Anyone that has been around me for more than 3 minutes in the past four months knows that I’m obsessed with learning more about:
- Lean startups
- The implications of how the Law of Accelerating Returns is changing the world (and creating business opportunities)
- Semantic technologies
Yesterday, all three converged into a single tweet about Meetups. I was sitting in a Tech Founders event organized by Brant Cooper — one of the guys who introduced me to the Lean Startup approach based on the ideas of Steve Blank and Eric Ries.
The Meetup started with Howard Lindzon ranting about the importance of social media to entrepreneurs. He railed against the vices of Goldman Sachs, broadcast news and trade shows as he extolled the virtues of Meetup groups, angel investing and social media.
Why was I listening? Howard invested in a semantic web company that had the same idea as mine – only they got funded and I did not. The whole reason I came to the meeting was to get insights on what they did right and I did wrong.
My failure to attract investors is one of the many reasons I’m obsessed with Lean Startups. The others related to all the mistakes I have repeated in my entrepreneurial career — including spending far too much time and money on trade shows. Yes, I am a recovering trade show junkie. I love them but I know they are a part of many entrepreneurial go-to-market failures.
Howard’s comment got me thinking…
So at 7:51pm @olinhyde tweeted: Meetups are the displacement tech for tradeshows.
Soon thereafter, I got a tweet from Marco Neumann asking me to justify my outrageous claim. Marco is one of the thought leaders of the semantic web community. He is very smart. Moreover, he is very influential among the people that are essential for my new venture – including people who organize and attend trade shows about the semantic web.
Why Trade Shows Suck for Entrepreneurs
In short, trade shows are expensive, highly structured events that happen only once or twice a year. They are the provenance of the status quo: Focuses on promoting the values and authority of an established group of industry leaders. By contrast, Meetups are cheap, self-organizing and can happen anytime. Meetups are to entrepreneurs what gyms are to athletes: A place to train while meeting others that will help make you more competitive.
We live in a world where knowledge doubles every five years – so it is impossible for an annual trade show to modify programming fast enough to keep up with the 20% of new knowledge that evolved since the last show. Even worse, trade shows are all about “going and showing” while Meetups are about “attending and participating.” Put another way: trade shows are classic push marketing while Meetups embody the principles of inbound or attraction marketing – bringing together those people who care the most about a subject.
This all relates to the Lean Startup principles of how to take a product or service to market.
Go-To-Market Before 2007 (or so)
Not so long ago, starting a company followed a predictable path:
- Invent product or service that theoretically solves a business problem (at least on paper).
- Sell vision of Step 1 to people who will create product or service (such as engineers) and/or people who will invest money to hire people (such as VCs).
- Build product or service that solves the problem in Step 1.
- Create marketing collaterals using a design that is makes the real solution appealing to the customer who should (theoretically) want to solve the problem in Step 1.
- Buy or build a list of potential customers (prospects) that theoretically have the authority to buy the real solution to a problem that was theorized in Step 1.
- Get customers (revenue) by meeting as many prospects as possible.
The easiest way to get to Step 6 (revenue) was to start marketing at a trade show – ideally with a keynote speech, sponsorship or lecture on a white paper. This was a surefire way to win: Sales and marketing people always returned to the home office with hundreds of business cards and dozens of stories of “customers who are just about to buy.”
Why So Many Entrepreneurs Fail
If you were close to being right on Step 1 (finding a solution to a business problem) then you could count on few dozen enthusiastic calls from prospects. They all want more information. They schedule meetings, demos and telephone calls. Then, one of the following happens (in increasing order of probability):
- After 3 or 4 months a few enthusiasts (sic innovators) become customers –meaning they actually signed a contract or issued a PO. Next they complain that the product or service is not quite right. They ask for changes or refunds or they just don’t use it anymore. Or they want you to rebuild it to their specifications because they know the market better than you. In this case, you blame the people in step 2 (the team and/or investors) or the execution of Step 3 (engineers) for getting the product build wrong.
- After 3 or 4 months, you only have enthusiasts who offer many opinions but no orders. Everyone involved in steps 4 (marketing) and 5 (sales) gets blamed (or fired).
Only in the rarest cases does the market entry go well.
This model, my friends, is dead.
Go-To-Market After 2007 (or so)
The sheer size and number of entrepreneurial failures over the past twenty years is staggering — especially in advanced technologies like the Internet, bio-tech, etc. Remember the Dot.Com bubble? Yes, most investors do too. And now VCs have a tougher time exiting thanks to the absence of IPOs on Wall Street. The money people (banks) would rather dedicate resources to gambling with publicly guaranteed money high-frequency trading than invest in innovation or lend money. Let’s face it: It’s much harder work to find good startup investments than it is to gamble engineer new financial products.
