All Fishermen are Liars Except for Me and You
and Honestly ..... I’m Not so Sure about You!
Steelhead (and Salmon) are what scientists call anadromous fish. While they are born in fresh water, they
adapt to also live in salt water as part of their migratory life cycle. Out of the 5000 or so fertilized eggs in
their redd, only 300 will survive the many dangers from predators, pollution, drought, water diversion and
worm dunkers. Against these odds, they innately follow their senses on the journey to and from the ocean
only to return home to mate (once) and die. Any comparisons drawn between steelhead trout and
entrepreneurs are for the most part purely coincidental.
All Fishermen are Born Liars ....
My fishing buddy Trevor likes to say, “Nothing makes a fish bigger than the one that got away.” He
routinely divides in half the number of fish I tell him I caught and then discounts by 25% the size of the
fish. I find myself telling my wife, “The fish was actually much bigger than it looks in the photo,” (although,
it’s funny I always look the same size).
Possibly as a result of this, I am a big advocate of documenting customer meetings. There are a number of
reasons for this. The first is that the process of transcribing meeting notes allows me to see trends that I
might not immediately capture in the heat of the meeting. After multiple times of hearing quotes like “that’s
not the problem, this is...” my attention starts to peak. I like to build matrices with our “Sacred Truths” on
one axis and every customer we talked to on the other axis. A quick scan of the rows will usually either
yield a trend or an outlying data point depending on your perspective. It also can prevent instant memory
loss, reality distortion from magnifying the positive and filtering out the negative. After a particularly bloody
customer encounter, one of the founders of a client exclaimed to my disbelief, “Wow... they really loved
the color of the box!”
Documenting customer meetings also provides a legacy to see how far you have evolved during the process
of customer validation. Down the road this may be important to the new VP of Marketing or Sales. When
the product is ready, they may want to follow up with the CISO at Goldman Sachs who was intrigued.
Finally, VCs know “All Fishermen are Liars...” In the due diligence phase, it is not unusual for our client
companies to supply VCs with ACT Venture Partners’ independent market validation reports. We are not J.
D. Powers, but our customer meeting summary documents tend to be pretty objective and will ensure that
it didn’t take 79 customer visits to produce those 3 perfect sound bytes. Some recent work with an exciting
stealth company founded by a serial technical entrepreneur produced a very positive experience with Mohr
Davidow Ventures’ Jon Feiber and Donna Novitsky. The MDV team was a true partner in the validation
process and had an insatiable appetite to consume the customer meeting analysis to probe more deeply into
the opportunity while opening up their network as well.
Don’t Shoot the Guide....
Admittedly, after a fruitless (and expensive) day of guided fishing, I have been tempted to take out my ‘45.
However after time goes by, I start to realize what Jimmy Buffet, the famous coral reefer philosopher, once
said, ”Hell, it could be my own fault.”
Most founders of start-ups are engineers and most engineers crave data. The trick is to diffuse the emotion
out of the process and focus on what to do with what we’ve learned in the process. Our clients are
intimately involved in the validation process. They write down their Sacred Truths belief system and their
wish list of customer targets. They actively participate in the content creation process and the actual
customer meetings. They are supplied with detailed post meeting write ups and analysis of what we have
learned together immediately after each meeting. Somewhere during the process, a transferal of ownership
happens which takes the feedback out of the realm of our opinion and into what the ACT Venture Partners
client’s customers truly believe.
People react differently to customer feedback. Many go through similar stages to what Dr. Elisabeth
Kübler-Ross described in her landmark book “On Death and Dying” (Denial, Anger, Bargaining,
Depression, Acceptance). This is not to equate getting negative customer feedback with terminal illness, but
many founders go through a similar process when it comes to interpreting customer feedback. Many first
time CEOs go through the stages very slowly as they get so entrenched in their own world view (based on
their technological prowess and not on customer requirements). Sadly, it is often only after the company is
shut down or the board brings in a new CEO that they finally accept it and can move on.
The faster an entrepreneur can process the customer feedback, the faster they can get to the most
important question....the “Now What?” The right answer to this question will certainly impact engineering
design decisions and product schedules while the wrong answer or ignoring the feedback could negatively
impact the viability of the company. One of the best at assimilating and processing customer feedback is
Ross Schibler, founder and Chief Technology Officer of Topspin Communications which was recently
bought by Cisco. Topspin is the leading provider of programmable server switches whose channel partners
include a few small companies you may have heard of (Dell, HP, IBM, NEC, Hitachi and Sun). Ross also
founded Rapid City Networks and then sold it to Bay Networks. As a seasoned entrepreneur, Ross has the
ability to unemotionally process customer feedback and make actionable decisions about product features
and functionality based on the data which propelled Topspin through the five stages all in the same
meeting.
