Lecture on Innovation at Startups at ESADE
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1) Michael Wolfe discusses how he and his co-founders validated the idea for their B2B startup that developed data loss prevention software. They conducted customer interviews to understand problems and gain feedback on prototypes, learning that large regulated companies cared most about preventing loss of consumer data. 2) Based on this validation, they focused their minimum viable product on blocking outbound email of consumer data for large customers. Their first customer was Bank of America. 3) The startup continued learning customer needs through further development and interviews. This allowed them to expand their product capabilities and customer base, growing revenue from $500K to $50M in just a few years before potentially exiting.
Lecture on Innovation at Startups at ESADE
- 1. http://www.michaelrwolfe.com michaelrwolfe michael.wolfe@stanfordalumni.org Innovation as applied to early stage startups
- 2. Our journey today This is the story of a successful B2B Silicon Valley startup launching a new product into a new market. ! I will talk about how we validated the idea, designed the solution, and how we successfully grew and exited the company.
- 3. I've seen the story many times As a founder, exec, or advisor to a bunch of startups ! The same recipe doesn’t works twice, but patterns emerge
- 4. Let me take you back to 2002
- 5. The economy wasn’t so hot
- 6. "e-business" is still new Companies still reasoning about risks and opportunities
- 7. Enter our intrepid band of tech dudes Joseph Ansanelli, CEO! • Multi-time founder/CEO, Apple, product management and marketing Kevin Rowney, CTO! • Security Architect, Netcentives Michael Wolfe, VP Engineering! • Several startups, Entrepreneur in Residence at Benchmark Capital
- 8. Kevin’s experience leads him to an insight Companies spend a great deal of money keeping bad guys out of their network • Firewalls • Intrusion detection • Anti-malware But insiders who has access to the network can easily take data out of it • Via email, chat, web posts • Via thumb drives, DVDs, or laptops • Either accidentally or maliciously
- 9. A kernel of an idea Build software that allows companies to prevent the loss of confidential data from the inside
- 10. It might seem obvious now • Legal risk • Reputational risk • Regulatory compliance • And other Truly Bad Things ! But was it then?
- 11. Did we do this? 1. Raise venture capital 2. Hire some engineers 3. Build the product 4. Hire marketing and sales people 5. The product flies off the shelves 6. IPO!
- 12. It doesn’t work that way The graveyards are full of startups with products that customers "should have wanted"
- 13. It usually goes wrong Too early - there will be a market, but not yet Too late - competitors already addressing the problem, or customer has workaround or internal solution Not a "top 3" priority for the customer Building the wrong feature set Product can’t be built or is delayed! Pricing, messaging, and distribution never figured out
- 14. The industry has gotten smarter about this Growing recognition that startups are completely different than established businesses
- 15. A startup is an experiment • Form hypothesis • Find fastest/cheapest way to validate hypothesis • Test and measure • Adjust, «pivot» if needed
- 16. I will walk through our: Questions What were the most important questions we had to answer ! Validation How we got the answer to each of those questions ! Learnings What we learned and how we adjusted
- 17. Question #1: ! Do companies care about the loss of confidential data enough to invest in this market?
- 18. Careful before you say "yes" When is the last time you sent an encrypted email?
- 19. Pre-product validation • Get meetings with potential customers • Interview them on their problems and desired solutions • Show them mock-ups, examples, anything tangible that will get them talking • Ask for follow-up meetings, repeat
- 20. Getting the meetings • Work your personal network • LinkedIn, Twitter, comment threads, blogs • Put up a landing page, drive traffic, gather names • Cold call, email, twitter - be persistent ! Requires "hustle" and may be painful or uncomfortable
- 21. Getting them to respond • Be clear it is not a sales call • Flatter them - you want their feedback and advice • Entice them with the opportunity to work with a cutting edge company - more interesting than their usual meetings • Meet them anywhere, anytime • Ask for a short amount of time - they’ll give you more if they are interested
- 22. Running the meeting • Listen, listen, listen • Don't try to "sell" your solutions • Ask open-ended questions • Bring screenshots/slides/mockups - get their reaction • Close them on another meeting
- 23. Sample questions • “Talk us through your top priorities and projects” • “Tell us about your existing infrastructure” • “Have you experienced this problem” • “How are you solving this problem today” • “Force rank the following capabilities” • I'll show you some prototypes - give me your reaction” ?
- 24. What we heard "This is something we'd seriously consider" "We have been building homegrown solutions to address this" "We are talking about this problem at the board level" "We’d try it if you built it. Put us on your beta list"
- 25. Takeaway: ! It is never too early to talk to customers. ! If you can’t reach customers now, why do you think you can reach them later? ! Build the company alongside a few key customers.
