Business models

Comments Off on Yelp’s IPO Will Test the Flaws in Its Business Model

Yelp’s IPO Will Test the Flaws in Its Business Model

Posted by | 14 December, 2011 | Business models, Case Study, Data in startups, Key lessons, Product development, Startups, Strategy

Original post by MICHAEL LUCA via HBR

Yelp’s IPO filing comes hot on the heels of successful IPOs and high valuations for Angie’s List and Groupon. Yelp’s timing reflects both a tech-friendly market and the company’s current position as the dominant consumer-review web site. Yelp has 22 million reviews, and the supposedly imminent onslaught of competing review sites has yet to materialize. But is Yelp really poised for long-run success? My research shows that there are points in its favor — but there are others that should raise investors’ concern.

First, the positives:

Yelp works. Yelp is relevant only to the extent that it affects readers’ choices of where to go. The evidence shows that it does. In a recent paper, I combined Yelp ratings with restaurant revenues for every restaurant that operated in Seattle during Yelp’s entire run there. The data suggest that a one-star increase in a restaurant’s Yelp rating leads to a 5% to 9% increase in revenue. How do we know that it is in fact Yelp that matters, and not some other information source? To support the causal inference, I exploited the fact that Yelp rounds ratings to the nearest half-star. I found that restaurants receive a jump in sales after a rating is rounded up. So Yelp is driving sales, at least for independent restaurants. Positive ratings don’t help chain restaurants, which already have strongly established brands.

It gets its content for free. Even more impressive than Yelp’s impact has been its ability to generate 22 million reviews without paying for them. Yelp has been extremely effective at leveraging social incentives to make people work for free. It created a network of “elite” reviewers, whose reviews tend to be less erratic and closer to restaurants’ long-run averages. Yelp hosts special events to reward these prolific reviewers. It’s not clear whether upstart review companies would be able to replicate this excitement about reviewing.

Search is moving away from Google. Google recently acquired Zagat, creating a major competitive threat to Yelp. One concern is that Yelp will be hurt as it falls down the Google search rankings (and Yelp acknowledges that most of its search traffic comes from Google). When Yelp began in 2004, this would have been a devastating prospect. And to some extent, it still is. But new ways of searching for products may start to change this dynamic. For example, many people find restaurants on Yelp using smartphone apps, circumventing the standard Google search process. This trend will only increase with time.

Now the factors working against Yelp:

It’s easy to write fake reviews. Yelp and Angie’s List follow very different business models. Angie’s List charges readers to view its content, while Yelp’s reviews can be accessed for free (and the company makes money by allowing businesses to advertise). Angie’s List has a strict quality assurance process; Yelp lets virtually anyone review. The ease of leaving reviews on Yelp has led to a larger number of reviews, but it has opened the door for businesses to leave fake reviews — for themselves, their friends, and their competitors. In a world where we know who is writing the reviews (your Facebook friend, for example), this is not a problem. In a world where reviewers are fairly anonymous, it is.

Legitimate reviews may be filtered out. More worrisome than the fake-review problem is Yelp’s solution: It uses a program to filter out seemingly bogus reviews. This is fine, in principle. But it becomes more troubling when you look at the data. In a recent sample, nearly one out of every five reviews was filtered. Looking only at the five restaurants featured on the front page of Yelp’s Boston site, roughly 13% of reviews were filtered out. Worse, the reviews were filtered fairly evenly across the restaurants. This means one of two things: Either all five have been trying to game the system, only to be outfoxed by Yelp, or Yelp’s algorithm is so coarse that it wipes out a lot of legitimate reviews. While fake reviews clearly exist, it is unlikely that all of these restaurants have been trying to game the system. Combine that with allegations of Yelp sales staff’s being overly aggressive in pushing their paid offering, and Yelp’s filter can be all the more frustrating for restaurants. There is no evidence that Yelp favors advertisers, and related lawsuits have been dismissed. However, the filtering process does give credence to concerned business owners who note that legitimate reviews have been filtered from their restaurants.

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Comments Off on Three Ways to Export into New Markets

Three Ways to Export into New Markets

Posted by | 12 December, 2011 | Business models, Strategy

Original post by JANE PORTER via  Entrepreneur

How three entrepreneurs overcame challenges when exploring global markets, and what you can learn from them.

Given the sluggish U.S. economy, small businesses may have little choice these days but to look abroad for growth and start exporting their products.

“In many ways it’s the only way to grow,” says Mona Pearl, founder of Beyond a Strategy Inc., a Chicago-based global strategic development firm and author ofGrow Globally (Wiley 2011). “We have to start getting to know more about the world.”

The good news: International opportunities are growing, with the U.S. Export-Import Bank having increased small business financing by more than 70% since 2008.

But breaking into the global marketplace takes careful planning. Here is a look at three major export regions and the strategies of some U.S. entrepreneurs doing business there.

China

For Ocilla, Ga.-based Hudson Pecan Co., the need to start exporting became clear more than a decade ago. The problem was simple. “We had more pecans being produced than we consumed domestically,” says Randy Hudson, president. But it wasn’t until 2008, after reaching outside for financial assistance, that the company penetrated the Asian market in a substantial way. The Southern United States Trade Association, a federally funded program, offset half the cost for Hudson to travel and begin selling abroad, while the Ex-Im Bank provided a $2 million lender loan guarantee that ensured the company would be paid for goods sold oversees.

Today, the 10-person company generates 75% of its sales from exports to Hong Kong, its distribution point for Asia. Total sales surged from less than $1 million in 2008 to $7.5 million last year and are expected to approach $15 million this year, Hudson says.

Biggest Challenges: Contracts and standby letters of credit are standard practice in the U.S., but they aren’t so common when selling commodities in China, Hudson says. And without a standby letter of credit attesting to the amount of business he had in the pipeline, Hudson couldn’t obtain a loan from the Ex-Im Bank.

