I was reading Manu Kumar’s post on Revenue Development and it occurred to me that we had unknowingly gone through a similar revenue path with Web-o-Matic.

To provide some background, we had decided to build a work flow platform to streamline the website design and development process. The platform was created to speed up the process, which it did to begin with. Even before the platform was ready we started selling the solution. Using a somewhat LEAN approach we “got out of the office” and tried selling our small biz website solution (similar to Hubspot) to anyone who would listen. This was a deliberate Customer Development decision to see what the adoption of our solution would be. Customers bought the solution and within a few months of selling we had already achieved six-figure revenues. But there was an underlying problem that we hadn’t foreseen – too many different types of customers.

Because we were experimenting with several pricing and lead-gen (aka freemium) models when we started we put pressure on the platform to deliver in the way that we had designed the process. The odd thing that happened was too many customers saying yes at too many price points. In an effort to try different pricing models we actually muddied the water a little (for ourselves). As often happens in LEAN/Agile startups we had a lot of flexibility in how we adapted to new inputs but our positioning was unclear. An unclear message means its harder to scale because it’s harder to repeat the customer development cycle.

So how did we solve this problem? What helped us the most was when we started to track feature usage (what the customers used) and mapped that against perceived customer value (what they told us they wanted). We found that many of the perceived high-value features were actually not being used. By adjusting pricing so that only the features that customers used were charged for we were quickly able to figure out a price point that worked with the appropriate feature set.

In the second of our series on Boston entrepreneurs we interview Jason Henrichs, COO and co-founder of PerkStreet Financial, a Highland Capital funded startup.

Richard: You’re one of those few entrepreneurs that has also sat on the other side of the funding table. In fact you’ve switched from entrepreneur to VC and back again more than once. Having seen both sides of the equation what’s your advice to early stage entrepreneurs seeking investment on prioritizing the things that get the biggest return on their fund raising efforts?

Jason: Closing a financing in a timely fashion is all about creating catalyzing events that move investors through the process.  Left to our own devices, investors can come up with an infinite number of questions and diligence items.  There is no better catalyst than real business progress.  Rather than philosophically debating “will customers buy,” show traction.  In the absence of revenue, show users.  In the absence of users, show a community.  In the absence of a community, show uses cases based on real world potential users.

Richard: Your current position at Perkstreet has you wearing a few different hats . This type of multi-tasking role seems to be hard for first-time. How do you keep focused and aligned with the bigger picture without getting caught up in the infinite “to-do list” vortex?

Jason: I’ve modified the GTD process to meet the needs of a role with more hats and then resources and often little clarity on how to prioritize.  It’s pretty simple actually but works well:  I carry a Moleskin and thin Sharpie with me everywhere.  Notes, follow ups, random thoughts and all get thrown in; action items requiring follow up have a box in front of them, questions a question mark and conclusions a dash.  On a semi-weekly basis I split a 5×8 index card into 4 quadrants representing how I think about my work and fill in to do’s from both the Moleskin and thinking through the week ahead.  On a daily basis, I select the 5 most important, value creating tasks and put them on a Post It attached to the card.  If I make it through all 5, I pick more from the card.  Partway through the week, I assess what’s been crossed off and what’s been hanging around on the list because it was never important enough to get to the Post It treatment.  Occasionally I spin through the Moleskin (typically while waiting for a meeting to start or in line at Starbucks) and fill in the box associated with tasks that are completed or no longer relevant.

Richard: As another import from another city you’ve had to build your business network in Boston from scratch. If I compare my time in New York City with Boston, I’ve noticed that New Englander’s sometimes have a hard time making new connections. What’s your experience in networking been and do you have any advice on how a young entrepreneur might build their network?

I love so many things about New England including the tight knit community even though it can seem hard to break in and make connections.  Becoming an effective networking is a skill that needs to be cultivated and is deeper than finding friendly people.  The most important part of building a strong network is recognizing that a business relationship, like any relationship, is made up of two parties that have different needs and expectations.  I find it startling the number of times that I’ll meet someone new and all they want to talk about is what they are doing.  Inevitably it is followed by a LinkedIn request and then shortly after that a request for an introduction to someone else, typically a VC.

Building a network requires investment.  Like many investments, it can take time to see results so you are better are off starting well before you need the payout.  Building a network also requires an investment of time to get to know the other person in the relationship.  Finally, it requires an investment of something valuable to that other party.  This last part is where the rubber meets the road.  Why should the other person in this networking relationship invest in you?  This is more subtle than “what’s in it for me?” but not totally unrelated.  There are only so many hours in the day and we each need to choose where they will go.  Will you be seen as a positive reflection on me?  Can you provide valuable insight into my business or introductions to potential customers?  Is this a mentor relationship and if so, are you committed to learning?  Will you be making investments into my network that even if it doesn’t directly help me, you’ve paid it forward?

