Category Archives: Product

How do you segment startups? Here are 3 models, but we need more

I love the approach, analytics and data associated with segmentation. The act of taking large numbers and breaking them down into manageable smaller parts fascinates me.

Yesterday, I had a chance to talk to a friend about segmenting startups. There were 5 ways we tried to segment them and finally figured out that 3 made sense and the rest were not useful or actionable.

Here are the 3 categories of segmentation we came up with.

  1. Segment by stage of company. (Idea stage, Prototype, stage, Traction, Growing, Scaling)
  2. Segment by growth rate (slow growth, medium growth, fast growth and rapid growth)
  3. Segment by category (eCommerce vs. SaaS vs. Media, etc.)
  4. Segment by location (where they are based)
  5. Segment by type of funding (Bootstrapped, Angel, VC, etc.)
  6. Segmenting by market opportunity (large existing market, vs, disruptive new company)

Segmenting by stage of company: This is the easiest to understand. Most companies call themselves in various stages based on their funding stage as well, so we figured #5 and #1 were fairly close. There were enough differences when a larger company was bootstrapped, so they were “Growing” and “Bootstrapped” but those are fair and few between.

Segmenting by growth rate: We wondered if this was similar to stage of funding as well, but there are enough differences. A slower growth “Startup” would be going through multiple rounds of seed and early stage funding, so we felt this was useful segmentation.

Segmenting by category: This is the one that most startups use as well besides stage. Companies call themselves as an eCommerce company, Consumer Internet, B2B startup, etc. Most startups use this as a way to segment themselves besides stage.

Segmenting by location:Companies tend to email me and segment themselves from “silicon valley” vs. “New York”, vs “Bangalore” for example. Not sure where we could use this, but this is one other way we could segment them. I suspect after you do a first level filter, this might be a follow on segmentation.

Segmenting by type of funding: Compared to 7 years ago, startups are taking longer to get to VC series A for some companies, but others are still taking less time. Some end up bootstrapping for longer, and still others go from accelerator to accelerator, trying to raise seed round, post seed rounds, bridge rounds and still trying to get ready for a series A raise. I dont think this is going to help us action them in a particular way, so this, albeit interesting is not very useful.

Segmenting by market opportunity:

There are other ways to segment startups, including the type of founder (hacker, vs. sales person, etc.) and founders background (serial entrepreneur, first time founder, etc.)

I wonder if there’s anything we missed. I’d love your input.

The new age “conglomerate” – Alphabet

The dominant form of corporation in 1980’s was the conglomerate (pdf). By the 1990’s this form had become deinstitutionalized.

Why?

Diversified firms were taken over and the unwanted parts were sold.

The new age takeover firms of the 1980’s are activist shareholders.

Yesterday’s news of the new alphabet is indicative of multiple long running trends:

  1. There was a need for ultra long range investments and Larry Page and Sergey were willing to make those bets.
  2. A cash generating business can help fund many other risky investments over time, which may or may not pay off, but will help move humankind forward.
  3. The limitations of a few activist shareholders need to be put aside for the greater good.
  4. Conglomerates allow for one idea from one portion of the business to help another in a different field innovate.
  5. Different business models in the same “corporation” or entity causes people to get confused.

Welcome to the new age conglomerate.

Google, I believe is the first of maybe 3-4 potential conglomerates, which will emerge over the next few years.

Facebook with Oculus and WhatsApp will likely be another candidate. WhatsApp’s business model is not clear, but Oculus will not likely make money from Ads. So, there’s a need to have a holding company for sure.

Uber (taxi business model, delivery business model, fleet management and ownership) will be possibly another.

Alibaba should be yet another, if already not down that path.

The only thing that’s challenging for these companies is if their structure has not been already setup to support the dual class stock voting structure, etc.

When you have multiple businesses with different models of making money, and you still want to hold them together, this new structure makes a lot of sense.

I only wish more companies in technology would adopt this model. Welcome Alphabet.

Alphabet
Alphabet

The thing I do think that’s going to be a challenge is that there will be less transparency about the “Google” part of the business. I really think that there will be less information shared about how YouTube or other parts of the Google business are performing. I am hoping otherwise, since that was mentioned in the letter, but I doubt it.

How the cloud is the huge opportunity for Indian IT Services companies

I got an email from a friend yesterday who is at Infosys. He pointed out that they had stellar quarter and were “back on track again”. He challenged my blog post from a couple of weeks ago on the disruption that SaaS, cloud and Coding / Hacking schools are having on IT Services organizations.

