I had to respond to a post NY angel investor Mark Birch recently wrote called Entrepreneurship and the Passion Deficit. He claims that “the number one reason startups fail is because there is no passion!”

Mark’s a smart guy, but in this case, I totally disagree.

For 17 years, I’ve been buried in the startup scene, working in Austin, the Valley and NYC. I’ve been surrounded by entrepreneurial peers busting their asses to bring something new to the world.

Except for the Web 1.0 bubble, when greed reigned and lots of get-rich-quick types hopped on the bandwagon, I have seen no shortage of passion. Even in the last few years, when startups became cool again and it felt like everyone and their cousin was starting a company, I’ve seen plenty of passion.

We all know the stories of founders who persevered beyond any sort of rational scope, got their big break, and created a huge success. But it’s like an iceberg. You see and read about those success stories, but hidden underwater is a massive, massive majority of failed ventures. The bigger problem out there is teams sticking with the wrong thing too long — wrong problem area, wrong solution set, wrong customer target, wrong team mix, wrong market timing, or simply an inability to raise the funds needed to keep paying the rent.

It *is* true that if you don’t have passion, your startup won’t get very far. Startups are too risky, too hard, too much of a roller-coaster to survive without it.

However, most entrepreneurs have an over-abundance of passion, stubbornness, and optimism. The “Lean startup” approach, in many ways, is a method for grounding those psychological traits in reality.

Mark raises the concern that “lean startup” can lead a team away from their passion, as they “pivot” their way along.

That is valid. I’ve seen it happen.

If you try your hardest to be lean, you might end up disproving your original idea but unearthing new business opportunities in areas you are not excited about. It is up to you to be self-aware enough not to take that path, and in most situations I have seen like this, the founder did come to that realization and made a change (either changing the path or handing over the keys).

Bottom line, lead with vision, back it up with passion and great execution, and ruthlessly challenge your assumptions as you go along.

The startup ecosystem is currently at the “thousand flowers blooming” stage. The number of large second-stage angel or VC-led A rounds will not be able to keep up with the number of new companies. Consequently, there are going to be a lot of frustrated and disappointed entrepreneurs out there.

But just because you struggle to raise money does not mean you have not created value with your hard work. There is another alternative: selling the business.

However, you don’t want to try selling your business from a cold-start once you realize your runway is almost over. Relationships with potential buyers take much longer to build.

One way to hedge is to think, realistically, about who the most likely buyers of your business might be. Come up with a partnership angle and start talking to them. You want to get on their radar, and get their bizdev and product people excited about what you are doing. You want them to respect your vision and execution ability. You want them to imagine what it might be like to have your energy and productivity on their team.

The goal isn’t necessarily about closing a concrete bizdev deal. So many bizdev deals fail to deliver great results, so it’s easy to back-burner this kind of work in favor of higher priorities.  But that can be a mistake if you want to hedge your outcome against a fundraising gap. The hedge, not the bizdev deal, is the justification for allocating your precious time on this work.

Your goal is to have the relationships in place so that you can kickstart an acquisition process when the time is right (note: one way to start is to hint that you’ve got a bid from another party and are debating what to do).

You do *not* want to delegate this task to a junior person. It should be handled by a founder-caliber person, because early stage deals are so often about acquiring incredible people. Think of it like a slow-burn, highly strategic sale.

Don’t wait until the last minute to try to kickstart an acquisition process because, just like raising money, it takes several months to get a deal done, even with an early stage company where due diligence is not that complex.

If you have some very connected angel investors and it becomes clear that an A round is impossible, they might be able to help make a tuck-in “acqui-hire” happen that lets everyone preserve face, but I would not put all my eggs in that basket if you can help it.

There are reasons not to prioritize all of the above, and at times I have consciously done exactly that, but it will make it harder to sell your business if you do. That’s fine as long as it is a conscious choice. Everything is a trade-off, and all you can do is make the smartest choices you can each step of the way.

Related post: Selling Your Company – some core questions and answers

CNN recently wrote an article on NYC startups and I laughed when Nosh Petigara from 10gen (MongoDb) said, “we don’t have trouble hiring engineers.”