- 26. Then we raised money • We raised a $5M series A financing based on this feedback. • Normally you’d raise later than this, but we already had firms predisposed to give us money. • Today it would be typical for a company to get much further along before raising a round • Cloud computing and low-cost distribution channels allow companies to get much further along before raising
- 27. Oh, we also named the company
- 28. Next Question: ! What customer segments care the most about the problem?
- 29. Which verticals? • Technology • Oil and Gas • Entertainment • Financial services • Manufacturing • Automotive
- 30. What tier? Start at large companies! Larger budgets Most public scrutiny Largest amount of data to protect “Name brand” references ! ! Start small, build up! Less demanding Shorter sales cycle More innovative Gain experience before going big
- 31. What we learned The strongest feedback came from large companies in regulated industries In this market, the larger companies were more, not less innovative Drivers were regulatory and reputational risk. “Keep me off of the front page of the WSJ”
- 32. What we did Laser focus on large companies in regulated industries, primarily protecting customer data De-emphasized the rest and even ignored some smaller companies that came to us ready to buy This focus meant we would lose deals that weren’t in our sweet spot
- 33. Takeaway: ! Focus, focus, focus ! If you try to help everyone, you will help no one ! This means losing business ! And that’s OK
- 34. Next Question: ! What kinds of data do customers care the most about protecting?
- 35. Data types • Employee data? • Customer data? • Intellectual property? • Strategic plans? • Financials?
- 36. How we found out • Built trust with prospects • Spent time with them as they walked us through actual internal breaches and their costs • We showed them several kinds of policies and got their reactions to each • Found that almost everything they talked about had to do with consumer PII (personally identifiable information)
- 37. What we did next We pivoted away from an earlier idea - tagging emails and documents We focused instead on one that could identify and protect large databases of consumer data Contrarian move - at the time DRM was the next new thing
- 38. Next Question: what threat do companies care the most about? • Data escaping via outbound email • Data escaping via web posts / web mail • Data escaping via FTP, P2P networks, other internet file transfer • Data escaping via thumb drives, DVDs, and lost laptops
- 39. Do they want block incidents or simply monitor + notify? Block! Prevent the incident from happening Avoid cost of the incident Provide assurance to customers ! Monitor! Less disruptive Less expensive Allows education and policy changes in response to incidents
- 40. Our minimum viable product We did Not Focus on data loss Malware, anti-porn, URL monitoring Focus on customer data Documents, intellectual property, financials Email only Webmail, thumbdrives, FTP Monitoring only Endpoint blocking Tools for remediation Simply logging them Great reporting Reporting as afterthought Focus on large companies Sell to anyone with money Some competitors did “more“ but ended up losing
- 41. What happened next • Responded to an RFP from Bank of America • Focused and won the deal • ~$500K, over time grew to several million • Needed to promise several near-term features to win the deal • Made them referencable and a champion
- 42. Takeaway: ! The “minimum viable product” can often be way more minimal than you think. ! Do a few things, and do them right. ! Customers will want more, but if you are solving an important problem, they will be patient.
- 43. Example MVPs • Created an “explainer video” demoing the product, got > 100K signups, didn’t ship product until 18 months later • Went to shoe shops, took pictures of shoes, put online. When people ordered, went back to shop to get shoes. • Started with one plane and one route. Perfected their system and then expanded
- 44. Would you ship a phone without cut and paste?
- 45. Other things we learned • Opportunity to sell high - to the CSO/CIO level • Bring in experienced enterprise sales reps • Partners were not a large factor - we had to evangelize/sell ourselves • Employees with security experience often did not do well in the company
- 46. This sure helped
- 47. Expanded to more verticals
- 48. Added products
- 49. We obsessed about Team - Putting tons of time and money into recruiting, and removing bad hires Training and team building - constant trainings and company events Transparency - everyone at the company had access to almost all information Customer success - making them reference able and our champions Planning and forecasting - quarterly replans, goals and objectives
- 50. Grew and grew 2003 - $500K in bookings, 1 customer 2004 - $3.5M, 7 customers 2005 - $13.5M, 30 customers 2006 - $27M, Europe office 2007 - $50M, 175 employees !
- 51. FTW
- 53. Key takeaways • Validate, validate, validate • Build your product with customers. Seek face to face meetings, not just metrics • Seek focus • Get an MVP to market as quickly as possible and then iterate! • Obsess about people