue model sustainable long term?
  • Etc.

The more aspects of the business model are uncertain or unproven, the riskier the business. The riskier the business, the longer the path to success will be.

Although innovating on many factors at the same time can lead to great disruptions and innovation (Airbnb, Uber, etc), it’s not a requirement for success (Salesforce, Slack, etc).

There are no awards for taking on more risk than the competition. Proper risk identification and risk mitigation only help make your life easier.

Risk Identification & Risk Acceptance

The easiest way to minimize the risk of failure in innovation is to build off something that already exists, changing only a few key parts of the model while leveraging your unique competitive advantages.

However, for various reasons – be it ego, personal interest, ambition, etc – founders rarely do that.

For the writing of Lean B2B, I interviewed Martin Ouellet, the founder of recruitment software startup Taleo.

At the time of the interview, Taleo had recently been acquired by Oracle for $1.9 billion, and his co-founder, Louis Têtu, was already working on Coveo, an enterprise search solution.

Têtu had recruited several key employees from Taleo’s upper management and Ouellet had been invited to join the team.

Although Ouellet could have joined a business he felt was very similar to Taleo in terms of market, product, and dynamics, he made the decision to build something completely different: a gaming studio. He knowingly took on more risk, accepting that he would be able to re-use very little of his knowledge and expertise in this new venture.

To Ouellet, taking on a greater level of risk was a decision he wanted to make.

Although startups are risky, it’s important to do proper risk identification upfront, understand the risks you’re taking on, and work to test and validate risky assumptions.

Stay lean. Don’t let fatal risks surprise you.

211 Startup Tools, Posts & Resources for B2B Entrepreneurs in 2019

There are thousands of startup tools and resources out there, with more coming online every week. As a B2B founder trying to save startup runway and minimize time to product-market fit, it’s sometimes difficult to differentiate what will help from the things that will distract you from your goals.

To help founders get set up with the best startup tools and resources, I put together a list of tried and tested tools, resources, and key posts, categorized by focus areas. You can refer back to this list as your business challenges change and evolve over time. Here it is:

Startup Tools, Posts & Resources for B2B Entrepreneurs

Essentials

  1. 57 things I’ve learned founding three companies by Jason Goldberg
  2. All the Startup Advice You Read is Wrong by Evan Williams
  3. Camels and Rubber Duckies by Joel Spolsky
  4. Creating Startup Success 101 by Steve Blank
  5. Don’t Build a Sexy Startup by Jordan Skole
  6. First, ten by Seth Godin
  7. How New Ideas Almost Killed Our Startup by Vinicius Vacanti
  8. How to break the rules by Dan North
  9. How to Start a Startup by Sam Altman
  10. Pivot, don’t jump to a new vision by Eric Ries
  11. The 15 Best Entrepreneur Books Founders Should Read in 2018
  12. The Long, Slow SaaS Ramp of Death by Gail Goodman
  13. The unprofitable SaaS business model trap by Jason Cohen
  14. Three SaaS Sales Models by Joel York
  15. Why We’re Only Just at the Beginning of SaaS by Tom Tunguz
  16. Steve Blank’s Startup Tools for more startup tools :-)Resource
  17. B2B / Enterprise

  18. It’s damn hard to build an enterprise company by Ben Sesser
  19. Sean Murphy on the first dozen enterprise customers by Gabriel Weinberg
  20. The Main Differences Between B2C and B2B Startups
  21. The Zero Overhead Principle by DJ Patil
  22. Why David beats Goliath by Scott Barrington
  23. 🔒 B2B Value Proposition Exploration Worksheet to evaluate various value propositions Resource
  24. 🔒 Buying Influencer Map to track an organization’s buying influencesResource
  25. 🔒 Early Adopter Evaluation Grid to assess early adopters and find advocatesResource
  26. 🔒 Hypothesis Test Plan Template to track hypotheses and assumptionsResource
  27. 🔒 Money Map Template to evaluate business spendResource
  28. 🔒 Problem Evaluation Grid to score business problemsResource
  29. B2B Startup Ideas

  30. B2B Hacks – Getting from Consulting to Scalable Products by Alex Cowan
  31. Domain Experience Gives Entrepreneurs an Unfair Advantage by Mark Suster
  32. Don’t Follow Your Passion: A Smarter Way to Find a Product to Sell by Andrew Youderian
  33. How to Find B2B Business Ideas in Your Workplace
  34. How to Find Good Business Ideas in B2B and in the Enterprise
  35. Startup Advice: Build for Your Unfair Advantage by Fast Company
  36. Slack App Ideaboard for Slack app ideasResource
  37. Y Combinator’s Requests for Startups for fundable business ideasResource
  38. Business Partners

