Strategy and tactics for startups, especially in software or other enterprise technology.

April 10, 2017

Customer-funded development — structuring a deal

This is the second post of a short series about what I think is an underused business model among software entrepreneurs, namely sponsored (i.e. customer-funded) development. Key points of the first post included:

This post covers the nitty-gritty of sponsored-development deal-making.

As per the previous post in this series, suppose you are fortunate enough to identify the right customer for a sponsored-development relationship. Then the deal process is likely* to go something like this:

*Actually, the deal process is likely to fail. Most deal processes do. But if it does succeed, it’s likely to look like what I just outlined.

Two of the bullets above allude to challenges in agreeing on deal terms. The first concerns IP ownership. The structure you should insist on is:  Read more

April 10, 2017

Customer-funded development — overview

This is the first post of a short series about what I think is an underused business model among software entrepreneurs, namely sponsored (i.e. customer-funded) development. Key points include:

The second post in the series discusses the substantial complexities that an actual sponsored-development deal might entail.

Suppose you have a great idea for a software product that you want to develop and sell. How do you get initial funding? In some cases the answer is straightforward.

Even better, the product might be fast and cheap enough to bring to market that even a non-wealthy person might be able to self-fund. Examples include:

If you’re in such a situation yourself, congratulations — you’re in a great situation for successful entrepreneurship.

Suppose however that you’re an inventive engineer, with:

Read more

May 16, 2015

Your first customers

A couple of the raw startups I advise have recently asked me about a hugely important subject — dealing with their very first customers. The big deal here is that initial customers can offer three different kinds of valuable resources:

*Confusingly, both credibility and product feedback are sometimes called “validation”.

Questions of money are of course heavily influenced by how complete your product or service is. In particular:

Equity investment by your early customers and partners is problematic. In particular: Read more

April 24, 2015

Should you start a tech company?

I occasionally get very hands-on in accelerating a raw start-up. Typically this is when an engineer comes to me with an unquestionably clever idea and asks me — sometimes in very broken English 🙂 — whether and how he can get rich from it. So let’s collect some thoughts on the subject.

This post can be construed as fitting into my “not-very-organized series” about the keys to success. In particular, it draws on my July, 2014 post about judging opportunities.

The product plan

A start-up product idea needs to satisfy multiple criteria. Awkwardly, they’re rather contradictory to each other.

That usually means that the idea:

Criticisms I’ve made repeatedly of specific ideas include:  Read more

March 1, 2015

Marketing advice for young companies

Much of what I get paid for is advising early-stage companies, especially on messaging and marketing. So let’s try to pull some thoughts together.

For early-stage companies, I’d say:

Of course, these subjects are much discussed in this blog. The top three overview posts for young companies are probably:  Read more

July 9, 2014

Judging opportunities

This is the first of a not-very-organized series of posts on two related subjects:

Most of my posts can be said to touch on those areas, especially the latter one. But in this series I’ll try to be more direct about it.

Useful background may be found in:

For a new company in a new enterprise IT product category, the path to success may be oversimplified as:

Read more

March 3, 2014

Marketing in stealth mode

I consult to ever more stealth-mode companies, so perhaps it’s time to pull together some common themes in my advice to them. Here by “stealth mode” I mean the period when new companies — rightly or wrongly — are unwilling to disclose any technological specifics, for fear that their ideas will be preempted by rival vendors’ engineering teams (unlikely) or just by their marketing departments (a more realistic concern).

To some extent, “stealth-mode marketing” is an oxymoron.* Still, there are two genuine stealth-mode marketing tasks:

Further, I’d divide the second task into two parts — messaging and outreach. Let’s talk a bit about both.

*I am reminded of my late friend Richard “Rick” Neustadt, Jr., whose dream job — notwithstanding his father’s famous book on presidential power — was to be a US Senator. So he needed to punch his military duty ticket, and got a billet doing PR for the Coast Guard. (One of his training classmates was Dan Quayle.) His posting was to a classified base, and so his PR duties consisted essentially of media-mention prevention. But I digress …

Stealth-mode messaging

As I wrote in a collection of marcom tips, the pitch style

“We’re an awesomely well-suited company to do X.”

is advantageous

  • In stealth mode, when you don’t have anything else to say …
  • … but not at first product launch, when you finally do.