“It almost prohibited us from doing any business there by preventing borrowing significant amounts of money,” he says. Ultimately, Hudson found a way around the problem by setting up his own intermediary company in Hong Kong. He then sold his pecans to the intermediary and used it to issue the necessary papers to secure a loan.

Hudson’s advice: Because deals are sometimes based on personal honor rather than a formal contract, small businesses must be cautious. “If you are doing business with a Chinese businessman for many years, his word is as good as any contract,” says Hudson. But until you develop a relationship of trust, “you have to be extremely careful.” Hudson advises small-business owners to visit prospective customers in person to get to know them and require a larger initial deposit for the first few business exchanges.

hudson-pecan-randy-hudson

Hudson Pecan Co.'s Randy Hudson gives grandson, Nate, his first lesson on growing pecans. Photo Courtesy: Mary Jo Hudson

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Comments Off on Three Ways to Export into New Markets

Three Ways to Export into New Markets

Posted by | 12 December, 2011 | Business models, Strategy

Original post by JANE PORTER via  Entrepreneur

How three entrepreneurs overcame challenges when exploring global markets, and what you can learn from them.

Given the sluggish U.S. economy, small businesses may have little choice these days but to look abroad for growth and start exporting their products.

“In many ways it’s the only way to grow,” says Mona Pearl, founder of Beyond a Strategy Inc., a Chicago-based global strategic development firm and author ofGrow Globally (Wiley 2011). “We have to start getting to know more about the world.”

The good news: International opportunities are growing, with the U.S. Export-Import Bank having increased small business financing by more than 70% since 2008.

But breaking into the global marketplace takes careful planning. Here is a look at three major export regions and the strategies of some U.S. entrepreneurs doing business there.

China

For Ocilla, Ga.-based Hudson Pecan Co., the need to start exporting became clear more than a decade ago. The problem was simple. “We had more pecans being produced than we consumed domestically,” says Randy Hudson, president. But it wasn’t until 2008, after reaching outside for financial assistance, that the company penetrated the Asian market in a substantial way. The Southern United States Trade Association, a federally funded program, offset half the cost for Hudson to travel and begin selling abroad, while the Ex-Im Bank provided a $2 million lender loan guarantee that ensured the company would be paid for goods sold oversees.

Today, the 10-person company generates 75% of its sales from exports to Hong Kong, its distribution point for Asia. Total sales surged from less than $1 million in 2008 to $7.5 million last year and are expected to approach $15 million this year, Hudson says.

Biggest Challenges: Contracts and standby letters of credit are standard practice in the U.S., but they aren’t so common when selling commodities in China, Hudson says. And without a standby letter of credit attesting to the amount of business he had in the pipeline, Hudson couldn’t obtain a loan from the Ex-Im Bank.

“It almost prohibited us from doing any business there by preventing borrowing significant amounts of money,” he says. Ultimately, Hudson found a way around the problem by setting up his own intermediary company in Hong Kong. He then sold his pecans to the intermediary and used it to issue the necessary papers to secure a loan.

Hudson’s advice: Because deals are sometimes based on personal honor rather than a formal contract, small businesses must be cautious. “If you are doing business with a Chinese businessman for many years, his word is as good as any contract,” says Hudson. But until you develop a relationship of trust, “you have to be extremely careful.” Hudson advises small-business owners to visit prospective customers in person to get to know them and require a larger initial deposit for the first few business exchanges.

hudson-pecan-randy-hudson

Hudson Pecan Co.'s Randy Hudson gives grandson, Nate, his first lesson on growing pecans. Photo Courtesy: Mary Jo Hudson

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Comments Off on Stop Competing to Be the Best

Stop Competing to Be the Best

Posted by | 11 December, 2011 | Business models, Business planning, Case Study, Customer development, Startups, Strategy

Original POST by JOAN MAGRETTA via HBR 

With Cyber Monday, the tablet wars kicked into full swing. Which one is the best? Is it the iPad? The Kindle? Who has the best technology? The best distribution? Who’s the best overall? For most people, “being the best” is what competition is all about. So General Motors CEO Dan Akerson was simply echoing popular sentiment when, on the day the new GM went public, he threw down the gauntlet: “May the best car win!” he told reporters. The phrase reflects an underlying belief about the nature of competition that feels so intuitively correct that it is almost never examined or questioned.

But if you want to win, says Michael Porter, this is absolutely the wrong way to think about competition. In fact, it’s practically a guarantee of mediocre performance. The first problem with the competition-to-be-the-best mindset is that, in the vast majority of businesses, there is simply no such thing as “the best.”

Consider a business as prosaic as seating for airport waiting areas. You would think that there would be a “best” here — standardized, functional seating. Well you would be wrong. Different airports have different needs. Some want waiting passengers to shop. They don’t want seats that are too comfortable. Some need the flexibility to reconfigure waiting areas. They don’t want long rows of fixed seats. Many airports have to watch their spending. But others — airports in the Middle East, for example — have snapped up luxury designs. Some airports value seats built to take extraordinary abuse. London-based OMK makes “prison-worthy” seating, the industry’s highest standard, using self-sealing polyurethane that can withstand a stabbing without showing the knife scar.

If there is no “best” airport seat, now think about all of the industries in the economy. In how many does the idea of “being the best” make real sense? The best hotel for one customer is not the best for another. The best sales encounter for one customer is not the best for another. There is no best car. There is no best art museum. No one best way to promote environmental sustainability.

Yet, it’s a pervasive idea. Management writers — and leaders seeking to inspire — regularly reinforce it by using colorful metaphors from warfare and sports. These lend emotion and drama to business competition. But, they are misleading.

In war, there can be only one winner. Not so in business, where companies like WalMart and Target can thrive and co-exist, each offering a different kind of value to its customers. In sports, there is just one contest with one set of rules. Not so in business, which is more complex and open-ended. Within an industry, there can be multiple contests, not just one, based on which needs are to be served. McDonald’s is a winner in fast food, specifically fast burgers. But In-N-Out Burger thrives on slow burgers. Its customers are happy to wait ten minutes or more (an eternity by McDonald’s stopwatch) for non-processed, fresh burgers cooked to order.

