- More than 30 years of private equity, technology operating and international experience, successfully helping to raise seven venture funds and investing over $2.5B in technology startups.
- Co-founded SOFTBANK Technology Ventures (aka Mobius). As general partner and managing director, invested in more than 40 software, financial services and Internet companies.
- Investments included Supportsoft (NASDAQ: SPRT); E*Loan (EELN); Buy.com (BUYX); Prio (acquired by Infospace); Invesmert (acquired by StanCorp Financial); Personalogic (acquired by AOL). Other portfolio involvement included E*Trade (NASDAQ: ET), Verisign (NASDAQ: VRSN), Intertrust (acquired by Sony), Multex (acquired by Reuters) and Zip2 (Compaq).
- Helped co-found, along with several other prominent alumni, Carnegie-Mellon University's (CMU) Silicon Valley campus. The campus offers PhD and master degrees in software engineering. Scott is an adjunct professor, teaching and mentoring engineers on how to commercialize their intellectual property; he is a member of CMU's School of Computer Science Dean's Advisory Board and an advisor to the Donald H. Jones Center for Entrepreneurship at the Tepper Business School.
- Advises FinTech Studios, NYC-based financial technology-focused incubator founded by Jim Tousignant, the former President of Multex (a portfolio company successfully sold to Reuters).
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Finding the Right Path - Lessons for Startups and Early-Stage Ventures
- Early-stage companies struggle to identify the right target market for their product and understand the needs of their customers in this market.
Most founders spend too little time and effort surveying prospective customers and understanding their needs. This is not a high-level, theoretical question. Business schools will teach you how to survey customers, but for companies in a startup mode, finding a the niche or target market where your product is truly needed is often more a matter of experimentation.
Often, the market you thought was going to buy your product in your early-stage business plan is either not well-defined enough or ultimately turns out not to be your real market. You have to think of your product as an experiment. Until you have customers and reach revenue, you're not really a company. You're an experiment looking to find a market. Many entrepreneurs simply hope that if they build it, customers will come. Most founders don't know how to methodically and maniacally search for their market, how to look in tangential areas and keep an open mind about where they may ultimately find their market.
Entrepreneurs with an initial prototype or experimental product will typically get out and try to sell it in the market they intuitively think will buy it. But they also have to be lateral thinkers willing to undertake a disciplined process of surveying/experimentation/sales. It is not a process that is easily taught in business school or through business books. It is more one learned by being on the streets, being next to your customers, feeling their pain and understanding how your product can solve their pain. It is a seat-of-the-pants, shoe-leather process of experimentation to find your market.
- Early-stage companies try at the outset to create the ideal sales model for the future rather than one that evolves in pragmatic steps over several years.
Sales strategy has to evolve over the life of the startup. Early on, you may have an experimental product, an experimental revenue model and theories you're working with. You may have some capital, either from friends-and-family or small VC investments, and perhaps a few advisors. But you're still probing to find found your target market. At this stage, typically no one knows the product and its potential market like the founder. And no one can sell the product as effectively as the founder.In the early stages, you need to envision the ideal sales strategy, but then implement pragmatic steps year by year to get to the ideal. A typical example is :
One of the mistakes that entrepreneurs make is trying to set up the traditional structure for larger companies that is taught in business school. You put someone in charge of sales, someone in charge of marketing, someone in charge of technology, someone in charge of HR. But the company isn't yet a company. It's still an experiment hoping to become a company; until you have significant revenue, you're not a company.
So you have to think differently. You have to think entrepreneurially. When you're hiring your first key hires, you may hire somebody who in a former job was a superstar VP of sales, with similar domain knowledge. But what you're expecting that person to be is a founder. You're expecting him or her to be somebody who is not rigidly into the sales process, who is entrepreneurial and can work with you on all aspects of the business. What you're ideally looking for is an alter ego.
- Year One: The founder sells.
- Year Two: A sales exec sells.
- Year Three: Sales gets some marketing help.
- Year Four: You lower the cost of sales with more efficient means.