  39. 5 tips for choosing a co-founder by Michael McDerment
  40. An alternative to employee options/equity grants by Jason Fried
  41. Beginner’s Guide to Finding the Right Business Partner by Neil Patel
  42. Slicing Pie for equity splits and partnership agreementsTool
  43. Name & Branding

  44. How to Choose a Startup Name that Reduces Marketing Friction by Rand Fishkin
  45. How to Name Your Company by Julien Smith
  46. Coolors to explore color palettesTool
  47. Logojoy to create basic logos for startup toolsTool
  48. Namechk for domain name researchTool
  49. Business Incorporation

  50. Startup Cheat-Sheet: How to Incorporate Your Company by Tyler Tate
  51. CooleyGo’s Incorporation Package for templates from DelawareResource
  52. e-Residency Visas for Estonian/EU incorporationResource
  53. Stripe Atlas for US incorporationResource
  54. US Patent and Trademark Search to validate the availability of a business nameResource
  55. Clerky for legal paperworkTool
  56. Gust Launch for incorporation packagesTool
  57. Recruiting

  58. How to Hire a Product Manager by Ken Norton
  59. The Key to Hiring for Startups is to Build Buzz and Attract Talent To You by Ben Yoskovitz
  60. What to look for in a UI designer by Ryan Singer
  61. People

  62. 10,000 Hours with Reid Hoffman: What I Learned by Ben Casnocha
  63. Indecision Kills Startups by Ben Yoskovitz
  64. Maker’s Schedule, Manager’s Schedule by Paul Graham
  65. Why I Run a Flat Company by Jason Fried
  66. Fancy Hands for US-based virtual assistantsResource
  67. Fiverr to hire freelance helpResource
  68. Upwork to hire freelance helpResource
  69. Productivity

  70. 26 Time Management Hacks I Wish I’d Known at 20
  71. Do Things that Don’t Scale by Paul Graham
  72. How to Hire and Why Transparency Matters by Keith Rabois
  73. Sorry. My heart says yes, but my schedule says no by Dharmesh Shah
  74. Sanebox for busy email and inbox managementTool
  75. TextExpander for quick text inputTool
  76. Startup Tools, Posts & Resources for Customer Development

  77. 🔒 B2B Customer Discovery Interview Script for an early customer discovery interview scriptResource
  78. Customer Development Toolkit for Cindy Alvarez’s customer development templatesResource
  79. Go-to-Market / Product-Market-Fit Checklist for quick market sizingResource
  80. The Business Model Canvas for the classic business model canvasResource
  81. The buyer persona canvas for a buyer persona templateResource
  82. The Lean Canvas for the Lean CanvasResource
  83. LeanStack to track business learningTool
  84. Market Research

  85. 4 techniques and 6 tools to find your total addressable market by Elie Casa
  86. Customer Development Hacks for SaaS Startups by Lincoln Murphy
  87. How to Calculate Your B2B Startup’s Total Addressable Market
  88. Sales Safari by Amy Hoy
  89. Three more ways to build a $100 million business by Christoph Janz
  90. Follow.net for competitive insightsTool
  91. Google Trends for trending topics and competitive researchTool
  92. Metrics

  93. Activate Tech and Media Outlook 2016 by Activate
  94. How to Choose the Right Analytics Platform for Your Business
  95. Excel template for cohort analyses in SaaS for cohort analysesResource
  96. Startup Metrics for Pirates (A.A.R.R.R. framework) for startup metrics trackingResource
  97. Amplitude for product analytics and retention analysesTool
  98. Hotjar for landing page heatmaps and feedbackTool
  99. Customer Research

  100. How To Write Great Surveys with Actionable Data Results by Ben Yoskovitz
  101. Kano Model – How to delight your customers by Lawrence Phillips
  102. Ask Your Target Market for online market researchResource
  103. MerchantWords for Amazon keyword researchResource
  104. Product Habits SaaS Early Access for an example of an early surveyResource
  105. Zintro to connect with expertsResource
  106. Delighted for quick net promoter score surveysTool
  107. Five Second Test to understand first impressions of a landing pageTool
  108. Google Alerts to monitor keywords and competitorsTool
  109. Promoter.io for quick net promoter score surveysTool
  110. Survey.io for Sean Ellis’s Product-Market fit surveysTool
  111. UserTesting.com for quick remote user testing of startup toolsTool
  112. Product-Market Fit