One of the reasons why I loved working at Acuitive was my former colleague Mark Hoover. Mark has the
uncanny ability (and 20 years of networking experience) to process recent customer data in real time and
then sanity check it for consistency with his own career data points. Mark quickly gets to the “Now
What?” With his legendary bed side manner, he can lift up the spirits of a founder by saying “The bad news
is that your 40 targeted customers don’t care much for your Swiss Army knife, but the good news is I think
that you may just have the best Can Opener in the industry.”
Size Does Matter....
Hopefully, you have not had the good fortune of running across a California Fish and Game Warden while
fishing. If you have, then you’ll know these dudes don’t mess around. If the fishing regulations call for only
one adult steelhead over 24 inches in your possession, they won’t hesitate to take your license, your gear
and your truck if your prized catch is an inch short or your license is on the kitchen table.
Joel Jewitt, fellow Stanford GSB classmate and one of the founders of mobile platform provider Good
Technology, once told me that there is no such thing as a vertical market for a start up. Joel’s insight was
that what looks like a single vertical market like financial services is really comprised of many small thin
market slices (retail brokerage, equity trading, back-office, etc.) with diverse product requirements that can
be difficult for a start-up to track and satisfy. The trick is to find as many slices that have enough in
common to build a viable business and leverage your development.
I like what InQuira has done with their natural language enterprise search platform. They have targeted
complimentary markets such as retail financial, retail telecom and retail automotive due to the fact that
these complimentary slices all have what InQuira calls “well understood industry intents.” With this
leverage, InQuira knows how to focus their sales, marketing and development budget on a large enough
market opportunity. Only after achieving significant revenue traction in known market slices, InQuira
asked ACT Venture Partners' to design a market entry strategy for other segments that exhibited similar
characteristics to their core competency markets. There is no way to figure this out unless you talk to
customers and understand their needs in complimentary verticals.
It is a fairly common practice for ACT Venture Partners to help companies quantify their Total Available
Market (TAM) size, Served Available Market (SAM) and Share of Market (SOM) as part of the validation
process. Despite enthusiastic responses from customers, be cautioned about having too narrow a focus.
After the initial positive feedback, clients can be faced with the dilemma: to achieve a respectable revenue
ramp they will need every customer with an installed base of 5000 VoIP phones deployed in a single
location (all seven of them) or every existing geographically distributed SAN to buy the gateway appliance to
make the numbers work. You don’t want to be the undisputed leader in a zero billion dollar industry!
Resist the temptation to jury-rig the TAM/SAM/SOM model to make the numbers look straight up and to
the right. While you might get funded, you will need to believe it yourself. Eventually, these expectations
set in the funding process will have a big impact on the next four to six years of your working life.
Evaluate the dependencies
You spot a huge steelhead slurping flies in a gin clear run across the stream and your heart starts pumping
and your mind races...if you could just do a modified double-back haul cast into the wind to avoid the oak
tree behind you and then bank your fly off the mid-stream boulder to have a chance at that fish...well that
is a pretty big dependency. I hate dependencies where I can’t control my own destiny.
Often this is the case with start-ups. The fate of your company is in the hands of someone else, such as a
service provider or an OEM, and your success or failure may be highly dependent upon them. Often these
companies know the leverage they have over start-ups and are not afraid to exercise it to get exclusivity,
preferred pricing terms or even go to the Machiavellian extent of driving a vendor out of business to get
access to IP. In the validation process honestly try and get a sense if your success is dependent on someone
else. Soundpipe, a developer of private label low cost IP-PBXs, found that despite a 10X price benefit
compared to comparable solutions from branded vendors, access to the distribution channel mattered as
much (possibly more) than the product itself. Soundpipe was acquired by a public company (Comdial) and
finally got access to the dealer channel.
Having spent over ten years in the proprietary hardware platform business, it is exciting to see the
opportunities for start-ups being created as a result of the proliferation of low cost Linux compute nodes
and the removal of many dependencies from proprietary platform vendors.
