hello everyone
welcome to the harvard innovation lab
this evening we have michael scott back
uh for
what uh i count to be
uh more than 10 times to present his
startup secret seminars um thrilled that
you guys are all here this evening um
tonight michael's been talking about
turning products into companies and uh
without any further ado i want to turn
it over to michael so thank you all for
being here
thanks very much neil
and
i hope that we'll have a lot of fun this
evening as usual because we've got two
great guests so i'll get quickly into
introducing them but
i want to give two minutes background on
this evening session so
as you know startup secrets started
as a course that would help people who
have not had the chance to go through an
experience of starting a business to
find out what's it like and what are
some of the things that you might want
to think about
and it's a
program that's really designed around
the idea of having a framework rather
than answers the framework being a basis
for you to investigate the right areas
and the case studies and examples that
we bring being examples that hopefully
will stimulate you to see what comes
into practice when you're actually doing
your own business
but as we did that framework one of the
things that kept coming up is that
people start in many instances with an
idea or a product
and i know a lot of you are in that
category here this evening too
and when you start with a product and
you've got an idea about how you might
build something a lot of questions come
up that are unique to you as a perhaps a
developer
or however you think of yourself as a
product designer or perhaps just an
entrepreneur who's trying to go after a
new marketplace and so this evening
session specifically came out of all the
questions i've been getting or we've
been getting as a stream of
consciousness for people who are trying
to take their product and turn it into a
company
so with that let me introduce our two
guests uh first of all we're lucky
enough to have greg favalora craig if
you'd like to just stand up and make
sure people know
welcome here
thank you greg
so
greg is actually going to give us a
story that i feel is very moving because
he's brave enough to share all the
challenges he went through of having
developed a technology that really
struggled to find its market and because
of his learning and experience he's
obviously gained so much and he hopes to
share that with you in a way that you
can step through that experience
hopefully without some of the challenges
that he went through over many years
and then we're lucky enough to have a
multi-time successful entrepreneur and
founder who we've been who just recently
backed again john mclean
welcome
so john is most recently ceo of belmont
systems but is going to give us the case
study on solidworks
so what do these two companies have in
common
actually a lot it turns out both of them
are involved in the 3d world
so that said let's jump into the
mainstream of tonight
so
which do you have
is it a feature a product or a company
now maybe you don't think of this
question but as a vc this is exactly how
almost every entrepreneur that
approaches us quickly gets qualified
and
interestingly enough tonight we're going
to think about is 3d something that's
actually a feature a product or a
company and we're going to have two
examples about it but what i hope you
will get a chance to do is start to ask
yourself the question in terms of how
you frame your own idea is your own idea
just a feature or something you really
believe could be a big product
uh or more importantly something that
you're willing to invest your life in to
build a company so how much you go about
doing that well let's start off with a
challenge to each of you there are five
things i've put up here messaging photo
sharing check-in and directory
i'll give you a clue each of these has
turned into something
so
i just want to start by asking anybody
in the audience is messaging a feature
or is that a product or a company what
does anybody think
feature
how many let's have a show of hands for
feature
okay lots of uh features on this
actually quite a lot lots of people
saying features okay how about those who
think it's a product
about another
i don't know 20 or so okay who thinks
it's a company
very few people okay
so we'll see about that one okay just uh
we'll we'll bear in mind what you said
i'm gonna ask a question about
um let's see what about check-in
how many views you use some kind of
check-in when you go to a location have
you me is anybody a mayor of something
show of hands for a mayor any males here
we've got one mayor
only one mayor can't believe it come on
this is a social group
all right uh is that a feature a product
or a company
feature a lot of features anybody think
it's a company
okay but does that mean it's a company
just because it is today does that mean
to say it's going to be a long lasting
company
all right
i've i've already tipped my hat here
clearly everybody's on to the foursquare
one
so messaging a lot of you said that you
thought that was a feature about a third
of you
uh but messaging is all that twitter
does basically they took sms and moved
it online and guess what there's quite a
lot of people who use that
so maybe we now have a different view of
that it's it's a it's certainly a
product
and i would argue that some people think
it's going to be a very big company we
don't know yet of course and we could
concern now directory i mean a directory
of friends if somebody said to you okay
that's all i'm going to do is give you
directory friends you probably wouldn't
have thought that would become a billion
user network called facebook
and that's part of the challenge of this
if you look at any one of these things
they might start as a feature
and turn into a company now one of the
ones that i didn't talk about
intentionally i didn't quiz you on is
photo sharing
but i can tell you i would never have
expected photo sharing to go from zero
to a billion dollar evaluation in a
little company called instagram the pace
it did so how did that happen
i mean was did they just get lucky or
was there something that they did that
was right or maybe it was a combination
so these are the things that i think we
want to investigate tonight we want to
try to figure out you know what is it
that makes some of these just a feature
and some of them into a real company
my favorite example is this one
when the ipad was first announced there
were a lot of people just wrote it off
oh it's just a big ipod it's going to do
nothing significant in fact it's
staggering that you know apple could
come up such a crazy name
you know it's just like how could this
possibly be anything significant it's
become the most successful single
consumer device ever
it's changed almost everything we do in
fact we now talk about the post pc era
because of the rise of the tablet
and what was going on there was probably
something that every one of us hopes
that we'll have which is somebody had
some vision which by the way in jobs
case he declares that he never even
asked audiences about it uh to say that
things would change if you gave all
these capabilities to people into a
magical device
so
some people have this in in a very you
know visionary way other people have it
in a very disciplined way the point is
there are probably all sorts of
different ways and no one answer that
you could turn up a feature into a
product into a company
but whatever happens i do think it's
worth stepping back and trying to figure
out what can we learn from those things
so
you know shift happens that's my polite
way of saying it
and we're going to hear that story uh
from you know greg
because he has some pretty good examples
of you know what it takes along the way
and what i really want to point out here
is that you know you might have a great
idea as you start the initial process of
building your product or company but
things change dramatically markets in
particular and the pace at which they
change sometimes is phenomenal for
example the mobile world is probably the
fastest changing market segment i've
ever seen just by virtue of the adoption
curve that it's on
so during that period what you don't
want to do is obviously find yourself
dropping into this gap
where you've developed something
fantastic but unfortunately it doesn't
take off like the ipad and you're
finding yourself now you know with a lot
of investment behind you maybe your life
uh worse still your life savings
and you just don't have the
either momentum or the hoots but to get
across that gap and i will tell you
that's probably
at least two-thirds of the companies we
see in the venture world they just never
get across that and this is not a
crossing the chasm only thing this is a
significant gap that we see in terms of
the way people approach how they even
start out you know building their
product
so i want to bring this to life right
away by inviting greg up here to share
with us
how he encountered his challenges
with his original invention so greg
welcome good to have you up here
hello hi it's nice to meet all of you
i'm greg favilora and
i'm going to tell you a five-minute
version of what is usually a hour-long
story when told in other venues about
inventing and almost commercializing 3d
displays
when this process of tech looking for a
market
starts out kind of awesome and then
becomes painful and then it becomes this
patent sale a whole 12 years later
uh and by way of introduction
so this was a previous chapter of my
life that ended about three years ago my
day job is helping to run a product
engineering consultancy up the road in
arlington that does lens design
everything from the xbox connect to
toys
so this was our product um
the company actuality systems which was
based in a number of places it started
in my apartment in central square then
moved to reading then moved to
burlington then moved to bedford before
we collapsed
created this device that looked like a
crystal ball for scale i show it there
in the corner with a
sharpie pen
it would create imagery that looks like
a hologram about the size of a
basketball or actually about the size of
a head and it would create floating 3d
images that you could see without having
to wear those glasses that you wear at
the movie theater and see it from any
point of view all the way around
for example here's a picture of a cancer
patient who's doing very poorly he has a
brain tumor and is laying down looking
up at the ceiling
in
after eight years in existence we
thought was the best use of this
technology was planning uh cancer
treatment
methods using external beam radiation
oncology
so it's a complex product and i won't
really go into it in much depth haha
except to say
it worked by shining thousands of
patterns of light onto a rotating screen
really quickly uh 10 000 times a second
and that took quite a few technical
miracles to work out
so this is sort of the one slide of my
little
lesson to you tonight
the overarching lesson is that even if
you have an awesome product
you really do need to deeply understand
at least one market
where warm-blooded actual human
customers will write you actual checks
that you can cash in a bank and you need
enough money more than you think you
need especially if you're working on
hardware to make the things that it
really works well it always takes more
than you thought
okay so this is a painful tale so at
first uh
we figured that if we built this
hologram i mind you this is something i
was obsessed with since i was an 8th
grader entering this kind of stuff into
science fair contests
we thought if we built this amazing
thing people would buy it
so we had some guesses about where
who would use it i mean we're not
completely idiotic we thought at first
it'd be extremely useful in mechanical
cad which is a relationship to the other
speaker tonight we thought that
customers could save tons of money if
you could do virtual prototypes out of
light instead of wasting money on
interim prototypes or rapid prototypes
or what was then the first 3d printing
bubble back in the late 90s
anyway we focus on this epic task of
building this device uh it turned out
with insufficient funds so in phase one
in 1997 when all these dot coms were
getting money like barbecue sauce
portals
and like weird chocolate bar things were
raising tens of millions of bucks it
took me two and a half years to raise a
measly one and a half million bucks
uh from angel investors and it was so
hard me and my friends working in a
basement like i said in central square
it got to the point where i i talked to
i think 40 different venture capital
firms a ton of different angels i just
needed a million and a half bucks i
finally got one guy to say yeah i'll
give you 100k uh but you have to raise
another 300k before i'll write that
check so at least he was the first guy
in our first gal in so to speak and then
i can do my first close
so the technology problem was at the
time i was coming out of college in grad
school where i had a gadget that looked
nothing like what we're trying to sell i
had this thing that was like scavenged
pen light lasers 64 lasers from those
things they use that i ripped apart and
put on a board and then i was bribing
these uh
harvard physics lab
uh
machine shop people to like make them
for me after hours and then i had this
like spinning mirror and a spinning
little piece of plexiglass and it kind
of made like a little thing of hiv
enzymes float in the air
and and it was so insane that we weren't
getting any money so finally i
introduced myself uh through a lot of
work to this guy paul bronson who if you
were around in the 90s doing startups
you had heard of po bronson who wrote an
op-ed piece the wall street journal
saying
isn't anyone making anything anymore and
i was like the poster child for that was
here's a kid in his basement looking hiv
why isn't anyone writing him a check and
that's what it took to finally get that
first bit of money
so uh a lesson there was about having
chutzpah like you just got to be
hustling all the time an example of
hustle in the late 90s was have an
envelope of information about you on
your person at all times so if you have
a chance to like accost larry ellison
before he gives a big talk at harvard or
someone like poe bronson you could say
hey let me do a favor i'll take you to
the airport but i just tell you about my
startup okay bye
because then like after the talk
everyone with lesser guts than you
accosts them and you've kind of missed
your chance
so i'll stop talking about this first
phase in a moment except to highlight
the technical difficulty it was a
hundred million pixel display who cares
well that's a hundred times more than
most displays that's probably a one or
two million pixel display it was the
highest resolution display ever built
and oh by the way it was a hologram
and to make it work you basically needed
like dilithium crystals you needed this
thing called dlp which is a little
semiconductor chip that only ti made and
ti is the biggest pain in the butt
company to work with that you'll ever
find and we had to beg them for years to
give us this chip and oh by the way
there's no data sheet so we had to
reverse engineer how to talk to this
thing
so that sucked and we're only six people
but i got my million and a half bucks
and we got an office and hooray
so in phase two
um
this is what my board lovingly called
the many year fishing expedition looking
for a market
so we had raised maybe another eight or
nine million dollars or so in a series
of rounds they brought in a mature grown
up to run the company who came out of
silicon valley places like mcafee and
netscape
and he looked at this
really kind of
weird prototype that we had that sort of
barely worked and he took on the task of
let's sell this thing let's see if
people write checks for this gizmo and
they did we had a lot of research labs
who wanted it a lot of grad students
would be cool to do three-dimensional
graphics on it
so this kind of brings us to the second
or third or whatever lesson which is
listen really carefully tonight when he
teaches you about what a whole product
is
and what the distinction is between a
little component like a spark plug and a
solution or a big thing like a car
uh for example in our case we had a
display that would connect to a computer
either from gigabit ethernet or this
thing called scuzzy that probably only
half of us here remember what that is
and uh
and an api
so an api is a way to talk to this
device but that assumed that the
customer was really smart about computer
graphics programming meaning like only a