  113. 5 Ways to Identify Product / Market Fit by David Cummings
  114. Building the lean startup startupifier by Fred Lalonde
  115. Minimize your Time to Product/Market Fit by Andrew Chen
  116. The only thing that matters by Marc Andreessen
  117. The Lean B2B course to build products businesses buyResource
  118. Minimum Viable Products

  119. The Dos and Don’ts of Minimum Viable Products for B2B Startups
  120. The Next Feature Fallacy by Andrew Chen
  121. Noun Project for icon research and inspirationResource
  122. Pexels for free stock photosResource
  123. Stock photos that don’t suck by Dustin SenosResource
  124. Unsplash for free high-res stock imagesResource
  125. Carrd to build quick landing pagesTool
  126. Placeit to create quick product mockupsTool
  127. Ship by Product Hunt to build quick landing pagesTool
  128. Unbounce to build quick landing pagesTool
  129. Posts & Startup Tools for Investment

  130. 8 Questions on How to Prepare for VC Meetings by Ben Yoskovitz
  131. How investors use metrics to evaluate, pick, and reject startups by Andrew Chen
  132. It’s ‘Shocking’ That Startups Are Ignoring A $500 Billion Market by Julie Bort
  133. The Anatomy of a Fundable Startup by Naval Ravikant
  134. The Most Important Startup Question by David Skok
  135. VC Math by Homan Yuen
  136. We’re Raising $3.5m in Funding: Here is the Valuation, Term Sheet and Why We’re Doing It by Joel Gascoigne
  137. What should I send investors? Part 1: Elevator Pitch by Babak Nivi
  138. Pitch

  139. The 10/20/30 Rule of PowerPoint by Guy Kawasaki
  140. The Greatest Sales Pitch I’ve Seen All Year by Andy Raskin
  141. Deckset to create quick decksTool
  142. Investors & Accelerators

  143. B2B Angel Investors to find angel investors in B2BResource
  144. Designer Fund to raise funding as a designerResource
  145. Innovation Nest to raise capitalResource
  146. 🔒 List of 50+ B2B VC Funds & Accelerators to find B2B-focused investors and acceleratorsResource
  147. Slack Fund to raise funding for startup tools from SlackResource
  148. Benchmarks

  149. 2017 Private SaaS Company Survey – Part 1 to benchmark sales and go-to-market strategiesResource
  150. 2017 Private SaaS Company Survey – Part 2 to benchmark sales and go-to-market strategiesResource
  151. State of Startups 2017 for overall startup benchmarksResource
  152. Legal

  153. Business-in-a-Box for more specific legal documentsResource
  154. Docracy for open legal documentsResource
  155. Startup Documents for free legal documents by Y CombinatorResource
  156. Earth Class Mail for postal mail managementTool
  157. Peter for a cool AI-based lawyerTool
  158. Startup Tools, Posts & Resources for Finances

  159. Financial planning for SaaS startups
  160. SaaS Financial Plan 2.0 for basic SaaS financesResource
  161. Runway to monitor cashflowTool
  162. Payment

  163. Gumroad to sell digital productsTool
  164. MoonClerk as a quick UI for StripeTool
  165. Podia to sell digital products and training materialTool
  166. Stripe to accept credit card paymentsTool
  167. Banking

  168. Silicon Valley Bank for payroll and regular bankingTool
  169. Startup Tools, Posts & Resources for Sales

  170. How to Persuade People to Accept an “Unfair” Offer by Dean Rieck
  171. How to use the 5 WHY approach
  172. Scaling outbound sales to 1M run rate by Greg Pietruszyński
  173. Use This 4 Part Framework To Write Cold Emails That Actually Get a Response by Dan Martell
  174. 101 Sales Email Templates You Can Use to Close More Deals for inspiration when doing cold reachoutsResource
  175. Stackshare to find the technology stack of businessesResource
  176. BuiltWith to find the technology stack of businessesTool
  177. Calendly to schedule appointmentsTool
  178. Clearbit Connect to find email addressesTool
  179. Datanyze to find the technology stack of businessesTool
  180. DiscoverOrg to find hidden people in organizationsTool
  181. Drift for live chat and automationsTool
  182. Email Hunter to find email addressesTool
  183. Gong.io for sales training and pitch monitoringTool
  184. Reply for sales trackingTool
  185. Siftery to find the technology stack of businessesTool
  186. Streak to send cold emails and as CRM in GmailTool
  187. Zoom Info to find email addressesTool
  188. Customer Success