Richard: As an investor and active entrepreneur you get to see a lot of cutting-edge business ideas. Are there trends you’re noticing that we should all be aware of and thinking about as we build our new businesses?

Jason: The one trend that I see that every entrepreneur needs to pay close attention to is the amount of noise in the marketplace.  It’s not great insight to for me to comment that barriers to entry continue to fall and that there is an increasing availability of seed capital from angels, super angels, micro VCs and seed programs from big funds so more companies are out making noise which is competition for mind-share of customers, talent, funders and partners whether you are in direct competition or not.  To succeed, businesses need a laser focus on what REALLY drives value for their customer to break out through the noise.  It is easy as a “believer,” which includes founders, company members and existing investors, to see how a feature improves the life of the customer.  From the customer perspective, that improvement might not translate to value because the customer doesn’t know they have that problem or in that area isn’t worth the cost of doing anything about it.  When I was a VC, one of my partners and I used to call it the “7 minute ab syndrome” (based on the scene from Something About Mary).  We’d end up with entrepreneurs in the office who were good, well meaning people but they’d gotten so wrapped up in the concept as game changing that they lost sight of does it meaningfully change the life of the target customer.  As an entrepreneur, it is something we obsess about and one of the reasons we focus so heavily on LEAN’s test and learn approach.  Things that are awesome in our own minds can fall tremendously flat when released to the wild because they don’t solve a problem the customer has or the benefit doesn’t outweigh the cost.  You can tell when you’ve found something the customer values because suddenly it takes a lot less energy to get to the desired result – sign up rates go up with additional investment, attrition goes down, usage is up within an identifiable segment, it doesn’t matter the metric, you can see the step changes in output and know that you’ve created some value.

Richard: There has been a trend in venture backed companies to replace the founding team with a “hired gun”. I personally don’t like that approach and prefer to see investors backing the founders through all the stages of growth. What’s your perspective?

Jason: I’ve been on all sides of the replace the founder discussion.  I’ve been replaced, I’ve replaced myself, I’ve been involved at the board level as an investor where we needed to make a change and I’ve had members of the senior team approach me to say they thought it was time to bring in someone new.  In all these changes, I can’t say that there was one universal right answer like “always replace the founders”.  I do know that there is an evolution to the leadership requirements of an organization and there are several traps founders can get themselves into at each stage that makes bringing in a hired gun a necessity.  In many cases replacing the founders isn’t a judgment that they weren’t successful, but a mutual understanding that in order to be the right leader at each stage, it will require the team to grow.  Personally, I’ve found that I’m best in a certain sweet spot of a company’s evolution and would rather get really good at playing that stage than follow a Steve Jobs or Bill Gates career path.

Here are the challenges as I see them facing entrepreneurial teams:

What you believe vs. what you know:  an entrepreneur is born when an idea takes hold of a person’s mind for which no one else has a solution and the person is so compelled by the gap, they must fill this gap.  The strength of this belief is so strong that over rides the sensibility of keeping a paying job or that surely someone else smarter/better funded/more insightful has already tried this and failed.  It provides the passion to enlist others in the pursuit of the great vision and the steel in the belly to keep going when it going gets tough.  Somewhere along the way, this great strength turns into a liability as the actual business takes a shape that is different than the original vision.  Some founders do a great job evolving in this regard while for others it is a stretch.

Founder as a title:  the early tribe of passionate employees often think of themselves as founders whether they were there on day one or not.  This can be tricky to scale, not because having people feel a strong sense of ownership is bad, but because the title “founder” also implies others are “not founders.”  Those who feel like “not founders” can have their voice and enthusiasm curtailed because without the founder status, they don’t feel empowered.  For many early employees it can also be hard as the organization grows because it often means greater specialization and narrowing of roles.  The early stage star that was an active voice in all the big decisions can feel confined and that the organization has become less fun.

Build vs. operate:  Another rather dramatic change for most members of a founding team is the shift from doing things for the first time to iterating on the same set of actions over and over.  It’s the difference in personality between an architect and a contractor.  Some prefer to start with a clean sheet of paper, some panic at the idea that the sheet is blank.

Management style:  Early stage companies tend to be very fluid and rely on a level of charismatic leadership and a very consistent vision held by the team.  Maintaining the depth of this consistency gets more complicated as the organization grows.  There are fewer and fewer times when all members of the team can afford to be in the room at the same time to work out ideas.  In order to be effective, the organization needs processes to succeed and the depth of these processes will only continue to increase as the company grows.  The management team must both recognize the need and change their style to bring the appropriate amount to the organization before it suffers.