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Comments Off on Osborne: Seed EIS To Boost Start-Up Investment

Osborne: Seed EIS To Boost Start-Up Investment

Posted by | 11 December, 2011 | Business models, Finance, Key lessons, Startup marketing, Startups

Original post by Todd Cardy via growthbusiness.co.uk

Updated: The Enterprise Investment Scheme (EIS) will be expanded and boosted to enable investors to claim hefty tax relief for backing start-up businesses.

EIS expanded to seed investment

EIS expanded to seed investment

Chancellor George Osborne announced during his Autumn Statement to Parliament today that from April next year people who invest up to £100,000 in a qualifying new start-up business would be eligible for income tax relief of 50 per cent. The relief will be offered regardless of the rate at which the investor pays tax.

The scheme, which has been given the name the Seed Enterprise Investment Scheme (SEIS), will also be open to companies, but with a total investment limit of £150,000.

As an added incentive to encourage more people to back ‘riskier’ companies, the chancellor has offered a capital gains tax holiday for investments made into the new scheme. The move will mean a capital gains tax exemption on gains realised on disposal of an asset in 2012-13 and invested through the SEIS in the same year.

‘We’ve supported enterprise by increasing the generosity on the Enterprise Investment Scheme,’ he comments. ‘We are extending this scheme specifically to help new start-up businesses get the seed investment they need. Even at the best of times they can struggle to get the finance they need – and in the current credit conditions that struggle too often ends in failure.’

The Autumn Statement papers reveal that the new scheme is a result ofgovernment-initiated consultation on funding options for early-stage businesses in the UK that closed in September. As part of the proposed EIS reforms announced today, the papers state that the government will simplify the EIS by relaxing the connected person rules and the definition of shares that qualify for relief.

It will also tighten the ‘focus of the schemes’ by introducing a new test to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares in another company and exclude investment in Feed-in-Tariffs businesses.

In addition to these changes, the government will remove the £1 million investment limit per company for venture capital trusts (VCTs) to reduce the administrative burdens of the scheme.

The reforms follow Osborne’s strong backing of EIS in March. In the 2011 Budget, he announced that additional income tax relief for scheme investorswould increase from 20 per cent to 30 per cent in the 2011-12 tax year. The rate matched the current tax relief for VCT investment.

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Original post by   via B2C

As you begin to build your business and attempt to attract customers you quickly realize that everyone is a skeptic. This is especially true if you are are new to your market and not well known before taking the leap to owning your own business. People want “Social Proof” that your product is worth their hard-earned money and time.

What is Social Proof?

Social Proof is the reassurance that others have decided to use your product or service, which proves it is worth considering. In fact, positive product reviews provide enough social proof that a potential customer is 63% more likely to purchase your product online if it is present at the point of purchase.

This behavior is human nature. We all have limited resources, whether it be time or money. We are always looking for ways to maximize our resources in order to achieve our goals. This could be as simple as getting the best stroller for your new baby that fits your lifestyle or just getting a great meal for a fair price. We look for others similar to us and to judge their satisfaction with the product or service being considered.

Leveraging Social Proof to Grow your Startup Company

This information is powerful. You now know exactly what your customers want: “Social Proof”. If you also know who your ideal clients or customers are, you can further leverage customer feedback to drive business to the write customers AND dramatically increase sales conversions without having to spend more on marketing advertising or anything really. You are simply maximizing profit from each sales opportunity.

So what are some simple and practical ways you can gather and use social proof in your startup business:

Add reviews to your Website

Reviews are one of the best ways to create and use social proof. The best part is that the reviews can be for your product or service or even just a positive comment on your blog. You can also reach out to others in your industry who or customers offline and highlight their experience both online an in your print marketing materials and ads.

Add Ratings to your Website

Ratings are great for products and blog posts. They work better with men than women. Women prefer the emotional connection of a review while men like the objective measure of ratings. Be aware though that you may need to ask people to provide feedback in order for them to rate your product, service, or blog post.

Gather Testimonials

Customers new and old love to be asked about their experience, whether good or bad. Find some good testimonials and plaster them all over the place. You should use them on your site, sales page, product brochures, and the back of business cards.

You should also consider getting testimonials from others in your marketplace that have complimentary products. This is similar to the quotes on the back of a new book. This will also help you attract those complimentary customers to your business when you use this person’s quote on your site.

Create an Active Facebook Fanpage or GooglePlus Account

This only works for businesses who have an audience on Facebook, but for them it can be powerful.

Create a Twitter Presence

On Twitter you have a follower list. This is essentially a simple measure of your influence. Twitter is much easier to navigate than Facebook and you can easily target your competitors “followers”. There is a big opportunity if your industry is on Twitter.

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Comments Off on The Cambrian Explosion In Startups

The Cambrian Explosion In Startups

Posted by | 9 December, 2011 | Business models, Startups, Strategy

Original post by Erick Schonfeld via TC

The sheer number of new startups forming and getting funded these days is dizzying. It’s never been easier to start a company to harness new technologies and turn them into products. Traditional venture capital may not even be able to keep up with it. We are at the beginnings of what may very well become a Cambrian Explosion of startups, which will have implications well beyond the technology industry to the entire economy.

We’ve spent the last 15 years building out the tethered web. The next 15 years will be about connecting the web, and the broader internet, to the physical world. And mobile is just the start.

We will soon be able to shrink fully-functional computers into almost anything—mobile phones and tablets today, TVs, car dashboards, and wearable devices tomorrow. And they will all be connected to the network. The only limit to what can be done with these connected computing devices will be what entrepreneurs and engineers can dream up.

The Cambrian Explosion is a useful metaphor. During the real Cambrian Explosion, of course, many new species were created. But how many of them thrived? How many quickly became extinct? It was a period of rapid evolution, with new species both emerging and dying off quickly. In the end, the world was better off from an evolutionary perspective, but not every new animal survived, just like every new startup won’t survive.