handful of people in america
so i had just enough money to place this
one bet which was okay not only does my
software team need to completely
reinvent how rendering algorithms work
and how to draw a display device in
cylindrical coordinate space which no
one had ever done before
let's use our last remaining pennies to
build what's called an opengl api that
way if they have a well-behaved graphics
application like solidworks or a thing
that shows pharmaceutical designers some
molecules on the screen they plug in our
software plug in a display and boom
whatever they were doing continues to
work
while a hologram of all the stuff floats
in the air
and that got us a lot of the way there
but it
uh was also this beginning of a long
painful story for us so
the very condensed version of what
happened was
we did what our mentor said and what any
smart person would do which is to figure
out a market go to a whiteboard on the
horizontal axis write the names of
market segments things like mechanical
cad
pharmaceutical design
luggage scanning remember this is like
just post 2001
military visualization
porn was really never on the list and
that was kind of weird anyway
uh video games
oil and gas
uh
and a couple other things like that then
on the y-axis you write the 10 biggest
accounts you could think of the accounts
that you could sort of reasonably hope
to get into
and you talk only to those accounts you
work your tail off trying to get into
those places you might have to write
letters you might have to sit on their
doorstep you might have to fax them if
you know what faxing is uh or send these
little brief emails so we could talk
later about what a good email looks like
and that's some supplementary material
available to you guys after this class
in none of those cases so sorry
here's a seduction that'll trip most of
you up in all of those cases they said
this is the best thing ever your parents
must be so proud of you i want 10 of
these you say great write me a check
it's 100k i think i don't have a hundred
thousand dollars can you like show me a
paper explaining why it's worth 500 000
so that my check will kind of earn me
400k in profits and i'll say no i'm
really sorry and so you go on to the
next market
so the lesson there is
if you're going to go waste a whole ton
of money on engineering make sure you
don't just know the names of markets or
the workflow of those market segments
understand who'd be writing you a check
why they would make money from writing
you a check and so on and so forth
really map the living heck out of this
flow of money
uh and as an engineer i have this sort
of anti-well then when i was younger and
naive anti-salesperson anti-marketing
bias i thought if you're not using
diodes or writing code you're just
wasting my time go away and that a good
salesperson was just like usually like a
guy you know i had like a hairy chest
and like this big necklace and stuff
i was so wrong when i started doing
marketing and sales i realized this is
really hard stuff
so it would have been much wiser if i
and if you
had budgeted some money for a really
good marketing person by marketing
person i don't mean at first writing ad
copy even though that's valuable i mean
someone who does product marketing
someone who could really deeply
understand a customer and really define
the market that that customer buy into
and then do the all important
almost as important as a ceo job of
betting the entire company to write
something called a marketing
requirements document that defines what
on earth the engineers and their crazy
cubicles have to make
so several lessons in one there
so what happened we failed to identify
that market at the last minute by the
way we did realize it could help cancer
patients but none of the venture
capitalists we talked to in 2006 or 2007
cared some of them understood medical
devices some of them kind of sort of
understood displays but no one
understood both and i'm sure we had a
lot of missing pieces that they wouldn't
tell us about but that's
another topic called if they don't hand
you a term sheet they're saying no
but they never say no
phase three i'm almost at the end here
we brought in yet another ceo after a
very horrifically scary year where i was
the ceo of a company of 20 people who i
didn't hire
uh we raised a little bit more money and
our ceo said greg man i love this
display stuff we got to stop making
displays no one's giving us money but we
know about drawing pictures of cancer
and we know how to do fast processing on
this thing called the gpu and i know a
lot about prostate cancer i know let's
convert the company into one that will
write machine vision software to help
radiation oncologists plan a very
prevalent form of prostate cancer
treatment called brachytherapy
uh it's gruesome and it's like a
squeamish kind of thing but essentially
it's about a third of all prostate
cancer patients get this if it's early
stage prostate cancer we put 100 little
seeds that are radioactive into the
prostate which is about the size of a
walnut and it's really not visible too
well on ultrasound and we thought we
would cure that problem
and we almost sort of did and to get
there i had to completely pivot man i
hate that word and pivoting for us meant
forget your photons forget 3d displays
we got holograms you're going to go to
your physician get like 10 vaccines so
you'd be allowed to sit in these really
bloody scary procedures at like brigham
and women's hospital and stuff and watch
all these things and we learned a lot
and uh didn't help because in 2009 the
market tanked
so there we were we had raised 15
million which seems like a lot but it's
not over 12 years
all that was enough to do was make a
product that just barely made a 3d image
and then year after year we just we
called it putting lipstick on the pig
just improved a little bit but the core
of it was kind of bad
furthermore we never figured out the
market so i urge you to raise more money
than you need especially if you're
selling atoms and photons rather than
bits
and really understand the market
so what happened so in 2009 our ceo left
he said greg i'm expensive i'm gonna do
you a favor and leave good luck to you
try to go close some deals i looked at
the books and realized i had one month
of cash in the bank so i pleaded to my
employees
uh can i just pay half as much and maybe
help me put these things in boxes onto
ebay we called up you ever wonder like
what do companies do that go out of
business with all this stuff there's a
website called cleanoutyouroffice.com
and these two guys show up silently like
with this red carpet and they kind of
come and they take everything away
silently it's like the dude who fixes
problems on that
tarantino movie uh pulp fiction
and and they're cool because at least
they share the profits with you and that
helps you do something but we never
threw away the patents my board was
smart enough to one day insist that i
file 100 patents that turn into 30
patent applications that turn into 20
patents
and we held on to those
and i tried to sell them because i
thought i should go down with the ship
or at least try my hardest for these 70
angel investors that i had
i got a job to have a family we tried
for a year and a half to sell these
patents and everyone said no
except for one publicly traded company
and that was awesome and we worked for
months my wife and i knew all our
financial problems would disappear if we
could just sell these these patents
and then the week before signing what
happens
the president's gone from that company
so i'm like oh my god and i became like
depressed this stuff happens and no one
wants to talk about it you get depressed
because you think everything's solved
and then like the trap door is pulled
under you uh but our patent broker and i
could teach you about patent sales later
if any of you care about that stuff said
greg yours is not gonna be the first
patent portfolio i don't sell we're
gonna keep doing this
so he kept at it for another six months
finally we got an offer from a company
with and when a deal is going to happen
it happens like it's just there's no
hemming and hawing the paperwork gets
done and it's done so just a couple
weeks later this thing was sold so i had
a small exit from it my ceo had a small
exit and we wrote little tiny checks you
know a couple dollars or a couple tens
of thousands of dollars to people who've
given us millions but it was non-zero
and uh that that gave me some some sort
of refreshing
pause there
anyway if what i have said in the
previous x minutes resonated with any of
you
michael
is making available to you all the full
like 60 slide epic of this with a lot of
tips on things like how to close a sale
or what books to read to write your own
patents and things like that and that'll
be on your website
thank you
i don't know about you but the most
important thing that i heard at the
beginning
was this one word there were a lot of
this going on in the audience just wow
is that what you do you create a 3d
display that's just incredible
and so that was my first reaction when i
was listening i was at an mit class
where greg was presenting i was like
good god that's an incredible invention
and if you think about that invention
there just must be many many
applications for it yet 12 years later
as greg has just taken us through there
are a lot of challenges to turning what
was a breakthrough technology
into a business and so tonight the goal
i'm going to try to you know bring to
light is how might we have helped greg
if we'd had him in this class you know
15 years ago and that's what this is all
about this is like how could we think
about things before we trip into all the
challenges
so greg thank you for tuning that up so
beautifully that was a was an awesome
job
so here is the product company gap and
actually
literally i think there are so many
things that could fill it that to just
relate it back to our startup secret
series there are three in particular
obviously that i would focus on there's
the go to market there's the business
model and there's the execution and i'm
going to focus on just literally pieces
of those that i think will help you
tonight and i'm going to do so by
bringing john up here later on to talk
about the solidworks story this is
solidworks product that john and his
team built and that is the company that
they built that ultimately became part
of the source systems and you can go
past that building anytime you want by
the uh waltham reservoir there so this
stuff on the other extreme can work and
so what's the difference between these
two stories and what can we learn from
both we'll hear john at the end so that
we don't steal all his thunder
now the first thing i hear from almost
everybody that i'm trying to mentor is
it's all about the product well
it may be
i mean
certainly if you think about what i hear
from most entrepreneurs apple just
creates such amazing products they're
going to fly off the shelf well we're
going to look at that a little bit
because it's always apple that i hear
people refer to
but here's one of the things i want to
point out to you that's important
because it's something that you need to
know in advance
when you first start your business 100
of your expenses almost invariably are
in engineering it's everything about
building that product
but then it changes
to expending money on proving the market
acceptance and and you could hear in in
greg's case that started a little bit
later than you probably would have
wanted it you know he mentioned he
obviously wished he'd got a marketing
person sooner in particular product
marketing person to do that product
market fit
so it starts to flip what's interesting
is that as you start to repeat and scale
sales and marketing literally flips to
being all the expense of significance so
i'm just going to ask you how much do
you think as a percentage of r d sorry
percentage of sales apple spends on r d
anybody just like give me a number
five percent okay
510 i heard over here anybody more than
10
any bids
anybody more than 10 okay so somewhere
between five and ten percent
okay
what do we think they spend on sales and
marketing
way more okay yeah because
marketing is all
marketing is your pipeline it's about
pull so you have to create awareness to
have a pipeline and you don't without a
pipeline you don't have the business
thank you i could you come join me for
the second half i kind of use five i
think we're gonna have a good
spokesperson here that was great
absolutely right so
here is the latest set of financial
statements you can go download these
from edgars anytime you want they
actually spent two percent on r d a
shockingly no number now
it's not a low figure because they're a
big company
but two percent just think about that
it's triple the amount in sg a
and this is very typical this is not
just apple
this is rohit's company demandware
public company but was a startup here in
in
massachusetts just seven or eight years
ago why actually nine years ago i should
remember it was there from that day
where we had
a hundred percent of our original spend
you know on the product team
give or take
and now uh we're headed towards a place
where
even in demandware's case we will be
twice as much
we'll be spending twice as much
on the sales and marketing and that's
not including you know gna so
this is a very typical flip that happens
and in general i would like you to think
about this you're going to try to build
a product
where you can reduce the cost
of all that sg a
the more effectively you build it the
more
specifically you for example intersect a
market and the more friction you take
out of the go to market process and
enable your customers
then the more likely you are to have a
successful business model at the end of
it
so what if you thought about this like
an architect
and you planned right up front
and said
we want to end up being a very
profitable company where we know we make
20 drop it straight to the bottom line
and we want to have a product that's
going to fly off the shelves how would
you go about building your company and
how would you go about building the
product to make that
experience the case
so that's what tonight's really about
this is our agenda
and i'm going to try to get through at
least the first two sections fairly
fully and then cover at least one piece
of the of the last piece and what i want
to talk about is how we can develop
value
and validate it as a product and then
how we can design it to fit the
marketplace and introduce a couple of
terms that will build on some of the
things that i know people here use a lot
like minimum viable product and again i
see some of you snapping pictures and
stuff uh don't worry all this is up on
my site
in case you haven't seen up the top you
can just go to mjscock.com this will be
up there literally live as you walk out
of here tonight
so let's start with developing
foundations the thing that i hear most
is you know people obviously want to try
to build something highly valuable and
usually with some kind of a notion about
what they're going to do to solve some
kind of a problem and then they want to
validate it and if you're doing all that
right then obviously you're probably on
to a winner
but there are lots of challenges in that
the first thing i'm going to try to do
is help you extract the most value from
it so when you start your development
you could just develop it all yourself
or you could think about how could you
develop the minimum viable product
and then even less than that only the
piece that is your core value now i
cover core
as part of my business model session but
basically
it's the notion that you literally only
build what is your exceptional
capability so in greg's case
he had this capability to to for example
create a 3d image
but displays that wasn't a core
competency right i mean texas
instruments had that core competency and
they ended up being dependent on them
that's another story but you want to try
and find out what it is that's your core
piece and john for example we'll talk
about that when he he comes to tell you
tonight about what he's doing in his new
company then to develop faster i really
recommend you think about things that
are changing in our world we didn't have
this when i was building products but
crowdsourcing is a great way to build
products
you know when you go to put up your
website is that your core competency i i
doubt it go use odesk or elance or
whatever for your landing pages or
create some basic
wireframes using you know people who are
probably a 10th labor cost of what's in
here in massachusetts
in estonia where i was last week there's