- Year Five: With the help of abundant capital, you scale.
- Most startups have no idea how to price their product or service.
It may be tempting to study whatever competition you may have and whatever comparables you can identify, then price your product or service at a very low cost to aggressively compete. But too often, startups price their products too low. Always price the product high, and work on adding more value to your product to justify the cost. It's "easy" to discount your product at the 11th hour to close individual deals.
What's very hard is when you start giving a product away or selling it at a low margin – it's then impossible to raise your prices. It's better to start out going to customers with a higher price and an experimental project. If they say no, then ask why and they'll tell you: “Well, it's really not worth X dollars to me.” You ask, “Well, how could I make it worth X dollars?” Then they might tell you exactly what features you need to add in order to justify the price. That helps with your product development and tells you how you need to make the product better.
Pricing also needs to evolve with the evolution of the target audience. In the example of the Danger mobile phone, if the product was to compete for Wall Street users with the Blackberry, those users would want you to undercut the Blackberry in price. But it is a different matter altogether if the question becomes, "How much would blind people pay for the ability to text?"
The bottom line is this: Never cap your upside.
- Many founders don't understand how to raise venture capital.
Virtually all entrepreneurs want to raise capital but few first-time entrepreneurs know how. Most of them:
- Underestimate how much time and work is involved.
- Don't know how to draft an effective investor pitch.
- Don't know which investors are a good fit, and how to gain their attention.
- Underestimate how much time and work is involved.
- Founders don't understand how to use a sales process to recruit key personnel; as a result, they fail to hire the best people.
Recruiting key personnel is vital to success, but for startups with limited capital, this can be difficult. Once again, it takes a methodical "sales" process to identify and recruit the right members to your team,
Founders get this wrong a lot, and VCs focus on it because founders get it wrong so often. What you read in the business press, or learn in business school, or hear over and over again from VC panels is that you need a "great management team," or a "balanced management team," or a "diversified management team." But what does this mean, and how do you attract the right people?
Suppose you're an entrepreneur with limited capital and you know you need to make a key hire to advance your business. Your first excuse is, "I don't have enough money." You want to hire someone great, but you end up hiring someone mediocre because he or she is available and willing to work at a price you can afford. That's not a good recipe for success. Hire someone mediocre and you can expect mediocre performance. Ultimately, that person will require a lot of training downstream; too often, you realize after a couple of years that you simply need to replace that person.
To hire a superstar, you have to take a different approach. Can you identify the absolute all-stars in the market for the position your trying to fill? Most founders can't, and most don't do enough work trying to identify who they are. Some people hire search firms, and some search firms do a fine job. But seldom do they do as good a job as a founder who is willing to put in the time and effort. VCs and board members or advisers can help, but ultimately it comes down to the founder following a very disciplined sales process.
If you want to hire an all-star VP of marketing, start by identifying the 20 greatest marketing stars in your business area. You may look at that list and think, "There's no way I can get any of these people. They make a salary five times as much as I can pay. They're already too successful to work at my startup." But that's not the point. The point is to start with the very best and do everything entrepreneurial in your power to get to these people. Then, essentially flatter them and say, “I know you'd never come work for me, but you are the top of my all-star list and I just really have to buy you lunch.” Talk to them about the job and try to sell them on why they should forgo everything they have and join your little startup. Several outcomes are possible:
- By stretching that far, you may get lucky and actually get one of these 20 all-stars. You never know. And this alone may make your company.
- Even if you don't get one of the all-stars, you'll discover that the interview process is priceless. The all-stars will tell you things about your target market, your product and your strategy that you need to know. They are smart – that's why they are all-stars.
- They know the other all-stars better than you do. They know who they would hire as their assistants or who they would hire if they were to start a company. Maybe they throw you a free one and introduce you to someone who's not in the top 20, but in the top 50.
- Finally, if you can't land one of the all-stars as an employee, chances are you've done enough to befriend one or two of them and impress them that you're on to something decent. If you can't hire them, ask them to serve as an advisor. This is a very inexpensive way to get market intelligence.