Early evidence of this Cambrian Explosion is already showing itself. Last year, for instance, there were more than 1,100 seed/angel funding rounds, up from 855 in 2008, according to Crunchbase. That was a 33% increase in just two years, and 2011 looks like it will surpass 2010. Why are there so many more early stage startups? I believe there are two reasons. The barriers to creating a startup are falling away, and the market opportunities have never been greater. (This is tempered by the current global economic malaise, and serious concerns about how many of these early stage startups will make it past the seed stage, which I will address later on).

Let’s talk about the lower barriers to startup creation. First, there is less capital required than ever before, while at the same time there is more capital available (at least for seed stage companies). The advent of cloud computing, open source software, and plug-and-play APIs for every web platform means that 3 coders can create a product for a few hundred thousand dollars instead of the few million it would have cost just ten years ago. They can start lean, learn from their early customers, and improve the product along the way.

On the opportunity side, the potential online audience is bigger than it’s ever been before, with 2 billion people online, and even more of them are moving to mobile. The Internet is no longer just the desktop Web. It is apps for mobile phones and tablets which pull data from the internet but never launch a browser. It is connected devices like Jawbone’s Up bracelet that monitors your physical activity. And that is just scratching the surface.

There are whole industries yet to be seriously touched by the Internet, but which could benefit from better information: health, education, transportation, energy consumption—to name just a few. The consumer internet has basically zero barriers to entry, which is why we see so much action there, but brave entrepreneurs are beginning to take the same principles and apply them elsewhere. In health, for instance, where there are regulatory requirements or in education, where institutions hold the keys to the kingdom, internet startups are beginning to make some serious headway.

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Comments Off on The Cambrian Explosion In Startups

The Cambrian Explosion In Startups

Posted by | 9 December, 2011 | Business models, Startups, Strategy

Original post by Erick Schonfeld via TC

The sheer number of new startups forming and getting funded these days is dizzying. It’s never been easier to start a company to harness new technologies and turn them into products. Traditional venture capital may not even be able to keep up with it. We are at the beginnings of what may very well become a Cambrian Explosion of startups, which will have implications well beyond the technology industry to the entire economy.

We’ve spent the last 15 years building out the tethered web. The next 15 years will be about connecting the web, and the broader internet, to the physical world. And mobile is just the start.

We will soon be able to shrink fully-functional computers into almost anything—mobile phones and tablets today, TVs, car dashboards, and wearable devices tomorrow. And they will all be connected to the network. The only limit to what can be done with these connected computing devices will be what entrepreneurs and engineers can dream up.

The Cambrian Explosion is a useful metaphor. During the real Cambrian Explosion, of course, many new species were created. But how many of them thrived? How many quickly became extinct? It was a period of rapid evolution, with new species both emerging and dying off quickly. In the end, the world was better off from an evolutionary perspective, but not every new animal survived, just like every new startup won’t survive.

Early evidence of this Cambrian Explosion is already showing itself. Last year, for instance, there were more than 1,100 seed/angel funding rounds, up from 855 in 2008, according to Crunchbase. That was a 33% increase in just two years, and 2011 looks like it will surpass 2010. Why are there so many more early stage startups? I believe there are two reasons. The barriers to creating a startup are falling away, and the market opportunities have never been greater. (This is tempered by the current global economic malaise, and serious concerns about how many of these early stage startups will make it past the seed stage, which I will address later on).

Let’s talk about the lower barriers to startup creation. First, there is less capital required than ever before, while at the same time there is more capital available (at least for seed stage companies). The advent of cloud computing, open source software, and plug-and-play APIs for every web platform means that 3 coders can create a product for a few hundred thousand dollars instead of the few million it would have cost just ten years ago. They can start lean, learn from their early customers, and improve the product along the way.

On the opportunity side, the potential online audience is bigger than it’s ever been before, with 2 billion people online, and even more of them are moving to mobile. The Internet is no longer just the desktop Web. It is apps for mobile phones and tablets which pull data from the internet but never launch a browser. It is connected devices like Jawbone’s Up bracelet that monitors your physical activity. And that is just scratching the surface.

There are whole industries yet to be seriously touched by the Internet, but which could benefit from better information: health, education, transportation, energy consumption—to name just a few. The consumer internet has basically zero barriers to entry, which is why we see so much action there, but brave entrepreneurs are beginning to take the same principles and apply them elsewhere. In health, for instance, where there are regulatory requirements or in education, where institutions hold the keys to the kingdom, internet startups are beginning to make some serious headway.

READ MORE 

Comments Off on 8 Reasons Why SMEs, Startups and Entrepreneurs Need To Innovate

8 Reasons Why SMEs, Startups and Entrepreneurs Need To Innovate

Posted by | 8 December, 2011 | Business models, Business planning, Data in startups, Key lessons, Startups

Original post by i360insight

I was honored to participate as a mentor and master of ceremonies at the first Startup Weekend Dubai. I met many entrepreneurs there, all of them with energy, enthusiasm and an idea for starting a business. Most of the ideas were innovative, or could be with a little work.

My experience in the technology sector has shown that innovation is a driving factor for many tech-based startups. In other areas that attract SMEs – service industries, handmade goods, small scale manufacturing, etc. – innovation is usually less common.

Why don’t SMEs and entrepreneurs naturally adopt an innovative mindset? For one, innovation is often associated with expensive and large-scale projects (especially in the Middle East). It’s also thought of as R&D (Research and Development), which many small businesses don’t have the resources to undertake. Then there’s also the fact that many entrepreneurs simply want to be their own boss – they latch onto the first idea that intrigues them, or they do what they know or simply enter the family business.