lots of places to do this stuff
effectively and then find ways to be
just smarter in terms of how you
co-create things this is a whole section
unto itself so i want to give you at
least a clue to it
the first secret i want to give you is
something that i see the really good
startups do over and over again they
don't build everything as though the
only customer is outside the building
they immediately start thinking about
how could they build on themselves
what do i mean by that well
if you know you've got for example a
multi-player sorry a multi-level product
for example let's say you've got a
design tool that is used to customize
your ecommerce site why don't you do
exactly what we've done now at
demandware create a platform that your
internal engineers actually use to build
your product on
why because immediately you're creating
a customer relationship even though it's
an internal customer for your product
you're forcing yourself to see whether
your internal engineers can actually use
your platform and whether that platform
actually is going to work when you now
expose it later on to the outside world
it's such an obvious thing to do yet i
see very few companies do it the good
ones make this really quickly a part of
their culture so that they're always
thinking about how do we serve the
customer how can our platform be more
open more extensible etc so be your own
customer
and then on this open extensible thing
if you've got a core that's really tight
think linux and all the various
different pieces that got built around
it then make it open extensible so other
people do things like add drivers to it
which would have been wonderful if if we
could have taken greg back and said hey
greg what if you'd been able to do this
opengl thing from day one would that
made a difference
yeah i mean he he right away once he got
that was able to interface with other
products that had the standard
and he said something very important
there which is he also made open apis
which we'll talk about a little bit
later on and then you know we have a
world which is full of communities now
building open source
literally millions of lines of code
that's available to you free why not
access it don't build everything if you
can avoid building it and just use other
people's developments that leverage that
uh
the largest community in the world of
open source happens to be a company i'm
lucky enough to back called acquia
building on drupal there are over a
thousand people who contributed to
building drupal 7. it's the largest open
source community in the world and there
is no way that drupal would be as
successful as it is if it wasn't open
source because nobody could possibly
develop all the features and
functionality that's required to move at
the pace of the web to do everything
from integrate with facebook at one
extreme to paypal at the other extreme
and in between with crm systems so this
is something that's very fundamental so
before you jump into building your
product think about how could you build
it effectively and very efficiently with
all those kinds of ideas smarter faster
be better cheaper effectively
then the next thing is value
i would say this is the challenge that
that i'd want you to
think about maybe even step one in fact
before you even build your first feature
what problem is it that you're solving
and who are you solving it for and how
significant is it is it really really
important
this is the subject of a whole workshop
and of itself the value proposition
workshop but i'll just say something
that's so critical to the thinking here
remember when we first heard greg's
invention we went wow
3d
that's huge i mean that must be enormous
we all inherently think you know things
must be 3d because we live in a 3d world
but 12 years later
you are still seeking the market right
i want to ask you a challenging question
because i know is uh
gordon here from mit gordon did you join
us
yeah he does great um gordon is is not
to pull you up out of the blue gordon is
somebody who's looking at developing a
3d product and i know you're advising
him
do we know what market there is for 3d
yet
seriously i mean it's a big challenge
yeah go ahead
so
yeah sometimes people ask me well if i
had the money to do it right or the
cheapo technology do it again what
market would we look at as far as i know
the only successful
auto stereoscopic display market are
these handheld gaming devices the
nintendo 3ds and maybe viewfinders for
3d cameras
but
i still think that given a cheap enough
core technology all of the markets that
we were looking at become open again
because the barrier to sale is much
lower and they might buy it for a
novelty or maybe i'll get lucky and have
a return on investment
so i think that's sorry question but i
just want to add one one point before
you ask that question so um a real
difficulty we had through the life of
the company in assessing if a market was
a good fit was that for visual products
we couldn't figure out how to
demonstrate an idea or get meaningful
feedback unless we built the thing right
i couldn't figure out how to send a
smart marketing person into ask
questions because invariably everyone
would imagine liking a hologram but it
wasn't until they saw it that their
answers became meaningful yeah yeah so
the paper prototype didn't work in your
case
this is the thing that i want to get
clear first of all is that if you don't
know what problem you're solving and
you're not clear that it's valuable
we're in trouble right there and so this
is why we don't want to be in the
situation where we just invent
technology or find some breakthrough and
get all excited about it and in
particular what i want you to try to do
even before you go anywhere near
building your minimum viable product is
just ask yourself this question do you
have a problem that if you solve it is
really valuable
because a minimum viable product is
irrelevant if it doesn't solve a
valuable problem and to be specific
viable does not mean valuable
they are two very distinct things and i
see way too many people caught up in
this i've got a great mvp but what
problems does it solve i don't know well
then you really don't have anything
so it's this valuable piece that's so
important now in the workshop on
what is effectively the value
proposition we talk a little bit about
how do you qualitatively value this and
my simplest recommendation to you
if you haven't watched that workshop is
just do a before and after scenario and
the before and after should answer what
greg was getting at which is okay if
somebody didn't have a 3d display before
and then they had it afterwards what did
that mean did that mean that they had
some little bit of joy or did they
relieved some incredibly chronic pain
and afterwards they ended up with
incredible joy well as you can tell greg
did actually end up focusing on a
marketplace where that potentially could
have pla panned out which was in the
medical world where you know literally
removing people's brain tumors could
have been incredibly valuable but it's
not an easy thing to do this and it's
what you really need to focus on very
early on
now we're lucky to have uh abby fichner
with us who's actually just recently
done a workshop on agile validation well
actually validation i call it agile
validation and i'll come back to that
but the validation piece is a very
important part of this because
you don't want to guess this stuff you
want to get out of the building and
figure out what the customers are
for this particular proposition and
understand why they think if they buy
this
they will get incredible joy there's an
important thing greg said earlier on
which is by the way
selling is an important piece
of your validation but how you sell and
who you sell to is also extremely
important so
you mentioned for example greg that you
sold to researchers and that turned out
to not really be a big big market right
this is a big issue lots of small
companies find what might be what i
would describe as the mirage markets
mirage markets are all over the place uh
you know research labs is a classic one
you really don't have a market until
customers are paying for something
and trust me even if you think freemium
is a great strategy we'll talk about
later on in the end your validation
needs to be dollars and then greg said
something really important which is it's
even more important even when they start
paying for it ask this question about
why why are they paying for it what is
it that they've said i'm going to
actually spend money on this for and
until you understand that problem you
haven't done any validation so i'm not
going to recreate all the great work i
encourage you to go look at abby's talk
which
gives you a lot of the great tools for
going and doing this
my favorite one is still you know for
all the landing pages and web prototypes
and surveys you might do go get yourself
some prepaid customers if a customer is
willing to write you a check
for you to actually deliver something
then they've probably got a real pain
and kickstarter for example is you know
in effect doing that but obviously it's
just in a little different form it's in
a crowdfunded form
so i mentioned value proposition you can
find it on the site there's one other
piece for you to really understand
tonight that that i use a lot which is
what i call the gain pane validation and
that is to say you really need to
understand not just the gain you're
giving your customer but the pain they
have to go through to actually get that
gain so
greg gave a perfect example of this if
as he came up and answered that question
if 3d displays were you know 100 bucks
and they were incredibly easy to plug in
to everything we did every day then i'm
sure we'd all use them
um in effect the gaming market has in
fact done that they've found a way to
make it easy enough for people to get on
their nintendo whatever it is a 3d
display that actually gives some value
whether it's just fun or entertainment
and it'll lower cost enough price and so
that's the pain piece if greg could have
reduced i'd see him nodding you know all
the pain and producing that display down
to 100 bucks i mean you probably would
have opened up a whole bunch of markers
and i bet there will be some 3d markets
that will open up a great center this
would have been the greg center and and
maybe it will be in the future so that's
what we want the rest of you to figure
out is how do you become part of the
greg center
so
the next thing i hear is
people have what i would describe as
multi-faceted value props and what are
multi-faceted value props here's an
example
one of the companies that came in to
pitch us this week actually they're
already an investment of ours is selling
security solutions password solutions
and on the one hand they sell these to
e-commerce sites like demandware and to
banks that need secure login in the
other hand
those people aren't really the customer
the real customer is the consumer who
logs into those sites you know to either
buy goods or to do transactions so
they've got a very challenging problem
they've got to get both the consumers
excited about their solution and yet
they've got to have the merchants
enabled or the banks enabled to actually
make that solution really work that's a
multi-faceted value proposition that's
tough what if you could just pick a
problem and say look
if i solve this problem for you
produce for example a product that makes
it possible for you to check
interference on any engineering part you
ever do in 3d and by the way as simply
as you ever drew in 2d
would that be valuable
i guess so is the answer that john's
going to share with you later and you've
got you know one customer the engineer
or the designer or you know whoever it
is and you've got one value prop and i
really encourage you because i hear this
so often to not get caught in this if
you've got multiple audiences pick one
and find one starting value proposition
for you
okay again just to reduce that whole
value prop section to this next piece
there are a lot of things we talk about
for those who've been in the session
finding discontinuous defensible
disruptive innovation for example and
then finding markets where it's
unworkable unavoidable and it's urgent
but there's also one piece that i want
to bring out which is where is it
underserved where is the marketplace
not being well served for the problem
that you might develop
and then this leads to what we're going
to talk about now how do you target that
and segment it
so greg already brought this up
and
most people talk in terms of product
market fit what i'm hoping to do in the
next you know five or ten minutes is to
show you that product market fit is not
a simple thing it's actually very
important to double click on it and
figure out actually go to market fit
so in greg's case i think he talked
about you know this whole idea of coming
up with market segments and how many
years were you into your business when
you realized that this was important
well we weren't all done but uh yeah
so we we listed them on day one yeah but
we didn't understand the true complexity
of a lot of them until year three or
four yeah for example the word medical
imaging is actually diagnostic
interventional and then 10
subspecialties out of that exactly it's
segments within segments within segments
and this is the thing i'm going to
encourage you to do when you look at
product market fit don't think about
your market as medical
think about it as medical imaging and
then go down into the next segment the
next segment until you can really figure
out what is the basis on which to target
your product so when you talk about
minimal viable product
yeah you might shrink your product down
to a small piece but it's still unless
you figured out which segment to go
after a large area for that product to
cover and so it's all about trying to
find this fit
so it's actually hard to put this up in
in pure
simple graphics so i'm going to actually
use the whiteboard to do this with you
and then we'll we'll use my slide
afterwards
so
actually let me
steal one of these ones here so we can
keep greg's stuff up
so the idea that i want you to think
about is as follows
if you could find a bullseye
to initially target and the bullseye was
incredibly well defined was very tightly
defined and your product perfectly
mapped it then you would have a product
market fit
and if you could keep that
as a consistent fit as you went customer
after customer then you'd be very
successful but usually what i see is
this
people define their mvp
they say they've got this marketplace
for example
medical
and now they go out and they start
talking to customers they find one over
here one over here one over here maybe
one over here one over here
which one do you pick
which one's right and if you just go
down the typical process that most
people go down what they'll do is
they'll
start building features for this person
start building features for this one
maybe pick a few there and pretty soon
what happens to your minimum viable
product
it starts becoming a pretty big product
it adds a lot of features a lot of
functionality and what you've really
done is just expand your need for
resources the one thing you don't have
lots of
you don't have enough engineers you
don't have enough cash you're trying to
actually conserve that until you get to
some repeatability so what i want you to
do is this
i want you to do the exact opposite
i want you to look at every single one
of these guys
and say
what is their need
what's their pain
and how can i find
one or two of these
that line up that actually have exactly
the same pain and need
and when you do that
two things happen
number one is
your product as you move to match those
needs doesn't change
so now you don't have to expand the
footprint of your product and number two
is
your roadmap for your business about how
you meet those needs is completely
consistent
you'll find the same channels to go
after them the same messaging and
positioning the same tactics and so
forth
and i purposely drew this on a diagonal
because
the mistake that most people make is to
say oh a vertical or a segment oh that
must be
smb or maybe it's medical versus
government or maybe it's financial
versus uh you know consumer whatever the
reality is it sometimes doesn't fit
neatly like that it's actually sometimes
completely different to that it might be
people who have a specific
for example compliance need
and compliance might work across for
example pharma and financial services in
fact it might be anybody just to give an
example who has the need to trade
derivatives