I was recently in a customer meeting where the CIO of a very well known financial institution was
constantly one slide ahead of me during my presentation. After much head nodding (a good sign), I went
for it and said, “You could have given the presentation instead of me. At the risk of going out on the limb
it sounds like if company X had this product today you would buy it... right?” He replied to a dumbfounded
audience of founders, “I love the product concept and you are two years ahead, but there is no way I would
buy this critical component from a start-up. Cisco does not have this functionality today but it is on the Q4
2006 product roadmap.” This factoid would have been good to know before start-ups burn through
inordinate amounts of venture money trying to directly take on the Big Fish solely based on being cheaper
or having some feature that the Big Fish didn’t have at the current moment (nor did they for that matter
despite impressive power point).
In recent years, corporate IT has gotten even more conservative. Frankly, they have been burned by too
many start-ups. Without some extraordinary technological breakthrough based on proprietary IP or a “hair
on fire” problem with an immediate solution only available from a start-up, taking on the Big Fish in their
home pond is ill-advised.
Instead, I like Centrify’s approach. Early on they began working closely with the Big Fish, which in this case
is Microsoft. They have built a platform that integrates most flavors of UNIX and Linux into Microsoft’s
Active Directory so there is one directory structure for cross platform access, identity and policy
management. It is a novel approach to the single sign on issue, yet leverages the fastest growing directory
from the industry’s most stable provider who is not threatened nor likely interested in supporting non-
Microsoft platforms in Active Directory. When roughly 40% of Centrify’s market validation customer
meetings end up with unsolicited requests to be in their beta program, you know they have something.
Now the Big Fish is asking to do joint customer calls because there is no threat, it fills a niche in their story,
and furthers their mutual objectives.
Life is short. This beats banging up against a wall trying to figure out how to guerrilla market against the Big
Fish who will attempt to freeze the market with their five year product roadmap while they play catch up.
So what happens when what you are working on is so disruptive that talking to customers is a futile exercise
because your company will fundamentally change today’s natural technology trajectory? We will examine
validation for disruptive technologies in the final Musing in our series entitled, “Ain’t Ever Caught One of
Them Before.”
and Honestly ..... I’m Not so Sure about You!
Steelhead (and Salmon) are what scientists call anadromous fish. While they are born in fresh water, they
adapt to also live in salt water as part of their migratory life cycle. Out of the 5000 or so fertilized eggs in
their redd, only 300 will survive the many dangers from predators, pollution, drought, water diversion and
worm dunkers. Against these odds, they innately follow their senses on the journey to and from the ocean
only to return home to mate (once) and die. Any comparisons drawn between steelhead trout and
entrepreneurs are for the most part purely coincidental.
All Fishermen are Born Liars ....
My fishing buddy Trevor likes to say, “Nothing makes a fish bigger than the one that got away.” He
routinely divides in half the number of fish I tell him I caught and then discounts by 25% the size of the
fish. I find myself telling my wife, “The fish was actually much bigger than it looks in the photo,” (although,
it’s funny I always look the same size).
Possibly as a result of this, I am a big advocate of documenting customer meetings. There are a number of
reasons for this. The first is that the process of transcribing meeting notes allows me to see trends that I
might not immediately capture in the heat of the meeting. After multiple times of hearing quotes like “that’s
not the problem, this is...” my attention starts to peak. I like to build matrices with our “Sacred Truths” on
one axis and every customer we talked to on the other axis. A quick scan of the rows will usually either
yield a trend or an outlying data point depending on your perspective. It also can prevent instant memory
loss, reality distortion from magnifying the positive and filtering out the negative. After a particularly bloody
customer encounter, one of the founders of a client exclaimed to my disbelief, “Wow... they really loved
the color of the box!”
Documenting customer meetings also provides a legacy to see how far you have evolved during the process
of customer validation. Down the road this may be important to the new VP of Marketing or Sales. When
the product is ready, they may want to follow up with the CISO at Goldman Sachs who was intrigued.
Finally, VCs know “All Fishermen are Liars...” In the due diligence phase, it is not unusual for our client
companies to supply VCs with ACT Venture Partners’ independent market validation reports. We are not J.
D. Powers, but our customer meeting summary documents tend to be pretty objective and will ensure that
it didn’t take 79 customer visits to produce those 3 perfect sound bytes. Some recent work with an exciting
stealth company founded by a serial technical entrepreneur produced a very positive experience with Mohr
Davidow Ventures’ Jon Feiber and Donna Novitsky. The MDV team was a true partner in the validation
process and had an insatiable appetite to consume the customer meeting analysis to probe more deeply into
the opportunity while opening up their network as well.
Don’t Shoot the Guide....
Admittedly, after a fruitless (and expensive) day of guided fishing, I have been tempted to take out my ‘45.
