Pros and Cons of a “Lean Startup”

Palm with a plant growng from pile of coins Will you be selling what people will want to buy? Traditionally the roadmap to entrepreneurship follows a fairly standard path of: Write a business plan. Take your business plan to investors and banks. Get funds. Hire a team to build the company with. Create the product or service. Introduce your product to the public, and sell it as loudly and frequently as you can. Sell, sell, sell. But as most of us in the business world know, there are a lot of potholes in the road from beginning to destination, and it’s rare that a slip-up in that process doesn’t lead to derailing the entire production. Research by Harvard Business School’s Shikhar Ghosh shows demonstrably what most of us know as a business old-wive’s tale: that 75% of all startups fail.

In order to counteract some of these pitfalls, there is a business methodology we are seeing more and more infant companies using, that is presumable a less-risky strategy. It’s called the “Lean Startup” and the idea behind it is to use experimentation over detailed planning, relying heavily on customer feedback and focus groups and iterative design rather than launching all at once with a fully-formed, fully-funded, gut instinct-informed idea of what the product should be and if it will sell. The idea of “minimum viable product” has happened frequently in the startup world, and we are seeing it taught in business schools now as well. Using your product to study the product without dumping in all of your resources blind is a very appealing idea, as is the idea of “pivoting”, or being nimble enough a business, and being open enough to feedback, that you can change the direction of your business quickly and cheaply in a direction that might be counter to your initial idea, based on the response of the customer.

This is not always a successful method, however. While we are seeing a lot of tech companies come in at way under valuation and close down or sell off cheaply due to overspending up front based off a belief of what the product is and going for it, the lean startup method is not the solution, either. In studies, which are few, there is no linear relationship between the number of hypotheses and feedback cycles and the subsequent health of the company. More feedback does not always lead to you a better product, and sometimes the lean method can lead to you slowly bleeding funds over time while you parse endless suggestions and theories over immediate action.

Another potential misstep is releasing a product and changing it so many times of the course of refining via feedback that your customers no longer trust your product or know what it actually does. You can lose client confidence you may have otherwise had because you changed your model too many times.

Before you dive into a traditional “big design up front method” or a “lean startup method” be sure to understand what is right for you, and to weigh the pros and cons of each.

 

Startup Founder Has “Starry” Eyes

Pleiades large star cluster

Chet Kanojia was the founder and CEO of the prematurely-doomed startup Aereo. The premise of TV via the Internet was a good one, but it was over before it even began as soon as battling copyright with television networks became the only focus. However, to Kanojia, angering every television network wasn’t enough. Now Chet has his sights set on the Internet. With aims to cut out the middleman of service providers, Project Decibel, his new startup, has begun their new “Starry” Internet service. It “will launch its first beta in the Greater Boston area in the summer of 2016.” and plans to offer greater than broadband speeds at a price point less than the major Internet providers.

Aereo plans to sell wireless service with speeds of 1Gbps, and additional cities will be rolled out shortly after. Thus far no monthly pricing service has been announced. The startup wireless service will circumvent the expensive wired networks and be able to reach gigabit speeds using the high-frequency spectrum, including millimeter waves which start at 30GHz. The millimeter waves require line-of-sight connections, which while not needing a technician to install, and so has an ease-of-use bonus, could be a serious limiting factor in the usability of the service. Users will need a receiver placed in their window to receive Starry signals. The network uses MU-MIMO and other technology, and it will not have any data caps. Starry will have a router to sell to customers as well, but they plan on other routers being usable with the service.

If Starry works, it could accomplish what Chet Kanojia had planned to do previously with Aereo, in aiding consumers in cutting ties with “the bundle”. “This is how it should be in our opinion,” Kanojia said. “Wired infrastructure is just difficult.”

With Aereo, Kanojia was trying to free people of expensive television packages by setting up warehouses full of antennae. Aereo’s defense was that the antennae picking up television signals was no different than the rabbit ears in living rooms all over the US, but the broadcasters had other ideas. They argued that if they as cable tv providers had to pay for distributing the copyrighted programming use, then so did Aereo. In the end, the copyright battle ended when the Supreme Court agreed with the broadcasters. But will Starry get hit with the same kind of legal fight over Internet usage? While the answer is probably yes, this endeavor is less risky.