As an entrepreneur myself, and an innovation strategist and practitioner, I have seen how innovative thinking can make a big difference in any size business, in any industry. There are many ways that innovation can help SMEs, startups and entrepreneurs – here are just a few:

#1 – Avoiding the “falafel shop” syndrome– Too many entrepreneurs see a successful business and try to copy it (in the Middle East it’s falafel shops – in the tech industry, at least lately, it’s daily deal websites). The new business may change a few small things – the menu, the prices, the décor — but their offering is really no different from the competition. An innovative business provides unique value that customers can’t get elsewhere. It’s not just about differentiating your business with marketing or slogans. It’s about taking a chance on a different type of business than everyone else.

#2 – An innovative mindset makes you more agile – Innovative thinkers are open minded, tend to try new approaches and are not afraid to fail. These traits also make you more agile, and better able to respond to changing market conditions. Innovative thinkers are also more creative problem solvers. When everyone in your company is trained to think creatively, it enables you to respond more quickly and efficiently to customer, supplier and internal issues.

#3 – Innovation tools keep you focused – You probably know at least five people who say they are entrepreneurs or want to start their own business. But there is more to being your own boss than just following your dreams and filling out the paperwork. Remember, it’s not really about you, but about your potential customers. There are many innovation tools that can help you offer unique value or solve a problem for customers. These tools will make your offerings more focused, and your team more focused on a clear goal.

#4 – The competition is not who you think it is – Industry lines are blurring as companies seek new ways to offer value. This makes it hard to recognize the competition, and also means there is more competition than ever. Instead of starting out by comparing yourself to your industry peers, spend time uncovering the real needs of the market you are trying to serve. What are their pain points? How do they solve their problems, and how could you help them do it better? This up-front work may take your business in a completely different direction than you were headed (and it also works for existing companies that are struggling).

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Comments Off on 8 Reasons Why SMEs, Startups and Entrepreneurs Need To Innovate

8 Reasons Why SMEs, Startups and Entrepreneurs Need To Innovate

Posted by | 8 December, 2011 | Business models, Business planning, Data in startups, Key lessons, Startups

Original post by i360insight

I was honored to participate as a mentor and master of ceremonies at the first Startup Weekend Dubai. I met many entrepreneurs there, all of them with energy, enthusiasm and an idea for starting a business. Most of the ideas were innovative, or could be with a little work.

My experience in the technology sector has shown that innovation is a driving factor for many tech-based startups. In other areas that attract SMEs – service industries, handmade goods, small scale manufacturing, etc. – innovation is usually less common.

Why don’t SMEs and entrepreneurs naturally adopt an innovative mindset? For one, innovation is often associated with expensive and large-scale projects (especially in the Middle East). It’s also thought of as R&D (Research and Development), which many small businesses don’t have the resources to undertake. Then there’s also the fact that many entrepreneurs simply want to be their own boss – they latch onto the first idea that intrigues them, or they do what they know or simply enter the family business.

As an entrepreneur myself, and an innovation strategist and practitioner, I have seen how innovative thinking can make a big difference in any size business, in any industry. There are many ways that innovation can help SMEs, startups and entrepreneurs – here are just a few:

#1 – Avoiding the “falafel shop” syndrome– Too many entrepreneurs see a successful business and try to copy it (in the Middle East it’s falafel shops – in the tech industry, at least lately, it’s daily deal websites). The new business may change a few small things – the menu, the prices, the décor — but their offering is really no different from the competition. An innovative business provides unique value that customers can’t get elsewhere. It’s not just about differentiating your business with marketing or slogans. It’s about taking a chance on a different type of business than everyone else.

#2 – An innovative mindset makes you more agile – Innovative thinkers are open minded, tend to try new approaches and are not afraid to fail. These traits also make you more agile, and better able to respond to changing market conditions. Innovative thinkers are also more creative problem solvers. When everyone in your company is trained to think creatively, it enables you to respond more quickly and efficiently to customer, supplier and internal issues.

#3 – Innovation tools keep you focused – You probably know at least five people who say they are entrepreneurs or want to start their own business. But there is more to being your own boss than just following your dreams and filling out the paperwork. Remember, it’s not really about you, but about your potential customers. There are many innovation tools that can help you offer unique value or solve a problem for customers. These tools will make your offerings more focused, and your team more focused on a clear goal.

#4 – The competition is not who you think it is – Industry lines are blurring as companies seek new ways to offer value. This makes it hard to recognize the competition, and also means there is more competition than ever. Instead of starting out by comparing yourself to your industry peers, spend time uncovering the real needs of the market you are trying to serve. What are their pain points? How do they solve their problems, and how could you help them do it better? This up-front work may take your business in a completely different direction than you were headed (and it also works for existing companies that are struggling).

READ MORE

Comments Off on The Bitter Truth About Bootstrapping

The Bitter Truth About Bootstrapping

Posted by | 8 December, 2011 | Business models, Business planning, Data in startups, Finance, Key lessons, Startups

Original post by  via  ALL TOP STARTUPS 

I am a huge advocate for bootstrapping, but the truth about bootstrapping  is that its tough and only the toughest can survive the process. Bootstrapping or booting refers to a group of metaphors that share a common meaning: a self-sustaining process that proceeds without external help. And that has its challenges. Startups that bootstrap fund the development of their company through internal cash flow and are cautious with their expenses. Microsoft, Dell, Cisco, Oracle, eBay — were all “bootstrapped”. But can you survive the process?

The process

When you decide to bootstrap, you commit to fund primary development and growth through internal cash flow from real-life customers. You — the founder — and a limited number of early employees may forgo paychecks for quite some time to make this work. But to keep that strategy to a minimum, it’s common for bootstrapping companies to turn to consulting engagements, non-recurring engineering contracts, value-added reseller agreements and projected supplier contracts. In short, “moonlighting.” These funds go toward initial growth and expansion until the company can stand on its own two feet.-Javier Rojas

The bitter truth about bootstrapping is that you you will loose some friends and family. And most importantly when you have to re-architect your infrastructure to scale, you may not have the funds to do that. The ability to achieve scale and growth is greatly enhanced by having the funds in place to focus and execute on the plan in a timely manner. A bootstrapped company can take longer than usual to hit mainstream. A V.C. could give someone funding to compete with you when you refuse funding at the initial stage, which buys lot of market advantage for the funded competitor.