When you are a 10gen, Hunch, bit.ly — i.e. when you have a strong technical lead (your anchor) already and an interesting technical problem, good computer scientists want to work for you.

Unfortunately, quite a few New York startups have neither. They might have excellent business potential, and they all need tech (every business these days is becoming a tech business), but that is different from *interesting* tech.

So to a good programmer this looks not just like a job, but a high-risk and potentially not-fun job. Why take that job when google/facebook/twitter are in a talent war and paying top dollar? Or, why take the risk of working for someone else’s startup when you, the programmer, can just start your own? And doesn’t it feel a little scary signing up to work for these business people who don’t really know how products are built?

The rampant demand combined with the general bravery towards doing one’s own startup right now makes it very hard for businesses to hire top caliber talent. Hopefully you can find someone who feels a personal connection to the problem you are trying to solve.  Otherwise, it means that VC-backed companies who might not have an interesting tech problem have to step up with what they do have: compensation. Technical talent has become incredibly expensive, and that puts pressure on the whole startup ecosystem.

Finding your anchor is the hardest task. This person might not be your first CS/engineer hire, but they are the star. When a candidate is finished interviewing with your anchor, they think, “I need to work with this brilliant person.” In other words, they are flypaper for programmer talent.

If you don’t have a co-founder who is a tech star, do not try to interview for this person entirely by yourself. It takes an anchor to truly vet another anchor. Once you have someone with strong potential in the funnel, you need to buy, beg, borrow or steal some time from someone else’s anchor to quality check your prospect.

The other week I spoke and mentored at The Lean Startup Machine in New York, which was a ton of fun for everyone involved. I had a young entrepreneur come up and ask me an interesting question:

“What was the #1 lesson from each of the companies you have been involved with?”

It is always hard to pick just one, but I thought it was a great question and interesting exercise. Here is my first take at an answer:

Trilogy Software (enterprise software, marketing): if you are solving a real need, you can often charge more money than you think — don’t be afraid to rock the boat and push the envelope on pricing.

Broadview (tech M&A, analyst): If you really want to impress someone, obsess about the details.

Envive (enterprise software, sales): don’t involve the CEO in a sale too early, but keep him/her in your back pocket as a final closer for tough deals. Reason: this allows you to play “good cop” during negotiations leading up to close, and at closing time, involving the CEO both makes the customer feel important and means snap decisions can be made right then and there to close a deal without delay or second-thoughts.

Ithority (bootstrapped Internet 1.0 company, sold to Opus360; founder/CEO): build relationships with strategic buyers early and, certainly for early-stage companies, do not delegate this task.

Opus360 (Internet, VP Bizdev and very involved on product side): the best motivator for a sales team is money, but the best motivator for a talented product team is pride.

Electric Sheep (virtual worlds / games, VP Bizdev and VP Product): this one really is a tie between “focus is critical, no matter how much money you have raised” and “don’t raise money from strategic investors until at least a series B”

Aprizi (consumer Internet, founder/CEO): I think more time is needed before I have the true answer. For those who don’t know yet, after a year of pushing on this concept, we have decided to wind Aprizi down. I have a longer post coming where I try to analyze our path. Right now, I will say that Aprizi gave me the chance to put “lean startup” concepts to work and made me a believer.  I will also say that “ground-floor startup” and “having a family” can mix, but it is brutal, and it may be better to nurture and iterate something part-time until it shows real promise than to chase a vision from a standing start.

Mark Suster has an important post on his blog today called “9 Women Can’t Make a Baby in a Month“. It may sound strange, but too much funding is just as dangerous if not more so than too little funding. Go read his post. I agree with so many of the things he warns against, and have unfortunately experienced quite a few the hard way.

The Web 1.0 bubble was a money arms race. Raise big and spend big. I hated the Web 1.0 bubble because it was a gross distortion of sound business practices, and because of the destruction it left in its wake. I’m hoping that our industry is not returning to those days.

