Wednesday, August 31, 2011

Lesson #84: Lady Gaga--An Entrepreneurial Case Study

Posted By: George Deeb - 8/31/2011

Back in 2003, Stefani Germanotta was an an unknown first-year music student at NYU trying to get her career off the ground.  And, now, 8...

Back in 2003, Stefani Germanotta was an an unknown first-year music student at NYU trying to get her career off the ground.  And, now, 8 years later, the renamed Lady Gaga has turned into one of the most successful musicians and marketers in history.  And, let's quantify Lady Gaga's success over this time: (i) over 13MM albums sold and 51MM singles sold; (ii) 12 Grammy nominations and 5 Grammy wins; (iii) $90MM in earnings in the last year alone; and (iv) over 43MM fans on Facebook and 13MM followers on Twitter (and counting).  It is pretty incredible that a 25 year old could acheive so much artistic and business success in such little time.

But, how exactly did she do it?  What lessons can us entrepreneurs take from such a meteoric rise.  To me, it comes down to the following drivers of her success: (i) she took a page right out of a proven playbook (e.g., Madonna); (ii) she always keeps her followers guessing and wanting more; (ii) she produces a very high quality product; and (iv) she has a sincere personal relationship with her customers/fans.  Let's study each of these points in more depth below.

Lady Gaga was not the first female mega-popstar.  She was clearly preceeded by many others, including one of her idols, Madonna.  Madonna was cutting edge for her day (the 1980's and 1990's).  She surrounded her music with controversial subject matter, videos oozing with sexuality, and costumes that would make any mother blush.  And, she was the pro at staying relevant in an industry littered with one-hit wonders.  As she got older, she took bold chances to keep her name at the forefront of her industry (e.g., leading role in Evita movie, music collaborations with hot stars of the day, like Justin Timberlake).  But, what Lady Gaga did, was take that Madonna playbook, and put it on steroids.  Lady Gaga became more than simply another "over the top" music celebrity, she also became a fearless fashion icon and a revered cheerleader/role model for her fans.  Time will tell if Lady Gaga will withstand the test of time, like Madonna has.  But, she is certainly off to a great start with an already proven playbook.

But, unlike Madonna, who seemed to reinvent herself every year or two, Lady Gaga appears to reinvent herself every couple months.  She always has her fans and the media guessing what she is going to do next.  Have you ever seen crazier outfits (e.g., her famous meat suit she wore to the Video Music Awards in 2010)?  Of course not.  And, that unexpected craziness keeps her front and center in every People magazine, E! News broadcast and every other entertainment media outlet, all further fueling free publicity for Lady Gaga and pounding home her already "bigger than life" persona.

But, honestly, none of this would be possible if Lady Gaga didn't deliver an absolutely great product.  She insists on writing all of her own music.  Her songs are well-written with a great beat.  Her concerts are an amazing spectacle and production.  If the quality of the product wasn't there, people wouldn't buy into all the other craziness in isolation.  Even if you took away all the pomp and circumstance, Lady Gaga would still be selling a ton of albums.  But, the pomp and circumstance adds to her story, and has her selling even more.

But, perhaps, Lady Gaga's biggest success is not her music or her fashion sense.  It is her uncanny ability to connect with her fans, at a very personal level.  She affectionately refers to her fans as her Little Monsters (more marketing genius), and she has positioned herself as their leader and champion, for those that cannot champion themselves.  She stands up for all who have been bullied or teased for being different (almost as if she has personal experience of her own in this regard).  So, she is more than a musical artist to her fans.  She is their leader and role model, giving people a voice that otherwise would not have a voice of their own.  This is pretty powerful stuff, resulting with Lady Gaga accumulating 56MM fans/followers on Facebook/Twitter (a very large platform to communicate her various messages).

I am a huge fan of Lady Gaga--the musician, the fashionista, the humanitarian and the businessperson.  All with an aura of authenticity that makes it credible.  There are plenty of valuable lessons in Lady Gaga's success that we can all apply to our businesses.

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Monday, August 29, 2011

Lesson #83: Startup Roles & Responsibilities

Posted By: George Deeb - 8/29/2011

Every startup is different and has their unique challenges.  But, most startups have similar managerial needs.  Today's lesson tackl...

Every startup is different and has their unique challenges.  But, most startups have similar managerial needs.  Today's lesson tackles typical roles and responsibilities within a startup.  Although I am going to use C-Level titles for purposes of this discussion, it is not critical you actually use C-Level titles within your organization.  Some people are motivated by them, and others are not.  So, determine which titles are appropriate for your company's culture and personality. 

With that said, the typical roles within a startup's management team are: (i) CEO/President; (ii) CMO/CSO; (iii) COO; (iv) CTO; and (iv) CFO.  Let's discuss the specific job descriptions for each.

The CEO/President is typically the founder within a startup.  But, that is not always the case.  Sometimes, the founder is smart enough to know when their personal skills are lacking for ultimate company success, and they look outside of the company for their CEO.  As a refresher, please re-read Lesson #14 on role of the startup CEO.  The summary is the CEO is the visionary of the business setting long term strategy and direction, and navigating competitive waters.  The CEO is typically an outward facing role, meeting with key investors, partners and other strategic advisors.  On the flip side, the President role is typically an inward facing role, managing the day-to-day operations of the business.  In most startups, the CEO and President is the same person.  But, when the company's growth can afford it, the CEO and President roles are split, to allow the CEO more time to focus on "steering the ship" and the President more time for "optimizing operations".

The CMO or CSO of an organization is in charge of all marketing or sales driven activities of the business.  This role can sometimes be called a Chief Revenue Officer, as without effective marketing or sales leadership, there will be no revenues.  Most B2C businesses are marketing driven and would need a CMO.  And, most B2B businesses are sales driven, and would need a CSO, which for a startup, is most likely one of the team's salespeople, as well as the sales manager.  At the end of the day, whether it is a CMO or CSO, it is all about driving new leads for the business, as cost-effectively as possible.  And, getting existing customers to close into repeat sales.  In my opinion, this is the most important hire for the business, even more so than the CEO, as it will make or break your revenues.

The COO is in charge of all the operations of the company, and in many respects is duplicative with the President role.  The only real difference is that the President is also in charge of managing the other C-Level executives (e.g., CTO, CFO, CMO), as well as the COO of the business.  Whereas, the COO is solely focused on operations.  So, after the CMO or CSO brings leads into the business, the COO takes over to ensure a solid customer fulfillment experience.  Think of the CMO/CSO is "pre-sale" activities with clients; and the COO as "post-sale" activities with clients.

