The Fork In The Road

How to Spot a Failed Company Before It Launches

I love that I regularly get to talk with new companies.  I learn so much and always leave with a better understanding of current and future market trends.  What’s also interesting are the statements that raise red flags which have become consistent over the years.  There are several clichés that signal a company is heading in the wrong direction based on what their executives say.  The most obvious is:  Our company will be the next FILL IN BLANK.  

When I started in business, CEOs pitched me by saying they would be the next Microsoft, then it was Yahoo, then it was Amazon, then it was eBay, then it was Google.  You get the picture. If a company is trying to be the next big thing but focuses on existing market leaders, they’re destined to be left in the dust.  By the time said young company raises funds, fully builds its product and enters the market, the large company it was aspiring to be has already moved on.

In the last few years, it’s not the young entrepreneurs who are making these aspirational claims.  It’s executives in their 50s and 60s who seem to be more likely to chase after someone else’s success.  Age of course doesn’t mean someone would know better, but it feels like they should.  

We have a running joke in my home that I shouldn’t be allowed to listen to my friends’ good ideas.  Too many of them have been good on the surface, but light on market research and competitive analysis.  If a company is being founded purely to chase an existing company’s current offering, it’s likely to fail.  

New companies must not strive to be more of what already exists, either in offering or size.  Entrepreneurs don’t need to be the smartest people in the room, but it helps to be the most imaginative. 

Talking Square with Small Businesses

I spent this weekend in Portland, OR.  Saturday was a lovely, sunny day and we walked everywhere.  Besides taking in the city’s amenities, it gave me a chance to speak with local small business owners, particularly food truck owners.  What could be better than eating my breakfast and lunch out of a truck and getting to ask a few business-related questions in the process.  My topic of the day: Square.

For those of you unfamiliar with Square, it is a mobile payment service designed primarily for small businesses.  Its founder is Jack Dorsey, co-founder of Twitter.  I read about the company in May 2010, but first encountered it live at a tournament later that year, when the official tee-shirt vendor used it to process credit cards.  I had seen him earlier in 2010 and it was clear his new payment system was worked better than his previous one.  He showed me the square that plugged into his phone and said it he just got it but it was working well.  

I love new technology, particularly technology that actually fixes or improves and has the potential to make real revenue – in other words disruptive technologies.  My initial interaction regarding Square almost two years ago put the company on my radar.

Flash forward to my trip to Portland this past weekend and my Square-related questions there.  The first people I spoke with were at Sonny Bowl located SW 3^rd and Washington.  When I ask what they thought of Square, the answer sounded like an ad:

• It was incredibly convenient.
• It was so much cheaper and easier than what was quoted by their bank.
• It isn’t has bulky as what the bank processing would have required.
• If it ever runs slow, they turn off the phone and turn it back on, then it works like a charm.

I assumed from this response, most of the city’s more than 200 food trucks must be using Square.  I even imagined a “Sponsored-by Square” sign on the busiest truck lots.  Interestingly, that doesn’t seem to be the case.  My limited, unscientific survey showed that about half accepted credit cards – mostly via Square – and the other half were cash only.

I spoke with Flo of Flogene’s Home Cookin’, at SW 9^th and Adler.  Her food truck has been open a year and business has been booming.  Her business is cash only and she hasn’t seen a need to begin accepting credit cards.  In fact, she said they have a credit card machine from the bank, but only receive one request to use a credit card about every three months.  Arguably, the large “cash only” sign and the abundance of ATMs around the site could be the reason for the low requests for credit card payments.  Flo puts it simply, “We haven’t seen a need. If we thought we would lose business by not accepting credit cards, we would start.  So far, we don’t have a need.”

The third person with whom I spoke about credit cards was a cab driver.  He actually did accept them, but it was so old school that even though my credit card was swiped, he still needed to use a manual credit card imprint machine with carbon copies.  He complained about the slow process and occasional dropped connections with his cab company’s credit card processor.  I don’t work for Square, but it was the one time during the trip where I felt like I could have been an ambassador for the company.  I stepped out of the cab saying to my husband: why would the company use such an antiquated system, when the driver has a smartphone right there and could be running the payments so much easier?

The next 12-18 months should be interesting for Square.  A year ago, Kleiner Perkins led its $100 million series C round.  The company continues to grow.  I’m looking forward to seeing the product and business developments sure to come soon.

 

 

 

 

 

 

 

 

 

 

Facebook Won't Open IPO Flood Gates

Whether Facebook’s IPO occurs on Friday, May 18 or is delayed is still yet to be seen.  As of the morning of Saturday, May 12, MarketWatch was reporting that the company was still awaiting approval of its latest S-1.  I expect they’ll be able to debut as a public company on the much-reported May 18 date, but we’ll know for certain in a few days.