Silicon Valley can be an echo chamber in the best of times, and all the talk right now — both warning and hopeful — of a new bubble is disturbing. Even Steve Blank seems to be arguing that we are in a golden age of entrepreneurship and implying that entrepreneurs should shift to bubble-era behavior. Steve certainly made his fortune in the bubble. Maybe that is why the experienced team at Color raised so much money when they should know better — they decided that bubble rules now apply.

People say “this time it is different” because startup costs are low and revenues are real. That is not entirely true. Building a prototype is fast but building real product takes time.  Developer talent now costs a fortune. Marketing still takes serious resources and may get even more difficult because noise levels have increased. While there are many more “real” Internet businesses out there now, there are also a ton of “hot” startups out there that do not have a concrete path to revenue and profitability.

I don’t think we are in a bubble yet, because to me a bubble isn’t just about the top of the funnel (i.e. startup creation and funding), but exits and getting money out the other end. You know you are in a bubble when unsound business practices get rewarded, and that is not happening yet.  Expectations have outpaced exits. The IPO markets are still conservative, I have a hard time seeing Second Market as a general savior without hitting serious regulatory issues, and M&A markets do not feel like they are exploding.

It is quite a gamble to assume that bubble-era exits are coming.  It certainly doesn’t feel that way here in New York, where investors remain considerably more conservative than what is going on in the Valley.

A friend’s startup was recently approached by an interested buyer, which spurred me to write up some thoughts on M&A in hopes that they could be useful to other entrepreneurs. For those that do not know my background, I have both sold a startup and managed multiple tech deals as an investment banker at Broadview (now Jefferies). Here is my take, for what that is worth, on some basic questions people might have:

How do I get the price up?
What do I tell my team?
What is the process like?
The buyer is asking for a lot of sensitive information up front, what do I do?
The buyer has asked me to sign a no-shop agreement, what do I do?
What advisors do I need?
Any tips for negotiation?
Who are my likely buyers?

You want to be bought, not sold. With privately-held startups, price is really determined by supply and demand. Valuation comparables from public companies and similar M&A deals will help set a range but to drive a good price, you either need competition among buyers *or* a desperate buyer with nowhere else to go.

If you get approached and are seriously considering selling the business, get other suitors into the race. This has to be done with subtlety. Highly connected friends, advisors, and investors can help you. They can whisper to a potential buyer that you might be getting purchased and spur a new entrant without you waving a “for sale” flag around. You do not want competitors to use acquisition rumors against you.

Every business owner has their own level of transparency with management and employees. Most likely you will need senior management on board for the due diligence process. You certainly want to make sure that interested buyers are hearing consistent messaging and data points across your whole team. The most critical thing is to prevent the deal process from distracting the operations of the business.

Like raising money, a sale will be very time consuming and emotionally draining for you, the CEO. It is essential to keep the rest of the team focused on execution! Remember: most deals never get to the finish line, so do not let this process derail your company or lead to missed targets.

Intense and stressful — expect it. As CEO, you have to carefully manage the process, each suitor, your investors, your team, and sometimes even personal relationships. You are going to need to doing a fair amount of internal selling and coaching to get people on the same page as much as possible, keep the process running smoothly, etc.

Deals always take longer than you expect, even when you are a young company without any skeletons in the closet. Misunderstandings between buyer and seller will happen.

Don’t be surprised if the buyer suddenly slows down because someone went on vacation or a fire drill has distracted their team. Know that behind the unified front they show you, there are legal, finance, and strategy people arguing over deal terms, and sometimes this can cause what appears to be sketchy, shifty behavior.

Try to keep the lines of communication healthy and flowing both ways.  Side tip: create and distribute a list of all parties involved in the transaction from both sides, and include areas of expertise and contact information including email and cell phone.

Remember that many approaches are just companies sniffing around. Do not disclose everything up front. Instead, be an onion and open yourself up as trust builds and a deal structure solidifies. Yes, you will need to share some key metrics but before you both commit the time to full-on due diligence and expose all your sensitive information, demand a non-binding ballpark on the total consideration they are thinking about (this can be a range) as well as type of consideration (cash/stock).

For example, a buyer might claim they need to look at your source code to understand scalability and quality before making an offer. That isn’t true — they can just work off of the assumption that your code is good. Yes, they will probably try to negotiate you down later based on deeper due diligence, but I think it is easier to fight off downward nickel-and-dime tactics (especially if you have competition for the deal).