The CTO is in charge of all technology decisions for the company.  This technology could be the entire lifeblood of a "dot com" e-commerce company.  Or, it could be as mundane as the back office systems and software that keep the business functioning (e.g., finance, HR, CRM, call center, network).  Obviously, the more important a role technology plays in your business, the more critical this person is to the company's success.

The CFO is in charge of all financial, accounting, budgeting, cash management and reporting decisions for the company.  This not only includes managing internal controllers, treasurers and bookkeepers, but managing relationships with any outside CPA's or bankers.  In a startup, the CFO is also the controller and treasurer of the business, managing all accounting and cash decisions themselves, until the business gets to the scale it can afford a bigger staff.

I didn't add a General Counsel to this organizational structure, since a startup typically cannot afford a full-time counsel.  Instead, I would rely on your outside law firm for any legal assistance that may be required from time to time, until your business grows to the point its legal needs require full-time support.

So, when you are pulling together your management team, make sure you are hiring with this type of organization in mind (or something similar, as this is not set in stone).  And, make sure the individuals for the job have the proper skills required to succeed in a startup environment.  Please re-read Lesson #34 and Lesson #35 for more details on how best to recruit and screen candidates for your startup.  And, worth mentioning, it is equally important this team gets along personally and shares the same long term vision for the business for the company to succeed.

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Friday, August 26, 2011

Lesson #82: Project Management & Prioritization

Posted By: George Deeb - 8/26/2011

Startups always have a million projects on their plate, trying to change the world.  Often times these projects revolved around their te...

Startups always have a million projects on their plate, trying to change the world.  Often times these projects revolved around their technology and building out their product/website/app.  Today's lesson is about how best to prioritize, manage and develop these projects.

First for prioritization.  When I was at iExplore building out the original website, we had a list of 200 features and functionalities we wanted built into the website.  A list that long is too cumbersome to build into your beta website, which should be kept to a minimal viable product (MVP) to get it tested and into the market sooner than later.  So, we needed to pick which 10 features of the 200 we desired long term were going to be most critical to our launch.

The way we prioritized our tech list was to determine: (i) which core features were "must haves" for launching a product that consumers would be excited to use (and sufficiently differentiate ourselves from our competition); and (ii) which features will do the biggest job of moving the revenue needle or meeting our other customer acquisition goals.

So, in launching iExplore, we decided a robust one-stop adventure trip finder was the absolute key to our initial launch, and we would roll out a tour book section (for researching needs) and a travel community section (for social needs), in versions two and three of the service.  Then, within the trip finder section alone, there were a lot of features therein that we needed to choose between in prioritizing our efforts.  But, we started with ones that we though would best assist us with closing bookings (e.g., live chat functionality with expert agents, robust photo/video gallery for each trip, sophisticated data model for easy searching by destination/activity/price/difficulty/comfort).  Everything else on our list got prioritized in a similar manner, and put into a production schedule for interim future releases throughout the following year.

In terms of managing the project, it comes down to: (1) making sure the entire team is clear on what they are building (and that they had input in such vision); (2) making sure the team is entirely clear on the date of delivery; and (3) having the team work in an agile process of development.

If you told your team you were building a new car, you would be surprised how many different interpretations your team may have, in terms of what type of new car you were building.  Some may think red, others blue.  Some may think van, others SUV.  Some make think luxury car, others may think more mainstream.  So, you need to pull your team together at the time of the project launch, and through the process itself, to collaborate and collectively agree that the new car we are trying to build is a yellow luxury sedan.  Hopefully, this open communication process will eliminate any confusion amongst the group in terms what it is you are actually building.

In terms of communicating a delivery date, that is pretty self explanatory.  But, people need to be managed in bite size chucks along the way.  If you tell the team they have three months to finish the project, they may work at 35 mph for the first two months, and then realize they need to work at 90 mph for the last month to have any chance of catching up.  Which all that does it put stress on them and the rest of the team.  So, instead of saying "deliver me the full project in 100 days".  Say, "deliver me the first 10% of features within 10 days, then the next 10% within the following 10 days, and so on."  It keeps them focused with acheivable deliverables within shorter time frames and keeps the overall project heading towards its overall goal.

The last point is about having an agile style of development.  In the old days, the management team would think through the entire project, building the specs for everything, hand it over to the developers and then they would start building out the entire project.  And, to make matters worse, there was very little interaction between management and the developers doing to the work in helping to set priorities and understand the overall business objectives. 

The problem with that old "micromanaged, waterfall" style of development is: (i) the people doing the development in the trenches did not have clear insights into what the company's goals were or how their work fit into the bigger picture, where they could offer additional ideas to help; and (ii) almost always, whatever vision management had day one, is most likely going to change within the first couple months as they are getting new information to work with, so they wasted a lot of time building a full technology specifications document for a site that almost immediately becomes obsolete.

So, in today's day and age, the iterative and incremental agile development process is the way to go.  The key components of the agile manifesto are: (a) individuals and interactions, over processes and tools; (b) working software, over comprehensive documentation; (c) customer collaboration, over contract negotiation; and (d) responding to change, over following a plan. Or, said another way: (i) open communications and collaboration with the entire cross-functional team from ideation through completion; (ii) small bite-sized projects that need to get completed every two weeks; and (iii) each person on the team responsible for one specific piece of the puzzle (e.g., Joe tackling sign up form functionality, Jimmy doing user design, and Susie doing database integration).

To learn more about the agile style of development, check out this tutorial on the subject from Wikipedia.

Hopefully if you follow these suggestions, you will keep your projects on time and on budget, and built in a way of open communications and achievable goals that motivates your team. 

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Thursday, August 25, 2011

Lesson #81: Considerations for Global Expansion

Posted By: George Deeb - 8/25/2011

For us internet entrepreneurs, we are smart enough to know that the internet is a global medium, and many of us are already serving inte...

For us internet entrepreneurs, we are smart enough to know that the internet is a global medium, and many of us are already serving international clientele through our U.S. websites.  But, when do you pull the trigger to formally enter a new international market?  Nobody should consider expanding internationally until they are standing on solid footing in their core domestic market (e.g., meaningful market share, financial position).  This is because expanding overseas is like starting the company all over again.  You can't simply take what you have and move it overseas.  You have to localize everything on a market by market basis.

When we talk about localization, we are talking about tailoring: (i) your core product; (ii) your name, packaging and marketing materials; (iii) your pricing and currency hedging strategies; (iv) your call center fulfillment processes; (v) your distribution center locations; and the list goes on and on from here.  The point being you need to fully grasp each country on a stand alone basis, and customize your services for their culture, religion, demographics, language, currency and ways they currently do business.

