Lispian Random meanderings on whatever catches my fancy

Entrepreneurship: Unwavering Focus

One of the things that our VCs went on an on about was focus. Focus on the bottom line, focus on spending, focus on employee morale, focus on the competition, but mostly focus on the vision and attaining that vision. Focus, focus, focus.

It’s easier to say than it is to do. There are just too many pitfalls and rat holes along the way. It’s just too easy to follow the easy money, too comfortable in fact. And I believe part of success is attributable to remaining uncomfortable, being on your toes, being paranoid as Andy Groves of Intel used to say.

The notion of going for the low hanging fruit, for example, is one example of a misplaced philosophy. If it’s low hanging there are a lot of competitors eying that same fruit. If you sit there thinking there aren’t, you aren’t focused on the problem at hand. Anything that results in easy and quick revenue has been thought of before. Furthermore, easy pickings are just the kind of revenue streams that desperate, well funded dot coms were hungry for in 2000 and 2001. Trying to get to that fruit as a start-up is at best frustrating and at worst suicidal. The other companies aren’t going to just let you walk away with revenue that they could add to their bottom line. And, if some of those competitors are public, well then, you had better just give up on it now as they’ll be ruthless. They have to meet analyst expectations and analysts don’t care what kind of revenue it was so long as it was revenue feeding the bottom line. A dollar is a dollar and it’s better in their pocket than yours, and they’ll do whatever it takes to ensure that happens. And, if they’re public, they’ll have deep pockets. Much deeper than a typical startup.

So what I’ve determined over the years is that you have to remain focused on gaining customers that are sympathetic to what you’re vision is, to what your desired change in the industry is. These are the customers that will live vicariously through you. That will be willing to accept a product that offers 40 or 50 or 60% of what the final product will ultimately be. They will accept getting to 60%, realizing it could be vastly better, and allowing you to backtrack. They’ll be willing to buy pilot licenses and even early adopter/technical demonstrator licenses so they can help mold the product to more closely align with their needs, which hopefully will align with yours as well.

So you need to remain focused on what your company does, to think about why you got into this business in the first place and why any investors you may have bought into your vision, or why those first employees bought into it.

It wasn’t because of your smile or sparkling personality, it was because you had something that was unique and sufficiently daunting to dissuade others from attempting it. You need this barrier to entry. And if you have a barrier to entry it must be formidable enough that there really aren’t any “low lying fruit”. How can there be. If there were low lying fruit then your product wouldn’t have anything resembling a formidable barrier to entry, instead the only barrier you might be able to offer is some IP protection if you were first to the parade. And even then, the likelihood that you were first is pretty slim. Others will have patents to counter your patents, and the legal dance will commence in earnest. And if you have to get into patent litigation, you might as well pack it in now because the big boys have deeper pockets. It’s best if you can manage to fly below the radar for as long as possible. Anything else may well doom you to failure. So flying below the radar becomes yet another part of an entrepreneur’s focus.

So focus on your core expertise. On what your company does. On what direction you’re headed. On who will be those early adopters, the ones who want to live the entrepreneurial life through you.

Such focus will ensure that if you suddenly¬† realize the direction is wrong you will be able to convince the Board — more accurately, the VCs. Although you will need to have an excellent reason, a damn fine reason, in fact, you will be able to convince them if you can show them that your focus on moving the company forward has shown you a better way. The future is nothing if not a series of forks, understanding what you’re hearing from customers and from where the industry is going should allow you to decide which fork to take, which one to focus on moving forward.

Assuming that you’ve not headed off in some totally incorrect direction you need to track a series of questions regularly regarding anything that comes towards the company, be it investors, potential customers, potential sales, changes in vision, etc.:Will this help us succeed?

  1. Will this materially affect our chance of success?
  2. How many customers will we lose if we opt to do X?
  3. If no customers are affected by a given change, why? And should we still do it if it seems to have no effect?
  4. If it affects a lot of customers, is it a good or bad change? Quantify the change.
  5. Will this actually gain customers? If so, how so?

As you can see, the goal is to keep focused on success. In the business world success is calculated as staying afloat, which means revenue, and in the end means profitability! If you don’t at the very least break even you’ll lose in the long run. It is impossible to sustain losses year over year without losing control of your company in one manner or another. You need to ensure you ramp up revenues as fast as possible.
And that requires focus. Unfortunately investors will demand revenues quickly, regardless of source, which will make you lose focus — unless you remain strong! You need to say to yourself and the Board on a regular basis: “We’re doing this because it is what you, I, everyone invested in. We invested in this vision and I don’t want to lose focus of that. Chasing after immediate returns will only hurt the company long term. And when we hurt the company we hurt all of us.”

Most VCs will get this but some will be irate. Some may even fire you. But if they just want revenue for the sake of revenue, so be it. That company is not for you. Once you head down the revenue for the sake of revenue rat hole you’re lost. You won’t be able to say no. You’ve set a precedent, and a dangerous one.