As with all things, there is balance here. Be realistic as to what truly is critical, confidential information and try to avoid frustrating the buyer with excessively elusive behavior.

Expect your most aggressive suitor to demand a no-shop agreement, which means that you cannot approach other companies or discuss a potential deal with anyone else. Their motivation is obvious — they want to avoid a bidding war. You, on the other hand, want competition. All of this depends on your position of strength. You want to delay this as long as possible, and if and when you do sign this, try to negotiate an aggressive time limit on the no-shop, as well as a break-up fee if the buyer walks away from the table.

1. The most critical person is a good lawyer who has been through the process before, can push back on opposing counsel, and can help you spot danger zones in terms. (Update: my personal belief is that during heavy negotiation you want to have the lawyers on each side talk to each other, and the business people on each side talk to each other. Be careful crossing the two.)

2. Have a trustworthy person who will let you vent during this process, but don’t use one of your investors for this — that can backfire. But having this outlet can be healthy because, believe me, it is an emotional and stressful process. It is one of those experiences you just cannot understand until you have been a CEO going through it.

3. This is not a must, but there are good reasons to have a buffer between you and the buyer. When I sold my startup Ithority, the buyer had an investment banker and his involvement saved the deal. When I was a banker, I also saved deals on behalf of my clients. The reason is simple, and very human: in deal negotiation, emotions run high, and a motivated third party (re: motivation, see “hard-ass” below) prevents things from overheating past the point of no return. You don’t need a big bank, just an experienced boutique or individual, but make sure they have very, very solid references before you take them on and get experienced advice on how you structure their compensation.

4. Lastly, it is very useful to have someone in your camp who can play the role of “hard ass”. This is usually an investor who can, in theory, block the deal. Their role is to pound their fist on the table demanding better terms and more money. This person does not negotiate directly with the buyer, but rather plays bad cop off-stage so that the CEO can play semi-good cop and keep his/her relationship with the buyer intact.

If you do have a banker, the role of hard ass is also important. Most banker compensation structures reward for a higher price, but pay very little if a deal does not happen. So to the banker, any deal is better than no deal. The hard-ass’s job is to make the bankers as worried about you walking away from the table as the buyer walking away!

I learned the effectiveness of this when running the sale of Tax Partners to Thomson. Tax Partners, our client, had a board member who was an absolute fireball. He pushed us to fight hard. Thomson is a very aggressive negotiator when it comes to deals, and I had a lot of phone calls talking to an angry seller, and talking to an angry buyer (separately). We managed to keep everyone at the table and get a phenomenal deal done. Afterwards, this board member was thrilled and even surprised we did so well, and while there were several factors involved, I knew that his hitting us with a mental stick behind the scenes definitely played a part!

When it comes to negotiations themselves, there are many different tactics employed and the right ones often depend on the type of people sitting across the table from you. I belong to the win-win school of thought:

• take a strong stand, but structure a deal where both parties can be happy;
• make sure your opposite knows that you understand their position even while pushing for your own;
• keep the negotiations from becoming emotional or personal in a negative or belligerent way;
• avoid excessive brinkmanship but use it when absolutely necessary;
• prioritize the points you need versus those you can give; always be aware of what will make you walk away from the table.

Here are some other key thoughts:

1. In general, try to think through every possible downside and figure out how you can protect yourself. Think through which protections are the ones you really want to fight for versus can be used as negotiating chits.

2. Remember that unless something is in the legal documents, all promises from the buyer are subject to change once the deal is done. That includes who has a job and what role, what happens with the product, the resources made available, etc etc. Everything. You might not want to stall or risk negotiations by hammering out every detail, but keep this in mind.

3. The devil will be in the details. The big issues often get hammered out early, but you will soon find yourself arguing over small but essential points. If the buyer has not done many acquisitions, they may suddenly bring up items late in the game, such as employment contract terms, that you never discussed. Try not to get too frustrated, remember that the cause may be inexperience rather than sneakiness, and keep perspective on what is really a deal-breaker versus a workable issue.