Here are a couple real life examples.  McDonald's needed to have an alternative to beef for their hamburgers in India, since cows are sacred in their religion and would never be eaten.  Chevrolet tried to sell their highly popular Nova car in Spain, and nobody bought them because Nova translated to "don't go" in Spanish, which is not good for a car.  Most of Africa consumes their media through their cell phones, as most of the population doesn't have computers or televisions.  Most teenagers in China need to access the internet in internet cafes, since their parents are ultra conservative and do not allow them to access the internet from home. You get the point.

I think each country is so specific, that you can't enter a market without a resident expert that knows the intricacies of the local market, and can help navigate through all these issues.  So, find your onstaff country manager or local consulting firm that is going to help you make the required localization decisions.

In terms of prioritization what specific countries to expand into, I think the market size for your product or services rules the day.  If France can lead to $1BN market potential, but Serbia can only lead to a $100MM market potential, it is pretty clear France is where you start.  So, you need to research the global market for your products and services on a country-by-country basis, and sort the list accordingly, from highest potential to lowest potential.  Then start at the top of the list and move down from there.

One wrinkle in this sorting is language.  Many American businesses just feel more comfortable expanding into Canada, England and Australia first (and in that order).  They start with Canada because it is geographically closer to the U.S., making it easier to manage.  Then comes England because it is the largest English speaking country in the world, next to the U.S.  And, then comes Australia, the next biggest English speaking market.  If it helps you feel more comfortable getting your international "sea legs" beneath you in English speaking markets, great, go for it.  But, I would personally follow the Dollars (or Rupees or Yuan), to see where the biggest market could be made.

In terms of determining the speed of your international roll out, I think there are many factors that drive speed: (i) how many potential competitors are breathing down your neck trying to target the same markets; (ii) what are your available cash resources; and (iii) how much do you want to try to bite off at once.  In more mature markets, it is OK to move slower, as the business hasn't changed for decades.  But, with a hot new technology with you leading the market in the first mover position, you want to keep your first mover position globally and further distance yourselves from your competitors before they have a chance to own a market before your do.

As for a case study here.  Groupon believed they were a first mover with a unique product and that they needed to move at light speed to expand their product in most major global markets overnight.  But, they had hundreds of millions of dollars in venture capital to work with, and could afford that call.  That said, some would argue that they expanded too fast, as in China, where they are having a tough time with operations and are already going through a round of layoffs there. 

And, on the topic of China, it has proved a very difficult market to crack for many other companies, as well.  We all remember Google's stand-off with the Chinese government, pushing for an open internet there (immediately followed by China shutting off Google).  And, China is the only major market that YouTube has not been able to gain a leading market share for internet video, far behind Youku and Todou in visitor traffic.  So, the key learning here: in certain international markets, like China and Japan, it really makes better sense to find a key, respected local company to work with as your in-country partner (instead of trying to tackle the problem alone).  Their culture will allow them to be much more accomodating to "their own", than "outsiders".

Which brings up the topic of international acquistions.  If you can find reputable international businesses with leading market share positions doing largely the same thing as yourself, I would suggest you acquire those overseas businesses, instead of trying to build a new business yourself in those markets.  The advantages of the acquisition route are: (i) you acquire country specific expertise with a team that firmly understands the local market; (ii) you have an overnight base of revenues and clients (no longer a startup); and (iii) you take a competitor out of the way in the process.  But, don't force the acquisition route.  If the team doesn't gel or you don't share a vision or you can't make the economics work, you'll have no choice but to go it alone with a lot of headwind in the process.

Global expansion is a very complicated topic with a different answer for every business and for every country, so make sure you seek good counsel from proven international expansion veterans that can assist you in avoiding the known pitfalls along the way.

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Wednesday, August 24, 2011

Lesson #80: Pitfalls to Avoid When "Reeling in the Whale"

Posted By: George Deeb - 8/24/2011

Every B2B startup wants to close the $1MM contract with the Fortune 500 company, and every B2C startup wants to cut the big strategic pa...

Every B2B startup wants to close the $1MM contract with the Fortune 500 company, and every B2C startup wants to cut the big strategic partnership with the bohemoth media marketing partner in their industry.  It can be a very exciting time for a startup, with lots of "high fives" slapping and an earned right to celebrate after months (or years) of "reeling in the whale".  The immediate instinct is to focus on the huge revenue upside relationship, and how you are finally "on your way".  But, in today's lesson, we are going to learn that these "whales" can easily kill your business, just as easily as they can accelerate them.  So, we are going to highlight a few common pitfalls to avoid, through a couple real life examples.

Let's start with MediaRecall, the B2B digital video services and technology business I ran.  We were in discussions with NBC on digitizing their entire news archive for the last decades, with hundreds of thousands of hours of content that needed to be serviced.  It would be a $25MM contract over five years that would "change our world".  Especially since the largest contract we had ever closed prior to that was $500K.  We were all jazzed up about this project, for what it could do to stabilize our revenues as a startup and cover our overhead costs for the foreseeable future.

But, once the revenue potential "euphoria" wore off, the impact of a contract that large was actually quite sobering: (i) our technology infrastructure would need to be materially improved and expanded to support all the additional volume; (ii) we would need to build a second services facility onsite in New York, with rare equipment specifically needed for that one project only; (iii) the work would require a lot of energy around fragile old film reels, when video tapes are a lot easier to work with without risk of damaging the core content (which we were indemnifying against damages); (iv) our human resources efforts would need to accelerate to hire and train all the additional staff overnight; (v) we would need to move to a material larger home office to staff the new team, materially increasing our going-forward overhead; (vi) this contract would most certainly be all-time-consuming, for at least the first year, putting at risk our efforts with other clients, slowing our new client pipeline and putting all our eggs in one basket; and (vii) if one thing goes wrong with this high profile project, that news could spread through this very tight-knit industry and basically "black list" our company.  A lot was riding on the success of this project, and it required religious focus to not drop the ball on any of these potential pitfalls.

Let's move on to the second example: iExplore's strategic relationship powering B2C travel booking services in partnership with National Geographic (please re-read Lesson #6 for the details).  At face value, it was a marriage made in heaven, the biggest brand in "dream creation" partnering with the new startup for "dream fulfillment" in the adventure travel space.  The power of National Geographic's 80MM household reach in cable TV, 6MM magazine subscribers and 5MM unique visitor website was almost intoxicating to think about as a startup trying looking for low hanging fruit to scale up our business.  At face value, this reach was most definitely worth giving National Geographic a 30% stake in our business, combined with being directly associated with their 112 year old trusted brand name.