However after time goes by, I start to realize what Jimmy Buffet, the famous coral reefer philosopher, once
said, ”Hell, it could be my own fault.”
Most founders of start-ups are engineers and most engineers crave data. The trick is to diffuse the emotion
out of the process and focus on what to do with what we’ve learned in the process. Our clients are
intimately involved in the validation process. They write down their Sacred Truths belief system and their
wish list of customer targets. They actively participate in the content creation process and the actual
customer meetings. They are supplied with detailed post meeting write ups and analysis of what we have
learned together immediately after each meeting. Somewhere during the process, a transferal of ownership
happens which takes the feedback out of the realm of our opinion and into what the ACT Venture Partners
client’s customers truly believe.
People react differently to customer feedback. Many go through similar stages to what Dr. Elisabeth
Kübler-Ross described in her landmark book “On Death and Dying” (Denial, Anger, Bargaining,
Depression, Acceptance). This is not to equate getting negative customer feedback with terminal illness, but
many founders go through a similar process when it comes to interpreting customer feedback. Many first
time CEOs go through the stages very slowly as they get so entrenched in their own world view (based on
their technological prowess and not on customer requirements). Sadly, it is often only after the company is
shut down or the board brings in a new CEO that they finally accept it and can move on.
The faster an entrepreneur can process the customer feedback, the faster they can get to the most
important question....the “Now What?” The right answer to this question will certainly impact engineering
design decisions and product schedules while the wrong answer or ignoring the feedback could negatively
impact the viability of the company. One of the best at assimilating and processing customer feedback is
Ross Schibler, founder and Chief Technology Officer of Topspin Communications which was recently
bought by Cisco. Topspin is the leading provider of programmable server switches whose channel partners
include a few small companies you may have heard of (Dell, HP, IBM, NEC, Hitachi and Sun). Ross also
founded Rapid City Networks and then sold it to Bay Networks. As a seasoned entrepreneur, Ross has the
ability to unemotionally process customer feedback and make actionable decisions about product features
and functionality based on the data which propelled Topspin through the five stages all in the same
meeting.
One of the reasons why I loved working at Acuitive was my former colleague Mark Hoover. Mark has the
uncanny ability (and 20 years of networking experience) to process recent customer data in real time and
then sanity check it for consistency with his own career data points. Mark quickly gets to the “Now
What?” With his legendary bed side manner, he can lift up the spirits of a founder by saying “The bad news
is that your 40 targeted customers don’t care much for your Swiss Army knife, but the good news is I think
that you may just have the best Can Opener in the industry.”
Size Does Matter....
Hopefully, you have not had the good fortune of running across a California Fish and Game Warden while
fishing. If you have, then you’ll know these dudes don’t mess around. If the fishing regulations call for only
one adult steelhead over 24 inches in your possession, they won’t hesitate to take your license, your gear
and your truck if your prized catch is an inch short or your license is on the kitchen table.
Joel Jewitt, fellow Stanford GSB classmate and one of the founders of mobile platform provider Good
Technology, once told me that there is no such thing as a vertical market for a start up. Joel’s insight was
that what looks like a single vertical market like financial services is really comprised of many small thin
market slices (retail brokerage, equity trading, back-office, etc.) with diverse product requirements that can
be difficult for a start-up to track and satisfy. The trick is to find as many slices that have enough in
common to build a viable business and leverage your development.
I like what InQuira has done with their natural language enterprise search platform. They have targeted
complimentary markets such as retail financial, retail telecom and retail automotive due to the fact that
these complimentary slices all have what InQuira calls “well understood industry intents.” With this
leverage, InQuira knows how to focus their sales, marketing and development budget on a large enough
market opportunity. Only after achieving significant revenue traction in known market slices, InQuira
asked ACT Venture Partners' to design a market entry strategy for other segments that exhibited similar
characteristics to their core competency markets. There is no way to figure this out unless you talk to
customers and understand their needs in complimentary verticals.
It is a fairly common practice for ACT Venture Partners to help companies quantify their Total Available
Market (TAM) size, Served Available Market (SAM) and Share of Market (SOM) as part of the validation
process. Despite enthusiastic responses from customers, be cautioned about having too narrow a focus.
After the initial positive feedback, clients can be faced with the dilemma: to achieve a respectable revenue
ramp they will need every customer with an installed base of 5000 VoIP phones deployed in a single
location (all seven of them) or every existing geographically distributed SAN to buy the gateway appliance to
make the numbers work. You don’t want to be the undisputed leader in a zero billion dollar industry!