  189. Customer Success: The Definitive Guide by Lincoln Murphy
  190. Managing Customer Success to Reduce Churn by David Skok
  191. User Onboard for product onboarding inspirationResource
  192. Totango for customer scoring and customer successTool
  193. Startup Tools, Posts & Resources for Marketing

  194. 100+ Effective Tactics to Promote Your Blog Content
  195. Startup Marketing: How to Find Your Customer Acquisition Channels by Ryan Farley
  196. Growth Is Good, But Retention Is 4+Ever by Brian Balfour
  197. Our Customers Love Us. Why Aren’t They Doing More For Us? by Brian Gladstein
  198. Niche to Win, Baby by Dave McClure
  199. Real Unfair Advantages by Jason Cohen
  200. Is It Worth the Time? to evaluate ROIResource
  201. Highlights | Content & Email Marketing Analytics for Marketers and Bloggers
    for traffic and email marketing monitoringTool
  202. Startup Growth Calculator to evaluate growth trajectoriesTool
  203. Startuplister to quickly promote a startupTool
  204. Pricing

  205. 4 pricing principles to never forget by Des Traynor
  206. B2B Pricing: Emotional & Economic Value | OpenView Labs by Steven Forth
  207. Data shows SaaS discounting lowers SaaS LTV by over 30% by Patrick Campbell
  208. Don’t Just Roll the Dice – A usefully short guide to software pricing by Neil Davidson
  209. How do I raise prices? by Jason Cohen
  210. How-To Price Your Software Product by Ben Yoskovitz
  211. Scalable Pricing: A Key Tool For SaaS Success by David Skok
  212. The Three SaaS Levers that Drive Growth and Keep You From Plateauing by Lars Lofgren
  213. Transaction Price to Transaction Quantity to evaluate business modelsResource
  214. Email Marketing

  215. 19 Email Testing Tools to Make Your Campaigns Successful Before They Start
  216. Goodbits for email copy and design inspirationResource
  217. Lead Magnet Bible: 29 Killer Bribes To Grow Your Email List for content upgrade ideasResource
  218. Lifecycle Marketing: 135 Email Examples, Inspiration and Best Practices for email marketing inspirationResource
  219. The messaging starter kit for customer engagement to create quick product onboarding sequences for startup toolsResource
  220. Intercom for live chat and email automation. One of my favorite startup toolsTool
  221. MailChimp for newsletters and email marketingTool
  222. MailMunch for email signup forms and lead captureTool
  223. Really Good Emails for email copy and design inspirationResource
  224. Customer Acquisition

  225. 30-day trial? 14-day? Freemium? Here’s why it probably doesn’t matter by Madkudu
  226. 99% Of Our Users Are Not Paying – And It’s Perfectly Fine by François Grante
  227. Freemium Summit Recap by Mark MacLeod
  228. The Importance of Product-Channel Fit in Freemium by Kieran Flanagan
  229. The state of freemium in SaaS by Patrick Campbell
  230. Social Media

  231. Buffer for social media managementTool
  232. BuzzSumo for content and influencer researchTool
  233. Followerwonk for social media researchTool
  234. Meet Edgar for back catalogue content sharingTool
  235. Business Exits

  236. When Should You Sell Your Startup? by Jason Lemkin
  237. FE International to purchase/sell a SaaS businessResource
  238. Flippa to purchase/sell a websiteResource
  239. Lever Technology to sell a working productResource
  240. Quietlight Brokerage to sell a working productResource
  241. Think3 to sell a working productResource

– –

This list of startup tools, posts, and resources will grow and evolve over time. If you see any mistakes or have suggestions to make, just tweet at @leanb2b.

14 Ways B2B Entrepreneurs Can Extend their Startup Runway to Go the Distance

I’ve never seen a B2B company get to anything much under 18 months. — Steve Wood, B2B Serial Entrepreneur

Startups are difficult.

It can take anywhere between 6 months and 3 years to get a business off the ground. To succeed, founders have to be ready to go the distance.