Then reality settled in with unexpected pitfalls along the way: (i) the people we executed the partnership with handed us off to an execution team, comprised of about 50 individuals in various departments that had no real vested interest to help iExplore succeed (pulling teeth to get anything done); (ii) the contract was not written with enough clarity, leaving it up for debate what was really intended in certain areas; (iii) the contract was written with the assumption that iExplore would be flush with cash throughout the five year period, and could afford buying 50% discounted ad space in the magazines and direct mail (which wasn't the case after 9/11/01, taking this marketing support off the table--BOOM!, there goes 6MM magazine subcribers); (iv) the cable TV division could never find a way to promote us cost effectively (BOOM!, there goes 80MM households); (v) although we found permanent placement on their website, we were buried deep on their site with links that were hard to find (BOOM!, there goes 5MM uniques, in exchange for 50K uniques); and (vi) it made cutting a strategic deal with Discovery Channel (one of my goals), much more difficult, as they are arch enemies with National Geographic.  Did I already mention we gave up 30% of the company for this relationship??  Lessons for next time: the devil is in the details!!

So, as you can see, "whales" can be great for revenues, but they can put a lot of strain on the business in other ways.  Some you can expect, and some you can't.  So, make sure you think through all of the potential pitfalls well in advance of signing the contract, and make sure you get any expected support in writing (and in excrutiating detail, so there is no ambiguity on what you are expecting).

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Monday, August 22, 2011

Lesson #79: Determining Customer Lifetime Value

Posted By: George Deeb - 8/22/2011

Customer lifetime value (LTV) is the net present value of dollars attributed to one customer over their entire life as a customer.  LTV ...

Customer lifetime value (LTV) is the net present value of dollars attributed to one customer over their entire life as a customer.  LTV is a critical calculation in your marketing efforts, in determining an appropriate customer cost of acquisition (COA).  With the ever rising costs of customer acquisition, LTV is playing a more important role in determining the ROI efforts from your marketing spend.

The formula for calculating LTV is: (i) your average transaction size; (ii) times your average gross margin; (iii) times your average number of transactions per year; (iv) times the number of years a customer buys product from you; (v) times your retention rate of customers from one year to the next; (vi) less any marketing costs required to retain your customer over time; (vii) discounted back to present day dollars.   For number of years, I wouldn't model anything greater than five years.  For retention rate, I wouldn't model anything greater than 80% of the preceding year's customer base.  And, for your discount rate, that should be your weighted average cost of capital (somewhere around 10%--blending 5% cost on your debt and 15% required return on your equity, in one example).

As you can imagine, these inputs can wildly vary from one business to the next.  So, let's run through a couple examples.  In the first example, we have restaurant business, whose average transaction size is $50 and customers come to the restaurant about 4x per year.  That suggests $200 in revenues in year one, and then attritioning down (at 80% a year) to $160 in year two, $128 in year three, $102 in year four and $82 in year five.  So, total five year revenues per customer of $672, on average, and total gross profit of $224, assuming this restaurant averages a 33% gross margin. 

If the average company spends 10% of their lifetime customer revenues to acquire the customer in the first place, that suggests this restaurant could spend up to $67 in initial COA marketing.  As you can see, that would be a big loss looking at the first transaction in isolation ($50 revenues less $67 marketing).  But, you make up for the initial shortfall within the first year given the high frequency of purchase.  And, on a five year basis, this example will yield a profitable customer ($224 in gross profit less $67K in acquisition marketing less $97 in retention marketing in years two through five).  To estimate retention marketing, assume retention marketing costs in year two are up to half of the original $67 acquisition cost, or up to $33 in year two.  Which then attritions down with the smaller customer base (the same 80% of the prior year level) to $26 in year three, $21 in year four and $17 in year five, for a total of $97 in years two through five. 

So, net, at the end of five years, the customer drove $672K in revenues (or $224 in gross profit), less $67K in original COA marketing, less $97 for four years of retention marketing for a total profit of $60, prior to discounting these cash flow back to their net present value.  The net present value of these cash flows using a 10% discount rate, is $44, the LTV in this example.

In a second example, let's say we are a manufacturer of vacuum cleaners, whose average transaction size is $250 and customers only buy one vacuum cleaner in the entire five year period.  That doesn't leave a lot of room for error in your marketing efforts, as you need to drive your entire LTV and a solid ROI on your marketing COA all at once.  With a 30% gross margin, or $75 gross profit, this company needs to keep its marketing COA under $50, to have a chance to drive a $25, or 10%, profit.  And, even then, that doesn't take into account any back office and overhead costs, so it is probably better to cap COA at $40 to cover those items.  So, your LTV in this example is $250 in revenue (or $75 in gross profit), less $40 in acquistion cost, for a profit of $35, your LTV. 

Theoretically we could have modeled this customer over forty years, buying a new vacuum cleaner every ten years.  But, given the infrequent purchase behavior over a very long period of time, I would be conservative and make sure you drive a healthy profit from the first transaction, as who knows if you or your customer are going to be around ten years from now, waiting for that second transaction to close.

So, incorporate LTV into your thinking for all marketing activities and build your LTV model according to the specifics of your business.

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Friday, August 19, 2011

Lesson #78: How to Build a Budget

Posted By: George Deeb - 8/19/2011

Building an accurate budget is one of the hardest things to do for a startup, as you have very limited historical information to foreca...

Building an accurate budget is one of the hardest things to do for a startup, as you have very limited historical information to forecast with.  But, following the below road map should help you create a budget that should get you pretty close.

Sales/marketing drives revenues.  For me, the entire budgeting process starts with sales and marketing expenses, since those areas will be the key drivers of revenues for your startup.  So, please re-read Lesson #21 on How to Set a Sales & Marketing Plan for Your Startup.  As a recap, your business will either be sales driven (like most B2B companies), and you will need a certain number of sales people calling on new clients to drive revenues.  Or, your business will be marketing driven (like most B2C companies), and you need to think through what media buys or viral marketing initiatives will be most optimal for your business.

For sales driven businesses, assume each salesperson can close a certain percentage of the calls they make.  My rule of thumb is: it typically takes 100 calls, to close 5 transactions.  And, a good salesperson can be making 100 calls a month (about 5 each business day).   So, you would multiply these 5 transactions times the average selling price of your product or service, to forecast revenues each month.  But, you need to build in a monthly ramp-up period before your sales person is fully productive (e.g., 3 months for lower priced products, up to 2 years for million dollar products).