We’re very excited to announce a new initiative we’re running on behalf of clients who have completed projects with us from 2010 and on.

We are calling this initiative Project Growth. The idea is simple: for each new design project we complete, 10 trees will be donated to American Forests in honor of that client and project. There’s no better way to celebrate our digital industry and to support our clients than to cultivate growth, both in business and nature.

We can’t wait to see how many businesses and trees we’ve helped nurture by the end of this year!
For those of you who’ve completed projects with us, your support not only means a lot to us, but to American Forests, too.

This is the first in a series of interviews with some amazing entrepreneurs in the Boston area. These folks have been selected because they are not just building a business but giving back to the entrepreneurial community in some way. They might be sharing their hard-won experiences on a blog, funding startups themselves, or mentoring other startups in the Boston area.

Enjoy!

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Richard: One of the things I have admired about you is the ability to create a personal brand and a business brand in parallel. Is that a deliberate decision or did it happen by accident? And is it something you recommend other entrepreneurs and business people should consider doing?

Dharmesh: Yes.  I think entrepreneurs should start building their personal brand even before they start thinking about building a company.  The reason is simple — the personal brand can be used to help grow the company.  In my example, I had created a relatively popular Startup blog (OnStartups.com).  This was viewed by thousands of people, many of whom then became readers of my business blog, tried out the product and became customers.

Another reason to invest in a personal brand is that the startup might change, you might part ways, it’ll be nice to have an identity outside of the company you started.

Richard: You are clearly very active in the local entrepreneur scene in terms of attendance and speaking. As an entrepreneur I find it is often hardest to quantify the value of attending/participating at an event. As a “data obsessed” person how do you evaluate and justify the involvement?

Dharmesh: Since I’m a nervous speaker, I try to limit the number of speaking invites I accept.  It’s less about ROI, and more about MMI (Minimize My Introvertedness).  Basically, I look at some simple things:  Is the topic in one of my areas of interest (startups/funding/marketing/technology).  How large is the audience?  Will I be speaking at a main session or in a break-out session.  Or worse, be on a panel (I can’t stand panels).  The filters are simple:  My goal is to try and help as many people as possible with the limited energy that I have.  If I can get in a front of 1,000 people for an hour and teach them inbound marketing — that’s good.  If I’m in a breakout with 50 people, and one of 4 people on a panel, it’s just unlikely I’m going to be able to move the dial much.

Richard: You’ve put together an amazing team at Hubspot but it’s also grown very quickly. Even though there is a high unemployment rate it’s is really hard to find the super-star employees that seem to be part of your team. How do you first find such talented people and then manage to retain them?

Dharmesh: Finding is the harder part — retaining is generally easier.  For finding we use all the common methods (recruit from the network, use recruiters sparingly, etc.).  The key here is to ensure that the people that have already been hired know that they’re supposed to try and hire people even better than they are.  When you have a strong team, it tends to work towards making the team stronger.  Everybody wins.  Retention is easier:  Create an environment that people can do their best work, let them make a difference, teach them things they need to know — and most importantly, surround them with the smartest, most passionate people they’ve ever met.  If you do just that last piece, you can get away with a whole lot of other mistakes.

Richard: As an angel investor you get to see a lot of cutting-edge business ideas. Do you have any insights into what new trends might be interesting for entrepreneurs to be thinking about right now?

Dharmesh:  I don’t see that many cutting-edge ideas.  I have a particular type of startup that I like to invest in (web software, consumer or small business).  Something simple that I can hopefully understand — and use.

Richard: There has been a trend in venture baked companies to replace the founding team with a “hired gun”. I personally don’t like that approach and prefer to see investors backing the founders through all the stages of growth. What’s your perspective?

Dharmesh: My perspective is simple:  Experienced, savvy founders that are trying to build the company in the best way possible are not violently opposed to new folks being brought in.  The danger is that the common patter of “parachuting in” a CEO from the VCs network just doesn’t work out.  Key employees leave.  Trust erodes.  It becomes harder to hire.  The magic is lost.  My leaning is to keep founders through the ups and downs (and there will be ups and downs) and help wherever possible. But, that’s just me.

As we start winding down the summer and all start preparing for ‘back to school’, we thought it would be a good time for some entrepreneurial inspiration. Over the next few months I’ll be interviewing the local entrepreneurs and influencers that have committed to building great companies in Boston.

My interview format will be to ask the entrepreneurs questions that will help other startup and established entrepreneurs get insights they can’t get anywhere else. We’ll dig into the tougher questions and leave the “who was your greatest influence” crap to the other guys. Amongst others, we’ll ask questions about raising money, finding partners, retaining rock star staff, and weighing up the alternatives of location and funding sources.