and that's actually any fortune 1000
company that does anything
internationally so it may fit across
multiple verticals and so the point
about a segment is
it may be unique to your particular
product and it may not be neatly neatly
defined
so i'll try to just show this to you on
on a slide so you can get beyond my
handwriting so we're trying to avoid
this stretch this fit and stretch
problem that first occurs by trying to
go after too many needs that are
dissimilar to start off with and instead
what we're trying to find is a product
market fit solution where every one of
these
needs that you identify is the same
and at that point you have what i call a
minimum viable segment
so the minimum viable segment can be
tested very simply
it gets tested by
do things repeat without you having to
change your product and change the way
you go to market if they do you've found
a segment
and what i mean by repeat is
literally customer by customer can you
meet their needs
and as you repeat your product does it
say the same
and if it does you're onto a winner
you're now going to be able to continue
to move this business forward without
adding more cash adding more engineers
trying to change your marketing every
time you go out to market and it's a
tremendously magical thing because
another great thing comes out of it you
get reference ability you start to
dominate this segment where now with one
two or three customers who all have the
same needs who can talk to each other
and say yeah i'm getting the same
benefit as you
you start to become known as the leader
in this segment and because it's not big
hopefully you've been nice and defined
about it you can dominate it really
early on and quickly define yourself as
being the market leader for 3d
cad cam in whatever it might be
engineering and so forth
and that's what we want to get you to we
want to get you to a place where early
on as a startup you're starting to have
traction so i'm getting lots of hands up
so let me pause here go ahead so i want
to know how do you find these pain
points and how do you get these
prospective customers to talk about
their pain
okay the problems that they have
um i'm going to repeat that question but
in case anybody else wants the mic how
do you find these customers and how do
you find their pain points to repeat
john do you want to take a shot at that
you've done this many times before
i'd love to tell you that it's a really
simple solution
it's this it's shoe leather
i think i think the point that michael's
making is
there are so many people
you you want to get rid of the people
that sort of
show you all the buying signals i'll
share some of one of the failures of a
company that i led called cloud switch
where
right after the the 2008 credit crisis
it was a company that was helping
basically people take their data centers
and extend it to the cloud and every
customer i went to i mean i saw buying
signals like i've never seen before
people leaning in people kind of wanted
to get started
but nobody was willing to necessarily
write a check some did
but then
closed looping it
people wrote checks for the wrong reason
and so i think the answer to it is you
just gotta get out of the office
and you gotta get in front of people
and so try and pick two or three people
in a segment in the same segment and if
two or three people sort of say no guess
what it's probably they the worst is not
the people that say no the worst of the
people say yes and then so you got to
grade it yourself to sort of say are
they saying yes to be polite or yes
they're interested are they giving you
the japanese yes like yes i heard you
but not yes that woman forward so that's
what you got to look for and i think the
danger is the danger is
is is when it's biased and what i mean
by that is if it's only you going to
that customer
or a couple of customers that's
dangerous if you have a partner or
somebody else you can have to help you
kind of um balance your view i think
that's also very powerful and beneficial
but it's shoe leather you just got to
get in front of a lot of people and
categorize it same segment different
customers different different vertical
segment whatever
so i really think by the way there's no
possible way that that could said that
better
you really do have to get out meet greet
and go through a lot of kissing of frogs
before you figure out you know where
your prince is but in particular what i
do recommend is this and i'm sure john
did this in many different ways which is
create your score sheet
your scorecard
and um it's going to evolve and you saw
the way i put out you know the dots
in effect you want to create every time
you hear a need
try to get really specific
with the customer ask them over and over
again did you hear the need right what
is this particular need and what if what
if i solved it what particular problem
would i be solving for you
and then here's the critical piece and
what would you pay for that
and don't forget to ask that question
and then if you really feel like you've
got them at a place where they say that
they will pay for it ask them okay so
would you be willing to write me a check
in advance
i'm not saying you're going to get this
a lot of times but you know you're onto
a winner if the answer is yes and
actually i've started two companies
where i had checks before i got any
funding from customers
i'll give you one visual to take away
because there may not be a lot of things
you hear tonight but i think this is one
of the most important
way back in the time machine there was a
company called computer vision that's
where john hurstick was the founder of
solidworks and he and i met and worked
together and computer vision was getting
crushed by this company called ptc at
the time
and um and computer vision spent i think
probably
50 maybe even 100 million dollars trying
to build a next next generation product
and they were all over the map
and i remember john hershey going out to
san diego i met the development team out
there and the guys that were running the
project were kind of frustrated because
they weren't getting any traction they
weren't making progress
and one of the guys i probably shouldn't
say his name but he uh
i'll call him r because that was his
first name
he said john what should we do
and i think this is a visual i'm a
visual person put this in your mind
he sort of said
i'd padlock the door
and i put a big sign that said nobody
can come in here until they sit down
with at least three customers
so when you ask the question about it
it's shoe leather padlock the door get
out of the office and go talk to much
people
great so just to keep us on track i'm
gonna move on to the sort of the
follow-on from this so this hopefully is
now very clear to you we have a
challenge to move from minimum viable
product to minimum viable segment if you
do it right
once you've figured out your minimum
viable product and you've got your
segment sorted out then you get a
repeatable product and you know you're
on to a winner when you're starting to
do that and in in the answer to your
question by the way what happens is
these needs need to line up if they're
over here and over here and over here
you've got your problem occurring again
and you want to be willing to throw
these out
in order to stay on this so let's wrap
this segment uh just because i want to
give you enough of a framework that when
john comes up you can see it all fit
together
hopefully i understand that if we can
get this
minimum viable segment we're going to
find a way to keep your product
footprint and resources focused and
we're going to be able to get people who
with the same needs will reference each
other and ultimately you'll be able to
get beachhead
a segment that you can dominate that
will ultimately be the place that you
build off
now there is one thing that i i've also
taught in the value prop class but i
want to cover quickly here and that is
trying to find a segment where it's not
just a nice to have need it's a blatant
critical need especially if in the in
the business to business world
and so i'm going to use an example that
i live with every day because mobile is
so hot that i see dozens of mobile
startups all the time and they all come
in and say the same thing
well there's a billion smartphones out
there now and so if i get two percent of
that marketplace with this new app i'm
gonna have a really successful business
at you know four bucks 99 an app
sounds great reality is a little
different the reality is there are a lot
of people who could potentially use a
mobile app so how do you zero in on a
segment that's actually going to have a
real pain point and a real critical need
and this is really just designed to give
you an example of it what if you said
instead of anybody with a mobile phone
you said well mobile professionals well
that's at least perhaps now getting into
the business world as opposed to just
consumer but there's a lot of mobile
professionals what have you then said
field workers
and those are as opposed to desk workers
and what if you said people are out in
the field servicing goods uh and
products as opposed to sales people now
you're narrowing it down again what if
you then said servicing medical
equipment
as opposed to just for example fax
machines well if not fax machines geez
i'm dating myself um
for example you know postal machines
um you know the classic office equipment
and instead of businesses you said
within hospitals
and then you said let's go one step
further that those machines were being
used for critical care
so now we've got all the way down to a
place where instead of for example doing
something that is not mission critical
if these machines are not serviced
somebody dies
okay now i think we've got to a critical
need people care about that
so we've actually just taken a path that
has got nothing to do with the
particular
size of the business or you know
particular feature function what we've
done is we've figured out where there is
a pain point where you need a mobile
professional who can go out in the field
and service medical equipment in
hospitals for critical care where if it
isn't done people die
that's what i want you to do when you
come talk to me about building your
business figure out where is there a
blatant critical need that will have
such an impact
that you just can't live without it and
that's what this segmentation exercise
should really be about is figuring out
how to both get those repeatability uh
repeatable uh requirements but also in
an area where people really care about
it now you've answered that value
question that i was talking about as
well which is to say if you solve this
problem is it valuable so it's not just
a viable product it's a valuable product
makes sense see a lot of people nodding
so putting all that together this is no
longer just product market fit it's
about
uh go to market fit it's about narrowing
your target segmenting it and it's vital
as i mentioned right up front for
everything being consistent for
messaging and positioning all the way
through to how you deliver your product
and those of you seen my classes before
will know that i'm never going to give
up on this subject the number one thing
i wish startups did more of is focus and
as narrow as possible to start off with
what people always come into my office
and do i've actually rubbed the diagram
out but is they come in and they say
well we've got this big market
opportunity i'm delighted to hear that
but if you go after it all at once it's
going to be like boiling the ocean and
so what we're always trying to get you
to do is think about those small
segments you can
dominate to start off with and i wish
that the story wasn't this way around
but most startups fail because they've
tried to do too much and they end up
contracting on failure i would far
rather you could expand on success even
if it is one customer at a time and the
most successful companies do that they
figure out how to build up from that
success on each of those particular
problems that line up one customer at a
time
so because people ask me this all the
time there's a post up on my site about
it how do you get the balance between
wanting to get somebody excited about a
big market and at the same time starting
with something very small
and the post is entitled vision versus
execution
but i keep getting more challenges about
it so
uh even with the post i've added add to
this following diagram
think about greg he had his technology
breakthrough he figured out how he could
you know create a display
uh out of thin air which is stunning
uh so he had a vision
and obviously he went through a lot of
execution to get through this what if
we'd helped greg in advance right out of
roadmap to say greg over the next
several years we're going to turn that
into a feature a product a solution for
a particular marketplace that you can
ultimately build a company around with a
business model etc if we could have set
that roadmap up for him in advance life
would have been a lot easier because he
would be constantly validating he's
nodding so i must be on the right track
here
and for you as product people because a
lot of product people say well i don't
want to hear about the business stuff i
want to hear what would it mean for me
as a product it's basic things you know
how do you get usability up front how do
you get partners and services and whole
product in your product how do you get
the solution into the hands of real
customers that become referenceable how
do you get the market segmented when
your beachheads get repeatability on it
and then how do you get to a place where
you now can afford to actually involve
uh you know the next set of engineers to
build a product line that gives you a
scalable business that ultimately turns
profitable
it isn't actually a lot more complicated
than that there's just a ton
of execution in it
and along the way you know you'll be
building a team that can do that and
it's actually you were hearing from john
a lot of the challenge here is figuring
out how to do that at scale
so
i'll give you one you know simple view
of a road map and i give you one startup
secret to go with it you know if you're
on the right track if you always
validate this from the customer
standpoint
so yes i said in a lot of board meetings
i'm very happy to do so but i am
absolutely the most irrelevant person to
impress in the board meeting who cares
what i think i would far rather you came
in and said
here are the 10 customers that care
about this this and this
that rather than hey we met our cash
flow forecast
it's meaningless whether you hit your
cashflow forecast what matters is that
you're answering a customer need and
that you're proving to me that you've
moved from having just a feature to a
place where customers are buying it
repeatably
that matters that means you're moving
down this roadmap
and so no matter what anybody tells you
create the basics for
metrics to validate along this roadmap
that are external
figure out whether it's a net promoter
score which some people love and others
hate or that's retention and upsell
which drive huge amounts of value or
lifetime value whatever it is that you
want to use make sure it's
customer-based
if you've got customer-based metrics to
validate your progress or on the roadmap
you are going to know whether you're on
the track to building a feature a
product or a company and so this is i'll
add to that post because people keep
asking me about it and hopefully this
gives you a sense of this
all right well we're starting to close
this gap
we have validated value not just
features and we've designed to fit uh go
to market but now what we want to do is
uh architect to attract those customers
and i'm going to talk a little bit about
at least a piece of what
comes into play there which is the go to
market and business model
so how do we architecture attract
and basically i was trying to think of a
way to explain this
in a simple term and that's take all the
friction out of it and it's what i call
creating slippery products
the notion of a slippery product going
back to my gain plane ratio is that all
the cost associated with a customer
seeing
uh trying buying implementing deploying
and owning your technology what if we
could take it to basically zero take all
the friction out of it this is the
piece of the value prop uh workshop if
you want to go look at in more depth
what if we could literally make it
possible to slip into the lead imagine
that everybody else is running on the
running track with shoes and you
suddenly get at your own lane now which
is ice and you can just skate along it
you're gonna you're gonna kill everybody
