B2B

The 9Mile Innovation Framework©: Evaluating Startup Teams

9Mile Innovation Framework graphic
9Mile Innovation Framework graphic

In the last blog, we introduced the 9Mile Innovation Framework. Over the next few weeks / months, we’ll elaborate on each one of the milestones constituting this framework. Of course, we’d love your feedback – good, bad, ugly – as we share our thinking.

As any investor or experienced entrepreneur will tell you, it all begins with the team. A great team is a necessary (though not sufficient) condition for entrepreneurial success. That implies that you can have a great team and not have a successful business, however you'll likely never see a successful business that didn't have a great team at the helm.

While there are innumerable ways to slice this pie, at 9Mile Labs, we think of the team in 3 dimensions: Completeness, Chemistry and Competence.

We think of a complete team comprising of 3 roles - hacker, hustler and visionary. Just to be clear, these are 3 roles, not 3 people. The 3 roles could be fulfilled by 2 people or 5 people. The hacker is the person(s) on the team who can write code and build product. The assumption is that this person is not just a full-stack developer (UX/UI, data, back-end) but can also function at different levels (architect, customer interaction, coder, project manager). The hustler sells. The hustler builds relationships, knows how to be empathetic towards customers, listens well and is great at serving as an advocate for the customer. The visionary is the person who probably came up with the original idea and is likely the key product and design expert on the team. In many ways, the visionary is the soul of the team, has the conviction to not just pursue the idea relentlessly, but also owns the mandate to pivot when necessary.

Chemistry is alignment of the core values and vision of the business among the co-founders. One of the workshop leaders at 9Mile Labs – Lindsay Andreotti – describes vision as the compelling description of where the business wants to go and values as the guiding principles for the business. A great positive marker for team chemistry is if the team has successfully worked together, especially in a high-pressure environment such as a startup. It is important for co-founders to know that they can have an impassioned argument and then go get beers later; articulating your deeply-held convictions, yet knowing that winning the argument is subordinate to the success of the business is critical. If everyone agrees with each other all the time, the team is probably not pushing the limits of its intellectual potential far enough, or else the team is not diverse enough to bring a broad set of perspectives to the table. Politics or hidden agendas, if they exist in an early-stage startup, are a sign of misaligned incentives and a sure-fire indicator of trouble.

Competence is the idea that no matter what the skills of the co-founders, they think of themselves as the being the best in the world. They seek excellence in what they do and always maintain the perspective of competing globally, not merely locally or regionally. This translates into not just their own performance, but also into hiring and firing decisions as the team grows.

Team Graphic1
Team Graphic1

Entrepreneurial Aptitude is one quality that has been the hardest to pinpoint, has the element of “we’ll know it when we see it,” and is perhaps the greatest indicator of success. Entrepreneurial aptitude is a composite of many traits we have observed in successful entrepreneurs, including focus, self-awareness, grit, curiosity, a self-starter attitude, ability to deal with ambiguity and a knack for accomplishing a lot with very little. These entrepreneurs also have the ability to constantly learn, create and apply new rules very quickly as they go through experiences. We find that entrepreneurial aptitude is incredibly hard to measure with the standard evaluation mechanisms such as resumes, profiles, questionnaires or even interviews. We believe the only way to measure it is to watch people operate in the real world. At 9Mile Labs, we have designed a set of real-world exercises in our accelerator selection process to provide us a glimpse into this aspect of the team, we’ll share more as we learn more.

Based on the above, we have devised a simple rubric for helping entrepreneurs evaluate the quality of their team. If the leadership team of hustler, hacker & visionary is not in place, we assign it the color red or highest risk. We believe however, that the existence of a complete team only mitigates some level of risk, even with the chemistry and competence on the team, hence it gets a “yellow” rating. The team has achieved a green only if the founders have a proven ability to bring on board the best and the brightest people to support their vision. Most people can attract someone into Google or Facebook by offering great pay and benefits. However, as a startup, the only currency the founders have is equity and more important, their conviction and passion around the startup. Once a co-founding team can inspire others with their vision and dream, that’s when the team turns “green.” This capability is also a test for the selling abilities of a CEO. You see, the CEO is always selling, to customers, investors and to potential recruits. If you can’t sell great people to come on board your company, it’s only going to get harder.

Team Graphic2
Team Graphic2

In our next post, we'll elaborate on how we coach our teams to think about understanding the pain point of their target customers.

9Mile Labs is a leading Enterprise / B2B high-tech accelerator based in Seattle. 9Mile Labs celebrates the graduation of its fifth cohort on Mar 3, 9:30am; register as our guest with promo code “GOLD” at http://m9.9MileLabs.com

The accelerator is currently accepting applications for the upcoming program (beginning in July, 2016) at http://apply.9MileLabs.com.

