What is a startup?

Recently, I was talking about business with one of my co-workers. I enjoy chatting about innovation, strategy, products, and everything that has to do with commerce. In the middle of this conversation, I said something that prompted my co-worker to respond with something along the lines of "my brother worked at a startup that sold belts online...." Wait, what? A belt startup? I steered the conversation in that direction, and probed more into this belt startup. Had they reinvented the belt to be dramatically better than what we know today? Nope. Had they come up with a new manufacturing process that would revolutionize the belt market? Nada. Did they maybe come up with a business model that would allow them to dominate the market? Not at all. I guess they simply sell a wide variety of belts online, maybe they drop ship, maybe its fast-fashion.

What ensued was a friendly debate about the use of the word startup to define new companies. I argued this belt company is not a startup, my co-worker defended that it was.

The world is in an incredible cycle of innovation and entrepreneurship at the moment. I want to say that we are on a 10 year run, but on the macro scale its a lot longer, and a philosopher may say its a never ending run. Regardless of how you look at things, with more innovation comes more entrepreneurship, and over the past 10-20 years, more entrepreneurship has lead to more use of the term startup.

What is a startup, anyway? I mean, most of us could give an answer, but how specific would those answers be, and would we all agree?

Does it even matter? Absolutely not! I do, however, find it an interesting topic, and there are some very mild consequences to correct, or incorrect use of the term. Go into a bank for a loan, say you are a startup, and you'll get laughed out of the building. Walk into a venture capital firm and say you are a small business, and they'll laugh you out as well.

I believe that all startups begin as small businesses, but not all small businesses are startups. Let's explore!

When I first had this question, years before the debate about a belt company being a startup, the first thing I did was search for a definition that I could hang my beliefs on. You can find a whole lot of textbook definitions out there, some are meaningful and others just confuse the question even more. Then I came across the definition by Eric Ries, author of The Lean Startup (one of my favorite books on startups, entrepreneurship, and innovation):

A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.

This definition, short and to the point, is spot on. There are two subtle things in this definition that stand out. First, the mention of something being new, not doing the same thing others do. Then, the requirement that the conditions be extremely uncertain.

When I have this conversation with others, I tend to use a very simple example as a test for this definition: a bagel shop. Their product, bagels, is not new. Been around for a few hundred years and consumers have clear expectations of what a bagel is. If you are starting a bagel shop, you likely aren't creating anything new. You also aren't entering a market of extreme uncertainty. The market demand is well known, or can be. You know how many people are in the area around the shop, what your competition is, and more. The knowledge is broad and relatively easy to obtain.

So, if I open a bagel shop, am I a startup founder? No way! I'd be a small business entrepreneur. Being a small business owner is a difficult task, one that most couldn't or wouldn't have the guts to do. I applaud these folks, and admire their work. They are an important to the economy, and good for the community. They aren't startup founders though.

I do think that Eric Ries is missing one thing in his definition. I believe that in addition to the product being new and the conditions being extremely uncertain, startups also have the potential for massive and hyper growth, with the economies of scale to turn an investment into outsized returns.

Now, lets take a look at a company that I would define as a startup, Tesla. At first glance, you may be thinking that a car company isn't new, and the market isn't uncertain. However, I disagree! When Tesla started, they were in fact creating something new, a mainstream electric car, and more specifically, an electric sports car targeted at wealthy buyers. The idea that a high price sports car could be electric was new and wild. The idea that an electric car could have broad appeal flew in the face of the ugly and underwhelming electric cars that had hit the market before. The plan to then create other models of electric cars for the mass market while remaining sexy, and at affordable prices, was down right crazy when Tesla started. The newness of the product is also connected to the conditions of extreme uncertainty. Tesla cars would have just a fraction of the range of a gas powered car, something customers may struggle with. There was no charging infrastructure, like there is a network of gas stations. Setting up automotive manufacturing is an expensive, upfront investment that may not pay off. In 2003 when Tesla was started, the economy was still coming out of the recession from the dot-com bubble bursting and 9/11 changing America forever. Gas prices were actually low in 2003, so Tesla couldn't count on that for help.