I have a theory that most everything insiders know about a market clouds their judgement from a big picture and that makes them more vulnerable to short-sighted proclamations. A simple way of saying that is I was probably wrong and not viewing the big picture.

For services companies that are still driving revenues by hiring a lot of people and ensuring they are billing clients, the business is not very complicated. Anything that gets more of their people billing makes them money.

In fact, Accenture and many other services companies make billions of dollars from under 500 customers worldwide.

Imagine that.

Accenture made $32 Billion and had fewer than 500 clients.

They have not added more than 10 clients in the last 5 years.

They have 141 “Diamond clients” who each spend more than $100 Million a year with them.

So you can make lots of money from a small number of customers.

One big opportunity yesterday I was pointed to for the IT services firms is that many larger customers are moving from in-house data centers to public and hybrid clouds.

Hybrid Cloud
Hybrid Cloud

The move is largely due to the fact that many data centers are fairly old and using power, cooling, etc. inefficiently. So, their cost of delivering IT services is rather high, which makes them less competitive. For example, the average mid-sized to large insurance companies spends about 8-10% of their revenues on technology and IT. Of that 14 – 17% is spent on cloud and data center. The older their data center and cloud, the less agile and nimble they are for sure, but also the cost of their IT services is now nearly 30 to 50% more than others (per service invocation).

Which is why many of the larger clients of the IT services companies are considering a move to the cloud. That move, though, comes with its own set of challenges. Privacy, data security, application profiling etc. are all problems that they did not worry about so much before, but now they have to.

The biggest opportunity for IT services companies seems to be the move to the cloud from private data centers.

There other two opportunities are in analytics/business intelligence and migrating applications from “web” to mobile.

Maslow’s hierarchy of needs applied to customer development

Yesterday, I had an entrepreneur reach out to me to ask me a few questions about his #napkinStage idea. He was doing customer development, he said and before he’d get to far into the development of the product, he wanted to talk to customers.

One thing that he mentioned to did not surprise me as much, but was indicative of the state of the challenges faced by all entrepreneurs.

I have sent over 110 emails (20-30 were warm introductions, rest were cold).

“I have been trying to get to talk to potential users on the phone so I can ask more open-ended questions”, he said. “I have gotten 2 people willing to talk on the phone”. The rest have been reluctant to phone and prefer to email or message.

Yesterday I was reading the survey results by attentiv (the graph shows the # of mobile phone users who use various capabilities on the phone with some level of frequency.

Social Networks, Email and Text, No Calls
Social Networks, Email and Text, No Calls, Credit: (attentiv)

Turns out, the entrepreneur was facing the problem that 90% of marketers face. We just dont like to talk any more.

I would have not been surprised about this if this was only that they did not want to talk to strangers.

That’s not the case though.

In the customer development hierarchy (or Maslow’s hierarchy applied to customer development), while the pre-purchase may be the pinnacle of the customer development outcomes, the customer calls are the hardest.

Customer Development Hierarchy of Needs (Maslows theory applied to Customer Development)
Customer Development Hierarchy of Needs (Maslows theory applied to Customer Development)

I have seen many of the entrepreneurs at our accelerator give up on the “Talk to actual customers on the phone” portion of the customer development sprint.

This is for both B2B and B2C companies.

Most customers are comfortable with online surveys, many are willing (even at the expense of getting spammed) to even provide their email to be notified when a product gets launched. While pledging on Kickstarter and pre-paying revenue are the ultimate goals and more indicative of traction, the customer call still is the holy grail that every accelerator program asks their participants to do.

I think that will have to change over the next few years. If messaging is what most of the customers prefer, I suspect entrepreneurs will start to focus on getting potential users to “join their public #Slack channel”.

Open discussions are much more simpler and easier to manage using Twitter or Slack, compared to phone calls, which require a lot of commitment in terms of time, attention and focus.

Most people are losing the stamina and energy it takes to have a long conversation on the phone.

The ultimate list of sources for competitive analysis on your #startup rivals

After doing a competitive analysis of your market landscape the next level of detail most people want to perform is a key competitor analysis.

When I was a product manager, I tended to focus only on the product features, user experience, design and technology during my competitive analysis of a company.

That’s usually what most CEO’s do – after all product is the #1 thing that most customers see, touch and feel that matters to the most.

Turns out that’s an incomplete view of competition. I had a chance to see a complete view when we did a comprehensive audit of the top 2 competitors before we sold our company.

It is pretty obvious now, but you can get so much information from external sources such as social networks, email newsletters and blogs that to get a comprehensive 360 degree view of the competition, you can clearly understand where they came from, and where they are headed.