The 9Mile Innovation Framework© - A Structured Methodology for Building Technology Companies

When we ventured into the startup accelerator business over three years ago (read our story here), we knew we were headed into brand new territory. The startup accelerator business model was pioneered in 2005 by Paul Graham at YCombinator (YC) and then subsequently adopted by many others after high-profile YC successes such as AirBnB, Dropbox, Heroku and others. We were perfectly happy to replicate a proven model, but we also wanted to ensure we continued to learn, iterate, refine, and innovate.  And the only way we knew how was to constantly talk to our customers - i.e., entrepreneurs and investors - and try to deeply understand their challenges and pain points.

These conversations are the genesis of the 9Mile Innovation Framework, our foundational methodology for helping launch and grow startups. Using Steve Blank’s customer development methodology and Alex Osterwalder’s Business Model Canvas (BMC) tool as a starting point, we began to build our own proprietary framework for company creation and growth. While we found the BMC to be a great tool, we also needed a foundational framework that helped us with the following

  • - A tool to assess a startup’s progress over time, including a self-assessment tool for entrepreneurs to track their own company’s performance.
  • - A high-level model for creating enterprise and B2B startups that are focused on solving real-world problems and on customer traction.
  • - Provide us a common language to discuss startup progress, challenges, and solutions with entrepreneurs, mentors, speakers and investors.
  • - A clear foundational structure for our entrepreneurship and company-building curriculum.

With the 9Mile Innovation Framework, we have a tangible rubric we can use to gauge the current and future success of the companies graduating from the accelerator. Since 9Mile Labs is only successful if its companies are successful, the framework also serves as a measure of how our own business is progressing. Applying the framework to everything we do, there is no hand waving, subjective arguments, or seat-of-the-pants rationalizing. If something isn’t working, we go back to the drawing board and refine our framework.

Just a side note: we don’t claim that every concept in our Innovation Framework is original. We read books, browse startup-oriented publications, follow prominent bloggers, and speak to many people every day. And when some concepts resonate with us, we incorporate them into our thinking – consciously as well as inadvertently. For example, we read a startup-oriented book called Nail It, Then Scale It and really liked that term and started using it; we heard the term “Hacker, Hustler, Visionary” from somewhere else and promptly borrowed it. All innovation builds upon existing ideas; progress comes when you pick “borrowed” ideas and build on them with original thinking (read “Borrowing Brilliance” by David Kord Murray).

The 9Mile Innovation Framework has nine key strategic steps necessary to build any company from idea-to-execution (Figure 1). We call the first five steps in our framework the “Nail It” stage, so termed because investment in scaling activities such as marketing and sales is useless until a startup has achieved these five basic milestones. No business should spend time and money building a product that no one wants. It’s also important to note, that even though there’s a certain sequential nature to this model, startups of course sometimes hit these milestones in different order. Here’s a brief description of the five steps in the “nail it” phase of our framework:

  1. 1. Team: Investors, especially early-stage ones, invest in teams first, then the market and idea. At 9Mile Labs, we look for a complete team comprising three roles - hacker, hustler, and visionary.
  2. 2. Pain Point: The business idea for a startup must be rooted in a well-understood pain point for a specific customer segment in a significantly large market.
  3. 3. Competitive Differentiation:  Every early-stage startup must have an understanding of, and build strategies for creating sustainable differentiation against competitors.
  4. 4. Value Proposition: The value the customer receives from the startup must be significantly higher than the total cost of ownership from using the startup’s solution.
  5. 5. Product: The actual product the company builds, first as an MVP, later beta, and then as a complete product, must be based on an in-depth understanding of the customer’s pain point and the value delivered to the customer.

 

9Mile Innovation Framework graphic

Figure 1: The 9Mile Innovation Framework

Achieving maturity on the “Nail It” steps leads a startup to the “Scale It” part of the framework. The startup has the beginnings of a good business and now needs to take things to the next level. Of course, the “Scale It” part of the framework remains iterative as well, with startup teams learning what works and what doesn’t as they work to build a scalable, repeatable, and profitable business model. Things change, and the entrepreneurs must be ready to go back to square one or pivot if necessary. Here are the four steps in the “Scale It” part of our framework:

  1. 6. Go-To-Market: Create clear messaging and positioning statements that resonate with the target customer segment, as well as demand generation strategies to target those customers.
  2. 7. Customer Traction: Tactics and strategies employed to achieve and track exponential, proven, sustainable customer growth against non-vanity metrics.
  3. 8. Business Model: Bringing together much of the work in prior milestones, the business model must be scalable, repeatable, and profitable.
  4. 9. Funding Strategy: Every startup should clearly think about its funding needs and explore options such as customer revenue, strategic, angel, or venture investment.