This means shortening your time to product market-fit, being resilient, and extending your startup runway.

I started HireVoice, my previous startup, with little to no money and no income stream.

Quickly, I had to cut spending and use my line of credit.

Although having little to no money keeps you hungry, the stress bears down on you. I can’t say I was completely thinking straight; the financial pressures are one of the core reasons why I shut down the business. It was clear that I had to find ways to increase my ability to take risks.

To help founders go the distance, I created the following list of ways to extend startup runways with their Pros and Cons:

Using Personal Finances to Extend your Startup Runway

Your Own Savings

  • Pros: In some ways, tapping into your savings to fund your business is the ideal solution. You keep all control and become your own investor. Since you’re working from cash on hand, you don’t pick up debts, and have a clear picture of your time horizon. This can be a good path however…
  • Cons: Self-funding your startup means you’re not accountable to anyone for the way you spend your money. This can mean spending on the wrong things and over-spending, but also not knowing when to pull the plug because of your ego or other reasons. At the end of the day, if your investment doesn’t pan out, you can be left with significantly less savings and little to show for it. As the saying goes, it’s always better to spend someone else’s money than your own.

Credit

  • Pros: Using credit gives you the flexibility to decide when you spend and go beyond your own cashflow. It typically doesn’t require approval and can be used very quickly.
  • Cons: With yearly interest rates as high as 25%, it’s quite likely that it will take years to repay the investment. In fact, you’ll probably pay multiples of it. Although some founders have managed to fund their business on credit card debt, it’s definitely not the wisest long-term way to extend your startup runway.

Bank Loans

  • Pros: Unless you’re willing to mortgage your house or other assets you own, bank loans won’t be an option. Banks rarely fund early tech projects because you need liabilities to get a bank loan.
  • Cons: See above.

Extending your Startup Runway with Revenue

Startup Revenue

  • Pros: Startup revenue is the healthiest way to create your startup runway. By getting clients or prospects to pre-pay for your product, you can start your business with money in the bank, and a pretty clear sign of product-market validation
  • Cons: Depending on the industry and the market, pre-selling may not be an option. Clients may want to see a working solution before making a purchase. More so, to create sustainability, pre-selling requires selling big-ticket items, which may take a long time to sell. All in all, this is the healthiest option because it incorporates validation, but you may need a secondary source of income to get there.

Keeping Your Job

  • Pros: Guaranteed income. There’s a lot of built-in waiting time in the early days of a startup. Keeping your job means you can experiment with the comfort of having a full-time wage. As you build and get validation, you can gradually reduce your working hours. Working in an organization is also a great way to find business ideas (Read: How to Find B2B Business Ideas in Your Workplace).
  • Cons: Because of work (days don’t always end at 5pm / weeks are tiring) and other life and family commitments, it can be difficult to get a lot going with a full-time job. Splitting your attention can make it difficult to get real results. With a job, you’re almost always choosing between building your startup and your other personal obligations. This is one of the reasons why starting up is easier when you’re young.
14 Ways B2B Entrepreneurs can Extend their Startup Runway to Go the Distance
Startup Runway – Finding Product-Market Fit on Savings Vs. While Keeping Your Job

Consulting

  • Pros: Consulting is one of the most common ways to extend your startup runway. Depending on you expertise and rate, it can provide a good cash influx when needed. By picking your clients carefully, you might even be able to turn your consulting gigs into a successful product business (e.g. clientstrapping).
  • Cons: I funded my work on Flagback and Psykler with consulting. Although you can find ways to get better control over your schedule (e.g. blocking days, only accepting short mandates, etc.), consulting makes it difficult to control your schedule and maintain a high level of focus. It’s also very difficult to turn down money and mandates, which can really sidetrack your business.

Secondary Product Revenue

  • Pros: This is how I’m funding my current startup, Highlights; a mix of book and course sales and some affiliation revenue. This reduces the financial pressure, allows me to capitalize on assets I’ve already created and, because sales are very transactional, it gives me freedom to focus on building Highlights.
  • Cons: The secondary products take time to build, and surprise, they also take time to maintain (products don’t sell themselves!). If you don’t already have a secondary product that sells, it can mean taking a step back to take 2 steps forward. More so, as your secondary products start to make real revenue, you’ll be tempted to focus exclusively on your secondary products.

