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The Pre-Chasm phase of High Tech Startups

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					The Early phases of
High Tech Startups
                                      Patrick Bultema




 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
  Adopters




                            Early         Early               Late
                          Adopters       Majority            Majority       Laggards
                           13.5%          34%                 34%             16%
             Innovators
                2.5%

                                                  Time                         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
   Adopters




                                     Time                     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




                                                               More Services
   Adopters




                 Bowling         Tornado
                  Alley                                            +1 Extensions




                                      Time                                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 Model
Applying the Scientific Methodology to
 quickly define and refine a business model
Rapid transition between phases
Inter-relationship between phases not
 necessarily strictly sequential
Phases need to be explicitly recognized,
 though this is not common in practice
9/27/2003      Intellectual Property of Patrick Bultema
  Pre-Chasm Phases
                                                                      Early
                                                                     Adopters           Customer
                                                                                         Types



                                                                                         The
                      Innovators
                                                                                        Chasm


                                                                         Go-to-Market
                                                       Sales                Model       Company
 Idea /                                              Validation                         Process
                           Productizing
Planning      Value Prop




  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 crucial
Managing the experiment and quick
 iteration and adaptation are core
 requirements
Leadership skills vary
Resources staged to maximize capital
 efficiency
Managing the segues between phases the
 most difficult early challenge
9/27/2003     Intellectual Property of Patrick Bultema
The Early Phase Orbit
                                 Concept




            Product                                                  Plan   The
                                   Ideas                                    Chasm
                         Market Forces
                                 Teams


                   Sales                             Go-To-Market
                  Validation                            Model



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: Qualitative
1.          Contact ~10 venture firms
2.          Ask for 5-10 companies that have failed in their portofolio, where:
       1.       Business idea/premise was and still is promising
       2.       No technology or marketplace change killed the company
       3.       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, but
       2.       Because the company just worked well
       3.       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 investment
       2.       And/or has already, or is projected with confidence, to be able to achieve a
                profitable liquidity event
5.          Failure is the absence of above
6.          Develop a series of questions that focus on what happened when, results, & why.
            Essentially a histogram for each
7.          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



9/27/2003                                 Intellectual Property of Patrick Bultema

				
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