Venture Geek

At the STIRR PitchLab I spend a lot of time working with mostly first-time entrepreneurs to help them think about their business concepts and how best to articulate their visions. Probably the most common theme in those conversations is getting folks to go from product-based thinking to market-based thinking. In short, entrepreneurs in very new companies typically spend most of their time heads down building a product — it is very natural for them to think about the features of that product as the thing to talk about when describing what they are doing. But, more often than not such entrepreneurs spend far too much time talking about product features and far too little time talking about their business.

Ultimately, the product is a means to an end — building a great business. That doesn’t mean the product and its great features aren’t important, but history is filled with lots of great technologies/products that never made it over the hump to be great companies (and plenty of great companies are built, at least initially, on products that aren’t necessarily all that great from a features/technology standpoint).

But, that’s what this post is about.

At the last PitchLab, after close to an hour of discussion mostly on the theme of market-based vs. product-based thinking, the founder I was helping wanted to know where he could turn to go deeper. He wanted to know which books, which blogs, which podcasts, etc. were great resources for engineers who want to become entrepreneurs to turn to help them add market-based thinking to their repertoires. I should have had a better answer than I gave him. I suggested a book or two, and I could have come up with a couple decent blogs that sometimes cover such issues, but I ought to have a nice list of resources people can turn to, and I intend to create one.

So, know any good resources on helping entrepreneurs, especially those from engineering backgrounds, get some basics of how to approach customer segmentation, brand strategy, and market positioning?

Since my last post was all about choosing what business to not be in in order to claim a strong market position, I can’t help but point to Will Price’s recent post where he offers a great anecdote illustrating the same basic point.

Fred Wilson wrote a piece about Facebook’s valuation a couple days ago, and it reminded me of the most frequent advice I find myself giving to entrepreneurs (or any business decision makers, for that matter). It’s not really what Fred’s post is about, but it comes down to strategy, or more specifically market positioning — what you might also call your brand (as an aside, these words often get used interchangeably, yet you’ll find “experts” who will give you lengthy explanations about specific distinctions — the word “brand” in particular is used to mean many different things).

The issue is choosing what not to do with your business as a means of having a stronger position in the market. This is certainly not a new idea, and I don’t claim any ownership over it, but it’s a very important idea and one that very rarely is embraced by startups (or any business for that matter). Here’s the bit from Fred’s post that reminded me of this:

I asked Jessica [a student Fred knows], who is a Facebook fan (she switched from MySpace when she got to high school) about the possibility of Yahoo! buying Facebook. She was fine with it, as long as “they don’t change it”. She’s not happy about the opening up of Facebook to everyone. She liked it because it was exclusive. Not everyone could be a member.

When I told her I had a Facebook profile last month, she was shocked. That shouldn’t happen in her view of Facebook. She says that MySpace has “sketchy old men” on it and Facebook doesn’t. She’s worried that Facebook is going to become another MySpace and if it does, she’ll move on.

The above quote is in the context of Facebook looking to maximize its valuation by opening up to more than just students — to embrace a wider audience in order to have more users and thus more page impressions and thus more ad inventory. This graph from Alexaholic really says it all about the position Facebook finds themselves in (click to enlarge):

And so Facebook and so many others face a dilemma: stick to the core of what we’re about (in their case, students at colleges and universities) or try to grow the brand to be something more. And this ends up being the kind of decision a lot of startups tackle: what market are we in. But, a more productive way to ask the question is often: what markets are we NOT in. To stand for something in the minds of your customers and to have your customers relate to you personally (and, ideally, to consider your brand part of their own identity) you can’t be all things to all people — and you can’t even be a lot of things to a lot of people. Now, of course, there is a balance here — you don’t want to be so narrowly targeted that you don’t have an attractive market to play in. Certain brands also lend themselves to being broader than others. Facebook put a stake in the ground long ago that they were all about colleges and universities (the very name “Facebook” screams that fact). Yahoo! and Google, for instance, both chose to start as something much broader than that conceptually (though, in both cases it still remains to be seen if they can truly come to dominate areas other than their core — and Yahoo! in particular is taking a lesson from the big companies like Procter & Gamble and building a portfolio of brands that target specific segments rather than try to make the Yahoo! name dominant in every new area they explore). This also doesn’t mean you can’t ever go into new markets (though many of the best companies do so with new brands), but it does mean that there are often hard choices to make about which opportunities you will and won’t pursue.

Most will pay lip service to this concept — ask a room full of CEOs “who here wants to have a strong brand and a differentiated market position?” and all or most of the hands will go up. You’d be hard-pressed to find a CEO who doesn’t want to make strategic decisions about their market, but I am continually amazed how few are willing to actually make those decisions when doing so involves forgoing what seem like fruitful opportunities even when it’s reasonably clear that going after such opportunities will undermine their core brand positioning. It’s very tough for any company, especially a cash-strapped startup looking for revenues and growth, to actively decide to ignore market opportunities that present themselves. And yet, making those tough calls is the very essence of having a well-targeted, differentiated position.