Our first interview will be with one of the leading examples of local entrepreneurship, Dharmesh Shah, co-founder of Hubspot. We’ve lined up some awesome interviews so subscribe the the feed or follow us on twitter to be notified when the interviews go live.The Dharmesh interview will go up later today.

P.S. If you know of any Boston based entrepreneurs that you think would be great guests, please let me know.

Interviews:
Dharmesh Shah from Hubspot, August 9th 2010: read full interview
Jason Henrichs from Perk Street, August 16th 2010: read full interview

About twice a week I find myself explaining to startups why it’s better to invest your time in building a prototype of your web application than wasting hundreds of hours on a 50 page business plan no-one is going to read.

Below is a one page explanation of the advantages of creating prototypes:

Several years ago we were fortunate enough to work on the fledgling version of Hubspot’s website and the user interface for their now ubiquitous Website Grader (see the original redesign below). As is now obvious in hindsight, the idea of creating a free product that was very useful to all Hubspot’s clients, was pure genius. At the time it was an experiment. Like so many other “calculators” and similar free widgets, these devices collect emails and data on prospects. These lead generation mechanisms are extremely useful customer development tool. If you have a high volume consumer or business acquisition requirement we would highly recommend you consider creating something like this.

When we launched Web-o-Matic a few months ago we asked ourselves what our “free lead generating machine” would be. It wasn’t until we hosted our first website makeover event at along with the MIT Enterprise Forum that we realized just how valuable the makeovers would be for us.

Using the knowledge we gained from that event, and the smaller events that followed over the summer, we created the Web-o-Matic Makeover Machine (see the mock-up below). The Makeover Machine encourages businesses to submit their old dusty websites for a quick makeover. Our expert crowd-based design team selects a handful of those submitted websites and gives them a complete redesign. The Makeover Machine generates lots of leads and provides lots of value. Not only do the businesses that submit their websites for a makeover get added to the pool of possible free makeovers but they get to see the other before-and-after examples which helps them see the value of a redesign.

Here are some advantages we have identified in creating our own lead generating machine”

• Free “website makeover” events and the “deluxe makeover machine” are free ways for our customers to get value from participating. Because of the intrinsic value, bloggers will recommend the events and tool and users will tweet about it, spreading the word. This is a high value and zero cost option for them.
• It requires a no private information to get going (just a web site URL), and gives back an entertaining and valuable result.
• It offers an almost immediate way to see improvements that will help their websites and businesses, which leverages customer’s instinct to look good.
• It builds trust between the customer and Web-o-Matic, by creating a value for the customer. Giver’s gain.

I’ve been asked several times to share our checklists with clients and other designers. This checklist is used in the kick-off meeting. We’re constantly editing and improving it so if you’d like to add comments of your own:

1. Do we have all the client domains?
2. Will this domain name change during the project or before launch?
3. Do we have access to the domain registration?
4. Do we have FTP and database access?
5. Will we providing this client with a hosting solution?
6. Do we have an end user or persona description from the client?
7. Do we know the business objectives of this project?
8. Has the client provided a site map for the project?
9. Where is the content for the site or application?
10. Does the content need to be edited or created?
11. Who at FTS will manage the content creation?
12. If we are providing content, do we have a signed content creation contract for this project?
13. Will the client be providing any wireframes?
14. Will the client provide any stock images or original photography for this project?
15. Has the client provided any marketing or positioning information?
16. Does the client have branding or identity work they want to share with us before we start?
17. Who at the client will be responsible for content updates and edits?
18. Do we have a list of at least 5 primary keywords or phrases?
19. Has the client provided a list of competitors?
20. Does the client have any historical SEO or marketing information?
21. Has the client provided us with their Google Analytics login information?
22. Has the client provided us with a list of their social marketing websites and accounts?
23. Has a Product Vision been created by the client?
24. Does the client have a developer or development group available to help with clients side development issues?
25. Will multiple states be required in the app or website design (sample, error, etc)?
26. How many core templates will be required to meet the deliverable?
27. Has Subversion been installed and the client updated with necessary access?
28. What research will be required for this project?
29. Has the research required been built into the proposal or Scope of Work?
30. Has a full list of stories been created and prioritized?
31. Will this web application project require any public facing marketing or registration pages?
32. Will this project require any blog installations and styling?

It’s way harder to start and run your own business that it is to get a job. So why do almost 27million entrepreneurs currently run their own businesses in the US? A huge proportion of these business owners don’t earn as much as their colleagues with 9 to 5 jobs. There is more stress, more responsibility and in may ways more risk. So why do we do it?

Is it insanity? Is it cultural? Are the rewards that good?

What do you think?