intellectual property of patrick bultema the early phases of high tech startups patrick bultema
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9/27/2003 Intellectual Property of Patrick Bultema
Boundaries of Reflection
Focused on Startups verses internal, new business initiative
Focused on high-tech startups verse new small business ventures Not geographically limited Pace of innovation different Emphasis on venture and liquidity destination verses
small business cash flow Focused on startups that will be venture
financed to enable and/or accelerate business creation and growth
9/27/2003 Intellectual Property of Patrick Bultema
The problem of assumptions, or Conventional Business Wisdom
Most business wisdom is based on the success of large, established companies Collins, “Good to Great”
15 years public, inflection point, 15 years great Most business growth is in the small business,
new, innovation category High-Tech Start Ups are an even more
specialized form of small businesses, but are a significant percentage of new businesses, and the focus of most venture capital
9/27/2003 Intellectual Property of Patrick Bultema
Premise …
Principles and Practices that make large established companies successful may have little or no relevancy to high tech start ups
A more forceful premise … The methods and criteria of big companies is actually detrimental to start up success
9/27/2003 Intellectual Property of Patrick Bultema
The Objectives of this Process Methodology Study Primary concern and boundary of reflection
confined to venture financed start ups Improving Capital Efficiency Enhancing the Capital Risk Scenario Identifying correlation between process and
success rates Identifying behaviors, leadership criteria, and
key metrics that correlate with success and process
Improving Success Rates through applying process methodology
9/27/2003 Intellectual Property of Patrick Bultema
The Adoption of Innovations
Most High-Tech Start Up’s are concerned with creating a “new” way of doing things
These innovations create the need to customers to recognize a better value proposition than current approaches
Researchers have studied the patterns of how and why people adopt new innovations
Seminal work written by Everett M. Rodgers, “Diffusion of Innovations” in 1962
Primary work around Iowa corn farmers adopting hybrid corn varieties
The Adoption curve and concepts was recently popularized and applied to the high tech space by Jeff Moore in Crossing the Chasm
9/27/2003 Intellectual Property of Patrick Bultema
Diffusions of Innovations Curve
Adoption Curve
Time
Ad
op
ters
Innovators2.5%
EarlyAdopters
13.5%
EarlyMajority
34%
LateMajority
34%Laggards
16%
From “Diffusions of Innovation”Everett Rogers
9/27/2003 Intellectual Property of Patrick Bultema
Categories of Adopters
Innovators New Technology adopters. Believers. Generally have the
power to make their own decisions, even if just for their org. Early Adopters
Looking for competitive advantage. Strategy buyers. Need some validation and references for Innovators
Early Majority Buy based on ROI. Typically looking for productivity
improvement Late Majority
Motivated by Conventional Wisdom. Looking for case studies that verify others are adopting
Laggards Don’t want to get fired. Adopt because they must to be credible
9/27/2003 Intellectual Property of Patrick Bultema
Distinctiveness of High Tech Start Up’s
Cycle time Measured in months verses years IPO in three years a possibility
Disruptive Innovation Fundamental change in how business is
conducted Eg. Email
The concept of the Chasm You either win big or lose. Little in between.
9/27/2003 Intellectual Property of Patrick Bultema
The Chasm Curve
High Tech Adoption Curve
Time
Ad
op
ters
From “Crossing the Chasm,Jefferey Moore
9/27/2003 Intellectual Property of Patrick Bultema
Concepts of Crossing the Chasm
Core idea: the Chasm is conceptually and operationally discontinuous with what makes early phase companies successful
Two key ingredients to Crossing the Chasm: The ability to make the segue to being and execution oriented company The momentum to be able to play successful in the “majority oriented”
marketplace ROI model and credibility Ability to establish “Conventional Wisdom” kind of positioning
The ability to re-introduce extensions to the core product/value proposition
Services Plus one Extensions
The Gorilla Game One Gorilla Two Chimps A handful of Monkeys
9/27/2003 Intellectual Property of Patrick Bultema
The Chasm and the Tornado
High Tech Adoption Curve
Time
Ad
op
ters
BowlingAlley
Tornado
More Services
+1 Extensions
From “Inside the Tornado”Jefferey Moore
9/27/2003 Intellectual Property of Patrick Bultema
Focus of Prior Attention
Most attention, research, and publishing has been on the Chasm and Mainstream Market
The pre-chasm stage has been treated like a voodoo, black art category
Yet, successful teams tend to be serial successes
But the reality for most …
9/27/2003 Intellectual Property of Patrick Bultema
Few Start Up’s Ever See the Chasm
Most fail not in the market scaling exercise, but in pre-chasm phases (need venture one data on stage failure)
They fail for a number of different reasons, related to process and experiment problems
The pre-chasm black hole
9/27/2003 Intellectual Property of Patrick Bultema
The Pre-Chasm Fundamentals
Learning ModelApplying the Scientific Methodology to
quickly define and refine a business modelRapid transition between phases Inter-relationship between phases not
necessarily strictly sequentialPhases need to be explicitly recognized,
though this is not common in practice
9/27/2003 Intellectual Property of Patrick Bultema
Pre-Chasm Phases
TheChasm
Value PropProductizing
SalesValidation
Go-to-MarketModel
Idea /Planning
Innovators
EarlyAdopters
CompanyProcess
CustomerTypes
9/27/2003 Intellectual Property of Patrick Bultema
Pre-Chasm phases
Idea/Planning (I) The original idea. Born out of a market context and invention or
innovation. Built into a business plan with early proto-typing, but without the commitment of venture funding. The business is an idea at this point.
