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Saturday, January 28, 2006

Launching a startup - market validating with early customers

Its surprising for me to hear from new enterprenuers repeating the same cycle of I have great technology, built a prototype, just need money to launch the startup.

What is lauching a company? Most think its about opening a web site with some product and content. Those who have marketing background in their team, go to the extent of planning marketing plans and come up with how much more money can help them market better.

These days, with the new Web 2.0 frenzy, there is the added rationale that building a cool technology is enough for some deep-pocket player to buy the company soon.

What are we missing here?

Isn't building a company really about making money for the investors, which includes the founding team. Isn't it about making money by solving a customer problem?

When I started out with Coola, I spent sometime visiting who I thought were my potential customers and market validated the idea. I had started out with a simple idea to make information mobile by clicking on a button on a web site and syncing that information to different applications on the palm.

In my earlier corporate life, we spent a lot of money on traditional market research to understand what our customers wanted. I am a believer of emprical data. But with my startup, I wanted to do talk to real customers and short-list potential market segments first.

I spoke to the GM of Comdex, the large conference company. He loved the idea of using Coola to offer conference schedules to people's Palm saving lot of hassles and money during each conference updating people about changing schedules. His support served as an amunition to plan an event Coolet (the Coola button on sites) to sync into Calendars. Then I went to TVguide, Tvgrid (local competition to tvgrid, owned by student.com) . Slowly this forced us to build a working prototype and start planning a core team and early designs. It also gave an idea about the amount of money required in the first round of funding.

I met switchboard.com to see how Coola can help with taking their yellow pages address mobile into the Palm address book. Very early on we ran into issues of whether Coola should be branded or a non-branded player paid by Switchboard. Its fun each day, it makes us think each day on issues which we cannot decide just by our heart. We decided not to accept the Switchboard deal as we decided we could grow better with a branded play.

Later on we could build a branded Coola button with the support of Palm user groups and early sites which adopted our buttons such that when we went to Boston.com (part of NY times) branding was not part of our discussions. Of course, we had matured in our thinking and offered them a co-branded offer hosted by Coola.

When Switchboard did not work for us, we went to their competition Infospace.com, which was much larger than them. They accepted a branded Coola button but offered a complex deal which involved sharing some equity with them for sharing the space in their web property.

We also met with Intuit who was in the process of aquisition of a small company called onebase which made it easier to create web based databases dynamically, which later became their product quickbase. There we found an interesting offer to use Coola technology for Intuits applications starting with onebase to sync databases from the web to Palm database applications.

All these were just as I offically starting the funding rounds. I had made contact with some investors to get early feedback on my idea. I was amazed at couple responses from the VCs.

a) Infospace was a wall street darling with Navin Jain heralded as someone who made money out of everyone. This was before they moved to wireless and Navin Jain left. So, I heard from VCs saying they would invest if I close the infospace deal. Infospace deal was not giving us money and committing us to pay them. I didn't see any strategic advantage as they were not willing to offer this exclusive to us, saying they would put anyone's buttons on the site if and when we got competition. This means that we spend our initial energy on an infospace launch with no money, pay infospace and help jumpstart any competition when they come with a button next to Coola button. It seems crazy, we didn't do that deal.

It was hard to believe that we could get a large VC backing with infospace deal, but when things turned south 2 years later, we were thankful we did not have the infospace deal holding us hostage to pay equity.

b) Intuit's deal was a good one. They wanted to invest in us to help jumpstart our product development where they will get to use Coola software for their own application and we will go to all markets except theirs. This was a good deal. Only caveat was that we believed in the huge promise of Coola as an horizontal platform and this intial development would limit our design and initial energies. The market supported our hope for 3 years so it may not have been a bad decision. We got a great Intuit support on our board and did not pursue to close this offer.
I wonder, if we could have survived if we had taken the Intuit deal afterall.
I have advisors who believe that corporate money is good if there is a real strategic fit. They can help build confidence in VCs and also serve as a potential exit it things work well for the corporate investor but not in our other option. Again there were VCs who wanted to come in if Intuit would invest.

We did not take the infospace not Intuit deal but were over subscribed for $2million with great VCs who became our friend, guide and partners in a journey that lasted the next 3 years building a great company.

Every day presents decision points, each decision takes us to different directions, so we'll never know, but we have to explore options, open as many doors, make open decisions and keep moving.

3 comments:

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