Creating the 9Mile Innovation Framework grew out of our conviction that, while raising money is a very important activity for a startup, a much more important success metric is customer traction. However, amid headlines about unicorns and multimillion-dollar funding rounds, startups sometimes start thinking of funding as the ultimate objective, as opposed to a means to building a successful business.

Following this broad introduction to the 9Mile Innovation Framework, in the next post, we’ll dive into the specifics of each milestone introduced above. First up, the team. Tune into our next post to find out how we evaluate successful teams.

9Mile Labs is a leading Enterprise / B2B high-tech accelerator based in Seattle. 9Mile Labs celebrates the graduation of its fifth cohort on Mar 3, 9:30am; register as our guest with promo code “GOLD” at http://m9.9MileLabs.com

The accelerator is currently accepting applications for the upcoming program (beginning in July, 2016) at http://apply.9MileLabs.com.

Come meet our 9 Exceptional B2B Technology Startups on Nov 20

What is a startup accelerator and how can it help launch a technology idea into a market-ready business? Who is developing some of the best B2B and cloud-services technologies in the Pacific Northwest? Why is our region one of the best in the country for cloud and B2B startups? Our latest Milestone9 event will answer these questions, and introduce the 9 companies graduating from our program. Join us Thursday, November 20, from 2:00-6:00 p.m. at the Washington State Convention Center by registering at http://m9.9MileLabs.com. The Pacific Northwest is home to some of the top enterprise and cloud services companies in the world, and should be a beacon to any enterprise startup. Concur is one such remarkable success story, and we’re excited to have its co-founder, COO and Chairman Rajeev Singh keynote the event. He’ll help welcome hundreds of business leaders, entrepreneurs, investors, mentors, friends and family for great content, discussions, networking and demonstrations of some of the hottest technologies launching today!

This marks the third successful cohort of companies from the 9Mile Labs program and we can’t wait to help launch them into the community. And if you’re entrepreneurs interested in joining a B2B startup accelerator, our next program kicks off in January 2015 – application deadline December 4. Whether launching a startup out of college, from of an established career, or developing an idea on the side, entrepreneurs can apply to our program at any time here.

Register soon and we’ll see you there!

Seattle B2B Entrepreneur Meetup Group

While Meetup groups are a super effective way to connect with fellow startups, entrepreneurs and technologists in any community, Seattle is craving one that is focused on the needs of the B2B entrepreneur. Why you ask? The answer is simple, B2B startups have a different set of challenges and opportunities to consider than their B2C counterparts, which we outlined in a blog post earlier this year. One of the biggest factors impacting B2B startup success rests on the effectiveness of the early marketing and sales strategy. It’s just not the same selling to an enterprise or retailer as it is selling to mom or her kids. In an effort to address that need, the first Seattle B2B Tech Entrepreneur Meetup will focus on the B2B funnel — arguably the most important sales tool for any B2B entrepreneur.

Join the partners, mentors and companies from the 9Mile Labs accelerator program, along with masters of the sales funnel at Altus Alliance for a discussion on how to master your own B2B sales process. You’ll learn about the most fundamental, yet essential tool that every B2B company needs to know and understand — a winning B2B sales process. Management needs it to grow the business and manage sales. Sales needs it to manage the pipeline and sales engine. Investors demand it to value the company and determine investment worthiness. So, effectively designed and executed, the sales funnel will determine your marketing needs, headcount, forecast, product roadmap, bottlenecks to close, how you compare to others in your industry, and a lot more. Whew, that’s important stuff!

We’re looking forward to the short session from Altus Alliance and then informal networking with other like-minded entrepreneurs over drinks to talk about the business trends and opportuntiies that matter to B2B’ers like us. We’ll see you there!

How is a B2B startup different from a B2C startup (Part 1)?

We get asked about this all the time. Why and how is a B2B startup so different from a B2C company? While there are many differences, what stands out is the way in which B2B companies do marketing and sales to acquire customers. There’s no intent to imply that one is harder or simpler than the other, they’re just different. Let’s walk through a couple of examples to think through this.

B2C Example

Imagine the last time you purchased a $0.99 app. It probably took a herculean effort for the app developer to reach you through SEO, SEM, Facebook, TV/radio advertising, app review in a publication, app store, or one of the other myriad options. But once you discovered the app, read the description and browsed some reviews, you were able to make the decision about your purchase.

B2B Example

Now let’s examine a scenario where Acme Medical - a 20,000-person medical devices company - is ready to replace their existing open source CRM system with a new solution. NexGen CRM is a startup building the next generation CRM system. This potentially annual $200k+ deal could completely change the Series B funding conversations for NexGen. Here's what happens in this sales cycle

Awareness: Someone at Acme, most likely an IT manager (say Jill), is assigned responsibility for the search. This is not trivial; Jill’s neck (and the CIO’s) is on the line if Acme picks the wrong product. To create a comprehensive consideration list, Jill casts a wide net including performing web searches, consulting with her industry peers, attending trade shows and reading industry publications. NexGen wants to show up where Jill is looking for her solution.

