For Start-Ups, It’s All About Traction

By Mark Evans in Startups 7 Comments Tags: , , ,

I’ve been thinking about Dan Martell’s recently post, “To Raise or Not to Raise”, which encourages entrepreneurs to “go out there and make some money” rather than being too focused on raising seed capital.

It’s solid advice, particularly in Canada given ideas rarely (ever?) get funded. In many respects, the pursuit of venture capital, while sexy and challenging, is distracting and a productivity killer. Getting funded to develop an idea is a nice luxury but it’s also akin to putting the cart before the horse.

In talking with an entrepreneur who has built a large community, the big advice he offered to start-ups is the importance of getting “traction”. This is different from making revenue because it’s about attracting and delighting users with your service. Once there is a critical mass of users, it can open up a variety of doors to generate revenue.

A question is how do you attract users without money for marketing or customer acquisition. Obviously, making people pay for a service is a no-brainer but it’s also about being creative and flexible enough to find ways to get lots of users while, at the same time, managing to pay the bills and put food on the table.

It’s a concept called “Hamburger Profitability” in which an entrepreneur survives financially by supporting the start-up through things such as consulting or a part-time job. It is a tough way to make a living and establish a business but if you’re successful it also offers tremendous experience and the traction to seek financing without being desperate or without clout.

It would remiss to over-estimate the challenges in getting traction because it’s not a simple proposition. It’s a combination of having a service that is accessible, user-friendly and delightful, smart and creative marketing and some luck.

In the scheme of things, traction is a huge hurdle for entrepreneurs. It’s one thing to start a business or have a good idea, it’s another to convince lots of other people to embrace it. But if an entrepreneur can overcome this hurdle, it can set the stage for success and maybe even venture capital.

Should Government Be Funding Canadian Start-Ups?

By Mark Evans in Startups 6 Comments

Should Canada’s federal and provincial governments be funding start-ups?

In an ideal world, the answer would be “no”, other than perhaps the tax credits that Canadian companies receive for investments in research and development.

But this is Canada where start-ups are high on ideas  but low on financing. The troubling lack of financing has become more obvious by the growing number of promising start-ups, many of them requiring nothing more than a healthy shot in the arm ($100,000 to $250,000) to take a huge step forward.

And while there are some new players such as Real Ventures providing seed financing, it’s not enough. So it was interested to see Wave Accounting (a former client) and Guardly received $755,039 and $237,500 respectively from FedDev Ontario‘s investing in business innovation program.

The FedDev program “boosts private sector investment in start-up businesses to accelerate the development of new products, processes and practices and bring them to market. Among companies eligible are southern Ontario start-ups with “less than 50 employees who have a signed draft term sheet from a recognized angel or venture capital investor”.

As a staunch start-up supporter and someone who provides services to them, I’m pleased for Wave and Guardly. It has been exciting to see Wave evolve from a great idea – online accounting – into a business adding thousands of users a week. There needs to be a lot more start-ups like Wave.

Should We Be Giving Money to Start-Ups?

The question is whether the Ontario government (aka taxpayers) should be giving money to start-ups that have raised financing from other sources. From the outside looking in, it seems hard to justify at a time when all levels of government are under growing financial pressure.

But the harsh reality is that if the government doesn’t participate, Canada’s economic development and innovation activity will be impacted in a major way. Until there is sufficient private sector funding in place, the government has little choice but to stay involved by supporting a variety of programs.

By investing in start-ups rather than standing by idly, government can support innovation, keep entrepreneurs close to home, support job growth and, hopefully, encourage private investors to get in the game. If the government isn’t involved, it will be difficult for Canada’s start-up ecosystem to thrive, and we’ll have to be content to rely on natural resources for our wealth.

While seeing the Ontario government make these kinds of investments may be difficult for some people to swallow, they’re a necessary fact of life. Maybe they won’t be needed down the road but given the private sector’s track record don’t count on it happening any time soon.