For marketing driven business, you need to identify what your target demographic is and identify channels where your prospective customers may be looking.  And, remember, viral marketing through social media (please re-read Lesson #52), is going to be the cheapest cost of marketing, followed by other online marketing activities (like search marketing in Lesson #53, email marketing in Lesson #77 and mobile marketing in Lesson #68).  Offline marketing activities like direct mail, print buys, television and radio are typically better vehicles for more established companies with larger budgets, that can afford the branding advantages of vehicles like these

Once you decide what budgets/vehicles you want to market with, you add up the total costs of such marketing activities, and then determine what your cost of customer acquisition will end up being.  Your cost of acquisition can vary significantly based on your price points, products, demographics, etc.  So, before building your final budget, make sure you have tested a couple of your primary marketing initiatives, to determine how much spend it will take to drive one customer.  Then, run that cost of acquisition through your going forward revenue forecast.  So, as an example, if you spend $100,000 at a $100 cost of acquisition, that would drive 1,000 transactions, which you would then multiply times your average transaction price point to forecast your revenues.

Expenses.  Expenses are a lot easier to forecast than revenues, since they are largely in your control.  You decide how many people you need to hire, what technology you need to buy, what back office expenses you will have, etc.  So, provided you don't spend more than you have budgeted, your actual expenses should come pretty close to your budget.  In addition to the sales and marketing expenses discussed above, the key expense categories you should include are: (i) payroll (including payroll taxes and employee benefits); (ii) technology (e.g., development, design, support, administration, connectivity, hosting); (iii) home office (e.g., rent, utilities, phone, cleaning, supplies); (iv) insurance (e.g., general liability, E&O, D&O); (v) professional services (e.g., lawyers, accountants, recruiters); and (vi) other admistrative expensives (e.g., travel, entertainment, meals).

Payroll is typically the hardest to forecast, as you do your best to match your budgets with the requirements of the best candidates for the job.  And, you need to make some smart assumptions on how much salary will actually be required to find good talent for each position.  So, ask around to determine market rates by role for your market, prior to building your budget.

Capital expenditures.  Capital expenditures for most startups typically revolve around technology (e.g, servers, software) and assets needed for your home office (e.g., furniture, equipment).  So, budget accordingly based on your tech build out needs and the forecasted number of employees in your office.  Depreciation expenses over a 3 to 10 year life, depending on the nature of the asset, will then run through your income statement from there.

Interest.  If you have any debt, you need to pay interest expense.  And, if you have a big cash balance, you will earn interest income.  Make sure you pick these up in your forecast, as well.

Taxes.  If you are running a profitable company, you will also have to budget for annual corporate income taxes at the levels appropriate for your city and state.  Understanding, you may have net operating loss carryforwards from prior years' losses, to offset your early profits.

Validate with historical/industry numbers.  Where you can, validate all assumptions made with historical data you have from past experience from your business, and then increase such levels for around 3% annual inflation.  If there is no historical data from within your business, reach out to similar sized businesses in your industry, or other mentors/advisors, to learn what they are paying for key things.  So, at least you will have a relevant industry benchmark to reference to help validate your assumptions.

Sanity check.  At the end of the day, does your forecast pass the "sniff test".  If you are only spending $500K in marketing, is it reasonable to build a $100MM revenue business?  Probably not.  If your industry is only $100MM in size, and you are building a $50MM business, is it reasonable to acheive 50% market share in your first year (or ever, for that matter)?  Probably not.  So, just make sure your forecast is credible in light of your sales/marketing budget and industry size.

Build a cushion.  Startups should always build a cushion into their forecast, as things are most definitely not going to go 100% as planned.  Please re-read Lesson #28 on Expecting the Unexpected.

Once you have taken into account all of the above, you should be in a very good position to finish your budget and forecast the cash needs of your business.  So, make sure you raise enough capital to cover at least 12-18 months of your going forward operations.  Otherwise, you will constantly be in fund-raising mode, and not focused on building out your business.

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Thursday, August 18, 2011

Lesson #77: The Basics of Email Marketing

Posted By: George Deeb - 8/18/2011

Some people will say that email marketing is slowly going the way of the dinosaur, as the new generation of tech users are much more rel...

Some people will say that email marketing is slowly going the way of the dinosaur, as the new generation of tech users are much more reliant on their phones than their PC's (e.g., text messaging, smart phone apps).  But until that day happens, email marketing should continue to be an important part of your communications and marketing strategies.  This lesson will summarize best practices and key considerations for setting up your email marketing efforts.

Select an email platform.  There are plenty of very sophisticated email management software packages out there.  And many, like Cheetahmail, come with a very expensive price tag, often way too expensive for early stage companies to afford (e.g., starting at $5,000 per month).  My recommendation for startups is to use one of the free softwares out there, like Mail Chimp, until your business and list size scale to the point you can afford and may need the additional functionality from the more sophisticated software programs.  I use the free Mail Chimp software for Red Rocket mailings, and it works perfectly fine for my needs.

Design email collection forms.  The more data you ask for in your sign-up form, the less people will actually take the time to fill in the form.  So, my suggestion is to keep your form very simple to start, to get them to hand over their email address.  And, then you can subsequently collect additional information over time, from follow up emailings.  So, don't initially ask for a ton of data fields (e.g., name, title, company, address, phone, age, gender, education level, income level, interests).  At a minimum, you can simple ask for their email address only or other other basic information you will need to fine tune your marketing efforts (e.g., name, age, gender).

Design your sign up incentive.  When you ask to collect an email address, you will have much better success if you provide the user with a reason to hand over their very private email address.  That could include things like special member-only discounts, unique content or a sweepstakes entry for email users that sign up.  I am fine with the first two examples, but I would avoid sweepstakes.  You get a bunch of garbage sign ups from sweepstakes from users simply trying to win a prize, and they have no real affinity or interest in your core product.  And, about 50% of sweepstakes subscribers unsubscribe within a few months after the promotion.  I much prefer "sign up for 10% savings" or "sign up for member only benefits".

Link to an example emailing.  Give the user a visual of what an example emailing looks like, by linking to old emailings.  It will give the user a much clearer understanding of the nature of the email content.  And, by indexing the old emailings on your website, those additional content pages will also help you drive additional traffic from the search engines.

Link to your privacy policy.  Put a link to your privacy policy right next to your sign up request.  And, add a note that "we will not spam you".  This will help the user feel more comfortable handing over their email address, if they know you take their privacy seriously.

Determine opt-in vs. opt-out strategy.  Opt-in means the user needs to click a check box to sign up.  Opt-out means the users needs to unclick a check box to not sign up.  You will get a lot more names with opt-out, but you will get a lot higher quality from opt-in.  So, decide what is best for your business, given the nature of your product.  And, keep in mind, the cleanest list will come from a double-opt-in strategy, that the user not only checks the sign up box, but needs to click a confirmation link on a test email that goes to the user.  I am always a fan of double-opt-in for getting the best list and ensuring email addresses actually work.