Can Lyft and GM’s Self-Driving Cars Compete with Uber?

Uber has gone from small startup to the most valuable private company in the world. Uber’s CEO Travis Kalanic spoke at a Dreamforce conference about how the world would be a better place if all cars were Uber cars. He believes there would be no traffic or parking problems, there would be less pollution, and less unemployment. In over 300 cities worldwide, with an average of 1,000 riders-per-minute Uber’s big dreams seem to have been paying off so far. The next direction that Uber is dreaming is in the way of self-driving cars. When driverless cars are the standard, Uber prices would drop dramatically. Ideally low enough that people in underserved areas with less access to public transportation would be able to hail an Uber instead.

General Motors exhibit at Century 21 Exposition in 1962.

But Uber is not the only company with this Auto-topia in the big picture of their plans. GM has investing $500 million into Uber’s biggest competition, Lyft. Together with Lyft, GM will be working to develop a network of autonomous vehicles that can be hailed on-demand. There will be other benefits, however, in the present day of human driven rides: Lyft drivers will be able to use OnStar services from GM. The connected smart technology is available in most newer cars, and has features that turn the vehicle into a “smart car”, like a WiFi hotspot, and the continuous monitoring of the vehicle’s health while in use, as well as the ability to remotely unlock doors and trunks.

GM will also become a preferred partner for Lyft, allowing potential drivers who may not otherwise own cars or have access to a vehicle, the ability to pick up cars from rental locations country-wide and earn money driving through Lyft.

And GM aren’t the only ones. From Saudi-Arabian billionaire Prince al-Waleed bi Talal, to Twitter, there are a lot of big names putting money behind the Uber competitor. The company is said to have a value of $5.5 million, and has raised $2.1 billion in funding since launching, and has formed a global alliance that will pair Lyft with three other global ride-hailing companies. The alliance, which goes into effect this year, will make it easier for travelers to continue to use Lyft while out of the country. The four companies combined will cover almost 50% of the world’s population.

But is it enough to compete with the $70 billion dollar valuation company that is Uber? Sidecar, another competitor launched in 2012, and purported inventor of ride-sharing in personal cars rather than towncars and limousines, closed its virtual doors on December 31st, 2015 as Sidecar founder and CEO Sunil Paul announced in a Medium post. Sidecar had been an early competitor with nearly $35 million in funding at the beginning, but never was able to procure the customer or investor numbers that Uber and Lyft found, leaving Sidecar at a capital disadvantage it was not able to recover from. The company has not left the scene completely, however. They are “working on strategic alternatives and laying the groundwork for the next big thing.”

CareMonkey Wins Slush Startup Competition

CareMonkey is a software company designed to develop and design health, safety and productivity solutions for families, schools, clubs, businesses, community service organizations and other groups with a duty of care. Based in Melbourne, Australia, CareMonkey allows families and organizations to share private and sensitive information in a secure manner. This is key today as we live in a world where technology breaches seem to happen bi-monthly now.

CareMonkey’s philosophy is as follows:
“We believe everybody deserves to be safe, everybody deserves for their personal and confidential information to remain that way, and that being prepared for emergencies, gaining consent and being compliant shouldn’t be a difficult task.”

CareMonkey, a prominent startup has made some noise of late. According to TechCrunch.com, CareMonkey won the Slush Startup Competition. Slush is an annual event where startups can share what it is their companies do to international investors, executives and the media. The 2 day event boasts 4 stages, 200 speakers, 1,700 startups and 15,000 attendees. This years conference was held in Helsinki, Finland. Featured speakers included Niklas Zennström, the co-founder of Skype and Atomico, Caterina Fake, co-founder of Flickr and Hunch, and Jacqueline Novogratz, founder and CEO of Acumen to name a few. The event is a great place for companies to audition for potential investors as over 600 announced investors were in attendance.  For more on CareMonkey, check out the video below.

