Intellectual Property of Patrick Bultema The Early phases of High Tech Startups Patrick Bultema.

Intellectual Property of Patrick Bultema

The Early phases of High Tech Startups

Patrick Bultema

9/27/2003 Intellectual Property of Patrick Bultema

Boundaries of Reflection

Focused on Startups verses internal, new business initiative

Focused on high-tech startups verse new small business ventures Not geographically limited Pace of innovation different Emphasis on venture and liquidity destination verses

small business cash flow Focused on startups that will be venture

financed to enable and/or accelerate business creation and growth

9/27/2003 Intellectual Property of Patrick Bultema

The problem of assumptions, or Conventional Business Wisdom

Most business wisdom is based on the success of large, established companies Collins, “Good to Great”

15 years public, inflection point, 15 years great Most business growth is in the small business,

new, innovation category High-Tech Start Ups are an even more

specialized form of small businesses, but are a significant percentage of new businesses, and the focus of most venture capital

9/27/2003 Intellectual Property of Patrick Bultema

Premise …

Principles and Practices that make large established companies successful may have little or no relevancy to high tech start ups

A more forceful premise … The methods and criteria of big companies is actually detrimental to start up success

9/27/2003 Intellectual Property of Patrick Bultema

The Objectives of this Process Methodology Study Primary concern and boundary of reflection

confined to venture financed start ups Improving Capital Efficiency Enhancing the Capital Risk Scenario Identifying correlation between process and

success rates Identifying behaviors, leadership criteria, and

key metrics that correlate with success and process

Improving Success Rates through applying process methodology

9/27/2003 Intellectual Property of Patrick Bultema

Understanding the High Tech Start Up Context …

9/27/2003 Intellectual Property of Patrick Bultema

The Adoption of Innovations

Most High-Tech Start Up’s are concerned with creating a “new” way of doing things

These innovations create the need to customers to recognize a better value proposition than current approaches

Researchers have studied the patterns of how and why people adopt new innovations

Seminal work written by Everett M. Rodgers, “Diffusion of Innovations” in 1962

Primary work around Iowa corn farmers adopting hybrid corn varieties

The Adoption curve and concepts was recently popularized and applied to the high tech space by Jeff Moore in Crossing the Chasm

9/27/2003 Intellectual Property of Patrick Bultema

Diffusions of Innovations Curve

Adoption Curve

Time

Ad

op

ters

Innovators2.5%

EarlyAdopters

13.5%

EarlyMajority

34%

LateMajority

34%Laggards

16%

From “Diffusions of Innovation”Everett Rogers

9/27/2003 Intellectual Property of Patrick Bultema

Categories of Adopters

Innovators New Technology adopters. Believers. Generally have the

power to make their own decisions, even if just for their org. Early Adopters

Looking for competitive advantage. Strategy buyers. Need some validation and references for Innovators

Early Majority Buy based on ROI. Typically looking for productivity

improvement Late Majority

Motivated by Conventional Wisdom. Looking for case studies that verify others are adopting

Laggards Don’t want to get fired. Adopt because they must to be credible

9/27/2003 Intellectual Property of Patrick Bultema

Distinctiveness of High Tech Start Up’s

Cycle time Measured in months verses years IPO in three years a possibility

Disruptive Innovation Fundamental change in how business is

conducted Eg. Email

The concept of the Chasm You either win big or lose. Little in between.

9/27/2003 Intellectual Property of Patrick Bultema

The Chasm Curve

High Tech Adoption Curve

Time

Ad

op

ters

From “Crossing the Chasm,Jefferey Moore

9/27/2003 Intellectual Property of Patrick Bultema

Concepts of Crossing the Chasm

Core idea: the Chasm is conceptually and operationally discontinuous with what makes early phase companies successful

Two key ingredients to Crossing the Chasm: The ability to make the segue to being and execution oriented company The momentum to be able to play successful in the “majority oriented”

marketplace ROI model and credibility Ability to establish “Conventional Wisdom” kind of positioning

The ability to re-introduce extensions to the core product/value proposition

Services Plus one Extensions

The Gorilla Game One Gorilla Two Chimps A handful of Monkeys

9/27/2003 Intellectual Property of Patrick Bultema

The Chasm and the Tornado

High Tech Adoption Curve

Time

Ad

op

ters

BowlingAlley

Tornado

More Services

+1 Extensions

From “Inside the Tornado”Jefferey Moore

9/27/2003 Intellectual Property of Patrick Bultema

Focus of Prior Attention

Most attention, research, and publishing has been on the Chasm and Mainstream Market

The pre-chasm stage has been treated like a voodoo, black art category

Yet, successful teams tend to be serial successes

But the reality for most …

9/27/2003 Intellectual Property of Patrick Bultema

Few Start Up’s Ever See the Chasm

Most fail not in the market scaling exercise, but in pre-chasm phases (need venture one data on stage failure)