4. You want to prevent any part of the deal from being tied to a dependency over which you have little control. For example, product integration requires the buyer’s effort as much as your own, and revenue goals depend upon the buyer’s investments in marketing and sales. Avoid situations where you live up to your end of the bargain, they do not, and you end up absorbing the financial fallout.

5. While everything will take longer than you hope or expect, try to keep things moving along … except when you need to stall for tactical reasons (for example, to let a second suitor catch up). But in general, you want to keep up momentum. Urgency on the part of the buyer usually leads to a higher offer price. Companies are constantly shifting focus and priorities, and if you fail to strike while the iron is hot, you might find that a new interest or emergency is suddenly consuming the energies of the buyer.

For most startups a purchaser will come in the form of partners and future competitors. It is one reason to work on bizdev relationships long before your startup is truly ready for them. If you have good recurring cash flows, that also opens up the world of private equity. Once you have identified a group of potential buyers, ask some critical questions:

• Do they have a strong enough cash or equity position?
• What kind of structure have they used for previous deals?
• If you expect them to use equity for a purchase, how solid is their stock You would hate to see the monetary value of your deal drop several months after the deal is done.
• Last but not least, you want to think about the culture fit: can your organizations truly work together as one company?

If you have any questions, comments, think I’m crazy, whatever, feel free to speak up in the comments section or drop me a line at giff.constable @gmail.

Lastly, I would also point you to a great post by David Cohen called, “You have acquisition interest – now what?”

On Friday, I gave a 20-minute talk at a product design conference organized by Ty Ahmad-Taylor (CEO of FanFeedr) and Hard Candy Shell (the talk shared the same title as this post). I discussed mistakes and lessons from Aprizi’s journey. I don’t think it was videotaped, so I am going to take advantage of this flight to California to write down some of the salient points here (and include thumbnails of the slides). Longtime readers will recognize many of these statements.

First, we assumed that the audience had read Steve Blank and Eric Ries. Second, if you are unfamiliar with the term product-market fit, it was coined by Marc Andreessen, and I think of it as basically meaning that you have the right product for the right market at the right time.

I want to stress that this was focused on PRE product-market fit, when you are still iterating on the problem you want to solve and how you can best solve it.  Here are the six points that I covered:
1. Focus on the Value Proposition
2. Qualitative not Quantitative
3. Focus Groups are Evil
4. Own Customer Development AND UX
5. Let Some Things Suck
6. Beware the Siren Song of Investors

I’m going to skip discussing my background in this post — for that, you can click here.

As for the context of Aprizi (currently in open beta), let me ask you a question: have you ever walked down a cool city street and enjoyed discovering a cool boutique with beautiful, unique products? Well, we want to bring that experience and feeling to the Web. Aprizi gives people a fun and (increasingly) personalized way to discover boutiques, independent brands and emerging designers online. We focus on design and lifestyle-centric products. We’re not a marketplace like Etsy or Boticca, but rather a discovery engine.

When Liz Crawford and I started Aprizi last December, we knew that we wanted to make online shopping both smarter and more fun, but it has been quite a journey from that point to the present. Some of our initial hypotheses held up, and some died under the customer development sword. Our journey consisted of hundreds of interviews across an arc of paper testing, manual alpha (i.e. me behind the website as the hamster on the wheel), a crude first beta, and finally now, a baseline beta product which I am really happy to have as our true starting point.

We made some mistakes and learned lessons along the way, so let’s dive in.

1. Focus on the Value Proposition

This sounds like such an obvious statement but teams can get lost thinking about their own needs rather than what the customer needs. Let me highlight with one of my moments of idiocy. At the start of Aprizi, we got obsessed with email receipts. We thought, “there is item-level purchase data locked up in people’s email inboxes — we can parse it and that would open up so many opportunities!” I was doing lots of customer interviews to figure out which were the best opportunities, which was fine and good, but on the coding side, we started building and testing this email infrastructure.

Thankfully, we woke up after a few weeks and realized that building this infrastructure had *nothing* to do with testing what the customer wanted. It had to do with what *we* wanted, and the data we thought we needed. We put the code on the shelf, got our alpha up to test things that the user might care about, and never looked back. Our business has evolved and we have not touched that code since.