Micro-Tasks & Micro-Projects

  • Pros: You can do micro-tasks or small projects – logo design, user testing feedback, quick translations, quick development projects, etc. – to earn a side-income. Because of the short duration of the projects, you get better control over the workload and schedule. (Note: Bart Boch created a great list of micro-projects here).
  • Cons: Depending on your background and past income, this can feel like working for nothing or cheapen your personal brand. Although there should be less client management, meetings and waiting, it’s also quite likely you’ll have to deal with those.

Investment

Money from Friends & Family

  • Pros: Friends and family members will be more likely to invest because they know you better than other investors. Because they’re not professional investors, their expectations of return and the pressure they’ll give you will be a fraction of the pressure you’ll get from investment firms. This can both be good and bad.
  • Cons: If your startup works, your friends and family make money (Great!), but if it doesn’t… you run the risk of damaging important relationships in your life. Startups are risky, a lot of them fail to scale past early adopters, beware of raising money from family and friends.

Angel Investors

  • Pros: There are a lot more angel investors than there are investment firms. Angel investors can be a nice hybrid between friends and family and an investment firm. Because they often were entrepreneurs themselves they can provide helpful mentorship. Angel investors generally don’t have the same timetable and expectations of return that VCs do.
  • Cons: Raising capital from angel investors leads you down a certain path for your business. It comes with expectations for growth and progress. Since angel investors are often solo, they’ll rarely become the lead investor of your funding round, so you’ll need to supplement their investment with other investors or other types of investments.

Venture Capital Funding

  • Pros: If your business has the potential to grow big and you want to go fast, venture capital money might be the best path forward for you. There are a lot of good VC funds and accelerators in B2B, so you can find a good partner who will open doors and guide you to the finish line.
  • Cons: Not everyone is a fit for VC funding. Even if your business qualifies, it may be a mindset you don’t wish to follow. Raising capital from VCs means going for a home run with all the pressure and expectations that comes with it. Raising this kind of capital is a move you’ll have a hard time coming back from and it can be a significant distraction (raising a round often takes 6+ months of work).

Independent and Bootstrapper-Friendly Funding

  • Pros: These past few years, there have been a growing number of investment vehicles for bootstrappers and lifestyle entrepreneurs. Funds like Indie.vc, Earnest Capital and TinySeed invest money without the expectation of a liquidity event (e.g. an acquisition). Their investments come with mentorship from other bootstrapped entrepreneurs.
  • Cons: Although these funds’ expectations are different, raising capital takes time and has an impact on your business’s trajectory. Seeing that these options are fairly new, I’ll wait to see how they work out for the founders partaking.

Grants & Contests

  • Pros: Grants can come in many shapes and forms. By positioning your business for various grants you can raise equity-free funding. Often times, this money will be tied to certain processes and activities your business needs to do. For example, in Canada you can get grants and credits for hiring people of certain backgrounds, including certain multimedia components, doing research & development, etc., etc.
  • Cons: Most grants and contests won’t bring in a ton of capital. Since the pitches will all be different, it will require a lot of work and preparation to get several grants. In some countries, it will difficult to keep on top of all the grants and subsidies your business can benefit from.

Alternate Funding Vehicles

  • Pros: The funding landscape is changing quickly. Equity crowdfunding has been one of the most interesting new options for founders these past few years. With equity crowdfunding, you get to raise capital from hundreds of, often smaller, non-professional investors. This usually means maintaining complete control over the decision-making processes as equity owners are more like backers than traditional investors.
  • Cons: Equity crowdfunding has not been legalized in all countries and jurisdictions. It typically works best for business to consumer products with strong brands as it requires a lot of campaigning to attract investors. It can be a huge distraction for your business, so you have to consider the pros and cons.

What’s the Best Way to Extend your Startup Runway?

The best way for you will depend on:

  • The nature of the project;
  • The expected duration (note: it always takes longer than expected!);
  • Your expected time commitment and availability;
  • Your financial situation;
  • The expected velocity (e.g. how fast do you want to go?);
  • The financing options at your disposal (e.g. not all businesses can raise VC money)

The right solution will most likely be a mix of the options above (e.g. R&D, grants, and angel funding). For each option, you’ll need to consider the tradeoff between risk and velocity.

No matter the approach you choose, make sure you consider the individual runway of all business partners and the key employees. The more similar their situations, the easier it will be to guarantee that their individual incentives are aligned.

User Segmentation: How to Find Your Product’s Best Customers Using Data

Entrepreneur and investor Jason Lemkin says that if you have 1 customer in a segment, you can get 10.