Tesla started by doing something completely new. They were doing so under the circumstances of extreme uncertainty. And they had the opportunity to create immense wealth through rapid growth. They currently do about $12 billion USD in annual revenue, with a market value of over $50 billion USD, making them about as valuable as the big three America automakers, in just 15 years compared with the 100+ years Tesla's competitors had to grow into that valuation.

The founders and early executives of Tesla were taking a risk that no small business owner can compare with. Their likelihood of failing was high, and being successful would require very specific skills, many that can't be taught. If they were successful, the reward would be at levels that most can't fathom.

The bagel shop owner and electric sports car company founder are both entrepreneurs, and should both be applauded. They don't, however, face the same job, the same risks, or the same reward. One can walk into a bank for a loan, the other can't. One can build a nice business that throws off cash to make them wealthy, the other can make tens of thousand of others wealthy and change an industry in the process.

Nothing would make me happier than if you, the reader, were thinking to yourself at this point that a bagel shop could be a startup, if they did things differently. I love to think that any and every industry is ripe for the type of disruption that Elon Musk brought to the automotive world with Tesla. Its not that online belt retailers and bagel shops can't be startups, its that they typically aren't startups.

So, let me know when someone revolutionizes the world through bagels or belts, and I'll update this post. That said, I'll never equate being a small business owner with being a startup founder.

Solve problems with "why"

In my last post, I talked about the importance of having a "hair on fire, pay anything to solve" problem when you are building a product or business. For a lot of entrepreneurs, this is hard to get to. You'd think it would be easy, but it's not and I get why. Entrepreneurs have passion, they have ideas, they have drive. All important qualities and a great way to start, but those qualities often lead to blinders that keep you from focusing externally on the customer and the problem you can solve faster/better/cheaper.

There is actually a very simple technique to help you find the real problem customer's will pay you to solve. It's a technique that comes from conflict resolution/problem solving. The technique is called "5 whys" and it's the idea of asking why 5 times. The theory goes, within 5 questions of "why," you'll get to the root of the problem or issue.

Let's look at an example that is common is many of your personal lives:

Your significant other (S/O): "I'm mad at you."

You: "why?"

S/O: "Because you didn't take out the trash."

You: "Why does that make you mad?"

S/O: "Because I shouldn't have to ask you to do some of the work around the house."

You: "Why is that a problem now when it hasn't been before?"

S/O: "Because you know I am working long hours this week at work, and the kids started school again this week so there is so much to keep up on."

Based on that interaction, with just 3 questions, you've learned that the problem isn't that you didn't take out the trash, the problem is that you didn't recognize your significant other's need for more help. They don't necessarily need you to take out the trash, they need you to have some empathy, understand the situation and be proactive.

If your significant other was a customer, they wouldn't pay you to take out the trash, but they would pay you to have empathy, understanding, and be proactive. The problem isn't the trash! Had you not asked why, you'd think it was the trash. Had you not asked why 3 times, you wouldn't know the real problem is empathy, understanding, and being proactive.

At this point, you might think I'm a bit crazy with this example, but it does have a direct relationship to you and your customers. The first problem you discuss is probably NOT the problem they'll pay you to solve. The problem they'll pay you to solve is often deeper, and understanding the real problem will lead to significant business and financial success.

The best way for me to drive this point home is to share a real life example. I'm lucky to be called an advisor to an exciting startup named TalentIQ. They are in the big data space, and can be described as a "people intelligence" company. They keep databases about people up-to-date with current and relevant information that can't be easily found, verified, or understood otherwise. They sell this value to talent recruiting, sales, and financial organizations. The product that customers pay for today is not the product the founders started with.

Sean and Henry originally recognized that hiring top talent is hard, in part because the best talent already has a job and isn't applying for a new one. So they built a sourcing tool, a search product that recruiters could use to easily find the best talent based on specific criteria, regardless of employment status. They had success with this product and dozens of customers, some household names, started using the software.