I will give you another example, which I saw in effect with a social games company. The team was so concerned about monetization that they built a virtual goods system before they had even properly tested whether their game was fun, or iterated it to the point that it actually *was* fun. Monetization is important, but “fun” had to be their core foundation. They put their needs ahead of the customer.

Many ask “which hypothesis should I test first?” Definitely think through which assumptions are biggest and most risky, but I think it is always wise to begin with a focus on the value proposition to the customer.

2. Qualitative not Quantitative

I’ve said this before — metrics are really important, but the startup echo chamber can over-emphasize their importance in the early days. The closer you get to product-market fit, the more critical metrics become, but they are not all-important while you are still trying to figure out the right product for the right customer.

If you are trying to solve a gnarly problem, you need to look people in the eye, read their body language, hear their tone, and understand their deeper motivations. You need to watch people using your application, or talk to them right after, not stare at sterile numbers. Beware the “local optima” problem (optimizing for a small problem/market). Yes, install metrics and try to think about which metrics you should really care about, but dig into the human side.

On this line of thought, I think surveys are awesome for objective data, but troublesome for subjective data. Example: at the very start of Aprizi, I did a survey of about 60-70 people and got great factual data about their shopping habits, but also got a huge red herring on desired value proposition. By far, the most popular “solution” the survey takers said they wanted had to do with deals/discounts. However, in a classic case of “what people say is often different from what they do,” when I really dug into their true behavior, very few of the people I had targeted actually oriented their shopping behavior around deals.

Aprizi’s true “eureka” moment did not come from metrics. Instead, I was watching a New York City school teacher try out our alpha. We had given her a bunch of different kinds of recommendations to see what got a reaction. She spotted a tote bag from an an independent artist with a small online store. Her face registered curiosity and she clicked through to the store. Then she lit up and I watched her spend 10 minutes gleefully browsing around this woman’s website. At the end, she turned to me with excitement and said, “I *never* would have found this!” At that moment, all these little things I had been hearing and seeing finally sunk in, and I thought to myself, “THAT is what we need to bottle!”

3. Focus Groups are Evil

To properly express my disdain for focus groups, I asked my 5 year old daughter what the most evil thing in the world was. The answer, of course, was Cruella De Vil. And Cruella is actually an apt metaphor, because that’s one of the problems you can get: a dominant personality taking over. OR you get terrible group think. We tried a focus group early in Aprizi’s journey and it really was not effective, at no fault to the participants.

In a customer development interview, you want to start by talking generally about behavior, then talk about a possible solution to a problem, and throughout you want to keep your antenna really sensitive so you can drill down into the “whys” of people’s responses. You simply cannot do that effectively when you are managing a group of people.

4. Own Customer Development AND UX

Don’t let your company and product design become a game of telephone. You need the person designing the UX to be the same person (or people) talking to customers. You do not have to be a graphic design expert — anyone can use Balsamiq, and anyone can look at 5 comparable websites or mobile apps and decide what works and what does not work.

We had a short-lived experiment. I am an adequate UI designer, but not the best by any stretch of the imagination. At the start of Aprizi, I thought to myself, I know some really good UX/UI folks, and they’re willing to help me out, so why not start with the product being *that much better* with the hand of a pro!

Mistake. While this designer was super helpful in giving us a start in the right direction (for which I am highly grateful), the problems quickly became evident. The designer knew tons about usability, but just wasn’t close enough to the user’s problem. Even more problematic was that my thoughts about the product and marketing were evolving far too quickly to do anything but drive this designer absolutely batty. We needed too many iterations, and I knew I had to take back over the design or else threaten a good friendship.

5. Let Some Things Suck

When you are still hunting for PM-Fit, you have to let some things suck. It is hard for people like us, who take pride in our work, but it is necessary. You really could spend a lifetime optimizing the wrong product and go nowhere.

At this super-early stage, focus on learning. Only do what is “good enough” to learn. The definition of “good enough” varies tremendously depending on the product and customer, so you have to use your own judgement here.