More than one of my friends has run into the situation where a round of financing was upcoming. They needed to improve their revenue stream and a potential customer was willing to buy the product, but only if this one special adjustment to the product was done. Talk about being stuck between a rock and a hard place, you either do it and fork off a new product off the development stream or you say no and lose a sale, which will piss off the Board and potentially lose you a new round. And when times are tough the usual solution is to buckle and build the fork hoping you can bring it back into the fold later. Sadly, it’s a devil’s bargain.

Once you do it then another customer will want a change, as they’ll heard you did it before and expect “flexibility”. Soon you’re catering to a slew of special cases, which is really nothing more than trying to maintain a wide variety of product. Unless you have some incredible way of maintaining software revisions — which is a product in itself, probably worth way more than whatever you’re trying to sell — you should stay focused on what you believe will make money consistently with the least modification to the core software.

One needs to remember that each change, although only slightly different, is an edge case, a special case that probably isn’t useful to the main build and thus not useful to most other customers. If you are maintaining multiple products what’s the result? The whole company starts to shake. Employees get dissatisfied. People start realizing you’ve lost focus, aren’t doing what you originally intended and they start to leave. And it’s usually the original team that leaves first.

Bad news.

So focus is paramount. You need to ensure that only a true miscalculation of market potential or some other catastrophic failure of vision results in a change of focus. Catastrophes do happen. Microsoft, for example, was spending truckloads of cash on their own online service in the mid-90s when the Internet suddenly exploded. All of a sudden specialty online services like Prodigy and CompuServe were out, the Internet was in. Microsoft caught on — but almost too late. They were late to the Internet party and only survived because they are deep both in cash and talent. They could play catch up, the did catch up! Others were not so lucky.

If you’re focused on a goal that you believe is the right one, is reachable within a reasonable time-frame and resolves a given set of problems for a known set of customers then you need to go forward and pursue that goal. You need to worry about competitors, but if you truly have a great product and have some reasonable barrier to entry then only the really big boys will come and play — but only later on. Companies like Microsoft don’t worry about $5M or $50M businesses, they need billion dollar businesses and few new areas start off that way. So you have time to breathe, so long as you have the perseverance and vision to get to your goal. Ignore the low hanging fruit, go for the customers that actually get what you’re doing and where you’re going. To do otherwise courts failure.

But a word of caution. Unwavering focus can kill you, too. At Texar we were building a policy engine, a very generic infrastructure solution that allowed for security to be applied via policies across an organization uniformly. This is something that is only now understood. In 2000 it was considered incredible. Many thought it unlikely, as I’ve written before. What we did to get the product out there is actually have it run in “Monitor” mode, which meant all the policies were active but they didn’t actually stop any nefarious activity. Now, for a company focused on security and information protection it would seem odd to allow for simple monitoring. Yet, if one realizes this from the perspective of early adopters and focus one quickly realizes that an early adopter can deploy the product without worry that it would negatively impact information flow. A security product, if not running correctly, could stop valid traffic and that could cost a lot of money. Being able to watch the traffic and the policy results provided early adopters with the comfort level needed to deploy.

What was interesting, however, was that it became obvious that many just wanted to monitor. They were only interested in auditing. They wanted fancier and fancier ways to have the policies determine what was and wasn’t valid and remember state via the information flow that passed through the product. Hindsight shows this to be a much more lucrative solution than what we were selling. But at the time we felt it pushed us away from our focus on a policy-driven authorization solution. And that was stupid because what it was was a fork in the direction we headed. It was all the aspects of authorization save the enforcement. Security can be viewed as having two halves: Accountability and Privacy. We focused on Privacy when Accountability was where the market was at the time. People wanted to know when information leaked, to whom, and how badly. They were willing to accept the risk of disclosure but would prefer to know how it happened so they could shut it down. In effect, what we were providing was very fancy, highly configurable, stateful fraud detection. And we did sell a number of licenses in this way but we didn’t shift our focus to fraud. That’s where we fell down. We should have listened to the customers, the ones that were the early adopters, the ones that had the itch that we wanted to scratch. We had built such a great authorization system that it was actually a fantastic accountability/audit/fraud detection system. And as such, in monitor mode, it would not impact data flow. It would not impact business negatively but would allow for fraud warnings of malicious transactions.

And that’s the cautionary part of this tale. You need to stay focused but also listen. Listen to customers and hear what their real problems are. They may well agree that you’re right long-term, but what about short term? That’s crucial if you want to get to long-term. For too often we focus too much on the long-term, the ultimate solution, the way it needs to be that we forget that we need to take steps, incremental, evolutionary steps towards that solution. And those intermediate steps can be lucrative and can set up the very barriers to entry that will allow deployment of your ultimate vision.

So stay focused, but remember that those near term stepping stones must be stepped on and not tripped over.

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May 2012
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