The sales were coming in, but not at the rate they wanted. So they continued to interview their customers, and asked "what makes your job as talent recruiters difficult?" When they got an answer, they continued to ask "why?" They dug deeper. Then they learned that while customers did indeed have a need for their original software, they actually had a bigger problem. They had stale databases with thousands of past applicants, and the perfect candidate for a new role may be in that database. However, the information in that database was likely wrong...if for no other reason than it was old...out of date. Even better, TalentIQ's technology could easily solve that problem, it was an easy shift and was inline with their original vision.

Sean and Henry had their "ah-ha" moment, because they had the perseverance and humble nature to go beyond the surface, and dig deeper. They asked why. Over and over again. The sales started rolling in, at a rate even greater than they had imagined. Today they enjoy a rapidly growing business, with mind-blowing revenues that most companies would envy for the first year of their existence.

What Sean and Henry did may seem simple, but it's hard. Really hard. As entrepreneurs, we have to be open to changing the original product we envisioned, in order to meet our customers needs. We also need to remain unsatisfied with initial traction. It's easy for a few people, a few customers, to say our product is good. Great business aren't built on a few customers, they are built on hundreds, thousands, even millions. You won't get to that level unless you are willing to ask "why," over and over again. Get out of your own way, dig deep, and get to the real problem.

Don't just take my word for it, or the example of TalentIQ. Look at other companies. Uber's most popular product is UberX, but their original idea was town cars/limos driven by professional drivers (Uber Black). Twitter started out as a group text messaging concept, but I doubt anyone uses their text messages features today. These examples go on and on, as do the examples of companies that were never smart enough to dig deeper. Which category will you be in?

The startup problem

Recently, I had the rare and exhilarating opportunity to meet with 7 different startups in a single day. I heard seven product pitches. Seven teams of entrepreneurs so passionate about their companies, they are wiling to risk it all. Do you know what I didn't hear? Seven problem statements. Seven reasons the world needed what they were building. Seven reasons that the risk was worth it.

Its not that none of the seven were solving a problem, its that some of them didn't (or couldn't) articulate it. Instead, they focused on the solution. The cool new thing they were building. The software that would make something happen. Frequently jumping right into the what and how, without the why.

If you are a startup entrepreneur, your #1 job is to passionately and convincingly explain the problem you are solving. Can't do that? Stop everything you are doing, and obsess over this requirement. Your goal should be a 1-3 sentence problem statement. So clear that someone not familiar with the industry you are in, can understand it. I don't care if you are in the nuclear physics or open source software industries, you should be able to clearly explain the problem to the average person you encounter in your life.

Why does it matter? Because as an entrepreneur, you are always selling. Not just selling to your customers, selling to everyone. Selling the opportunity to investors and potential employees. Selling board members, mentors, and advisors on helping you. Selling your spouse on why its worth the risk to put it all on the line for this. Sell your friends on the reason you haven't seen them in ages. Selling the stranger at the cocktail party on the fact that you actually do important work, and aren't crazy.

Now, if you are a high growth startup entrepreneur, knowing the problem you are solving and passionately telling everyone about it is just the first step. The next step is to make sure you are solving a 10x problem. A 10x problem is one you can solve 10 times better than the alternatives, or solve the problem for 1/10th the cost of your competitors. You sell your product for 20% less than the competition? So what, thats not enough. Your product is 30% faster than the competition? Get out of here, not good enough.

Your customers have an alternative to your product. Maybe its not a direct competitor, but at the very least the alternative is the status quo. Doing nothing or continuing the way they've always dealt with the problem.

Now, you are asking them to make a change, to switch to your product instead.  The price of your product isn't the only cost to the customer. There is a switching cost. Not just the real costs to switch, but the inferred costs as well. The cost associated with taking a chance on you, the risk that you'll actually deliver on what you say you will. That you'll be around in the future and be able to grow with them. That you'll be the partner they need.

Customers won't switch to a startup for 20% cheaper or 30% faster. You need to be 10x better.

In my next post, I'll share with you a crazy simple technique to help get past the surface an opportunity, and down to the 10x problem.

The time I made a better Twitter and foreshadowed Slack

Most tech entrepreneurs start out with a side-project. A project that scratches their own itch, that they build outside of their normal daily work. Sometimes these side projects are a way for an entrepreneur to cut their teeth, before moving on to the real deal. Other times the side project becomes the startup. Either way, side projects play an important role in the birth of an entrepreneur.