In Aprizi’s first beta, we had a web form that I’ve written about before, so going to skip details here. I came to hate this form with a passion. We learned some useful things through the questions asked to the user, and the metrics showed that conversion was not a huge problem, but when I actually watched people get to this page, I saw them stop dead in confusion. Obviously, you never want that to happen; you want to always give people an action and get them to the sexy sauce as fast as possible. So did we fix or remove this page? No we did not. It killed me, but this form wasn’t getting in the way of learning, which was our true goal. Once we had learned what we wanted to learn from beta-1, and got to work on beta-2, this form was happily taken out back and shot.

6. Beware the Siren Song of Investors

I got a lot out of talking to investors early on in our journey. We weren’t trying to raise money, just looking for advice. You can learn about competitors, business model ideas, and the many ways similar things have failed before (VCs never have a shortage in this department). However, for all the well-intentioned, intelligent advice you will get, you need to be careful around the product.

Investors know what is hot right now. That is part of their job. Digging deep into a gnarly customer problem — that is your job.

When we talked to investors, we kept on hearing “you should focus on deals!” Why? Because Gilt, Groupon and Woot were out there killing it. Deals were the rage. However, in startups, as hockey players say, you want to: “skate to where the puck will be, not where it is.”

So my caution is don’t act like a cat chasing a lure perpetually out of reach. Sometimes the new hotness can reveal opportunities — take Yipit, for example — but you need to really think about the problems and customers *you* care about.

The reality is that investors don’t want you to build what they say you should build; they just want you to build something successful.

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So there you go — roughly my six points for the talk.  The folks in the room then asked a whole bunch of great questions, and you should not hesitate to do so either, whether in a direct email to me (giff.constable at gmail) or in the comments below.

There are many strategies for customer development, and here is another one: start a company blog focused on the problem you hope to solve and the people you hope to solve it for.

In this context, your purpose with the blog is not to get vast amounts of traffic, but rather to help you connect with and learn from lots of interesting people. If you do get traffic and SEO, so much the better, but you need to decide whether you want to allocate the resources required to fully chase those things.

With Aprizi we started The Tail. I interview folks in and around our key sectors of e-commerce. I interview shop owners and indie designers and even entrepreneurs focused on this space. We talk about their personal story, successes and challenges. Now, I might be able to get some of their time without the The Tail, but with the blog I give them something back (publicity and SEO). It helps to build the relationship, and relationships make the world go ’round. If you are trying to help someone, they are more apt to want to help you.

You can also use your blog to learn in areas beyond customer development. I wanted to learn more about small business SEM, so put on my blogger-journalist hat and interviewed the super-smart execs at Clickable for a story that could help other small business owners as well.

To make this work, you need the blog to look and sound very professional. Tee up some good first interviews based on existing relationships, so that the next wave of people can look, as they decide whether to do an interview with you, and say, “it might be a small blog, but the quality is high, including the people they have been talking to.”

For those of us who have never been journalists, it is very time consuming. I post once a week, wish I had time for two, and have a backlog of stories to write up at any point in time.

The last thing I will mention is that your blog can also help your relationships with other bloggers in your space. Having now been part of 3 distinct blogging communities, I have seen over and over again that bloggers are welcoming, rather than competitive, to new voices as long as you handle yourself with grace and generosity. It is harder to build relationships with bloggers when you are an outsider. This cannot be machiavellian — it must be genuine, but I assume since you are brave enough to start a business that your passion is genuine and deeply-rooted.

That’s all the typing i can manage on my iPad (writing from the train). Looking forward to talking at the NYC Lean Startup Meetup tonight!

Two observations:
1. Very little happens in a startup if you don’t make it happen.
2. Very little is done right if you don’t examine best practices and iterate your own efforts.

Common sense, right? And yet here are some further observations:

Right after I posted about demo tips and the importance of practice, I ran into someone who was at a different startup event where the demos were poor, unpracticed, and un-coached. It is a common problem.

I had coffee a little while ago with a highly successful woman who was frustrated that she hears too many younger entrepreneurs complain about the lack of mentors. “When I started,” she explained, “I didn’t wait for anyone to come to me. I picked the right people and went out and chased them.” She approached landing mentors as a sales cycle, impressing and winning over her targets with brains and a go-getter attitude.