Grow your list internally.  From your own website, you want your your sign up form accessible everywhere it is logical to do so.  That could include a main navigation button or email entry box in the header of your website (e.g., "Sign Up for Newsletter"), that is seen on every page of your website.  And, this can include adding the opt-in check boxes around all other contact entry forms (e.g., when user is buying a product, also ask them to join your list). 

Grow your list externally.  You can grow your list via banner ads that run on third party websites. Or, via co-registration campaigns on third party websites (e.g., user can sign up for your list too, while signing up for someone else's email list from that site).  Or, you can buy/rent email lists for your use.  Banner ads could get expensive for this purpose, combining cost of the media placement with the cost of the incentive to sign up the user, so I would be careful here.  I really like co-registration campaigns, if done on sites with very similar demographics (e.g., iExplore did co-registration with Conde Nast Traveler Magazine's website).  But, make sure you are not paying too much for the co-registration (e.g., a two way free campaign is best, allowing partner to sign up names from your site too).  I would avoid buying/renting lists as the quality is usually garbage and it is not worth the price paid.

Target your list.  While growing your list, you also want to be targeting your list.  The more you can target your users' demographics and interests, and deliver them customized and relevant content, the better your email efforts will perform.  Targeting can be done on demographics, like gender, age or education.  Or, based on psychographics, figuring out what interests the user has.  Or, based on asking their current demand (e.g., what are users currently looking to buy).  As an example, when iExplore promoted an Alaska trip to people that previously indicated they wanted to travel to Alaska, our open rates and conversion rates were 4x better, than sending that same Alaska trip to the entire list.

Design your email content.  The content of your emails need to be: (i) consistent with what you promised the user at the time they signed up; (ii) customized to each targeted user, where desired and possible; and (iii) provide really compelling offers and unique content.  The better the offers, the more your users will forward the emails to their friends, further helping your acquisition efforts.  I also like to include: (a) main navigation links back to the website, in case the email reminds them to buy something else not offered in the email; (b) simple unsubscribe buttons, so you don't piss off users that don't want your emails anymore; and (c) a link to a webpage of the newsletter, in case they are having trouble reading the email format itself.

Design your subject line.  Short, sweet and impactful is the best strategy for subject lines.  The subject line can make or break whether a user opens the underlying email.  Something generic like "monthly newsletter" is less exciting than highlighting a juicy offer therein, like "50% Off All Orders This Month".  And, make sure your company name is clearly mentioned, either in the subject line, or the "From" field of the emailing, so the user knows the emailing is coming from you.

Be sensitive to spam filters.  Most of the email softwares have built in "spam testing", which you should always use prior to sending any emailing.  Certain keywords in the content of your email or subject line, may trigger spam alerts to the major ISPs, directing your email to the spam folders of your users, instead of their inbox.  You don't want any of these words (like "special", "deal", "free") to hurt your efforts, so filter them out ahead of time.  And, the additional advantage of using an established email software program like Mail Chimp or Cheetahmail, is they usually have "white list" relationships with the ISPs, and can quickly get you off any "black lists" for spamming.  Also, at the time of registration, let your users know to add your email address to their personal "white lists", so your emails don't end up in their spam folder by mistake.

Determine frequency.  You should set your emailing frequency based on: (i) how often are you sourcing special offers or content; (ii) how often will be acceptable to your users (and consistent with what you promised them at the time of sign up); and (iii) what works best for your business/marketing objectives.  As a rule, weekly or monthly emails is best.  Daily can lead to user fatigue and anything longer than monthly are you are losing valuable marketing opportunities to your users.

Track your results.   You always want to track your new subscription rate, your unsubscribe rate, your open rate, click rate and sell through rate from any emailing.  Constantly test what vehicles are doing the best to grow your list, what emails upset users to the point of unsubcribing, and how your emails are performing versus industry averages.  As a rough guide, a generic mailing to your entire list should see a 15%-20% open rate (on number sent) and a 15%-20% click rate therefrom (2%-4% click rate on number sent).

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Wednesday, August 17, 2011

Lesson #76: How to Implement an Employee Change

Posted By: George Deeb - 8/17/2011

Back in Lesson #34 and Lesson #35 we talked about how to best recruit and screen employee candidates for your startup.  And, in Lesso...

Back in Lesson #34 and Lesson #35 we talked about how to best recruit and screen employee candidates for your startup.  And, in Lesson #15 we talked about hands-on vs. hands-off management styles in developing your staff, once hired.  But, sometimes, despite our best recruiting and development efforts, a staff member is just not working out.  This can be due to poor work performance or simply not fitting into the cultural fit within the office.  Today's lesson is going to discuss how best to deal with situations like this.

The most important thing to remember is that this process is not a one-time event, it is a step-by-step process that you lead up towards over months.  To protect yourself legally, you need to have a very clear paper trail documenting that you had communicated key areas of improvement with the staff member (preferably that they have acknowledged via their signature), and gave them a reasonable time period to fix such issues, prior to actually terminating their employment.  And, to the extent you have witnesses present in those employee review and termination meetings, the better it will be to defend your position, in case the terminated employee ever sues you for wrongful termination for reasons other than performance (e.g., gender, age, race).

I typically follow the following process when dealing with employees I need to change: (i) let the employee work for a period of time; (ii) if things not working out as planned, communicate such to the employee as a key area of improvement in the coming months; (iii) if things still not working after that period, I would give the employee a "last chance" review, that if you do not see material improvement in the next 30 days, you may need to make a change; and lastly (iv) if things still not working, you have properly laid the ground work to implement the termination.  The key advantage of point (iii) is, that thirty day notice may end up being the impetus they need to start looking for a different job and quitting on their own, before you actually need to terminate them.

Before we even get to the point of termination, I do everything I can to try to have the employee come to the conclusion themselves, that things are not working out.  I would ask questions like "are you happy here?" or "are you comfortable in this position?".  To try to get them to admit things are not going as planned from their perspective, to then lay the groundwork for a mutually acceptable transition period.  I would respond with "I want what's in your best interest, so if you are not happy, let's figure out a win-win transition".  That way they are not embarrased by being fired, and they think the decision was their own.  And, you keep them involved long enough to transition any required files, passwords or contacts.

If you get them to start this transition process on their own, you typically don't have to pay any severance.  As any salary you are paying them in the transition period, is like paying them severance, but you have the added benefit of them still doing their day-to-day job during this period.  And, make it easy for them to schedule time out of the office, to schedule new job interviews.  And, make sure they know you will serve as a good reference for them, in case any recruiters call.  This ends up being best for all parties, not risking embarrassment or reputaton risk by the employee that comes from a firing, and not exposing the company to a potential lawsuit for wrongful termination, since the employee ended up quitting instead.