While many of you know about the first and only startup I founded, you may not know that I have a few side projects in my past. I am lucky to have a good friend, who I've known since high-school, that shares the same passions for entrepreneurship and technology. From around 2007 to 2010, Jeremiah and I worked on 3 different web applications, which overlapped each other for some period of time and earned more than 50k combined users in our best month.

One of those projects was called CitySpeek, and it was born out of a frustration that Jeremiah and I both had. In 2007, Twitter was just starting to gain notable usage after being launched in 2006. Jeremiah and I were both early adopters and saw a game-changer. Then, we started experiencing an imbalance of signal to noise. We had to deal with a lot of tweets we didn't care about, to read the ones we did care about. Going the other direction, we wanted to send out tweets to, say Portlanders, and not anyone else, because we knew that the content wouldn't be interesting to anyone outside of the selected region. In other words, we loved the concept of Twitter and wanted to improve it by offering rooms, or channels, where users could opt to view only the tweets about a subject or region they cared about. We also added image/video uploading (at the time, Twitter just linked to an image/video) and message translation (again, something Twitter didn't yet offer).

Now, with the popularity of chat programs for communications both at work and for communities outside of work, I am reminded of how CitySpeek foreshadowed the world we live today. Popular apps like Slack and Hipchat organize communities around channels or rooms. Public but contained spaces where people can discuss specific topics, without adding too much noise to the main stream of information. I'm a member of 4 Slack "teams" (there definition for a group/community/company), 2 of them being groups that represent a community of people that all come together to communicate in a central place. In the case of the PDX Startups Slack, just like we used to do on Twitter. Only now, instead of a single noisy stream of tweets, I can go to a specific channel in Slack, like the #product_management room, to talk only about product management, with people who also only want to talk about product management.

CitySpeek didn't take off. We had a whole bunch of problems, the least of which included being rookies at building, launching, and marketing web apps. That said, the experience building CitySpeek, along with ThePortlander.com (Community curated news aggregator for Portland, OR) and Goboz.com (a better Yelp), is what prepared me to start CPUsage, which while it ultimately failed, was a real company that allowed me to pursue my dreams. Its fun to fondly look back on the past and say "hey, I had a good idea! I may not have executed well on it, but it was a good idea, ahead of its time!"

What fun side-projects have you done? What did you learn? Glad you did it? Let me know over on Twitter or Facebook, using the social media buttons below!

The data behind communication & collaboration apps at work

Recently, I blogged about some products and services that I wish existed, things I'd pay for if they were available to me. One of those ideas seemed to be rather popular and many of you have the same problem: Too many communication and collaboration tools at work, and its hard to find the information you are looking for.

I was intrigued by all the interest in this idea, so I decided to dig in a bit more. Shortly after publishing the original blog post, I started a survey. I listed nearly 40 business communication, collaboration, and file storage tools. I simply asked for people to check a box next to all of the tools they use at work, and in a second question, tell me the top problem them have with these tools.

The results were fascinating! As of this writing, I've had 58 responses. There is a whole lot of data to sift through and make sense of, which I'll be doing over the next few weeks. That said, I've gotten started and wanted to share what I have learned so far.

Before i jump into it, please note that I am not a professional pollster, nor am I a data scientists. The data I present is likely tainted in a variety of ways, and I am sure that the questions and answer options could have been better presented. One way the survey and data are tainted is that I advertised my survey through my networks on Twitter, Facebook, LinkedIn, and an industry Slack channel. Thats a whole lot of built in bias! So, you get what I am saying? Good.

The Apps

There are some clear winners and losers when it comes to the apps you use at work. For starters, 85% of respondents use a chat app, and 75% of those people use Slack. I knew that Slack was hugely popular, but I had no idea it was that pervasive among my network. I also figured that other apps like MS Communicator/Lync and Gtalk were lightly used, but I had no idea that Hipchat would be such a small player at just 8% of chat users.