To give a personal example, I used to believe in magic when it came to public speaking. I thought there were “gifted” wizards like Steve Jobs who could just get up and wow the crowd. Then I realized that all the best speakers practice the hell out of their talks. Brilliance doesn’t happen on its own.  (btw, if you want to learn more about public speaking, I recommend Scott Berkun’s book, Confessions of a Public Speaker)

There is no magic in marketing, virality, and product design. Instead there is creativity, smarts, measurement and iteration. Yet you see teams piggy-backing on the fad of the moment, hoping for a silver bullet but not going deeper.

A big part of “lean startup” is getting teams out of “guess and hope” mode (aka magic), and into reality-based iteration. This requires getting out of your comfort zone.

Now, the *other* hard truth of early stage startups is you cannot do it all with the resources at hand. You have to make choices and some areas will get short-changed. But do it consciously. Be master of your choices, and don’t believe in magic.

As promised, here is my 20-min presentation to the Lean Startup Machine event on July 23, 2010. Regarding the event, I was pretty impressed with how much the teams accomplished over the weekend, and their willingness to get out of comfort zones.  This deck is neither as pretty nor as good as David Cancel’s recent talk, but it served the intended purpose of giving the participants a taste of customer development put into practice.  Below is some quick color commentary on the slides:

2. Who am I? Key message: all of the previous startups I’ve been involved with talked to their customers, but that isn’t enough.  “Lean startup” is about ruthless and rigorous testing of assumptions and hypotheses. Think of your startup as a giant stack of assumptions — the more you push testing those conscious or unconscious beliefs into the future, the greater the risk they will come and bite you. I wrote more about previous experiences and lessons here.

3. The Context. Our particular decisions came out of the context of Aprizi‘s customer, product, business model, etc. With that in mind…

4. The first rule of lean startup is…

5. There are no rules. Lean startup is a methodology and framework of ideas, not a playbook or roadmap. Use it to add self-awareness and rigor to your business, but make your choices based on your own context.

Aprizi’s Customer Development Steps (at which point I gave summaries of topics covered in the following older blog posts)
6. Initial Idea Validation. See this post
7. Customer Development. See this post
8. Alpha. See this post
9. Open Beta. See this post

12. Doing a Customer Development Interview. I wrote specifically about this slide here

13. Learning Comes in Waves. Focus on learning, not quotas. What I have found is that with each new step (idea, paper mockup, alpha, beta), we had an initial high burst of learning around some big decisions, and then learning started to become incremental. At that point, our efforts in customer development slowed down because we needed to make decisions, then get to work on the product so that we could get to the next wave of learning.

14. Strip Out Everything But the Core Value Proposition. On Sunday I tweeted “Many features in a young product is often a sign of not understanding the problem or customer well enough.” I was laughing at a ridiculously over-featured early Aprizi wireframe shared with the participants as an example of Balsamiq.  Needless to say, we took a serious scalpel (or hatchet) to the feature list, and of course customer development helped us focus. We simplified and tried to hone in on the point of maximum delight. When you have extremely limited resources, simplification and prioritization is a necessity, but it also just makes for a better product.

I also gave an anecdote from the very start of Aprizi. We built some code to automatically gather shopping preferences and history from a webmail account. We realized that it had nothing to do with testing the actual value proposition to the user, so we quickly tabled it.

15. Pre-PM Fit. It’s All About People. In the very early days, don’t get lost in surveys and A/B tests and optimization or even continuous deployment. That stuff is really important but gets more so as you approach and pass product-market fit. Initially, focus on people. Watch them use the product. Listen to their tone of voice. Watch their facial expressions. Remember, all business is about people. They will use your product, share your product, buy your product, or ignore your product. You need to understand why.

My last message about people was a reminder not to completely ignore business relationships that you will need later on. A bizdev deal, a PR relationship, a blogging strategy, etc, these all take time, and you don’t want to begin from a cold, standing start once you see signs of product-market fit. So focus on your customer and product, but don’t forget to plant the seeds of these future marketing needs.