For some of my other recent posts on Canadian start-ups, check out:

- Who Wants a Canadian Startup? They’re going fast! 

- The Downside of Canada’s Startup Buying Binge

The Downside of Canada’s Start-up Buying Binge

By Mark Evans in Startups 6 Comments Tags: , , ,

There has been a lot of euphoria and happy dances recently about the flurry of Canadian start-ups being acquired. The list includes Zite (CNN), Five Mobile (Zynga), PostRank (Google), PushLife (Google) and BackType (Twitter).

The positive news is that the flurry of deals (22 and counting, according to TechVibes) provide a huge boost to Canada’s start-up ecosystem, which needs all the support it can get. Acquisitions reward start-up founders, encourage venture capitalists and angel investors, embolden entrepreneurs, and provide a healthier landscape for people like myself who provide services to start-ups.

In short, Canada’s start-up ecosystem is on a roll and, hopefully, these deals will make things even better and more active.

But there is a downside to these start-ups being snapped up. Many of them are early-stage companies with interesting technology but perhaps not a lot of customers or revenue. Rather than a business being acquired, it is the ideas, intellectual capital and, as important, the people that are being purchased. Many acquisitions are fuelled by the need to add strong talent to jump-start the growth of a business or service. Zynga, for example, was looking to boost its mobile development capabilities so buying Five Mobile was a quick way to do it.

The problem with many of these deals is two-fold: One, many start-ups are snapped up before they get a chance to gain real traction and evolve into small or medium-size businesses that employ dozens or hundreds of employees. It means the loss of an opportunity to build a high-tech community that features a “middle-class” between start-ups and large players (most of them U.S.-owned) such as Microsoft and IBM. In an ideal world, some of these start-ups would grow into an Open Text or, heck, a RIM.

Second, many of these deals involve some or all of the start-ups’ employees moving out of Canada. PostRank’s employees, for example, moved to the Mountain View, Ca. after the Waterloo-based company was acquired by Google. It’s an M&A-driven brain drain when the best and bright entrepreneurs, developers, etc. get sucked south of the border. Granted, many of them will likely return to Canada with more experience and some dollars in their jeans but, in the short-term, it’s a loss for Canada’s high-tech and start-up community.

I recognize that, in the scheme of things, these are nice “problems” to have. After all, it is better that start-ups are being acquired and investors rewarded as opposed to no M&A activity, which afflicted the start-up landscape for far too long. My point is it is also important to recognize there is a downside, even though it is something we can happily accept.

Beta, What Beta?

By Mark Evans in Startups 1 Comment Tags: , ,

I’m not sure about you but I sign up for a lot of betas that seem interesting. After all, they’re free so why not take one for a spin?

For some start-ups, however, there’s a gap between the time they let people sign up for a beta and when it becomes available.

So here’s a tip for start-ups when they send e-mails to people letting them know the beta is ready: include a reminder of what your service does. A good example is CardFlick. I can’t remember signing up for the beta, let alone know what CardFlick does so a short reminder would have been a great idea.

Screen shot 2011 09 11 at 2 57 06 PM

The $400M Question: What’s Next for Twitter?

By Mark Evans in Social Media 1 Comment Tags: , ,

Here’s a riddle: what do you do with 100 million active users and $400-million of freshly-raised venture capital?

Answer: Pretty much anything you want, which can be a good or bad thing depending on your perspective.

That’s the situation facing Twitter, which has a “truck load” of money to do whatever it wants. With no need to do an IPO or be acquired, the world is Twitter’s oyster. It can make acquisitions, drive hard into different businesses such as advertising, analytics and data aggregation/distribution, or as GigaOm’s Mathew Ingram suggests, it could become a publisher. Flipboard, anyone?

Heck, Twitter could pull a Hewlett-Packard and completely reinvent itself by making a major acquisition. This is admittedly a far-fetched idea but given how crazy the high-world has been turning these days, you never know! I mean Michael Arrington is no longer working for TechCrunch, and Carol Bartz claims Yahoo “f@$ked me over”.