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Comments Off on How to Make Your Startup Go Viral The Pinterest Way

How to Make Your Startup Go Viral The Pinterest Way

Posted by | 7 December, 2011 | Business models, Business planning, Finance, Startups, Trends

Original post by STEVE CHENEY via TC

Take a look at Pinterest’s one-year traffic on Compete from Oct 2010 to Oct 2011, which is the picture in this post, and shows Pinterest rising from 40,000 to 3.2 million monthly unique visitors. I took both ends of this chart and estimated monthly compounded growth over Pinterest’s lifetime, then interpolated the curve using constant growth and put the results in this Google Spreadsheet.

Backing out of Compete’s numbers, we see Pinterest grew about 50% month over month from a base of zero since its inception (on average, smoothing the curve). Today growth is catching fire, as evidenced by the near doubling of traffic last month, and Pinterest’s page views growing 20X since June, according to comScore.

Note these numbers are approximations and also do not count the significant traffic the service sees from mobile (Pinterest’s app currently takes the #6 social spot in the iTunes store). Also my guess is that a lot of its unique visitors arrive out of network (from Facebook / Twitter), and many of these uniques leave Pinterest without registering (more on this below) so it’s tough to know their exact user numbers.

But let’s play pretend and use the data we have to do some projections on where Pinterest could be a year from today.  Its recent VCs certainly did this, and decided to give the startup a $200M+ valuation.  Ron Conway said recently that Pinterest is growing like Facebook did in 2006. Facebook actually grew from 14 million uniques to 26 million uniques from May 2006 to May 2007, then a year and half later they had rocketed to 140 million uniques, and were growing at about 20 million uniques per month. So monthly growth early on for Facebook was around 10-15%.

Can Pinterest really sustain its wild 45% monthly growth? No, unless it’s destined to be the fastest growing startup in history. However, we can be pretty sure Pinterest has hit a tipping point… their page view numbers are simply insane. If they were to grow 20% month/month over the next year, Pinterest would be at 30 million uniques a year from today. And with 25% month/month growth, they’d be at 50 million.  These are pure guesses, but Ron’s statements and last month’s growth make this look possible, so let’s examine virality and Pinterest’s underlying fundamentals.

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Comments Off on If You Don’t Have a Discrete Hypothesis You Are Incapable of Failing

If You Don’t Have a Discrete Hypothesis You Are Incapable of Failing

Posted by | 7 December, 2011 | Business models, Business planning, Lean startup, Startup marketing, Startups

Original post by MARK SUSTER via Both Sides Of  The Table

There are very few people in Silicon Valley who have such a precise grasp on what defines success of early-stage startup companies than Eric Ries. And there are very few people who so consistently exceed my expectations when I hear them speak. I find myself nodding – even when the topic is one I don’t expect to agree with such as “fail fast.”

This week was no exception. I interviewed Eric for an hour for - This Week in Venture Capital. What’s awesome is that the ThisWeekIn team now does time coding so you can go directly to the section in the video you want to hear (you need to click on link for video and then below the video in YouTube the links to the exact times will take you to that section in the video).

We had a wide-ranging discussion which included discussions of Eric’s early career (including his failures), how he came to focus on the Lean Startup movement (at the encouragement of Steve Blank who was an investor in the company he co-founded) and what he wants to do next.

Importantly we also discussed:

  • should startups raise small amounts of money or large?
  • should companies do spreadsheets / plan / have a hypothesis for success?
  • what is the difference between a “pivot” or a “double dribble” (changing your business completely)?
  • when is the right time to go big with PR?
  • how do you handle internal company morale?
  • how should you organize teams in a startup? (functional workgroups vs. product workgroups)
  • what is the importance of social media? what is wrong with today’s social media?
  • what lessons can we draw from Steve Jobs successes?

Eric is so damn good. I could have gone 2 hours. If you have some time I promise he doesn’t disappoint. Or if you’re pinched on time the summary is below and the time coding can help you watch a brief snippet on topics that interest you. And make sure to pick up a copy of his book.

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Comments Off on If You Don’t Have a Discrete Hypothesis You Are Incapable of Failing

If You Don’t Have a Discrete Hypothesis You Are Incapable of Failing

Posted by | 7 December, 2011 | Business models, Business planning, Lean startup, Startup marketing, Startups

Original post by MARK SUSTER via Both Sides Of  The Table

There are very few people in Silicon Valley who have such a precise grasp on what defines success of early-stage startup companies than Eric Ries. And there are very few people who so consistently exceed my expectations when I hear them speak. I find myself nodding – even when the topic is one I don’t expect to agree with such as “fail fast.”

This week was no exception. I interviewed Eric for an hour for - This Week in Venture Capital. What’s awesome is that the ThisWeekIn team now does time coding so you can go directly to the section in the video you want to hear (you need to click on link for video and then below the video in YouTube the links to the exact times will take you to that section in the video).

We had a wide-ranging discussion which included discussions of Eric’s early career (including his failures), how he came to focus on the Lean Startup movement (at the encouragement of Steve Blank who was an investor in the company he co-founded) and what he wants to do next.

Importantly we also discussed:

  • should startups raise small amounts of money or large?
  • should companies do spreadsheets / plan / have a hypothesis for success?
  • what is the difference between a “pivot” or a “double dribble” (changing your business completely)?
  • when is the right time to go big with PR?
  • how do you handle internal company morale?
  • how should you organize teams in a startup? (functional workgroups vs. product workgroups)
  • what is the importance of social media? what is wrong with today’s social media?
  • what lessons can we draw from Steve Jobs successes?

Eric is so damn good. I could have gone 2 hours. If you have some time I promise he doesn’t disappoint. Or if you’re pinched on time the summary is below and the time coding can help you watch a brief snippet on topics that interest you. And make sure to pick up a copy of his book.