Either way, I have no doubt Facebook will be a public company soon.  I’ll also be surprised if it doesn’t top expectations.  If this happens, we need to remember short-term market growth doesn’t equal long-term success.

Groupon is a recent example of this.  On its first day of trading, Groupon was up more than 31%.  It closed at $26.11 per share.  On Friday, May 11, it closed at $9.90.  Even if their pre-IPO hype hadn’t existed, the current trading rate would be disappointing. 

Just as Groupon was expected to be, Facebook is now the new company to be heralded as the IPO market starter.  Despite what some people believe, a good performance from Facebook doesn’t mean the market will soon be flooded with companies going public.   For all its faults, Facebook has been able to show consistent growth in users and revenue.  Yes, it still has to develop additional sustainable revenue streams, but it is at the point in its history where a public offering is warranted. 

We aren’t in 2000 anymore and I tell myself today’s market won’t accept ridiculously underperforming companies going public as they did before that bubble popped.  I may be very wrong, but I’ll continue to cling to this belief. 

In February 2000, Pets.com raised $82.5 million in a less than stellar IPO; nine months later it collapsed.  Webvan’s IPO and collapse was even more spectacular with $375 million raised in a November 1999 IPO before it died in 2001. 

Of course, the one I still personally mourn is the downfall of Kozmo.com.  I knew at the time it was too good to be true – movies, Ben and Jerry’s ice cream, Krispy Kreme donuts, and just about anything else you wanted, at your door in an hour or less.  Unfortunately, Kozmo.com only introduced minimum order requirements a few months before it officially died.  That means the dozen Krispy Kreme donuts I had delivered to my hotel room in NYC, which was delivered by a man who was probably paid $10 an hour, actually cost the company a few bucks.  Yes, I loved the concept and I helped contribute to its downfall.

So, although there will be more IPOs to come in 2012, it will not be the flood some are anticipating.  In the end, the market and those of us doing business in it will be much better off.  

 

The Art of Knowing When It’s Time to Give Up

Success sales today are part mathematics and part art.  Sales teams are assisted by a number of programs that help assess the readiness of a lead to move through the sales process. 

Marketing automation solutions such as Marketo and Eloqua include advanced lead scoring capabilities.  Marketing campaigns can now be created to automatically initiate depending on a lead’s reaction to a previous campaign.  For example, because Mr. Jones registered and attended our webinar about online security, he is sent an email through which he can download a related white paper.

Meanwhile, sales teams can also access real-time business and social intelligence through companies like InsideView.  Knowing the latest of what’s happening with prospects in real-time is something that wasn’t possible a few years ago.

When you add to all these solutions measurement and predictive analytics, it’s plain to see how much investment has been made in creating solutions to help the sales process.  To close a deal, it comes down to the art of the sale, which includes both skill and the gut feeling of how to approach and interact with any given individual.

With all the tools that are available to find leads and advance the sales process, what could be missing?  The answer: when to give up on a deal. 

By now, 100s of millions of dollars have been invested in helping marketing people qualify and nurture leads, and sales people to gather data on any company.  However, when it comes to when to give up on a lead, it is all left to art. 

Sales reps are by nature optimistic people.  They look at a prospect and think “I can convince them to purchase my product.”  To the credit of some of the great sales people I’ve known, they often close deals that initially seemed to be long shots.  Unfortunately, not every long shot is worth pursuing.

There seem to be a few reasons for this. First, if a lead is qualified, but the person is not the likely buyer within the target organization, the sales rep may get trapped in a cycle of having “good conversations” with one person after another, but never with the true decision maker or buyer.  A sales cycle that should be 45-60 days could easily become 9+ months if the initial lead doesn’t hold the budget.

Second, culturally, it may be impossible or unlikely that the sales target will come out and say no.  For example, this is often a surprise to US-centric sales teams, who may come out of a meeting in China thinking their project is moving forward only to learn later it wasn’t approved or would take several more trips to gain approval.  China is not the only place on the globe where people avoid saying no to a salesperson’s face, but it is known for it.

Third, if the sales process extends too long, it raises questions with the lead’s company.  “If we haven’t purchased already, do we really need it?”  In the end, these sales fall apart simply because there is no longer any momentum behind the project.

Honestly, I don’t have an answer for how to know when a deal is artificially lingering.  I’d love to see someone develop a formula that would help companies know when it’s time to pull the plug on a deal that will never close.  Sadly, as many a salesperson has realized firsthand, it is more popular to push revenue generators than something that will save time and money.  This means that in the end, we must continue to rely on the art of sale to not only close deals, but to know when to give up on them.