Data = Advertising Revenue?

So how does Twitter and CEO Dick Costolo move forward? The nice thing about having $400-million is it provides lots of financial latitude. The problem with having so much money is there’s a lot pressure to do something dramatic. Maybe even do something like create a business model!

The lowest hanging fruit for Twitter is clearly advertising given Twitter could crunch the vast amount of data it generates to deliver extremely targeted advertising. While Twitter has been slow off the mark to embrace advertising, my take is users will quickly accept it as part of the landscape even if Twitter decides to aggressively drive forward. There’s no reason why Twitter’s Promoted Tweets shouldn’t be as effective and lucrative as Google AdWords.

The thing is it is difficult to see how Twitter could spend $400-million to blow out its advertising business. So how does it spend all this money?

Acquisitions, Anyone?

Well, there are a bunch of acquisitions (e.g. TwitPic, UberMedia) could make but they could eat up $50-million to $75-million, unless Twitter decides to purchase an analytics company. Twitter could buy an advertising network to support the growth of Promoted Tweets. It could spend some more money on its infrastructure, which still isn’t rock-solid and will need to be expanded as more users are added. And there’s money to be spent internally on developing new features and applications.

Even so, it is hard to imagine how Twitter could spend $400-million but I’m sure there is some kind of plan, right? Then again, maybe there isn’t a plan other than taking $400-million when someone really wants to give it to you.

Right now, Twitter can pretty much do anything. The key will be moving forward decisively and aggressively to execute on the opportunity. While Twitter has received a huge boost of confidence from its investors, Twitter’s financial success is no slam-dunk given the challenges it has had creating a robust business model. So it important to remember having $400-million doesn’t fix your problems. It only puts the pressure on.

They say money can’t buy you happiness but Twitter is about to discover if it can buy success.

The Value of Digital Simplicity

By Mark Evans in Startups No Comments Tags: , , ,

I’ve been spending a lot of time recently looking at Web site messaging and usability, spurred on by Steve Krug’s book, Rocket Surgery Made Easy, which provides terrific insight into DIY usability problem solving.

When you read about usability, it makes complete sense: the easier it is to do something, the more likely that someone will actually do it. That something could be making a purchase, completing a form, reading content or watching a video.

But the strange and fascinating thing is how difficult and challenging many companies make their Web sites. All the work that happens behind the scenes goes unfulfilled because the product isn’t accessible or user-friendly. The big question is: why? How does a good idea get developed but fail to take into account the end user’s ability to use them? As the famous usability expert Winston Churchill said: “It is a riddle wrapped in a mystery inside an enigma”.

My thesis is the people who develop Web sites don’t spend enough time getting perspective from the outside world. Many Web sites are built in a bubble, which means little or no feedback – constructive or otherwise – is allowed to seep in. And if there are alpha or beta users involved, many of them are friends or family, who are biased to provide positive feedback rather than the blunt truth. As a result, many Web sites have serious usability issues that could easily be resolved if there was real real-world testing.

The challenge is that getting people who build Web sites and online services are often reluctant to open the kimono before everything is ready for public consumption. There is a fear of competition or someone stealing their idea, or an unwillingness to launch something that is half-baked, which could attract criticism.

The reality, however, is if you want a user-friendly, accessible and intuitive Web site or online service, it’s better to get external perspective sooner rather than later. Some of the things that an outside might pick off immediately as a problem or issue could easily be missed by the people building the Web site or service because they’re so close to the fire, they lack any perspective.

While no one wants to be told their idea or Web site sucks, it’s better to get a hard dose of reality than launch something that fails to resonate – not because the service isn’t valuable or compelling but due to the fact the design, messaging and structure makes it difficult, if not impossible, for users to “get” what they’re supposed to do. If that happens, it’s lights out pretty quickly.

More: Another good read within this topic is Mark MacLeod’s blog post on clarity of vision.

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