so that's the visual i want you to have
as we go through this we wanted to find
ways that your product can become that
slippery so what is slippery
it's a little hokey but bear with me the
idea is that somewhere in here are some
gems that you could all find that will
help you move forward at uh you know
breakneck pace as a skater
it's simple
low to no initial cost it should install
easily it should prove value quickly
play well with others be easy to use the
roi should be obvious and your customers
should look should be in a place where
they can't live without it it's that
sticky
i will guarantee you that if you figure
out how to do all these things
your product will sell
a lot more cost effectively and that
whole equation i started with up front
will be a much more profitable one for
you so let's jump through this simple
simple should be simple right
why is it
that you know you've all heard these
quotes if i'd had more time i'd have
written a shorter letter
i could go on and on there's many of
them i even had a hard time thinking how
should i get simple across so i went
back to first principles
okay well it's the opposite of complex
and simple if it's an advantage means
that complex is a disadvantage
okay so how could we actually express
that as an equation
and i came up with an equation which i
won't bore you with how i got to it it's
really simple
and that is that your advantage is your
innovation times the simplicity
and i'll trust that each of one of you
is smarter than me to figure out how
this might be disproved but i also
really believe this
i've tested over the years and what i
see is this
any innovation if it's simple enough has
the potential to be adopted the more
complex it is the more likely it is to
run into all the issues that you were
hearing greg talk about
how would you get it to integrate with
something how would you get it to work
with existing solutions
or how would you even realize its
potential
and so you can find this on the website
don't worry but i will tell you
if you think through the simplicity of
your product as the basis on which
people can actually understand it and
work with it you will find that it will
give them advantage and my favorite
example of this when i first gave this
talk actually a long time ago to give
you a sense of how long i've been
you know working with this thesis was
when microsoft came out with their you
know entertainment center their remote
was actually more complex than the one
that's up here i couldn't find the most
recent image of it but they're dozens
and dozens of buttons and then apple
came along
and they had three
buttons and guess what that did
everything that that did and which one
was more successful that doesn't exist
anymore this one isn't yet by the way a
product in mainstream for apple but
they've sold millions of units of it
and actually people use this for you
know controlling uh their pcs etc
and there are examples that people are
finding very popular today so uh how
many of you remember knowledge
management i'm really dating myself now
it was a huge category
good there are a few other people here
who do knowledge management was supposed
to be a multi-billion dollar market
for some people it was there were
companies like lotus notes that got
going and built on it it's nowhere today
because it was horribly complex for
people to put knowledge management in
place
along comes evernote
evernote
is builders note taking it's incredibly
simple it's probably the best knowledge
management tool i've ever used
why because i can just access everything
about it i can capture notes you know
take pictures even take recordings share
it with anybody anywhere in the world
even if they don't use evernote on the
web
now of course some of that
infrastructure wasn't there for when
knowledge management was created but
you know it's obvious if you try to go
and pitch this to somebody
that is a lot of work that's what
knowledge management used to look like
when we were pitching it and yeah i used
to have to sell this stuff in in one of
my companies
wouldn't you rather just take out a
tablet and capture it that simply so
this is why simple is so important
and i've already mentioned to you one of
the key things that i recommend you do
which is really give up everything other
than the core capability that you have
of value as the starting point for your
product try to reduce it to the absolute
essence of what it is that you do
uniquely well for somebody and then
everything else either figure out how to
leave it out of the pop the box
or more importantly
figure out how to work with others to
partner with them
and i think that is the essence of why
so many products are successful or
unsuccessful
okay so that's the simple piece
the next piece of slippery l low to no
initial cost this is a favorite for
consumer apps people are always trying
to find frictionless ways to get trial
i'm a big believer if you can take the
cost out of customer acquisition that's
great
and certainly it can be very successful
if it helps you identify customers or
have them identify themselves because
there's no barrier to them trying
something that's a wonderful piece of it
there's a wonderful article for those
who haven't read it i've put the link up
here it was written a number of years
ago by the editor at wyatt about
freakonomics and how free is actually
the new
black in those days that people would
say is going to help you you know get
your product to market but i will be
clear it's not the all be all and end
all there are some real failings to it
so
free fall actually is what happens to
startups that just never figure out how
to get beyond this they they realize um
that they can get lots of customers but
guess what people are paying what uh
sorry valuing it as to what they're
paying for it which is nothing
if it costs you nothing and there's no
barrier to it and you heard greg give an
example of this as well then they're
probably not valuing it and the
perceived value is often zero too if
you're giving something away people
don't value it as as you know a premium
product obviously and ultimately you do
have to upsell these people to have a
business you know unless you're a
not-for-profit
so what's a good example that had i
think has done that very well
uh i could have used lots here i picked
linkedin because a lot of people i think
were really skeptical about linkedin
linkedin did this very well
initially it was absolutely free
and for a whole
range of people it still is today i
don't pay for linkedin
yet i get value out of it and what they
did was to give people a way to network
and connect with each other that gave
value
but they monetized from people who would
actually use that network headhunters
recruiters and so forth so for you and i
we're getting valued by the connections
but for people who are actually in the
recruitment business in the hr world
it's actually a network that they can
tap into that they can charge for and so
what you really want to do is figure out
uh early in your value proposition where
it is that you're going to monetize
and initially if you're going to go the
free route you know give value to people
so that they will engage with it because
there's got to be a virtuous circle for
people to actually engage
and then if you're really smart figure
out how to do it with some kind of
virality built in morality is usually
something that causes people to
immediately take an action when they see
the value of your product so
specifically that they want to share it
very quickly and the quicker they share
it the more viral your product is
so this
what i call value
virtuous circle viral network is what
you want to build if you're in the
consumer world and try to do that in a
way that gives you a basis to later
monetize it but be aware that if you
don't monetize it in some way you know
free doesn't mean anything except you
know you're not delivering value
so onto the i in slippery you want
products that install easily and
integrate well so that that they're not
tripping you up and i'm astounded how
many times
great innovation
is built in isolation of where it's
going to get integrated it turns out
this is the whole reason that enterprise
software is dying
it's because people find it so hard to
implement it have you ever heard of this
term shelfware shelfware is because
people don't think about this this
particular factor so you know that so
why not think about it up front
it's again reducing the pain for
customers to try adopt and deploy your
product
so what are some of the ways you can do
this well
the strategy that that you know
microsoft adopted very well when it was
behind in the web with something called
an embrace and extend they literally
went and figured out how to embrace the
web and extend what everybody else was
doing they didn't try to take over the
browser initially
they were very clever about how they
went about this it was a great strategy
and that term has now been used many
many times you want to try and do the
same thing embrace whatever everybody
has as either a business process or a
product or or infrastructure and then
extend it and openness and extensibility
has become a whole way of building
products in fact
i pulled this graphic out of some work
we're doing in the open source world
where the growth of open apis is just
taking off
uh you know when greg was around and he
was trying to get his opengl api out it
was probably considered quite a big deal
to have an open api today everybody has
open apis there's open apis for almost
every web service you can think of and i
really encourage you instead of saying
okay we're going to build everything
figure out how you might integrate with
all those restful apis for example why
would you ever create a payment engine
it says many different ways that you can
use payment gateways today if you're in
the commerce world and thousands of
different you know merchants now accept
for example whether it's paypal or if
you want to use xcommerce underneath it
you know means to integrate that so you
don't need to build that you can just
use it and you'll be much more easily
integrated into people's workflows if
you do that
and this is the thing that i really want
to get to which is a non-technology
thing that people forget
there is an assumption i hate
assumptions but this is one i want you
to make
change is risky painful time consuming
and costly
it just is
especially
uh in the enterprise world but it is
even true for consumers people resist
change all the time so imagine that
you have incumbents whether they're
applications or their operating
environments or business processes or
the biggest one of all is usually human
people just don't want to adopt new
processes if they've learned a way of
processing an order and you come in and
tell them they've got to learn it
completely differently you are putting
up a barrier to entry for yourself you
are creating yourself a cost so learning
for example to operate a 3d instrument
is hard
it turns out people are still struggling
with this you know we looked at a
company that was doing haptics again
spin out of mit the problem wasn't
technology it was training people to
actually use this
for real applications it's a lot of
friction in that so whenever you're
building your product think about how
you might make it install easier
and the simplicity uh the simple way to
think about this is the products that
integrate
and play well with others encourage
others to play with them so again
because we have rohit here um i will
just give the example from his company
demandware
when we first
were investing in the company we knew
that e-commerce was a complex area and
so we focused on building the platform
but we also knew that at some point it
would become important to integrate with
all the people that are involved in for
example order processing the back end
customer
customer fulfillment etc and then all of
the people that for example would be the
front-end doing the marketing and then
experience management etc so we created
an open api an open program uh called
the link program and we made it possible
for other people to integrate with us
and ask to integrate with them in fact
we started pre-integrating all that
stuff so now when people came to buy our
platform what happened was they knew
right out the box they could get all of
this capability without having to do any
work that's taking the friction out
i'm not suggesting you do this right up
front but i'm suggesting right up front
you think this way you think about how
much you create an open and extensible
platform that will integrate well with
whatever is in your customers hands
okay on to the first p
you want something that proves value
really quickly
how many times have you downloaded an
app from the app store and deleted it
within two minutes
anybody here done that lots of you okay
that's what obviously we're trying to
avoid we want consumers to get instant
gratification out of something and say
hey i've got value from this let me
start using it and in the enterprise it
translates to something a little bit
more complex but it's just as
significant which is rapid payback
people don't expect instant
gratification but they expect payback
within a three-month period would be
ideal but certainly within six to nine
months and not greater than 12 months if
it takes you longer for your product
for your product to give value than 12
months you're in trouble because you're
going beyond people's budgeting cycles
even and in this day and age people want
results fast so rapid payback's
incredibly important but how do you do
that
it's easy to put these things up well
here's a tip
you can actually create self-proving
value in your products
and the really good companies i'm seeing
today build this into their products
again from day one they're actually
putting in place
the metrics and the visibility into
what's the product that's being used for
this is from one of our companies nasuni
with the analytics on exactly what value
is being delivered by the com by the
product so they'll take a baseline right
away when the product goes in and
they'll show you this is how much
storage you were using before for
example and this is how much we've
reduced your storage and reduced your
cost so you're actually measuring for
the customer right there so they can't
even avoid it how much value you're
delivering to them now there's no
question about whether you're delivering
value it's being shown to them
so
self-proving value through analytics is
a fantastic thing to build into your
product early on and it will help you in
your your justification your business
case and in many scenarios with your
customers
the next thing we talked about was you
know if we're starting with a very small
minimum viable product something that's
really tight how will it build to meet
real broader needs so you you mentioned
one of them uh which was reliability
availability scalability this is not so
much targeted that
but if you have a set of functionality
you want to disclose i'm a big believer
in in doing it progressively so that's
the second p
in other words don't confront somebody
with everything so they're literally
like falling off a cliff with this huge
learning curve
and it's just so difficult to jump into
but take them step by step
through disclosing the capabilities of
their product so this might be a
difficult concept to grasp without an
example so i brought one here
turns out uh the company i was
mentioning earlier acquia
has a challenge with drupal drupal is so
broad there are tens of thousands of
modules for it
and what it does is enable web
publishing for people who want to turn
their companies into a media company so
for example connecting with everything
from your customers and partners and
suppliers to your fans or if you're not
for profit to contribute that's a lot of
functionality so
we decided what we do is create a
product called drupal gardens that would
literally get you live on the web
designed to online in 15 minutes
that's a very different experience by
the way than what you would have if you
went to the open source
you know drupal.org and try to put all
this together and create a website in 15
minutes there's no way you do it
so we did that but we also realized that
the minute people did that they quickly
start asking questions of like okay but
i want to do things like for example put
blogging on there or i want to have a
community and enable people to connect
with me
so we would enable them to just turn on
modules
as they needed them but not right up
front we did not give you 10 000 modules