I have the picture of Michelangelo’s David with this post because I like to use it when doing presentations on this topic. Michelangelo has a famous quote that I’ve seen articulated several different ways, but it boils down to that he doesn’t create the sculpture, he sees the figure in the block of marble waiting to be uncovered and merely removes the bits of the rock that are in the way. Next time you’re pondering your strategy, try reversing the question and ask yourself what bits you need to remove that are in the way.

Jeff Nolan’s post about DabbleDB and how it portends the much-predicted shake-up in enterprise software (the increasingly grating “2.0″ suffix is used here as “Enterprise 2.0″ by too many people of late, though not by Nolan) got me thinking about pricing and targeting of the various new offerings in webland. I have looked at DabbleDB’s site a few times in the last several weeks, but I haven’t yet delved into trying it out (navigating the dizzying array of web applications hoping to take over various office features is a daunting task to say the least). But, in looking at their pricing I couldn’t help wonder what the conversations that must have gone on behind the scenes were like. DabbleDB’s pricing looks like this (looks much nicer on their site):

First thing I noticed was no “unlimited” option. But, more importantly I got to thinking about whether $10/month was really worth it for me. Not a lot of money, of course, but given my predilections I could easily sign up for dozens of things that are $10/month on the web, so I have to be cautious. And the “try for 30 days” is all well and good, but you have to know what the price is going to be (and, to DabbleDB’s credit, they at least make it fairly easy to find out what it will ultimately cost after the trial period, which is more than I can say for many such web-based offerings).

Now, this post isn’t about whether I want to spend $10 — it’s about what this pricing says about DabbleDB’s view of their market and of their customers’ needs and value calculations. Notice that a “corporate” account costs an order of magnitude and a half more than the individual account. Seems like a big jump, I suppose, but in real dollar terms it’s not really that much different. I mean, if you really have a business where more than 15 people need to use these tools, is $150 even something you’ll think about as a line item? OK, so for many small businesses it will be, but my point is that the proportionality seems off to me. Of course, the very fact that the “Corporate” account is for 60 users and costs so little speaks volumes about the fact that DabbleDB is hardly going after the “Enterprise” market. No, they are yelling loud and clear that this is an SMB/SME play.

But, back to the price difference.

So, at $10/month per individual user DabbleDB is saying that they expect there to be a non-trivial number of individual users to represent any meaningful revenue. Or, perhaps they are saying they don’t want to go with a freemium model and give away the individual accounts because they don’t want the unwashed masses of individuals gunking up their support channels and such. I think the overall positioning implied here could hurt DabbleDB in the future. In some ways the mere presence of the individual option and the corporate option together on the same page, offering essentially the same thing, dilutes the message to both of those audiences from a pure targeting perspective.

So, at this point I figured I’d do something that most bloggers get critiqued negatively for not doing: I asked DabbleDB for their take on it. Avi Bryant was nice enough to share some of his thoughts. On the issue of whether they really want lots and lots of individual users, Avi had this to say:

We’re certainly not trying to scare anyone off. On the Personal end of the spectrum, we think the pricing is comparable to what someone would pay for other equivalent tools; how much is a single-user license of Filemaker, for example, and how much would you spend on upgrades every couple of years? It’s true that on the Corporate end we come in at a lower price point that some other options, and I can share some rationale there: we’re intentionally trying to keep the price down to a level where an individual could make the decision to purchase Dabble on a credit card rather than having to go through an elaborate purchasing process. We believe that keeps us focused on the real users and on improving the product rather than on selling to management.

So, their thinking is that on the personal side they’ll come in comparable to existing options but on the “corporate” side they will be cheaper, and his arguments for keeping the price point below a typical threshold for what a middle manager can spend without lots of nasty clearances up the chain makes lots of sense. Not sure how many single-user licenses of Filemaker actually get bought each year, but I have to believe it’s fewer than the number of customers that DabbleDB would really like to have. I suppose there’s an open question about whether a freemium model would work better here — get the individual hooked on their home applications, so they come back to work and get a corporate license for their workgroup.

On why they have no unlimited plan, Avi says:

If someone truly needs an unlimited plan, they should contact us - chances are they will have other special requirements as well, and it’s best at that point to work something out tailored to the needs of the customer.

Hmm — I have to say that since they don’t actually mention this option on their pricing page they are, whether they like it or not, positioning themselves entirely out of the “Enterprise” marketplace. Now, that’s not necessarily a bad thing at all, and given the way the entire DabbleDB site is done, I seriously doubt that the team is thinking that’s where they want to play, at least in the short-term.

So, what’s the point here? The point is that although I have no doubt there will be some uptake of DabbleDB, I think this will more than likely prove to be a case study in trying to be too many things to too many audiences and diluting the potency of your message for all audiences as a result. One of the most important lessons I used to try to convey when I used to work with people on issues of brand strategy and positioning (a topic I have been steeped in at a previous company but not something I can claim true expertise about) is that the essence of positioning is choosing what NOT to be — to choose which perfectly reasonable business opportunities you will forego in order to strengthen your business in your core market. The corollary is that this exercise requires balance lest you target too narrowly.

I have nothing against DabbleDB, nor do I want to suggest they are going to fail. I pick on them only because of a random blog posting I read and the very clear way in which they have laid out their pricing policies. The analysis here is quite cursory, of course, but the nature of blogging is often first-draft writing — even if it’s already too long.