With user segmentation and a bit of data, you can find your business’s best customers to double down and find more. In this post, we look at how entrepreneurs can use data to find their product’s best customers.

Whether your product attracts the customers you were initially targeting or not, you want to make sure that the segments your business focuses on won’t limit its ability to grow.

How Poppulo Used User Segmentation to Find its Best Customers

User Segmentation: The Poppulo Case Study

Late last year, I caught up with Andrew O’Shaughnessy, the founder of Newsweaver, now Poppulo. We talked about the early days of the company.

Newsweaver started as an email marketing platform. They had customers, revenue, and were growing.

Looking through data and interacting with customers, they noticed that a very small number were using the tool for internal communications – to send announcements to employees, internal surveys, etc.

Looking closer, they realized that the internal communications segment was one of their most engaged and profitable.

This realization led them to rethink their product focus and target that market exclusively.

The customer pivot transformed their business. They went from a Red Ocean – an hyper competitive market like email marketing – to a Blue Ocean, a market with very little competition.

Making the non-obvious decision paid off for Poppulo.

It’s important to follow the money trail and find the biggest opportunity for your business. Even if you think you’re already acquiring great customers, strategically exploring user segmentation and customer segments can help solidify your positioning (and keep you from leaving money on the table).

How I Found Lean B2B’s Best Customers with User Segmentation

User Segmentation: The Lean B2B Case Study

We don’t need to look very far for another example…

I wrote Lean B2B to help B2B entrepreneurs; the book and its marketing made that fact pretty obvious. Yet, evaluating buyers a few years after publication, I realized that innovation consultants loved the book, found value, and were extremely willing to refer it to their peers.

For an author with limited time and resources, it made sense to use this insight to prioritize promotion efforts.

How to Use Data to Find Your Product’s Best Customers

You probably already have a sense of whether you’re targeting the right customers or not, and you know what great customers look like. It’s the perfect time to dive into user segmentation.

To find the best customers from your customer base, we’ll look for signals within your data or analytics.

Your first task will be to codify your definition of what a great customer is. We’ll then use that definition to segment your customer base.

Depending on the areas of focus of your business, you can look at:

  • Retention / Churn: Cancellation rate or monthly churn;
  • Advocacy: Net Promoter Score, word of mouth or virality;
  • Customer engagement: Repeat visits, time on site or activation rate;
  • Revenue or profitability: Customer lifetime value (CLV) or average revenue per paying user (ARPU).

You’ll convert these inputs into a recipe; a form of customer value score.

It’s important that this score is a very close proxy for customer value and customer success in your business.

Key Thresholds for User Segmentation

Once you have your recipe, you’ll define 3 thresholds (buckets):

  1. Your best customers: The first percent atop your rankings;
  2. The next best: Customers ranked within the first 2 to 10%;
  3. Your worst customers: The last 10% at the bottom of your list.

Depending on how technical you are, you might be able to find these customers using SQL, your CRM, database exports or people analytics in tools like Mixpanel, Amplitude or Intercom.

The reason why you focus on these 3 groups is that: your top percent represents your best fits. Your “fans”.

If you do this right, this segment will include the customers most likely to advocate for your business.

The next 10% gives you a good comparison point. It can also reveal some of the lowest hanging fruits to help you create an exceptional product experience.

The last 10 – and this one is optional – helps you define who you shouldn’t be targeting. There’s a lot to learn there as well.

With these less-than-ideal customers, you’re looking for the characteristics and habits of the people that were never really a proper fit for your company. You can use those to create a negative persona – an archetype or profile.

Going Beyond User Segmentation to Home in on Your Best Customer Segment

To dive deep and understand the breakdown of each of those segments, you can do a market segmentation analysis, doing interviews to refine your segmentation.

Since you’re targeting people you’ve already sold to – or have already convinced to try your product – it should be easier to get them to engage with you.

Depending on your customer base and how deep you want to go, evaluating your customer segments can take anywhere between 2 weeks to 2 months.

This may seem like a lot of time, but it’s definitely worth it if you are to make an important focus decision.

Company Focus = Growth: Here’s How to Focus Your Business to Win Your Market

Once you select a beachhead market, you have to put your entire company focus on it.

It doesn’t mean you need to drop your customers outside that segment, but there’s definitely a re-prioritization that needs to occur.