out of the box that would have been
totally overwhelming
and then by the way if you get to a
place where all these modules that we've
put together for you simply are not
enough we go one step further we can
actually say just export the whole thing
and now you can take any of the ten
thousand modules you want out of drupal
and create your own site so that there's
no lock in so this is a completely
seamless experience it's not perfect but
it's made a massive impact it created
tens of thousands of sites within months
of launch
and through things like templates and so
forth they're just a huge plethora of
sites that have been created very
successfully with this progressive
disclosure approach so i really
encourage you again to think about that
progressively disclosing of features as
part of your slippery products
okay we're on to the first e which is
easy to use and apply
and here i have an expression that i've
used for years which is ubi what the
hell is ubi it's not something from star
wars it's out of the box experience
which was if you open up the wrapping
and everything felt great right out of
the box you you had this amazing moment
where you just would like dying to use
the product and if you notice people
even pay attention to that in packaging
well in software and in services and so
forth have that same experience give
your customer that just absolutely
delightful experience where they want to
engage with you and you might say well
why is this a big deal
i'll give you an example that's very
real and by the way simple things like
templates that i just showed you for
things like theming etc that's why apple
was successful with with its uh you know
many of its products is that they gave
you templates right out of the box to
make beautiful photo albums or or to do
things very simply but in the enterprise
world
that is the single biggest reason that
siebel struggled siebel went through
such
torture with its customers to get their
their products up and running
and so it was an easy target for
salesforce to come along and say we're
just going to give them a delightful
experience it's like no-brainer you
don't have to install anything and right
away you can start using it cost you
very little and experience is going to
be great you can customize it and start
adding stuff that's why this is
important
and a whole company has disappeared in
my opinion because of this
and a whole new one has emerged and it's
a goliath in our space so this is really
important stuff
okay on to the r
your roi should be obvious
so in
consumer experience this is probably not
that important consumers don't think
about roi but they still think about you
know they're spending something to get
something but in the enterprise world
it's totally critical you need to have a
quantifiable roi
at some point when somebody starts
writing big checks for you they will ask
you
for what the return on this investment's
going to be and it should either be
increasing revenue or reducing costs or
maybe in your very early stages because
it's not easy to show roi uh with an
initial breakthrough it might be so new
it should be at least driving
competitive advantage
and certainly in the early market so
that's what people look for the
visionaries are looking for competitive
advantage so again how might you do this
well you can build on that idea that i
mentioned earlier of
self-proving value but you can also do
things like one of my companies unidesk
did which is they built a calculator and
they can show you why what they do which
is desktop virtualization and the
management of that is going to generate
a return for you it turns out it's a
complex problem and they solve it they
reduce storage they make it easier to
manage desktops which are very expensive
and they can give you an roi right out
the box
and finally
you want to have a product that is
sticky that is something your customers
can't live without so it isn't a
question for them whether they get up
the next morning and use it again they
just have become completely and utterly
uh dependent on it
i mentioned that ipod
story up front the big ipod how many of
you bought ipads
lots how many of you would be willing to
give them up
nobody
oh one person
okay i need to hear why
i i think uh i have an iphone and i have
a mac and it's just sort of in the
middle so that's the one thing that i
can kind of get rid of okay so apple
saturated you fair enough
um
i you you and my wife would get along
great because i have way too many
products in between
uh but the truth is we have all become
very much uh dependent on now whether
it's our phone or a tablet as a means to
do everything from communicate to
entertain ourselves and so whether we
call it critical or not it certainly
becomes sticky and so we want to define
products that really fulfill some kind
of need that customers fall in love with
and they just don't want to give up
and so in a nutshell
look for ways to build slippery products
that embody all of these different
capabilities and if you do
you will probably do some very basic
things like for example increase the
gain your customers get reduce the pain
they they have of acquiring you and end
up building some interesting companies
around it
so i'm going to encapsulate all of that
if you never remember slippery or any of
that stuff it's up on my site
into one simple notion what if you could
build a truly disruptive innovation that
was so exciting
the people had to have it yet it had no
disruption to adopt it
people do this
a little company called vmware did this
they basically found a way for you to
take server utilization from in the
teens of percentages up into the 80s or
90s without you changing your
applications or changing your hardware
or anything they just put a layer in
between that virtualized all those
resources
that is disruptive innovation with
non-disruptive adoption and if you can
find products and services that do this
you are on to a winner and it's really
worth spending time to do this it's
worth time spending time to think about
how could you make this kind of impact
in my own portfolio i have a simple
example which is these ipads that have
been the theme of our discussion tonight
actually are great
except when you take them to the
enterprise and you personally own the
thing the last thing you want to do is
give that device over the enterprise to
take control of it you want to keep your
photos and your music and all your
personal stuff on there the enterprise
says but hang on a second i want to put
an application on there that will enable
you to you know get access to email etc
so in this customer example estee lauder
actually wanted to use
the ipad to get out
and sell their products because it
turned out there was a much easier way
to sell than having people at the
counters and it turns out people trust
ipads more than they trust sales reps
when they make recommendations funny
that so that was driving up uh revenue
by 40
all good
um but they were having a hard time
actually deploying those applications
keeping them up to date and training
people until appearing came along and
basically did this via the cloud save
them two and a half million help them
roll out 17 000 ipads and deliver it
worldwide with no i t touch
so now this is how estee lauder is
delivering their apps to help increase
their sales
and
what we basically did here was give them
all the gain of rolling this out with no
pain associated with you know
traditional i.t involvement in this and
um all the pain that would have been
involved in actually uh doing this which
is deploying and installing to the ipad
um is taken out it's all just handled by
the cloud
so this is what we try to do
now at this point just because i really
want to give john more time i'm going to
stop but i'll tell you the the next two
pieces you can find on my site
and it's all about architecting to
attract using packaging and pricing
techniques uh so i'm going to flip
through these there's a technique that
is basically a simple way of doing this
that you'll see if you want to watch the
go to market section i describe it in
more detail and i have an example there
a case study from aquarium
and uh even though i know you were dying
to talk about whole product i'm not
going to cover that tonight either
but again i'll make sure this is up on
my site and we'll give you some
background on it so john if you're ready
i'd like to bring you up and
give you the time to go through your
piece
great well thank you
certainly interesting to hear stories
and as you were going through it
michael i just sort of had flashbacks to
to failure moments that we had
at solidworks and also a cloud switch uh
let me give you a little bit of a
background of who i am and i'll make
sure i give enough time to answer
questions at the end i'm currently uh
ceo of a new company called belmont
technology
i assure you that will not be the name
of the company when we release
the product we go to market but let me
take a step back in time and tell you
kind of the evolution of what's happened
my career and what i'm doing now but uh
to do that i'll go back my my training's
a mechanical engineer by training i have
been in the design space and software
world for
well way too many years i won't give you
the exact number but wait too many years
and it started back as a mechanical
engineer at the university of rochester
and you'll probably be able to do the
math it was 1983. i worked in the
laboratory for laser energetics which
was a nuclear fusion lab and a summer
job and i was doing mechanical design
and the guy i was working for this guy
frank dewitt realized i was far better
at computers than i was design
and at that time pcs had just come out
and so here i was using mechanical
drafting board he understood that i knew
a little bit about computers he said why
don't you help us find a cad system
so i had to go out and sort of learn
about what cad systems were out there
and it turns out autocad was just
starting and there was a bunch of new
software startups anyway helped him uh
select a cad system and at the same time
we had a lot of drawings
and at that time i don't know people
have ever heard of a company called
dbase and we ended up basically building
a database system for drawings
and so here i am 30 plus years later
helping people build select cad systems
and also helping them find engineering
information
why because the pain
as michael talked about before is still
pretty significant
so fast forward i joined a company
called solidworks solidworks how many
people ever heard of solidworks
okay it's a 3d cad company
based in waltham now today
it's about a 600 million dollar company
i joined it when we had our first sale
of software so the product had just
started to come to market and uh and
joined the company and and had a bunch
of roles there uh like most good
startups uh for those that are either
thinking of joining a startup or are
joining a startup um you know you want
to get a lot of good utility players
early on so i had a bunch of roles in
marketing sales building the partner
development uh platform the the partner
uh
application area
and uh we're ultimately acquired by daso
systems and we ran it as a separate
company and i was a ceo there
from about 100 million to
roughly about 400 million company and
then took some time off
and then joined a company called
cloudswitch which was a
enterprise software company focused on
helping people take their data center
and extending it to the cloud
and that company
we went through a lot of the similar
pain points
that we heard about earlier
but ultimately uh realized that the
sales model we had wasn't gonna work and
we started building some strategic
relationships which ultimately led to a
quite a successful outcome with verizon
which now actually they've almost
tripled the size of the staff and
they've done a lot of great work with
them
and in november i hooked up with uh
with a bunch of the team from solidworks
which is kind of scary because we're a
lot older and a little grayer and but
we sense an opportunity
and i won't go into too much specifics
about the opportunity of what we're
specifically doing but i'll characterize
the the the essence of of kind of the
opportunity in front of us and that is
the world in which we live and how
people design products is changing
people like my age and a little bit
older are starting to retire
and and younger generations coming in so
there's demographic shift and the
demographic shift is one where guys my
generation sort of go to the internet
younger people live in the internet and
so they're in this hyper-connected world
and yet they come to
companies that do design work and they
sort of see the cad system in the corner
and it's this this system that basically
everything's locked down
and so we believe there's a shift
happening in terms of of how people work
we think there's a lot of market
pressures and and and the design process
is changing and we sense that how people
build products is changing the compute
infrastructure has changed
the cloud is clearly having a huge
impact in how and what people do and we
think there's a business model
opportunity so those four forces
converging create an opportunity at
belmont it's a company that got funded
by michael's firm as well as
commonwealth ventures and we raised nine
million in november we started the
company in november and we raised nine
million dollars and then uh just uh
april first and it wasn't an april
fool's joke uh we ended up raising uh 25
million dollars in a preemptive series b
round this gives us enough money to
build our product and get to market and
and and hopefully along the way
um in case we do starburto have enough
capital to kind of see us through and i
tell you that's
one of the experiences
that uh that having a little bit of a of
a failure
and i'll call cloud switch it was a
successful outcome
but one of the things we realized is
that the market for cloud software was
early when we started this and we faced
a situation where capital
was going to be a big issue for us
if we didn't change our model and so
with with uh with belmont when the
opportunity to raise more capital came
in and it was at the right sort of terms
we we decided to go ahead and do it
enough about my background let's talk a
little bit about
what cad is if you look around us
all the products in our lives whether it
was the coffee machine this morning that
you used whether it was a tablet that
you picked up this morning your phone
whether it was the the car that you got
in to turn the clock you know the radio
in the car whether it was these white
boards the projectors the cameras all of
these things
are products that are designed so to
understand the cad world you have to
step back and realize
this is a big market
why is it a big market because all of
these products
have to be designed
so think about it somebody somebody in
the world figured out
the size of glass and the type of glass
to use here but also what the length of
these rails should be how it should be
assembled
so when you think about even just this
simple example there's an engineer
somewhere in the world
that built an engineering model
designed that created specifications
sent it to a manufacturer who had to
build that
so look around your world
and you realize this is a big market
this is a market that today represents
over eight billion dollars in terms of
software in four companies alone
when you think about end user spend it's
probably north of 10 billion
and what are these companies doing
they're building software
to help engineers
make mistakes
on the screen
and not with the end product
and that's the key insight is that
allowing people to prototype and in a
digital format
it's far cheaper than to go ahead and
build a product and actually create
failure in the marketplace so that's the
market that we focused on early on at
solidworks with some fundamental
opportunities that we think were
possible
so solidworks 3d cad system let me give
you simple reason why solidworks existed
have people heard of parametric
technology ptc
okay
i'll do a quick step back
lines and arcs people did mechanical
engineering design with lines and arcs
autodesks translated that lines and arcs
from drawing boards into the computer
you had large companies that were doing
on mainframes and many computers autocad
did that same functionality but did it
on a laptop
what people really would love to do
though is not just put lines and arcs on
the screen they wanted to be able to see
things in 3d
for young people like you you can't
imagine a world that wasn't 3d but trust
me not too long ago everything was done
in 2d