So along comes Steve Blank and the ideas he put forth in Four Steps to the Epiphany. Eric Reis, Brant Cooper and others expanded these ideas to flush out a radical new paradigm for taking new products and services to market: Lean Startup (click to pre-order the book!). This model focuses on concurrently develop a customer based while building the prototype of the product or service. This approach comes from the Agile Development methodology where software engineers and business users work closely to build systems in a series of iterations. The goal is to build exactly what the business users need – testing and refining along the way. This stands in stark contrast to traditional waterfall approaches to software development (such as CMMS).
So now, the go-to-market approach for a new product or service goes like this:
- Envision a solution to a business problem.
- Build a community (using social media, etc.) to concurrently achieve two goals:
- Identify and engage potential customers. Develop a relationship with them. Get outside the office and talk to real people to confirm your assumptions about customers. Repeat Step 1 to refine solution.
- Identify and engage potential partners, team members, engineers and all the people that you need to build and manage a successful business. You can’t afford to hire them – but if they are passionate enough about the vision… they are likely to help. And you will attract great ideas to help refine Step 1.
- Once you have your vision (Step 1) and a growing seedling of a community (Step 2) then move FAST. Concurrently do two things before your competitors beat you to the market:
- Sell minimally viable product (MVP) to customers. Yes, you are selling vapor-ware to prove there are customers. You are getting orders that will result in revenue when you deliver. Promise a future delivery date.
- Build the MVP so you have something to deliver (something) on the promised date. Deliver on that date. Get revenue early. This makes it really easy to get money for growth on very favorable terms.
In reality the process looks like this – where the top circles represent the process of cultivating customers and the bottom steps represent engineering and development.
VCs hate this approach because entrepreneurs don’t need them. Angel investors are just now seeing the brilliance of this low-capital approach.
Anything VCs hate is worth examination: VCs under-perform the market while earning the nasty reputation of sucking equity away from founders.
Why Lean Startups Work Better
The Lean Startup approach quickly adjusts engineering and marketing to ensure that you take the shortest path to a viable business model. I think of this as using the sensitivity of early conditions as an advantage – rather than an element of chaos. Benefits include:
- Lower risk. You are not trying to outsmart the market. You are building what the market will buy.
- Faster development. You are not trying to build the best possible. You are building what is the minimum necessary to be sellable.
- Potentially lower cost. You are not wasting time and energy on stuff that is not important to customers.
- Agility. You can pivot your business model faster – so your money goes farther.
Trade shows are places to spend money. Meetups are places to make money.
Trade shows are great for golf, fancy dinners, developing personal relationships with prospects from far way… but they suck at creating value for innovative products or services. The very nature of a trade show is waterfall – first design, then build and finally go-to-market.
Conversely, Meetups don’t offer boondoggles. They bring together people with a common passion: Engineers who know technology, customers who want to learn how to solve a problem and entrepreneurs seeking to create a new business (often the organizer).
By definition, disruptive technologies replace existing technologies. They usually do this by offering fewer features at a far lower cost. As Clayton Christensen pointed out in The Innovator’s Dilemma, advances in technology usually outpace what customers want. The result is that established players (such as trade shows) offer features (such as golf outings) that customers might enjoy – but can live without. A disruptive technology (like Meetup) addresses the core needs of customers (such as forming industry relations and sharing knowledge) but does so at a far lower cost by using a radically different approach (like leveraging and Internet community).
For me, Meetups provide benefits that Trade Shows can’t compete with:
- Low cost – so cheap that cost is not a consideration. $10 to attend a Meetup vs. $2,000 for a trade show. No brainer.
- Higher value. Trade shows make me commit to a track of speakers. How do I know they are any good? What if I want to go down two tracks at the same time? Meetups allow me to test, iterate and change paths as frequently as the meetings are scheduled.
- Quality of connections. Meetups form an ecosystem of professionals that are engaged. Trade shows attract vendors trying to sell vendors.
- Depth of knowledge. The sheer pace of innovation makes it impossible for an annual trade show to be as relevant as a monthly Meetup.
- Time and attention span. Can we really pay attention to 8 hours of lectures a day at a trade show? Meetups are usually brief enough that we can work a full day, attend a meeting at night and retain what we learned.
Yes, I confess, I still love going to trade shows. But I also enjoy going to the opera. Both are anachronistic relics; indulgent luxuries from a by-gone era. And neither are known for being “lean.”