Education: Acme needs to ensure that it provides adequate stage-appropriate and role-specific assets to educate Jill. These include white papers, data sheets, explainer videos, customer testimonials, case studies, live webinars and competitive information to ensure that Jill doesn’t just understand NexGen’s product, she also understands why it’s better than the competition.

Consideration: Once Jill downloads a white paper or attends a live webinar, she enters the sales funnel for NexGen. She invites the NexGen sales team for a show-and-tell with IT. Before the face-to-face meeting happens, the NexGen sales lead asks Jill to answer few questions about her environment over the phone or over email so they can prepare for the critical first meeting.

When the NexGen sales team shows up, it includes the NexGen CEO (it’s a big freakin’ deal), a sales lead and a sales engineer (likely a developer) who can answer Jill’s initial questions about integration with her current tools, usability, data migration, deployment timeframes and pricing.

Engagement: Once Jill is satisfied with the first meeting, she must now invite other Acme stakeholders from sales operations, marketing, possibly finance and other departments to a follow-on meeting. The NexGen sales team must also start reaching out to the Acme stakeholders.

A general guideline is that a direct sales engagement must run at 3 levels – technical, business and executive. In addition, you also need to cultivate a champion who is espousing your cause inside Acme and forewarning about impending objections and roadblocks.

The sales lead must understand the motives and objectives of the influencers and decision-makers in this purchase process. This involves researching the organization, understanding the power centers, figuring out budgetary priorities, and understanding the key strategic initiatives at Acme.

Purchase: While this stage may seem like a no-brainer after everything that’s happened prior, it is not so. Decisions get overturned because the CEO of Acme happened to be college buddies with the CEO of a NexGen competitor, Acme may have a poor quarter, or macroeconomic conditions may change…the list goes on.

But What About…

Couple of things to call out here. First, we discussed the example of a direct sale with a large deal size that can take 6-12 months, sometimes longer if you’re dealing with a government agency. While the level of engagement and sales cycle will depend on the deal size, it is useful to understand all the levers you can turn in order to achieve desired outcomes.

Second, we haven’t even touched upon the channel sales model. In general, it is challenging for startups to execute a successful channel strategy. As a startup, you need to generate the demand yourself so the channel can fulfill it. Unless the channel partners see a clear and direct path to revenue, they’ll be happy to sign agreements but won’t do much with it. By definition, early on, a majority of your sales will end up being direct sales.

So Let’s Summarize the Differences

Sales Cycle: Yes, sales cycles are longer in B2B. Also, in B2C, marketing equals sales for the most part. In B2B, marketing is only the leading edge of a potentially longer sales cycle.

Purchasing Decision: In B2C, the purchasing decision is shorter and may be impulse and emotionally driven. Not so in a B2B situation where the purchasing decision must align with budgets, strategic priorities, technological platforms and many other considerations

Deal Size: Deal sizes are typically larger in B2B than B2C, which leads to higher level of due diligence. Of course, B2C businesses deal in much larger number of users than their B2B counterparts.

Switching Costs: One reason the due diligence is longer is that switching costs are much higher in a B2B environment vs a B2C setup. Integration with existing tools, training costs, data migration and deployment costs lead to a cautious and deliberate decision-making process.

Customer Segmentation: In B2C marketing, your messaging is focused on a persona, say females between 18 and 35 years old. In B2B, you must first understand and then target both generic segments (such as Technology Decision Makers, Business Decision Makers and others) and vertical- or domain-specific roles, such as the EDI Analyst within a healthcare insurance organization. One other thought, when you’re selling in B2B, you’re selling to experts; not so in a B2C sale.

Education & Awareness-building: Because of the need for targeting experts within many different roles in a business, the messaging contained within the marketing assets needs to be stage-appropriate and tailored to the roles you’re pitching to. Hence the need for specialized assets such as white papers, technical documentation, data sheets, case studies, ROI documentation and others in a B2B sales cycle.

Revenue vs. Traffic: Here’s another generalization. In B2C, you can run a business for a long time as long as you’re growing traffic, downloads and active users. In B2B, you cannot afford to be generous for too long for one simple reason – business users don’t attach value to freebies. If an organization believes that your product solves a real problem, they will willingly pay for it (probably a discount will help with the decision) and then will likely assign a resource (or part of a resource) to extract value from their purchase. If no one is accountable to make your product successful, it will likely sit on the shelf.

I'd love to hear your thoughts and feedback on this post.