so big companies like computer vision
came around and they allowed you to
build 3d solid models the biggest
benefit of that
was understanding how things fit
together and making sure that things
didn't interfere with each other and car
companies airplane manufacturers would
spend
millions tens of millions of dollars for
these systems
the problem was
if somebody designed a car and some the
the design team designed everybody loved
it and they came and they said that's
great but but make it a little kind of
wider here and a little bit longer the
guys in the white lab coats had to go
back in redesign it and four five six
months later they come out with a design
ptc
did something phenomenal there was a
brilliant brilliant guy by the name of
sam geiseberg allowed these saddle
models to change
and this idea that you can make changes
quickly
and be able to see it iterate much like
a spreadsheet
that allowed engineers to be able to
have rapid design changes that was value
and they had incredible success because
what their value proposition was we all
know you love 3d solid models because
you can see how things go together the
problem is you can make changes
they allowed people to make changes and
they ate a fortune they built an amazing
enterprise they had an amazing sales
team and they had great technology
and so when we were starting solidworks
in the early days people said
nobody needs another solid model or ptc
owns the market
the problem was the following
there was a ton of people that had their
noses up against the glass
they wanted
what ptc had
but they couldn't afford it
it was too expensive it was too hard to
learn too hard to use
that was fundamentally the value that we
created at solidworks and today it's a
600 million dollar company
the question and extremely profitable
generated close to almost a quarter of a
billion dollars in profit each year
so the question is
how do you go
we knew there was opportunity the
question is how do we go and capitalize
on that opportunity
and i want to show
four numbers
one five zero three
there were many reasons why solidworks
was successful
but i think fundamentally this is one of
them
anybody know what it is
if you go to solidworks today and ask
anybody
it's it's part of the culture
it's part of the dna of the company so
i'm not going to go through a lot of
hypothetical examples i'm gonna go
through specifically how this impacted
the company
i remember our first sales meeting
we were gonna sell our software instead
of twenty thousand thirty thousand
dollars through a direct sales force
we're gonna sell our software at four
thousand dollars and we're gonna sell
through a var value-added reseller
channel meaning independent people
that would represent our product they'd
get it at a discount and sell it
so the question is when we got all these
sales people together for the first time
these are different independent business
people maybe 250 people came to waltham
massachusetts we had a meeting
and we had to tell them
where should they go selling
where to go
focus
because they thought our product was
great
and we put this chart up
i didn't put the numbers there the first
time but guess what if you look at the
vertical axis this is the number of
seats this is the number of engineers
that we wanted people to sort of look at
and focus when they're going out and
trying to sell a product and this is the
sales cycle
and most of the people who are
independent business people they wanted
to go and sell 20 30 seats 40 seats i
remember a guy coming to me from detroit
saying i have a really good friend
inside of ford he runs powertrain
and i know we can work with their data i
want to go sell them would you come out
and visit with them
and i said
i hope you don't mind while you're
selling at ford
if we had two other resellers in your
backyard to go focus on the
opportunities that you're not going to
be focusing on he wanted that upper left
quadrant
big opportunity
well guess what happens with the guy at
ford
they bring him in and they love it
people want validation they love it this
guy's selling saying this is awesome the
guy at ford wants to buy our product
so he spends a little bit more time
showing it to him and the guy inside of
ford and powertrain says you know what
our guys love it the guys actually in
styling they want to see it as well so
can you come back next week and show
them product again
and all of a sudden the sales cycle
instead of two months and three months
starts being four five six
the guys are like well we've got to get
some business clothes they said the good
news is people really really love it and
you know what we want to do
we want to do a pilot
we want to go ahead and buy your product
but instead of buying 60 seats
guess what they ended up buying
three
so what we wanted people to focus on is
one to five seats
zero to three months
and that became known inside of
solidworks as 1503
a 1503 account why was that so important
because as that guy was selling thinking
he's going after 60 seat opportunity if
this is time
and this is real this is losing money
this is making money and these guys are
massively sort of under capitalized
they're out there selling selling
selling thinking they're going to get
this big deal gets extended out gets
extended out and what ends up happening
they get business they get the po
but it's for three four five seats
and they're losing money
and these are guys that can barely
afford to make payroll
we wanted them
quick hits get out it served our
strategic interest to get into a lot of
accounts yeah a lot of
sales guys use expected values when we
expect the value but that wouldn't make
sense because it's a big deal and so did
you take that into account sure
most of these sales guys most of those
people who think about expected value
they're probably sales guys they're
making what 150 200 grand a year
these sales guys were vars their sales
people were probably making 65 70 grand
a year
we needed people to go out there and get
quick hits get into the account and and
the most important thing was actually
qualifying out accounts
so we didn't go for big strategic
selling we wanted to be like weeds
popping up through the concrete in fact
we tried to think i was talking to john
hurstick who was a founder solidworks
just the other day he's with us at
belmont we were talking about it kind of
what was the perfect opportunity
and one of the perfect opportunities was
not a 10-seat deal that had pro engineer
remember these are people with their
noses stuck up against the glass door
wanting what what was inside but they
couldn't afford it so it was not to go
to an account that had 10 seats of pro-e
and saying let's go ahead and try and
convince them to convert and switch over
to us
conversely we didn't want them to go to
10 seats of 2d users autocad users and
try and have them all switch to
solidworks because we would have to go
through and teach them all about 3d
solid modeling go through this long
sales process
only to have them buy one or two seats
we called it the modeling saturation
index a really kind of nice nice term
and what it was was we wanted them to
have two or three seats of pro-e that
were exposed to 3d
but had eight seats of autocad
because they already knew the benefits
of 3d by having those two seats there
but we wanted them to get the advantage
why didn't they have the other seats
eight seats move to 3d well probably
because it's too hard to learn too hard
to use and too expensive yeah
this might be a question out of
ignorance but
in thinking about sales cycles and
thinking about the more
impactful sales versus the
little to that but at volume
why wouldn't you have
affiliate marketing channels or web
channels selling this as opposed to
people that you have to spend time and
money on training and likewise how much
of this was business development versus
sales like this almost sounds like an
exploration in what is
what is the model of the sales versus
order taking
great so the first question is why
didn't we have affiliate marketing and
web-based sales well
uh
contrary to what al gore said about the
internet i mean
it didn't exist no no it didn't exist i
mean i'm being being a little cute here
i mean in fact
when we started solidworks
we were having a decision about and i
know this is going to be in the way back
time machine but we had a debate and i
remember it being in the in the order
room kind of the the shipping room we
would debate whether or not we should
have a website
and i know you can laugh
but we said what would we put on the
website we said well we could put our
address directions maybe some marketing
materials then we all laughed because
they said you know someday maybe people
will download updates for our software
and we all cracked up laughing
and you know what we were one of the
first hundred thousand websites
registered in the world
okay now why why would why would you use
affiliate marketing of course you'd use
that today but we had vars these are
valuated resellers these are businesses
independent businesses that were selling
other products already selling
consulting services selling training we
needed these people one to survive they
didn't have a lot of capital but two
they wanted to go out and expand their
customer base and we wanted them too
it was critical for us to go through get
customers to try the product use the
product get successful with the product
because we knew there would be viral
adoption once people started using it it
would draw other customers into this in
this solution yeah i was wondering how
do you figure out for a different
business what is your 1503
well we were lucky early on that we kind
of got it right but we knew that we knew
there was a tendency
the good news is we knew there was a
tendency that people wanted to pull us
up into higher accounts and larger
accounts and we knew with our sales
channel that we had and our price point
we couldn't afford to have a direct
sales force going out and selling 4 000
software so we knew we had to go through
a var channel that was part of our
business model early on
and we knew that they would be attracted
to try and go after the bigger accounts
so we had to intentionally force them to
go smaller one because quite frankly
they weren't hiring the top talent that
we needed so we had there was an
impedance match that we had to have with
their skill set their presence and and
our ability to kind of message to them
so we had to keep it incredibly
incredibly simple
so it was just simply about kind of
focus and
repetition of message does that make
sense
um so the benefits of this model
incredible predictability in terms of
revenue stream the question was could we
scale this that was a big question
i just noticed rich was back there he
probably remembers the first board
meeting we had our revenue plan our
first year i think it was 3.8 million we
kind of upped it to 4 million dollars
and and we had no idea what we were
going to do
and we ended up doing something like
12.8 i think in the first year but it
was all about sort of scaling keeping
focus and and having a repeatable
process now how do we know early on we
didn't but we spent a lot of time with
customers in with vars in the early
messages there was a lot of four-legged
sales calls our regional people going
out with the vars and doing sales costs
to understand what the objections were
but it was all about kind of basically
getting customers to adopt the product
get into production and we knew that
once they got into production they'd
start shipping files around that would
create the viral nature of people trying
to understand what our business was
about
to give you an example about why this is
important and about scaling a company i
just want to share one one one point we
started growing the company and 1503 was
all about the predictability revenue
stream well it turns out
that this is a philosophy we had to be
able to take an order
inside of the company be able to process
the order get the product ship it out to
a customer and be profitable be
profitable
with with at a 2400 price net margin to
us
going a little bit further when we scale
this up and we had to do an upgrade
cycle we were shipping out boxes
these boxes
had to be shipped
and they weighed 15.9 ounces why
because it's 16 ounces ups charged
higher freight weight so this became a
cultural mentality inside of the company
in terms of execution and the strategy
was simple get inside of the account
land and expand that's how we built the
business
did this did that mean we only went
after small small companies no as we
grew and we grew the account base we
ended up getting to some significant
counts i remember being on a panel with
the cio from emc about selling to large
accounts
like why the hell am i here
we we never called on emc at the high
level
we ended up displacing pro engineer at
emc you know several hundred seats why
we did it three four seats at a time
and once we got to about 50 100 seats
they had to deal with us
so that was our strategy let me just
turn about some other
practical things
we had an ecosystem inside of solidworks
michael talked about it before there
terms of whole product and core
one of the things we understood early on
in solidworks is we were going to focus
on core modeling and we're going to have
partners do the rest
but we had to build a partner system to
build applications on time sometimes on
top of solidworks how did we do it
well first thing you got to realize is
partners are interested in only one
thing
your customers
but how do you get customers
if you don't have any partner
applications on top of it
we proposed a simple three-step process
first was this idea of kind of marketing
cold fusion it was all about getting
credibility through numbers how do we
you know create press releases
relationships we had a very lightweight
program early on about quote-unquote
what a partner meant
step two was about focusing on a few
select partners in each vertical market
and in this case we went through we
wanted to create some leaders in the
analysis world there was a bunch of big
vendors they wouldn't give us the time
of day
we chose the number three vendor we said
we're going to make them number one in
our space
so we went to each segment and picked a
vendor and just through sheer first
force and kind of bear hugging them we
got them to build integrated
applications and once they started to
get mind share in our channel and we got
credibility and they started getting
sales the big guys had to follow so
leaders you know first was marketing
goal fusion leader set the pace the
third was that followers will follow and
the irony here is this that the
followers were actually the leaders in
each of these categories
they did
we were a platform we were a platform
that they built on top of
i just want to share another kind of
couple of thoughts that i know we're
running late on time here meet your
enemy you're in a startup the only
advantage the only advantage you have
is time
that's the only advantage you have
you may have a clever idea you may have
some ip
but the install based guys have
customers they have capital they have
presence they have a megaphone the only
thing you have
is the calendar
you got to be able to move quickly so i
have a saying and it's something that i
think is a cultural one i would share
with you events force actions
what did everybody do yesterday
paid their taxes right was that
yesterday
why did you do that because if you don't
the government makes it really painful
they created that event on april 15th to
make sure you paid your taxes so events
force actions find ways inside of your
company
to go ahead and put deadlines we used to
have solidworks world we'd have 5 000
people
come to an event we do it once a year
and it costs us roughly two million
dollars inside of the company
and forget the fact that the benefit was
we got these you know all the users
together and they'd be these shaved head
zealots that go out and tell everybody
about us afterwards and create all the
energy if you strip all that away and
forget all the media exposure if the
only benefit that we got out of spending
at two million dollars as the company
was growing was to get people together
on one day
and force decisions
it was hugely worth it because it forced
people to align and make decisions so
this idea of putting deadlines and
events is critical because it's
reinforcing the only advantage that you
have
the other point about this is we have a
saying the perfect is the enemy of the
good
early on you just gotta get your product
done get it out there and iterate
i'll share a couple other thoughts what