You want to put yourself in a “thought leadership” position as quickly as possible. The more customers trust that your company is an expert in the field, the more likely they are to buy from you.

To do this, you need to become one of them.

Prospects should be your friends.

Get to know them, spend time with them. You need to want to be with them, show that you care and demonstrate that you’re building for the long run.

Being an outsider is only acceptable in the early days.

For a technology company targeting the energy industry like Flutura, this meant immersing themselves in Houston, the “Silicon Valley of the Energy industry”.

Derick Jose and his co-founders did a lot of half-day Lunch and learns, they surrounded themselves with retired oil and gas SME veterans, did a lot of quick show and tell pilots and spent time where the customers were.

If you’re serious about winning your beachhead, you have to be part of the community.

How Wistia Found Their Company Focus

Wistia – Company Focus

For a company like Wistia, selling a video analytics platform to marketers, this meant understanding where marketers spent their time.

They managed to hone in on a niche marketing segment after trying to sell to artists, compliance departments in organizations, the medical device industry and telecom companies.

Once they found product-market fit, it became obvious that they needed to better understand their segment.

Wistia co-founder Chris Savage mentioned in an interview how they approached customers telling them they were thinking about sharing their blog posts on Hacker News, a startup news site.

The reaction they got was: “I’ve never heard of this website.” After asking more questions, they figured out that their customers typically read more industry publications and major newspapers, not tech blogs.

That helped them realize that they weren’t going to be able to reach prospects without digging deeper.

They had to figure out where their customers spent time, what books they read, what blogs they checked out, what movies they went to – everything about their micro-target.

From there, the decision-maker had to become these prospect customers when writing copy, deciding what videos to make, what features to build.

How to Create Company Focus Around Your Beachhead Market

Your beachhead has to be clear both internally and externally.

Defining what you’re not is a good way of reminding your whole team of your mission.

Take the time with your team to define your bad fits and your anti-personas. Make sure everyone understands what a bad lead looks like.

Working with the wrong clients does not help your reputation, your blood pressure, your work-life balance, or your business’s overall success.

One of the most important things in a startup is the decision-making process. If it’s clear on the inside who your startup is for, it limits the scope of discussions and enables your people to make quick customer decisions.

Spotfire – Company Focus

One of the better examples of internal alignment I’ve seen is Spotfire, a Swedish data visualization company that went from an un-focused horizontal model to targeting a vertical in the chemical and biology space.

Once that decision was made, president Rock Gnatovich repositioned the entire company around that vertical. His team was even informed not to take calls from prospects in other segments or customer groups.

Eventually, when Spotfire gained a dominant share of the chemical and biology segment, they revisited the messages from prospects outside their vertical.

After careful analysis, they expanded in the energy sector, which led them to open a sales office in Houston. Them as well.

What Having ‘Company Focus’ Means

As a founder, you have to be able to tell the difference between ‘never’, and ‘not now’.

Focus helps you attract the right opportunities, allows you to spend your marketing dollars in the right places, makes your sales targets less overwhelming, and makes your marketing more effective (Read: Why Your Fear of Committing to Niche Markets Will Kill Your Startup).

The more distinctly you cater to a particular customer segment, the more important it is that you emphasize the targeted population’s needs or preferences in your website copy and graphics.

To properly target your niche market, you must craft your product messaging in a way that attracts the attention of your beachhead.

This can be:

  • The testimonies you chooseWill target customers recognize themselves in the case studies you promote?
  • The value propositionDoes it reflect the pains of your beachhead customers? Does it connect with them?
  • The influencers your work withAre they influential in your target segment or just influential in general?
  • The images you useDo they fit your demographic’s worldview, education, gender, race, etc?
  • The tone, the style, and the language – Your tone and language will be different whether you’re targeting a 20-something group or CEO types.
  • The needsHow do you plan to meet their needs in your messaging?
  • The client list – Your prospects will project themselves in the customer you choose. Are they the right ones?
  • The blog postsDo they fit your ideal customer profile? Do they solve their unique pain points?
  • The values and the way your company is presentedHow can you make your company story connect with prospects? Does it feel like you’re ‘one of them’?

All of these elements will evolve over time as you make your way through the adoption curve.

Plan to tighten the messaging as you capture a bigger share of the market.

Businesses want to work with vendors that are in it for the long haul. Long-term commitment helps reduce their risk.

You have to commit and focus to create real growth velocity. Company focus is a big part of it!