READ MORE 

Comments Off on Five elements needed to attract startup funding

Five elements needed to attract startup funding

Posted by | 6 December, 2011 | Business models, Business planning, Finance, Startup reading lists, Strategy

Original post by  via memeburn

Raising funding can be potentially expensive, as it requires resources, and time-consuming experience. Done correctly, it can yield valuable results and a substantial financial investment to grow your business. Enthusiastic entrepreneurs that want to go this route should be well prepared and display these five key essentials that funders look for when considering investing.

1. Know your market
Clear and thorough market and competitor analysis is the mainstay of any successful business concept — even more so when seeking funding. Understanding who you’re selling to, what pressing need you’re addressing and what competition you’re facing enables the funder to evaluate the potential of your business, and their investment return.

Your business has to be differentiated in the eyes of your customer, not just by the technology behind it. What features and benefits does your business offer to the user that the competition doesn’t? More critically, a potential funder will want to know whether the market is willing to pay for these. You should have user numbers or customers to support this.

2. Understand your business model
You need to have a keen grasp on how much revenue your business can expect to generate and whether or not the business has the potential to be profitable. This means understanding the cost of acquiring customers, as well as the cost of creating and delivering the value of your offering.

Be realistic in these projections, and abandon the temptation to base your decision on assumptions rather than the facts, and restrain yourself from dragging untested formulae across columns of cells in your Excel spreadsheet. Just because a service is successful elsewhere doesn’t mean it’s as capable of addressing a need in the local market.

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Comments Off on Chapman University launches eVillage for startups

Chapman University launches eVillage for startups

Posted by | 3 December, 2011 | Business models, Launching a startup, Startup marketing, Startups

Original post by CAITLIN ADAMS via OC METRO 

The facility will host the new K5launch accelerator program for entrepreneurs

Chapman University’sLeatherby Center for Entrepreneurship and Business Ethics is launching a new eVillage facility for startup companies and entrepreneurs in Southern California. The center will include a business accelerator, dubbed K5launch, and provide dedicated professional resources for entrepreneurs and startups. A ribbon-cutting ceremony and luau celebration marking the launch of the new center will take place in early 2012.

According to Chapman, the K5launch center is a unique business incubator managed by successful entrepreneurs and investors and oriented toward helping early-stage, technology-driven startups.

“By collocating resources, ideas, knowledge and relationships, entrepreneurs learn quickly and accelerate their success,” said Richard Sudek, Ph.D., director of Chapman’s Leatherby Center and chairman emeritus of Tech Coast Angels. “Combining Chapman’s entrepreneur efforts with K5 accelerator will form a nucleus in Southern California for entrepreneurship.”

Companies selected by the accelerator are accepted into a three-month “mentorship-driven seed stage investment program”, during which time they will build their product and prepare for the next business development milestones, including investment funding. Companies participating in the program will be provided all necessary resources to build their products, and receive legal and financial advice in the process. Once the program is complete, entrepreneurs will have the opportunity to present their project to a wide network of investors.

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Comments Off on When Should Your E-Commerce Startup Go Global?

When Should Your E-Commerce Startup Go Global?

Posted by | 2 December, 2011 | Business models, Business planning, Finance, Startup marketing, Startups, Strategy, Trends

Original post by Leighton Peter Prabhu via web-translations

Selling online has enormous advantages over a traditional business model.The main one is the ability to be instantly global, in the sense that your website can be accessed by anyone, anywhere, anytime. However, very few e-businesses take a global approach from the outset or even seriously consider harnessing this potential once they have reached scale in their home market.

blue-globe-trolleyMost companies I speak with need convincing that there is a meaningful benefit to going global, i.e. addressing markets other than their home market. It’s particularly prevalent in companies based in Anglophone countries – mainly the US and UK – so much so that I’ve actually given up trying to promote the Russian e-business market to them.

Looking at the great success stories like Amazon, eBay, Google and Facebook, their global ambitions are now quite clear. It’s also clear that if they had started much earlier, they would have secured leading market positions in more key international markets, especially in the emerging-market BRIC countries.

The standard argument is that smaller companies lack the technical, financial and managerial resources to reach into global markets. However, in e-commerce businesses these issues are much narrower in scope than they would be for a traditional business. The more likely reason is that e-businesses tend to be founded by younger and inexperienced people (not only in business but also in life), who have not had time to gain exposure to international business. And when such companies get larger and start bringing in professional managers, the pool they draw from is very thin in international experience. It’s only at the very upper echelons of firm size that they consciously seek globally-experienced managers. By then, in many cases, it’s too late.

Speaking about resources, entering emerging markets through joint ventures, selling agents or other forms of partnerships are the most effective strategies. Not only are you benefiting from working with an expert in the local market, but that expert can add value to your entire enterprise, not just the local operation. New ideas, new connections, new ways of thinking and even creative adaptions of your product or service are all things that can be applied to improve your entire company. For example, when we launched Shoes of Prey in Russia, we offered the same level of customer care that was extended to all global customers (i.e. only online or telephone contact). But when we started offering in-person consultations, our conversion rate skyrocketed. This experience has convinced the main company to extend their international presence to more cities and also offer in-person consultations in the Sydney head office.

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Comments Off on When Should Your E-Commerce Startup Go Global?

When Should Your E-Commerce Startup Go Global?

Posted by | 2 December, 2011 | Business models, Business planning, Finance, Startup marketing, Startups, Strategy, Trends

Original post by Leighton Peter Prabhu via web-translations

Selling online has enormous advantages over a traditional business model.The main one is the ability to be instantly global, in the sense that your website can be accessed by anyone, anywhere, anytime. However, very few e-businesses take a global approach from the outset or even seriously consider harnessing this potential once they have reached scale in their home market.

blue-globe-trolleyMost companies I speak with need convincing that there is a meaningful benefit to going global, i.e. addressing markets other than their home market. It’s particularly prevalent in companies based in Anglophone countries – mainly the US and UK – so much so that I’ve actually given up trying to promote the Russian e-business market to them.