Resist the temptation to jury-rig the TAM/SAM/SOM model to make the numbers look straight up and to
the right. While you might get funded, you will need to believe it yourself. Eventually, these expectations
set in the funding process will have a big impact on the next four to six years of your working life.
Evaluate the dependencies
You spot a huge steelhead slurping flies in a gin clear run across the stream and your heart starts pumping
and your mind races...if you could just do a modified double-back haul cast into the wind to avoid the oak
tree behind you and then bank your fly off the mid-stream boulder to have a chance at that fish...well that
is a pretty big dependency. I hate dependencies where I can’t control my own destiny.
Often this is the case with start-ups. The fate of your company is in the hands of someone else, such as a
service provider or an OEM, and your success or failure may be highly dependent upon them. Often these
companies know the leverage they have over start-ups and are not afraid to exercise it to get exclusivity,
preferred pricing terms or even go to the Machiavellian extent of driving a vendor out of business to get
access to IP. In the validation process honestly try and get a sense if your success is dependent on someone
else. Soundpipe, a developer of private label low cost IP-PBXs, found that despite a 10X price benefit
compared to comparable solutions from branded vendors, access to the distribution channel mattered as
much (possibly more) than the product itself. Soundpipe was acquired by a public company (Comdial) and
finally got access to the dealer channel.
Having spent over ten years in the proprietary hardware platform business, it is exciting to see the
opportunities for start-ups being created as a result of the proliferation of low cost Linux compute nodes
and the removal of many dependencies from proprietary platform vendors.
I was recently in a customer meeting where the CIO of a very well known financial institution was
constantly one slide ahead of me during my presentation. After much head nodding (a good sign), I went
for it and said, “You could have given the presentation instead of me. At the risk of going out on the limb
it sounds like if company X had this product today you would buy it... right?” He replied to a dumbfounded
audience of founders, “I love the product concept and you are two years ahead, but there is no way I would
buy this critical component from a start-up. Cisco does not have this functionality today but it is on the Q4
2006 product roadmap.” This factoid would have been good to know before start-ups burn through
inordinate amounts of venture money trying to directly take on the Big Fish solely based on being cheaper
or having some feature that the Big Fish didn’t have at the current moment (nor did they for that matter
despite impressive power point).
In recent years, corporate IT has gotten even more conservative. Frankly, they have been burned by too
many start-ups. Without some extraordinary technological breakthrough based on proprietary IP or a “hair
on fire” problem with an immediate solution only available from a start-up, taking on the Big Fish in their
home pond is ill-advised.
Instead, I like Centrify’s approach. Early on they began working closely with the Big Fish, which in this case
is Microsoft. They have built a platform that integrates most flavors of UNIX and Linux into Microsoft’s
Active Directory so there is one directory structure for cross platform access, identity and policy
management. It is a novel approach to the single sign on issue, yet leverages the fastest growing directory
from the industry’s most stable provider who is not threatened nor likely interested in supporting non-
Microsoft platforms in Active Directory. When roughly 40% of Centrify’s market validation customer
meetings end up with unsolicited requests to be in their beta program, you know they have something.
Now the Big Fish is asking to do joint customer calls because there is no threat, it fills a niche in their story,
and furthers their mutual objectives.
Life is short. This beats banging up against a wall trying to figure out how to guerrilla market against the Big
Fish who will attempt to freeze the market with their five year product roadmap while they play catch up.
So what happens when what you are working on is so disruptive that talking to customers is a futile exercise
because your company will fundamentally change today’s natural technology trajectory? We will examine
validation for disruptive technologies in the final Musing in our series entitled, “Ain’t Ever Caught One of
Them Before.”
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
ACT Venture Partners Inc.
ACT Venture Partners Inc.
Keep your Eye on the Big Fish
The harsh reality of the start-up world is
often there is a really big fish swimming in
the same hole as you. Whether it is Cisco
in network infrastructure, security and
telephony, Microsoft in anything related
to the desktop, Network Appliance or
EMC in storage, or Apple in consumer
MP3 devices, being able to realistically
anticipate the likely response to your
market entry will increase the likelihood
of your survival (or being swallowed up).
The harsh reality of the start-up world is
often there is a really big fish swimming in
the same hole as you. Whether it is Cisco
in network infrastructure, security and
telephony, Microsoft in anything related
to the desktop, Network Appliance or
EMC in storage, or Apple in consumer
MP3 devices, being able to realistically
anticipate the likely response to your
market entry will increase the likelihood
of your survival (or being swallowed up).