For small start-up companies, this message is most easily communicated through highlights of the founders’ awesome resumes, for example:

Our CTO personally stuffed and dyed the yellow elephant for which the Hadoop project is named.

But that still begs a central question — how do you describe what your stealth-mode company is planning to do? I.e. — in the quote above, what is the “X”?

Read more

January 22, 2013

When I am a VC overlord

When I am a VC overlord:

  1. I will not fund any entrepreneur who uses the word “disruptive”, unless she has actually read at least one book by Clayton Christensen.
  2. I will not fund any entrepreneur who mentions “market projections” in other than ironic terms. Nobody who talks of market projections with a straight face should be trusted.
  3. I will not fund any software entrepreneur who is unfamiliar with “The Mythical Man-Month”.
  4. I will not fund any software whose primary feature is that it is implemented in the “cloud” or via “SaaS”. A me-too product on a different platform is still a me-too product.
  5. I will not fund any pitch that emphasizes the word “elastic”. Elastic is an important feature of underwear and pajamas, but even in those domains it does not provide differentiation.
  6. I will hire a 16 year old intern of moderately above-average intelligence. I will not sign or propose any contract that intern finds difficult to understand.
  7. I will hire a second intern of moderately below-average intelligence. I will not fund any product whose documentation that intern finds difficult to understand. Exceptions may be made for products sold to orienteering athletes, crossword puzzle solvers, or engineers.
  8. When a board on which I sit approves revenue targets for the year, I will further stipulate that the year-ending sales pipeline must comprise more than a Chinese hair salon, an Italian pushcart vendor, the CEO’s brother-in-law and a bankrupt bait shop in Nome.
  9. I will only hire a CEO who can explain the technology at his previous company. A CEO who doesn’t know what his products do can’t sell or market them either.
  10. I will only hire a CEO who can also walk me through a sales cycle at her previous company. A CEO who doesn’t know how a customer buys may well have trouble producing revenue.
  11. I will support any plan that I agree is good for a company I have invested in, nor matter how modest or how bold. I will participate in any funding round that I think is profitable for my limited partners.
  12. I will remember that a board of directors has a fiduciary responsibility to all shareholders, and not just to the preferred ones.

Please offer your suggestions below. An associate will get back to you with our decision.

Related links

July 3, 2012

Marketing communication essentials

I’m often asked how early-stage IT vendors should prioritize their marketing communications, and specifically their investment in collateral. They don’t have nearly the budget or management bandwidth to do everything; so what should they do first?

Most commonly, my answer is a variant on:

Beyond that, I’d say:

Where, by way of contrast, do I favor being frugal? Read more

September 18, 2011

Strategy for IT vendors: a worksheet

Much of what I do for a living* boils down to critiquing IT vendors’ strategy — for sub-10-person startups, for the largest companies in the IT industry, and for companies at all stages in-between. In the hope of making strategy analysis simpler, I’ve compiled a list of questions that every enterprise IT vendor has to answer, if it is to understand its own business. They’re posted below. If you can’t answer these questions, you don’t really have a strategy.

*E.g., consulting via the Monash Advantage and predecessor services. Every question on the list below has arisen recently in the course of my work, most of them many times over.

If you run an IT vendor, help run one, or aspire to do so, then I encourage you to give these questions a whirl. If you don’t think the answers are all knowable — either now or for the foreseeable future — it’s still advisable to make working guesses. Flexibility is a virtue — but even so, having a tentative strategy is far better than having no strategy at all. Strategy is to execution as design is to coding. The best time to fix software bugs is before you start coding; the best time to fix a bad strategy is before you’ve committed yourself to executing it. Yes, both the design and the strategy will need to be changed over time; but a smart, internally-consistent strategy is a lot better than a contradictory one, than an obviously hopeless one, or than no strategy at all.

This is a really long post, so I’ll summarize it up here. Explanations of each point follow below. Read more

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