As you can see, I try to avoid terminating staff for many reasons: (i) wrongful termination lawsuit risks; (ii) having to pay severance payments; and (iii) giving the employee the chance to file unemployment claims, which the company ultimately has to pay for in its insurance premiums.  So, where you can, creatively plant the transition idea with the employee, so they feel the decision was theirs, not yours, and you can creatively avoid many of these issues that come from terminations.

And, don't forget, any time an employee exits the company, make sure you talk to your lawyer, and get all the appropriate employee termination documents signed (e.g., non-disclosure, last day of employment verification, agreement not to bring claims).

But, worth mentioning, getting an employee to meet your goals is a two-way street: you as the manager need to be making an effort to make sure you are mentoring and training all employees with the right skillsets desired for the position.  So, make sure you are doing your best efforts here, before you start this process.

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Tuesday, August 16, 2011

Lesson #75: How to Implement Layoffs

Posted By: George Deeb - 8/16/2011

Usually, startups are in growth mode, creating new jobs.  But, many times, things do not go as planned, and a startup needs to implemen...

Usually, startups are in growth mode, creating new jobs.  But, many times, things do not go as planned, and a startup needs to implement job cuts to "right size" their cost structure to the going forward revenue base.  Today's lesson will address key considerations on this difficult subject.

Cut early.  As soon as you have a sense things are not working out, it is in the company's best interest to make any cuts sooner than later, to preserve your limited remaining capital.  Don't wait until you run out of cash, and have no other options.  Not only, will early cuts help your balance sheet and income statement faster, it will make the company more attractive to new investors, with a lower burn rate.  And, cutting early, also leaves cash to pay for severance payments, to calm cut staff.

Cut deep and once.   It is absolutely critical you make the cuts deep enough, that you do not need to go back and make secondary cuts soon thereafter.  You only have one chance to tell your remaining employees, "we had to make one time cuts, the rest of you are safe, now let's get back to building greatness".  Which is a critical message to deliver the remaining staff to keep them motivated and not panicked looking for another job.  You lose all that trust, the minute secondary cuts are made.

Manage communications prior to cuts.  As you know, I am a big fan of open communications, in good times and in bad times.  Which means making sure your staff is aware of the business challenges via monthly meetings, so they can both help generate new ideas to resolve the situation, and not be surprised by unexpected cuts.  That said, if cuts are truly eminent, do not hint to it, on a random employee basis (who are sure to gossip amongst themselves).  You either tell everyone and make the cuts, or you tell no one and don't.  You can't have your entire staff in a frenzy, entirely unproductive waiting for the guillotine to fall.  And, risk your best staff, looking for the door in the process.

Manage communications the day of cuts.  Depending on the size of your staff, will dictate whether you tell people on a one-off basis, or tell people as a group.  But, it is important you tell people all roughly at the same time, so the rumor mill doesn't start swirling around in the interim.

Have witnesses.  At the time of cuts, make sure you have a second person in the room with you, to serve as a witness in case you are ever sued by the cut staff member down the road.  A witness can verify what was said to the cut staff member, and verify that the employee was not cut for any other discriminatory reasons (e.g., gender, age).

Get signatures.  Get good legal advice on what documents need to be signed at the time of exit (e.g., clearing you from any future claims, keeping news confidential, acknowledging their last day of service).  Remember, cut staff are not going to be in the mood to be doing you any favors or signing any documents.  So, whatever you need them to sign at the time of their exit, I would typically accompany that document with the offering of a pre-paid severance check, that won't be handed to them without the signed documents needed. 

Expect attrition/incentivize your remaining staff.  Regardless of how well you try to manage the situation, you are most certainly going to experience additional attrition from remaining employees quitting the company within a few months of cuts being made.  So, plan ahead for which employees are most critical to keep long term, and make sure they are properly motivated with additional incentives to stay.  And, even then, you still may need a back-up plan to quickly source replacement staff for key roles.  Hopefully, the more honest you treat your staff, the more honest they will treat you.

Treat cut employees fairly.  Remember that employees are human beings with emotions and mortgages to pay, not just a line item on your expense sheet.  So, if you do implement layoffs, make sure you treat your staff fairly.  That includes paying them at least 30 days of severance, to help minimize the pain and give them time to look for a new job.  And, make sure they know you will be a good reference for them, assisting them in any way you can in helping them find a new job. 

Beware the disgruntled employees.  Cut staff will certainly be upset.  So, if you can avoid it, cut staff should not stick around after they are cut (as that can be cancerous to the remaining staff and morale).  Their last day, should be cut day.  So, if you need any transition information from them (e.g., files, contacts, passwords), make sure you creatively get it before you make any cuts.  And, don't forget, cut employees may also be  good friends with the remaining employees and may try to stir up problems with the remaining staff after their departure.  And, remaining staff may also try to stir up problems on their own, between themselves, on behalf of their cut friends.  So, the better you can manage this process, the less casualties you will suffer on the back end.

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Monday, August 15, 2011

Lesson #74: Brand Building for Your Startup

Posted By: George Deeb - 8/15/2011

There is no instruction manual for building a brand.  A brand position and reputation is something that is slowly built up and earned ov...

There is no instruction manual for building a brand.  A brand position and reputation is something that is slowly built up and earned over time.  That said, as you are planting the early "seeds" of your brand, the actions you take from the start of your business, will dictate where your brand is heading long term.  And, it is important you get this right, as it is often more difficult to change a tarnished brand image, than it is to start from scratch.  I will summarize the key drivers of building a brand below.

Your name.  Something as simple as your company name, will impact your brand.  When I was first naming iExplore, it was actually the third name the business began with.  The first name was Conquest Travel (which ultimately felt too "macho" for our targeted demographics).  The second name was The Adventure Experts (which was better, but the word "adventure" meant too many different things to different people, from highly-technical rock climbing to a luxury safari in Africa).  The third name, iExplore, accomplished our goals the best.  The word "explore" was more in line with our global exploration trips and the desires of our targeted demographics, and the "i" suggested we were an internet-based business.  So, give very good consideration to your company name and what reaction consumers will have to it, as it could impact your marketing and branding initiatives. 

And, don't forget, building a brand name around a made-up word, like Hulu, Expedia or Google, is often more expensive than naming a business around your product, like NetFlix, YouTube or, due to the longer consumer education process.  But, once the brand is built, they can be even more impactful to your brand long term, as your name could become the default lingo for your industry (e.g., "Google it" instead of "search it").

Your logo.  Your logo is the first visual a consumer gets about your company.  What does your logo visually represent about your business.  When we built the iExplore logo, we wanted a globe as the "o", as we wanted consumers to know iExplore could help them explore the world.  When we built the Red Rocket logo, I wanted startups to think we could help their business take off, like a rocket ship.  Amazon added the smile to their logo, because they wanted you to feel happy about your customer experience with them.  So, make sure your logo "tells the right story" for your brand message.