Comprehensive Competitor Analysis
Comprehensive Competitor Analysis

I put a partial list of sources that you might want to consider to get competitive information from in the chart above.

Here are the top questions you might want to consider getting answers to understand your competitors strategy overall.

  • What events are they attending? Speaking? Presenting?
  • What are they announcing? Investors? Management? Customers?
  • What are their open job positions? Who have their hired?
  • What is the segment of customers they are going after?
  • Who have their hired? What’s their background likely to tell you about their plan?
  • How do they price? What are the tiers?
  • What have they learned about their customer needs?
  • What are they sharing about their company?
  • Where are they looking to start new offices?
  • Where are they looking for talent / customers?
  • Who reports to who? How many people in the company? Background?
  • Promotional Plans? Who is following them?
  • Who likes their page? Who are their customers?
  • What questions come up? What are customers complaining about?
  • What messages are they pushing?
  • What keywords do they rank for? What are they bidding for?

While these are tactical questions, the key parts of your competitors strategy you are trying to understand are:

1. Who are their customers – what segment of the market are they going after?

2. How are they targeting customers?

3. What is the problem for their customers they are solving?

4. How are they solving the problem? What features in the product support that?

5. How do they plan to scale and grow?

Typically after this detailed analysis you will get a clear idea of what your competitor is doing beyond their product to help differentiate from others.

How to conduct and document a “day in the life” audit of your customers? #startup

Once you understand how to segment your startups customers and the 3 most important steps to segmenting your customers, most people start to put a framework for validating customer segments. I tend to use the the Kanban method for Continuous Visible Customer development, which allows me to keep iterating on customer’s problems, pain points, and validating key assumptions we made.

One of the most important challenges that startups face is one of getting their users time or attention. For B2B startups besides the time,they also have to help save money or increase revenues, etc.

Time, for most people is rather hard to convince people to find. Even if you believe they do have it, users are unlikely to commit unless it entertains them (games, media) or it saves them more time (apps, eCommerce, etc).

The best way to understand how a product will add value to your users is to do a time and activity audit of your customers.

The output of your time and activity audit is to come up with your a) product value proposition, roadmap and be the north star for new features b) be the guide to help target your marketing efforts and c) help your sales persona mapping.

Day in the Life of a PR Associate
Day in the Life of a PR Associate

Here is the final output of the day in the life audit for BuzzGain, and the visualization I used to talk about the day in the life.

Day in the Life Audit Drives Product Direction
Day in the Life Audit Drives Product Direction

While the final output of the day in the life looks pretty, the process to gather the data and come up with the analysis is anything but.

There are 3 possible ways for you to collect and organize the day in the life data:

1. The increment method: In this approach, you have to “shadow” your users for a day and document every 15 / 30 minute increments. I used this for 3 users on 3 different days and did it in 30 minute increments. This was done so I could understand where they ate, who they worked with, when they had meetings, what “activity” they performed, etc. I would color code the activities into 3 (meetings, work and other – red, black and blue worked for me on a simple print out that I got from Outlook.

Daily Calendar
Daily Calendar

2. The mini-milestone method: In this approach, you are unable to shadow the customer, but you meet them 3 times – early before they start their day, afternoon at lunch and late afternoon before they leave for home. You are trying to get a highlight of the key time “blocks” and activities they spent time on. Do this with at least 5-7 users, instead of 3 if you are adopting the previous method, since users either forget or lie to make themselves sound more busy and important than they actually are.

3. The prioritized activity method: In this technique, you ask your users for their top goals, priorities or objectives for the period they are measure – monthly, quarterly or annually and the amount of time they have to spend to achieve those priorities. Then you can check in for 3-4 weeks, every week to see if the major “buckets of their time” are being spent towards achieving those priorities and what activities are contributing towards achieving those. This is typically done when your users are senior-level executives.

3 bonus tips for you during this process:

1. Your audit helps recruit your users as well (they can be beta customers later), so think of this process and the exercise as a value-added pursuit that you can offer for busy people to help them get control of their time.

2. Most “business” users spend a lot of time in meetings. In fact I wont be surprised if over 30% of folks tell you they go from meeting to meeting and only get work done late at night or early morning when “they have time for themselves”. Document the person(s) they meet with. It will help you with possibly “adjacent” markets later.

3. Documenting this helps your targeting and marketing efforts as well, so to ensure you can action it, document the “outside” the lines time-spent such as where they eat, when they take a break (to check FB, Twitter, etc.)