Samsung Says Startups Are Its Secret Sauce

On just this past Monday, Samsung said that its evolution as a company depends on “cultivating deep relationships” with startups and startup ecosystems, on a global level. Samsung, the South Korean tech giant, is most known for its Galaxy smartphone line that closely compete with Apple’s iPhone.

What do they mean when they say that startups are the “secret ingredient’ to innovation?

“The future is about the thoughtful integration of hardware and software. And that means startups,” said David Eun, EVP of Samsung’s Global Innovation Center.

Earlier this month, Samsung announced its new SmartThings Hub at IFA in Berlin. SmartThings Hub is the name of an open ecosystem push into the Internet of Things (IoT) space, the fruit of an estimated $200 million acquisition of SmartThings in August of last year. They believe the Internet of Things will be its next big driver.

samsungSamsung said that for it to evolve its software and service presence and to continue building compelling consumer experiences, they are cultivating relationships with startups in Silicon Valley, New York City and other major cities home to startups. The relationships are built on four main pillars: investments, partnerships, acquisitions, and an accelerator program in SF and NYC. Through work with startups no matter the stage of development, the Global Innovation Center engages with entrepreneurs in different capacities, offering them more opportunities than would just one investment.

Last week, Samsung pledged to increase their efforts to better support startups locally, in South Korea. To do this, they plan to encourage entrepreneurship, help founders reach overseas markets, and create synergies for the regional economy.

“We have seen the achievements in fostering a venture business ecosystem which we aimed for when the [Center for Creative Economy & Innovation] was established, said Samsung’s president Lee Sang-hoon recently. “We will strengthen support programs for the creative economy to vitalize the regional economy.”

Daegu, the new Samsung center, was created with South Korea’s ministry of science, ICT and future planning. Meanwhile, Samsung still plans to provide support to build a startup environment. To share its vision for the future of tech and introduce concepts not yet realized, the company reopened its D’light experience store in Seoul. This was around the same time leaks surfaced showing Samsung’s foldable “Project Valley” smartphone which might be introduced the following year. It seems to be clear that Samsung desires to an a real innovator in the industry, not just a follower, and they choose to use startups to accomplish that goal.

How to Deliver a Pitch

ernest rudyak - pitchWhen beginning your own startup you’ll need to do many things along the way. In order to see your business grow legs, you’ll need funding. Now you can go about acquiring funding in a couple of different ways. For one, you can ask close friends and family. You could also enter a competition that awards money prizes to top contestants. You could also seek angel investors for their capital. There’s one thing constant in order to secure money in all these facets, you need to deliver a pitch. No one is just handing over money. You need to prove your concept and business model. Let’s take a look at some of the do’s and don’ts when delivering a pitch by Entrepreneur.com.

Work Out the Kinks

Gone are the days of piece of poster paper with a presentation on it. We now more or less you slideshow presentations. You can make a great slideshow but if you don’t practice your presentation, you can run into a bunch of errors that could cost you. Make sure that while each slide looks presentable when you go to view the presentation nothing is cut off or smushed together. You also want to make sure any special effects that you had don’t cause the presentation to freeze up or skip slides. Lastly, make sure your slides are in order. You don’t want to be thrown for a loop when one of the last slides of the presentation shows up after your title slide.

Don’t Highlight Unpreparedness

While you don’t want to over practice your presentation to the point that if comes off robotic. If you plan to not come off robotic, you also don’t want to walk in totally unprepared. That said, don’t highlight a blunder or a sign of unpreparedness. Generally a presenter will say something along the lines of, “sorry I through this together last second.” By doing so, you’re ultimately telling the viewers of your presentation that you don’t care that much about and that you don’t value their time.

For more on these do’s and don’ts check it out here.

Problem Solving in a Startup

Ernest Rudyak - startupsProblem solving is essential for any business, but for startups is a constant necessity. Unlike established businesses with a traditional structure, startups have to contend with all sorts of ‘good problems’ like rapid growth and space issues. Matt Erlichman, CEO of Porch, wrote a piece for Fast Company detailing some of the pressures of speedy growth at a start up and how to deal with them.