Looking at the great success stories like Amazon, eBay, Google and Facebook, their global ambitions are now quite clear. It’s also clear that if they had started much earlier, they would have secured leading market positions in more key international markets, especially in the emerging-market BRIC countries.

The standard argument is that smaller companies lack the technical, financial and managerial resources to reach into global markets. However, in e-commerce businesses these issues are much narrower in scope than they would be for a traditional business. The more likely reason is that e-businesses tend to be founded by younger and inexperienced people (not only in business but also in life), who have not had time to gain exposure to international business. And when such companies get larger and start bringing in professional managers, the pool they draw from is very thin in international experience. It’s only at the very upper echelons of firm size that they consciously seek globally-experienced managers. By then, in many cases, it’s too late.

Speaking about resources, entering emerging markets through joint ventures, selling agents or other forms of partnerships are the most effective strategies. Not only are you benefiting from working with an expert in the local market, but that expert can add value to your entire enterprise, not just the local operation. New ideas, new connections, new ways of thinking and even creative adaptions of your product or service are all things that can be applied to improve your entire company. For example, when we launched Shoes of Prey in Russia, we offered the same level of customer care that was extended to all global customers (i.e. only online or telephone contact). But when we started offering in-person consultations, our conversion rate skyrocketed. This experience has convinced the main company to extend their international presence to more cities and also offer in-person consultations in the Sydney head office.

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Comments Off on The right investors for the right stage

The right investors for the right stage

Posted by | 30 November, 2011 | Business models, Business planning, Finance, Product development, Startups

Original post by  via gust

If you are looking for an outside investor, you need to know how they see you. Different types of investors look for startups at different levels of maturity. If your startup is at the wrong stage for the investor you are approaching, fishing for money is a waste of time for both of you.

For instance, if your company is only a few weeks old and you have zero customers and your product offering is still in design, don’t expect someone to hand over $10 million to fund your efforts. It wouldn’t work anyway, since your valuation at that stage would be less than the funding, meaning you would have to give away all ownership for the money.

You also will find that the stage your startup is in dictates where you go to seek funding. Funding sources specialize in certain growth stages. Angel investors typically provide early-stage funding, while venture capital firms typically come in at later stages.

Of course, growth and development are really a continuum. Yet most investors will tend to categorize your progress into one of the following five stages:

• Idea stage. This is the initial excitement period, the time when you dream of riches and fantasize the life of a business owner, but you have no real plan. At this stage, no professional investor will touch you unless you have a beautiful track record of success with previous startups. Funding will only come from you, or friends, family, and fools.

• Early or embryonic stage. Investments at this stage are typically called seed investments. Funding of $250,000-$1 million is available from angels, if you have credentials and have done the homework of a good business plan, financial model, and executive presentation. Anything less the $250,000, or any amount at this stage with no credentials, still has to come from friends and families, loans, or federal grant sources.

• Funding or rollout stage. This is the realm of venture capital professional investors, with funding amounts of $1-10 million, often referred to as the “A-round,” or first institutional funding. At this stage, your startup better be selling a commercial offering, have price and cost validated, with significant customer sales and a real revenue stream. Lesser amounts remain in the angel realm.

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Comments Off on Case-Study: InfoChimps and Transitioning to Lean

Case-Study: InfoChimps and Transitioning to Lean

Posted by | 29 November, 2011 | Business models, Lean startup, Product development, Startup marketing, Startups

Original post by Ash Maurya

Transitioning to Lean once you already have a product in the market (with some success) is inherently hard because you have to revisit the past and question that success against your original goals. Then make the hard “pivot versus persevere” decision. At this month’s Austin Lean Startup meetup, Tim Gasper, Jim England and Dhruv Bansal from Infochimpsshared a great case-study on just that.

Infochimps is a data marketplace and API provider. They collect, format, and sort information from various sources to make it easier for others to use. High-level concept: Amazon.com for datasets.

Until recently their vision has been driven by technology. However, they realized that in order to become a world-class company they must adopt a more customer driven/Lean approach.

This talk is broken into 2 acts.

In Act 1, Tim Gasper leads the discussion and covers how they used customer interviews to find problems worth solving, and now that they have some real facts, how they are diagnosing whether to pivot or persevere.

In Act 2, Jim England and Dhruv Bansal talk about how they re-architected their existing user flow for maximum learning and how they tweaked Google Analytics to allow them to measure their customer lifecycle.

Enjoy!

InfoChimps – Lean Startup Talk by Ash Maurya 

Comments Off on Choosing the best startup funding for your business

Choosing the best startup funding for your business

Posted by | 27 November, 2011 | Business models, Finance, Key lessons, Startup reading lists, Startups

Original post by MED CITY 

As 2011 winds down, small business owners looking for new financing options would do well to take a slice of the holidays and use it to study the two most common startup funding options — angel investing versus venture capital.

In this two-part series, we’ll do just that. And before the year ends, look for columns on ancillary business funding sources, like crowd sourcing and bootstrapping, that will give you an even clearer picture of the business financing landscape.

First, some background, popular convention has it that venture capital is the most common and popular form of startup funding.Certainly, VC funding is ample in the U.S. and abroad.

According to recent data from CB Insights, the third quarter of 2011 saw venture capital firms pour $7.9 billion into U.S. businesses.

That’s a solid number, given a soft economy and general reluctance for limited partners to give much cash to venture funding firms. If current trends hold true, CB Insights expects VC funding to reach $30 billion in 2011 — the highest level this decade.

While fresh numbers aren’t yet available for angel investors in the third quarter of 2011, data from the first half of the year — compiled by the Center for Venture Research at the University of New Hampshire — shows “stabilization” in the angel funding ranks.The CVR reports that the angel market has come a long way since its 30 percent market correction in 2008 and early 2009, with total investments totaling $8.9 billion, an increase of 4.7 percent over the same period in 2010. All told, 26,300 entrepreneurs received some angel funding in the first half of the year — that’s up 4.4 percent from the first half of 2010, UNH researchers say.

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