Value Proposition (VP) Early Concept. Customer Pain. Tech Solution. Mostly Services and a
toolkit. Focused on customer buy in to concept and onsite prototyping Productizing (P)
Formalizing Product specification and requirements. Refining the “story” Sales Validation (SV)
Customers buying the product offering. Still pilot selling Go-to-Market (GTM)
Refining the go-to-market model. Validating market eco system and partner opportunities. Validating scale
9/27/2003 Intellectual Property of Patrick Bultema
Pre-Chasm Segue points
The process is crucialManaging the experiment and quick
iteration and adaptation are core requirements
Leadership skills varyResources staged to maximize capital
efficiencyManaging the segues between phases the
most difficult early challenge
9/27/2003 Intellectual Property of Patrick Bultema
The Early Phase Orbit
Ideas
Teams
Market Forces
Concept
Go-To-MarketModel
Plan
SalesValidation
Product
Slingshot
TheChasm
9/27/2003 Intellectual Property of Patrick Bultema
Attributes of Early Phase Orbit
Companies may launch into orbit at any phase Most efficient is to launch into the plan phase If launch into a later phase, must be recursive to
accomplish the earlier phases The goal of the orbit thru the phases is to gain
momentum to “slingshot” across the chasm Many companies require more than one orbit to be
successful If the phases of the orbit aren’t completed efficiently and
sucessfully, the company runs the risk of degrading into the atmosphere and burning up
9/27/2003 Intellectual Property of Patrick Bultema
The Universe and its impact on the Orbit
The process isn’t everything required for a high tech startup to be successful
Broader macro issues are the universe the process plays out in Market drivers Competitive Landscape Disruptive Technologies Economic Trends
In other words, a company can execute the process flawlessly and still fail due to the above macro issues
What’s more, the broader “universe” issues must be continuously monitored and factored into the learning processes of the orbit
And even the, the “universe” factors have the potential to destroy the orbit
9/27/2003 Intellectual Property of Patrick Bultema
Common Pre-Chasm Failure Points
Spending your capital building the “organization” before the business concept is validated
Valuing your idea of invention more than what the customer tells you Not creating mechanisms to listen to the customer Failure to run a disciplined experimental methodology Hiring the right people at the wrong time Not building a team to transition thru phases Building the prototype product before VP is complete Building V1 of the “real” product before P results in a clear story Violating the Early BD verses later BD role Starting the branding effort before SV Ramping the marketing lead generation before SV Hiring the Sales leader “who can make the company big” before SV Staffing up the sales org before GTM As a rule, recruiting early channel before GTM
9/27/2003 Intellectual Property of Patrick Bultema
Research project
Test the premise here to see if there is a correlation between a process methodology and success
Modify process methodology based on learnings Isolate further levels of granularity on early
phase, high tech start up success Process Leadership Team factors Early Customer selection process And so on
9/27/2003 Intellectual Property of Patrick Bultema
Initial research project Phase 1: Qualitative1. Contact ~10 venture firms2. Ask for 5-10 companies that have failed in their portofolio, where:
1. Business idea/premise was and still is promising2. No technology or marketplace change killed the company3. But the company failed anyway
3. Ask for 5-10 companies that have succeeded in their portfolio, where:1. Not because the space or idea was extraordinary, but2. Because the company just worked well3. Success is either realized thru liquidity event, or highly anticipated.
4. Criteria for success is a company that is able to: 1. Reach cash positive operations on venture investment2. And/or has already, or is projected with confidence, to be able to achieve a
profitable liquidity event5. Failure is the absence of above6. Develop a series of questions that focus on what happened when, results, & why.
Essentially a histogram for each7. Needs to be an individual interviewee who had in depth & comprehensive vision of
the history. May be VC. May be CEO. May be one of the founders