you think versus what you know everybody
tells you to beta test beta test beta
test
really really important
far more important
if people aren't paying you for
something they'll tell you all day we
saw it at cloud switch a ton of people
loved it a ton of people loved it
how many people would pay for it
and when they ended up paying for it we
ended up realizing they were paying for
something very different they were not
paying for the product they were paying
for education
i'll share a couple quick thoughts we
had a subscription service program
inside solidworks today it's a 300
million dollar business
i just want to share some insight about
how we decided what to charge
how do you decide to price your product
here you can build it on what it costs
or you can figure out what the market is
willing to pay for it
yeah it sounds like you could bear a 24
400 price point on the other side so it
sounds like like six hundred dollars per
so we went out and saw what other what
the competitors were charging the
installed base
up until the point when we started
solidworks there was no idea of
subscription-based revenue it's a shrink
wrap model and the the large install
based guys were charging list price and
18
so that was kind of what the market was
used to so we went out and sort of said
okay
we know that we're going to charge at
least 18 we have a lower price point so
the question is what will we charge and
we thought about different price points
and then we also sort of looked at and
said wait we have to align not just what
our interests are
in terms of what it costs but also our
vars
because we wanted our vars to be able to
go and support customers so we delight
what their support model was along with
what we wanted to make so we went and
started from the premise of what would a
customer pay
from a var perspective how many people
could they support
so we looked at the var profitability
equation that that internal sort of step
between us and the customer because we
needed them to make customers successful
so we ended up saying okay they can
handle this many customers
in terms of calls this is how many
customers times whatever money how much
money do they need to make and what
would be our margin so we started
actually at the end user worked to the
middle worked back to the end user and
came back
point point is it's not just about the
money you want to receive you got to
align each step in the process
i'll just share some other thoughts we
all talked about turning products into
companies i love this saying
it's easy to start a company
it's hard to build a business
at the end of the day you are trying to
build a company but you're really trying
to build a business
events force actions the perfect is the
enemy the good
one of the things i think at solidworks
today i don't know they have a thousand
eleven hundred people inside of there we
have a small company we have 17 18
people
but we're starting with the same mantra
that the most important thing you can do
is hire well
i think that's an incredibly important
thing hire people that scare you with
their competence
sales people couple insights
if you have a sales person that says
they don't really care about money
they're not a good sales person fire
firearm
i'm dead serious
sales people work on two two components
reach behind their back and look for the
coin slot they are coin operated and if
they're not you are not going to be able
to put the right incentives in place
sales people are motivated by money if
they're not they're not good sales
people they may be great people and they
may be great marketing people but if
they're not motivated by money they are
not good salespeople the other thing
that motivates sales people
is recognition
if you got a sales person that is not
concerned about how they stack up and
rank versus other sales people in your
company get rid of them
sales people are naturally
aggressive
and they're competitive they want to
make money and they're competitive those
are the two drivers and sales people
that's not to say they wouldn't be
valuable for your company but they're
not going to be great sales people
as ceos or founders
the other thing that you're doing is
you're creating a culture i talked about
1503 as a strategy it was about a
culture we had created a culture that
every step in the way
we were going to make money in terms of
being able to be efficient we also cared
about customers that we didn't know the
names of that was a cultural thing we
built a company
on the backs of companies that we
never even knew the names on a broad
basis they're not companies that you
would look at and have billboards and
have logos and say you know nike's using
our product most of the people were
suppliers to nikes or mold shops we were
damn proud of what they did and we felt
great about what those customers didn't
we celebrated their successes but the
point is we aligned the company
consistently in terms of product pricing
product packaging and and culture
throughout
fundamentally the last part i'd say is
with all of the challenges and i won't
bore you with the cloud switch ones we
ran into some some difficult times but
remember
uh
it really is about the journey that's
why most entrepreneurs do it most
entrepreneurs start companies because
they see the world and how the world
should be
so as you're going through that journey
understand
that yes while success is great and
money's great
the journey is also part of what's fun
with that i'll open up for any questions
you may have
so i mean one of the things that you did
there which i know is you know literally
part of the legacy you left at
solidworks is you very early on
established this culture of having a
clear and consistent way that the
product was sold that was profitable and
you even created a disruptive business
model this whole subscription
plan which many of you have heard me
talk about that in fact i would say if
you'd agree
the subscription model was important in
many ways uh in your success as anything
else it was game changing so as the team
looks looking around this room is
thinking about starting up a company now
and you're doing it yourself right now
what would be the one or two things
you'd say think about right up front in
your product that will make a difference
to enable profitable selling and a
culture that is successful so great
great question so one of the things that
we we learned
really i'd say by chance
um we tried to figure out with our
customer base
you know what version of the software so
we weren't a sas based application
people had to install our software and
so one of the challenges we had i mean
up until we started
software companies didn't actually when
they went through distribution they
didn't necessarily know who their end
user was
so by having a subscription service we
sold through vars but we demanded
upfront to know who the user was once we
did that we at least had a relationship
with the with those customers but we
didn't necessarily know what version
people were on and so we had this
tool that we call the performance
monitoring tool very early on and it was
a little bit kind of like a little
nugget of software that was on on on
this pc and would send back aggregate
data we would only look at it in
aggregate and we could see what version
people were on we could also see what
different add-ins they had
so this idea of
of analytics and measuring
we did it to solve a problem it turns
out it was a huge enabler for a business
decision later on so i'd like to say we
designed it in the in the beginning but
it was something we introduced kind of
three versions into the product but let
me give you an example what it did
since we could figure out what version
people were on we also knew which
applications they were using along with
solidworks
and what we found is if you took the
number of customers
and on the y-axis and the number of
applications that they were using
on the x-axis it was a massive ski slope
meaning not many people were using more
than two applications with solidworks
and we could figure out which were the
most popular applications and these
weren't ones that we wrote ourselves
these were partner applications so we
had this really long tail
of people not having many applications
to retire one different application
whatever else so
we had the opportunity once we looked at
that we were fighting a price war with
autodesk autodesk had autocad 2d and
they bundled their 3d solution and they
were undercutting us on price
and we realized that all the value of
these applications were not being used
by customers and so we went out and
started to find out why well it turns
out many of the vars that were trying to
sell these applications it kind of
wasn't worth their hassle to go back to
a customer and sell a four or five
hundred dollar application
what we said then is okay
are there groups of these products that
we can bundle together you know kind of
use the oldest trick in the book why
because it worked and we said can we
bundle and create solidworks solidworks
office professional and office premium
and we took these other applications
that weren't really being used by people
we bundle them together
and in the middle of a price war with
autodesk we took our price point from
four thousand dollars for our base
product
to fifty four hundred dollars to
seventy five hundred dollars and along
the way
increase the subscription so we created
greater value for the end user
greater value of ours and greater value
for solidworks and for those application
partners
yes on the marginal seat that they might
have sold of a photo rendering product
they weren't going to get as much money
but i went back to each of them and said
look you're only making 15 grand 20
grand from us
how about if you give me a blanket
license we'll pay you
100 grand
and i went to a bunch of different
technology suppliers and we bundled all
those together and we raised our asp by
over 50 percent
in the middle of a price war with our
biggest competitor and we grew our
volume pro you know
commensurate it was tremendous you would
normally think by raising your price in
the price war we'd see diminished
volumes we actually grew it tremendously
so it create and once we did that when
new entrants came in we had a higher
subscription revenue base
so it was defensible
so when people came in with other
products and wanted to get our var
channel to join them and take take their
product on
there were some vars owners these are
small businesses that were waking up on
january 1st and they had a subscription
business of a million and a half to two
million dollars they weren't going to go
to a competitor so we built in kind of a
a barrier for people stealing our
channel and that all came about
by accident
in terms of analytics so the idea of
understanding early on what's happening
can play huge dividends later on
i'd like to say we had the genius to
figure out early we didn't but we soon
capitalized on it yeah
so you've kind of touched on this but
i'm curious which did you find more
valuable both in the early stage as you
grew the data behind the product or the
product itself
great question the data behind the
product or the product itself
so the product itself was an amazing
product let's be really clear the team
built an amazing product and it only got
better
the question we tried to do is we had
many people were using this product and
they were building
for example pneumatic cylinders okay
festo's a large german conglomerate that
builds pneumatic cylinders you go
through a factory you can hear all the
you know these are all things that are
cylinders moving things down a factory
line so festo used solidworks
and so we had this great idea
you know all these people that are
building bearings that are building
motors that are building fasteners can
we take that
and and create a business either selling
content so we created a website to allow
people to download content in 3d and use
it and we went off then and said can we
create a publishing solution because all
of these manufacturers that made
bearings and motors and everything else
had to create catalogs and they were
creating paper catalogs and we said look
you're using solidworks already why
don't you go and create a 3d electronic
cadillac so we built a whole business
around doing that
and guess what we failed miserably
you know why
one simple thing
we thought because we know
festo
and we had relationships with the
engineering team we thought we had a
relationship with that customer
and here's where if we had done
something fundamentally different we
could have been successful in it
i thought and i'll take responsibility
for it i thought we have a relationship
with that customer
why can't our team
go and sell to the marketing team inside
of that company
guess what
i should have treated it as a completely
separate company
because it turns out the engineering
people didn't even know the marketing
people in these companies and oh by the
way i shouldn't have used our sales team
i should have gone out and hired media
sales people to go after that
opportunity so it was whether it was you
know kind of just
arrogance i don't know i thought we had
a relationship with that customer and i
thought that would transfer over into
the marketing department because they
had the data
flawed assumption
and we after three years
you know of spending a lot of money a
lot of time we kind of finally realized
that and and made a little bit of a
business of it but it was a real you
know um
insight even knowing that do you
is that the answer that the data is not
as valuable as the product or is it that
the data is only as valuable as you
leverage it
we tried to leverage it we did a poor
job of it i still think the value i
think that the data
um i think fundamentally the data could
have been far more valuable than we when
we were able to take advantage of it
but no the business let's be clear the
business was building cad software and
support that's
you know that's where 600 million you
know billions of dollars of end user
and billions of dollars of market value
was created by solving a design problem
the content i think could have been used
far
more strategically and we we screwed up
on it
so just because of time i'm going to
give everybody a chance to chat with
john afterwards but i want to wrap up
i want to say thank you very much john
that was just outstanding
there are so many points john brought
out it's probably going to be difficult
to summarize them but i will just
highlight a couple that i think you know
you can find very actionably he
highlighted analytics which you talked
about in slippery product is one of the
things i really am a big believer and
you can build that in early it can help
you with your justifications with your
you know your proof of roi et cetera
and i think one of the big things that
we you know heard from john here is how
he really focused on building something
between the product and the company
which is this go to market methodology
that become became a piece of the
culture that really enabled the company
to be successful
and uh if you go back to that roadmap
that i was talking about this is where i
think if you took nothing else away from
tonight you really have to spend time to
think about when you're building your
feature your product or hopefully
ultimately your solution you're thinking
all the way along the line about what is
it that you're doing to serve that
marketplace and how do you reach them in
a profitable way that can become
repeatable and scalable to build a
company
and i know it sounds simple but 1503 was
that and it's why john's company
actually was able to get scale because
it was reduced to such a simple level
that even a 60 000 sales guy in a var
could carry that message and could
effectively execute on it repeatedly
over and over again to scale that
business and that's the kind of formula
that i want you to hear tonight from
somebody who's built a 600 million
dollar business out of it because it had
nothing to do with the technology in the
end although the technology was critical
the beginning and john is nodding here i
can trust me we as investors here were
very proud to see this but it is a
lesson for all of us to take away it's
about figuring out how to work this road
map beyond just the the product and
technology it's why also i started up
front pointing out that a small piece of
the p l is really the r d so much of it
is on this go to market sales and
marketing and there's more on the
website on that and i want to take a
moment just to again thank greg and john
very much for making our evening this
evening thank you very much
you