They fail for a number of different reasons, related to process and experiment problems

The pre-chasm black hole

9/27/2003 Intellectual Property of Patrick Bultema

The Pre-Chasm Fundamentals

Learning ModelApplying the Scientific Methodology to

quickly define and refine a business modelRapid transition between phases Inter-relationship between phases not

necessarily strictly sequentialPhases need to be explicitly recognized,

though this is not common in practice

9/27/2003 Intellectual Property of Patrick Bultema

Pre-Chasm Phases

TheChasm

Value PropProductizing

SalesValidation

Go-to-MarketModel

Idea /Planning

Innovators

EarlyAdopters

CompanyProcess

CustomerTypes

9/27/2003 Intellectual Property of Patrick Bultema

Pre-Chasm phases

Idea/Planning (I) The original idea. Born out of a market context and invention or

innovation. Built into a business plan with early proto-typing, but without the commitment of venture funding. The business is an idea at this point.

Value Proposition (VP) Early Concept. Customer Pain. Tech Solution. Mostly Services and a

toolkit. Focused on customer buy in to concept and onsite prototyping Productizing (P)

Formalizing Product specification and requirements. Refining the “story” Sales Validation (SV)

Customers buying the product offering. Still pilot selling Go-to-Market (GTM)

Refining the go-to-market model. Validating market eco system and partner opportunities. Validating scale

9/27/2003 Intellectual Property of Patrick Bultema

Pre-Chasm Segue points

The process is crucialManaging the experiment and quick

iteration and adaptation are core requirements

Leadership skills varyResources staged to maximize capital

efficiencyManaging the segues between phases the

most difficult early challenge

9/27/2003 Intellectual Property of Patrick Bultema

The Early Phase Orbit

Ideas

Teams

Market Forces

Concept

Go-To-MarketModel

Plan

SalesValidation

Product

Slingshot

TheChasm

9/27/2003 Intellectual Property of Patrick Bultema

Attributes of Early Phase Orbit

Companies may launch into orbit at any phase Most efficient is to launch into the plan phase If launch into a later phase, must be recursive to

accomplish the earlier phases The goal of the orbit thru the phases is to gain

momentum to “slingshot” across the chasm Many companies require more than one orbit to be

successful If the phases of the orbit aren’t completed efficiently and

sucessfully, the company runs the risk of degrading into the atmosphere and burning up

9/27/2003 Intellectual Property of Patrick Bultema

The Universe and its impact on the Orbit

The process isn’t everything required for a high tech startup to be successful

Broader macro issues are the universe the process plays out in Market drivers Competitive Landscape Disruptive Technologies Economic Trends

In other words, a company can execute the process flawlessly and still fail due to the above macro issues

What’s more, the broader “universe” issues must be continuously monitored and factored into the learning processes of the orbit

And even the, the “universe” factors have the potential to destroy the orbit

9/27/2003 Intellectual Property of Patrick Bultema

Common Pre-Chasm Failure Points

Spending your capital building the “organization” before the business concept is validated

Valuing your idea of invention more than what the customer tells you Not creating mechanisms to listen to the customer Failure to run a disciplined experimental methodology Hiring the right people at the wrong time Not building a team to transition thru phases Building the prototype product before VP is complete Building V1 of the “real” product before P results in a clear story Violating the Early BD verses later BD role Starting the branding effort before SV Ramping the marketing lead generation before SV Hiring the Sales leader “who can make the company big” before SV Staffing up the sales org before GTM As a rule, recruiting early channel before GTM

9/27/2003 Intellectual Property of Patrick Bultema

Research project

Test the premise here to see if there is a correlation between a process methodology and success

Modify process methodology based on learnings Isolate further levels of granularity on early

phase, high tech start up success Process Leadership Team factors Early Customer selection process And so on

9/27/2003 Intellectual Property of Patrick Bultema

Initial research project Phase 1: Qualitative1. Contact ~10 venture firms2. Ask for 5-10 companies that have failed in their portofolio, where:

1. Business idea/premise was and still is promising2. No technology or marketplace change killed the company3. But the company failed anyway

3. Ask for 5-10 companies that have succeeded in their portfolio, where:1. Not because the space or idea was extraordinary, but2. Because the company just worked well3. Success is either realized thru liquidity event, or highly anticipated.

4. Criteria for success is a company that is able to: 1. Reach cash positive operations on venture investment2. And/or has already, or is projected with confidence, to be able to achieve a

profitable liquidity event5. Failure is the absence of above6. Develop a series of questions that focus on what happened when, results, & why.

Essentially a histogram for each7. Needs to be an individual interviewee who had in depth & comprehensive vision of

the history. May be VC. May be CEO. May be one of the founders