When it comes to budgeting, sweat the details.

According to Erlichman, there are probably parts of the budget at every new startup that are being overlooked. So it is important to closely monitor cash flow to ensure that spending does not get out of control. He suggests business owners have a target number of employees and a timeline that details when they will be added on. In managing property costs, it is important for startups to work closely with property owners to control the cost of rent and remodels.

Have a plan to delegate.

In a rapidly growing environment, it is important to have a leadership structure in place. A startup owner can only be everyone’s boss for so long. Having a plan to hand over control of certain areas of the business to members of the team will prevent hiccups in productivity as a startup expands.

Keep track of your company culture.

Not defining the company culture early on can leave an important part of a business’s brand undefined during expansion. Erlichman believes that it essential for a startup to bring together its leadership team early on to define the company culture and to put in a structure to implement it.

Don’t skimp on your HR manager.

Having the best team possible is any startup’s greatest asset, and that means strong recruitment and getting new hires up to speed quickly. Erlichman suggests that startup CEOs make sure to hire a an HR manager with a proven track record and provide them all the resources they need to do the job.

Give yourself enough room to grow.

When choosing a base of operation, Erlichman suggests renting a bigger space than is needed at the moment. It can be tough to anticipate where a rapidly growing company will be in a few months or a few years, CEOs should plan accordingly.

Build something you and your team loves.

The most important part of the success of any startup is the energy of the team behind it. If the team loves the work, they will continue to grow and continue to innovate.

Car Startups

Buying and selling used cars can be a difficult process. There is a great deal of the stress as customers have a hard time trusting car dealers. In DMEautomtive’s 2014 survey of 2,000 automotive customers, only 20% of the respondents perceived car dealers as trustworthy people. Alternatives to car dealers have involved using sites such as Craigslist or eBay, but these avenues tend to be even riskier and are sometimes even less trustworthy. With a clear need for more used car buying options, the tech industry has stepped in to try and provide a solid, trustworthy alternative. Some of the best, new online alternatives for buying and selling cars online include: Beepi.com, Instamotor and Mojo Motors.

Beepi.com (peer-to-peer)
rudyak - startupThis company is a licensed car dealer in California and accepts cars from private sellers in Arizona and Texas as well. When you list your car on the website, you get a guaranteed price that will never change. This means that there is no negotiation between buyers and sellers. After you have received your guaranteed price, a Beepi inspection will take place. If it passes inspection, the site guarantees to sell the car within 30 days. Beepi offers free car delivery to buyers in 200 cities, which means the buyer and seller never even need to interact.

However, getting your car on Beepi is not easy. Only one out of every three cars ends up getting approved. Furthermore, the car needs to be six years old or newer, accident free and the title has to be completely clean. The goal of Beepi is to ensure that each customer receives the absolute perfect car.

Instamotor (peer-to-peer)
Instamotor is a free mobile app available on iOS (coming soon to Android) across the United States. However, currently most users are based in California as the inspection locations are currently only available in the Bay Area (Los Angeles location will be opening soon).

Instamotor offers a three-day buyback guarantee, a free Carfax report, an inspection at an Instamotor inspection station and a three-month 3000 mile mechanical guarantee. Instamotor does not actually handle any transfer of money or title, it’s goal is to simply bring buyers and sellers together in a trustworthy atmosphere. Most buyers pay the agreed upon price with a cashier’s check or certified check. Instamotor is working on a check verification feature to avoid problems involving check fraud.

The company does not even take a cut of the transaction. It earns money through their referrals to auto insurers. For each of the vehicles that are off our app, we will get insurance quotes and insurance companies give a small commission on that insurance purchase. Buyers can still benefit from the app, with inspections and guarantees, even if they do not purchase insurance through the application.