Something else interesting, but not surprising, is the popularity of Google. Gmail, Drive, and Hangouts all have better than 50% usage across the survey's respondents. The only Google product that doesn't fair well is Google Talk (Gtalk), with just 17% usage. I suspect that 3-5 years ago, Gtalk would have come in at between 25%-50%, capturing most of Gmails users. However, a few years back, Gogle released Hangouts and began to merge some of their communication tools. A bigger impact on Gtalk was probably the growing popularity of Hipchat and then Slack, which offer much better functionality.

Also popular is video conferencing software, with 83% of you using some sort of tool in the category. Google Hangouts and Skype are the most popular, with every other option a distant 3rd. The least used type of software was in the Customer Service/Sales category (as defined by me), with only 33% of respondents using one of them (Salesforce, Zendesk, etc). Also unpopular is the collaboration category, with tools such as Quip, Jive, and Confluence (again, defined by me). Only 48% of you use a tool like this. A surprise, based on my quick view of the data in the above graphic, was project management tools (Asana, Trello, JIRA...my definition). I expected that nearly no one was using these tools, but it appears that as a group, they are popular, with 60% of you using one or the other. Of course, the category is dominated by JIRA (49% of PM tool users) and Github (54% of PM tool users), which are both more about software development than they are general project management, so my organization of the data and integrity of the survey are likely playing an outsized role here.

Digging into the stats

What I was really excited to learn about was the usage trends and patterns beyond the individual apps. Do people use a lot of different apps? Do they use more than 1 app to accomplish the same thing? I was not disappointed!

For starters, respondents on average use 6.7 different communication and collaboration tools at work. The media is 7, which means half (29) use 7 or more apps! In fact, the respondent with the most apps used in their work was someone with 14 different apps. You use these apps across 4-5 different categories (4.7 mean, 5 media).

With a median of 7 apps across 5 categories, its clear that no only are people using many apps, they are frequently using multiple apps to accomplish the same thing. A vast majority of you are using multiple apps in at least 1 type of communication/collaboration tool category. Just 26% of you are using only 1 app for 1 type of communication/collaboration, across all categories, leaving the other 76% of us double-dipping in at least 1 category.

The most common category where people use multiple apps to accomplish the same thing is in the video conferencing space. The average is 1.7 different apps, with many of you using 3 (17%) and commonly 2 (39%). While that means that the most common was just 1 (44%), this is misleading because the majority of you actually use more than 1 (56%).

Of the 7 different types of apps we looked at, 67% of you use at software from at least 5 categories. Not a huge surprise is the 9% of you that use at least 1 tool across all 7 categories, its just not that common to have to communicate and collaborate in EVERY way possible. After all, certain tools like JIRA and Salesforce are focused at specific functions within an organization (software development and sales, respectively).

What sucks about communication & collaboration software

You'll recall that my second question asked what was wrong with the tools available to you. A whopping 62% of respondents (36) said there was something they didn't like about the tools available to them. Based on the content in those responses, I categorized them into 6 different types of problems: Too many, Distracting/Noisy, Compatibility issues, Usage levels, Finding things, Application quality.

The most common complain? Too many, said 58% of the feedback comments. The second most common problem, which turns out to be very tied to the first, was how hard it is to find things (33%). Many of you, 31%, said that getting usage was a big issue, either on-boarding to these tools or getting the right people, using the right tool for the job. I didn't expect 19% of respondents to have compatibility issues....apps not talking/syncing with each other. That one never occurred to me. Five people said that low quality apps were an issue (14%) and 17% said that noise and distraction were a problem, a number I thought would be much higher.

Since my analysis is part qualitative in addition to quantitative, here are a sampling of a few interesting comments:

So many choices, what’s the right platform for the message at hand?
I have two sets that don’t work well together- Google tools vs. Microsoft. I have a Mac and the MS tools are uniformly terrible. Syncplicity is required, but is one of the worst drive applications I’ve ever seen.
Too many of them! Don’t know where to post information. Don’t know where to find information.
This information is shared in so many places. There isn’t one place where all the data lives.

Interesting stuff! I'll continue to dive deeper into the data and report back as I make new discoveries. If you'd like to discuss my findings or get access to the raw data, drop me a note by using the contact form on this site, or mention me on social media!