Mojo Motors
This website is not a peer-to-peer marketplace like Beepi and Instamotor, however, it does offer valuable information and an effective way to make a car purchase. The site uses inventory feeds from car dealers, lets users follow cars they are interested in and receive alerts if and when dealers drop their price. The idea for the company results from the fact that dealers make more money if they can turn their inventory as fast as possible. Therefore, they tend to cut the price of the cars every 5-15 days. The average car has about 3 price drops, totalling an average of $1,000 in price reductions. With Mojo you can follow the price history as well as the number of others following the vehicle. You can also reach out to the dealer directly through the website to arrange a test drive. Some dealers even offer an extra discount to Mojo users. This site is also free to car buyers, Mojo creates revenue through selling premium positioning and subscriptions to car dealers.

For more on this topic, check it out at money.usnews.com.

What is “Lean Startup” ?

Ernest Rudyak

“Lean startup” culture is a new thought leadership that is being used to counter attack the staggering numbers of failed start up companies around the world. This idea is based on reducing the risk of failure by understanding the needs of your consumer base, and adopting a mentality that favors flexibility over elaborate and longterm planning. A big contributor to this movement is Steve Blank, co-founder of eight start up companies in the past 20 years. Blank’s first company, E.piphany, was a software startup established in his kitchen in 1996. Blank used this specific experience to write Four Steps to the Epiphany, a book that is considered by many critics as the first introduction to the lean start up ideals. 

This past week, Blank gave a talk at the headquarters of Qualcomm in San Diego, and spoke to the audience about the expansion of lean startup ideologies throughout universities, established organizations and even governmental institutions. Another important point made by Blank is the theory that startups aren’t just younger versions of big companies, but in fact, a completely different animal. CEOs have been told over and over that in order to be successful, startups need to emulate the business models of big companies, however, Steve believes that are a few discrepancies in this thought process. While big companies have spent time and resources understanding their customers, competitors and pricing fluctuation, startups are still in the discovery phases. 

Many startups do not fail because of a lack of better technology, but because they do not have the necessary tools to identify a specific market for their products. Not being able to target the market that fits your product line, is also a failure of understanding and creating a business model that works for your company. During his talk Steve encouraged young companies to learn more about their customers and an find audience that would give constructive feedback regarding their products. The lean startup theory is not meant to grow your business and increase your profit margin, however it can help CEOs understand if they are on the right track and further experiment with different entrepreneurship ideals.

TechCrunch Offers New Opportunities for Startups

Ernest Rudyak - EngeocomLate Sunday evening, TechCrunch, a leading news website in the informational technologies, announced an upcoming collaboration with Sirius XM radio. Every Tuesday night at 6pm EST TechCrunch will hold a live talk show on Sirius XM Insight 121 and speak about some of the latest and ground breaking startup companies selling products that could potentially benefit users and listeners alike. 

Every week, a panel of judges will hear an elevator pitch (one minute only) from five different companies describing their business model or products. After asking a couple of questions the judges will then compare notes and deliberate on that week’s winner. 

This opportunity will be great for companies who are in the beginning phases of their business and would like to raise awareness for their brands and publicly announce information that could potentially increase traffic to their websites. Context awareness is key in engaging consumers, receiving feedback and reaching out to potential investors. The first two years is a crucial time for startups and their ability to grow is most vulnerable during in this period. 

Many companies are solely focused on going viral, which can drain marketing budgets and most likely wont be as effective. Every “top marketing tips” list focuses on leveraging social media profiles to your advantage and finding effective ways to reach as many potential costumes as possible. Being able to tell your story on TechCruch could be a huge opportunity for your company. People who are tuning in to Sirius XM Insight 121 are already interested in finding out more about information technologies and new products. Having your company broadcasted across the nation could mean huge (and free) exposure.

Below are the guidelines each company must fulfill before applying:

  1. You must have a product that is available to general users. No sign-up pages or pre-orders with a TBD ship date. There must be a link we can give to listeners/readers where they can access your product or service.
  2. You must be an early stage company. If you have raised a Series A or later, you are disqualified. Bootstrapped or seed stage startups are welcome.
  3. You must be able to pitch your product with your words only.
  4. You must be able to operate a telephone.
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