Your marketing tactics.  The demographics you market to, and the vehicles you market with, will directly impact your brand position.  You don't see Gucci or Armani promoting their brand in Walmart or Sears.  You see them seeking distribution in Saks Fifth Avenue and Neiman Marcus, luxurious department stores firmly focused on serving affluent consumers.  You don't see the Four Seasons or Ritz Carlton hotel chains cutting their prices, or offering deep discounts at Travel Zoo.  You see them maintain their prices, at 2x the level of a Hilton or Marriott, because they want you to have the perception they are the best, and worth the extra price.  So, give careful consideration to whom and how you market your business, how you set your prices and where you distribute your products, as these will all impact your brand.

Your marketing graphics.  Back in Lesson #23 I shared some iExplore advertising creatives.  We wanted our travel brand to ooze: (i) high end; and (ii) trusted; for (iii) once-in-a-lifetime experiences.  I think these creatives did exactly that with: (i) spectacular images; (ii) "inspected by" expertise; and (iii) our "Come Back Different" tag line.  As did iExplore's Corporate Branding Video which layered-on additional emotions with heart-pulsing music and an inspirationally written script.  So, the pictures you use and the words your write in your marketing materials will clearly emphasize your brand message.

Your communications.  How do you decribe your business on the "About Us" page of your website?  What are you saying about your business in your press releases?  What does the media say about your business?  What media outlets are picking up your story?  All of these communications related topics can and will impact your brand position.  So, make sure your pitch is firmly crafted and the media is fully grasping your story, both in terms of messaging and desired placements.

Your social media reputation.  In today's social media driven society, it is impossible to hide your mistakes.  Consumers have more power than ever to communicate their likes and dislikes of products and services via Facebook, Twitter and other vehicles.  You need to constantly monitor what is being said about your business, and take ownership for your mistakes and address them accordingly.  You will win more long term loyalty by properly handing your mistakes, than by pretending they never happened or trying to delete bad reviews.  And, I have news for you: angry customers will always find a way to get their message heard (in a louder way the longer it takes to get the issue resolved).  So, tackle issues head on, in a quick, user-friendly kind of way.

Your customer service.  Does your customer service experience back up the claims of your marketing efforts?  Because if it does not, your brand is dead.  Back in Lesson #33, we talked about The Importance of Customer Service.  Make sure you re-read that lesson and ensure your operations team knows the impact their actions have on building the brand.  Put the customer first, always!!

Your employees.  Most importantly, branding is much more than your marketing or operations department.  Your brand needs to be instilled in every employee of your company, regardless of their role.  Every staff member needs to know that their actions directly impact the company's brand, in one way or another.  How fast did the call center staff member respond to a lead?  How fast does your technology serve a web page?  How quickly does the finance department cut refund checks for bad service?  So, keep this in mind in hiring staff that are passionate about your product, and make sure they are well-trained that they all need to "live the brand" in their day-to-day jobs.

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Friday, August 12, 2011

Lesson #73: Consumer Usability Testing

Posted By: George Deeb - 8/12/2011

Following up on my previous lesson,  The 10 Basics of Website Design , I thought it would be a good time to discuss best practices for c...

Following up on my previous lesson, The 10 Basics of Website Design, I thought it would be a good time to discuss best practices for consumer usability testing.  Because at the end of the day, it is more important what your customers think of your website or product, than what your designers and developers think.  So, it is critical to get consumer usability testing into your design schedule right from the beginning, and iteratively therefrom, to ensure your user design is logical to your consumers and working the way you originally intended it to.  And, you never know what great ideas will initiate from your users, by playing with your website or product.  Not to mention, you will save hours of redevelopment costs by fixing issues as you go, as compared to launching an untested website or product, and having to restart from scratch.

There are many ways to do user testing, including: (1) in-person; and (2) via technologies.  We will summarize both of these methods below. 

In terms of in-person testing, you can do moderator-led focus groups before and after a user uses your website or product.  Before they use it, and before you start building it, you are trying to assess whether or not there is a real need in the marketplace for your product based on simple descriptions or example screenshots.  Users will tell you whether or not there is an actual need,whether or not they would use it, what features and functionality they would expect from the product, and whether or not they would pay for it (and how much).  This will give you a high level sense to meeting a known need in the market, and what consumers would be expecting.  And, when doing focus groups like this, it is important your focus group comprises individuals in your targeted demographic (e.g., gender, age, income, education), to make sure you are getting the best response possible (e.g., don't use a focus group comprised of lower income individuals for a luxury product).

Focus groups can also be done, immediately after a user first plays with your website or product.  To get their immediate reaction to whether or not they liked it, and what they see as potential areas of improvement. And, you would be surprised how much the answers to the same questions can materially change from focus groups completed prior to seeing the product, to after they see they product.  As an example, they may be willing to pay a lot more for it, once they see the product in action, meeting their real life needs.  And, focus groups like this are also good for A/B testing, in case you are not sure what direction to go.  This allows you to show the user two different options while they are using your website or product, version A and version B, and letting them decide which version they like better.

In addition to generic Q&A sessions at focus groups, there are also technologies you can use while the user is playing with your website, live in person.  For example, there are sophisticated helmets and cameras you can use that tracks a user's real-time eye movement, and heat maps what elements on the page attracted their eyes, in what order and for how long, to assess if that was the user experience and emphasis you were expecting.  For example, if their eye is focuses on a big picture of the product and misses the "buy it now" button, that could be a problem with the design.

But, the problem with in-person focus groups is that they can be time consuming and expensive.  You typically have to pay participants $50-$100 per session for their time, which certainly adds up with the scores of participants needed to get a good data sample, for each step of the design process.  The good news is there are many affordable technologies that can help you accomplish the same usability testing goals.

I am not a pro on all the various tools in the marketplace, nor have I used them all.  So, I did a little research on the internet and discovered this great list of 24 Usability Testing Tools from Craig Tomlin's usability testing blog.  Craig is an expert in the usability testing space and did a great job summarizing the pluses and minuses of the various tools you have at your disposal.  And many other readers of Craig's blog have posted additional valuable input, in the comments section.

The technologies listed cover the gamut of usability testing needs, from recruiting real users (with tools such as Ethnio) to conducting live one-on-one remote moderated tests (UserVue) to analyzing results of usability changes using A/B testing (Google Website Optimizer) to many more from there.  So, check out Craig's post, as it is very relevant to this conversation and will point you in the right direction.

Hopefully this lesson gave you a good sense to why you need to do consumer usability testing, and various ways to implement such, both in-person and via technologies.  If you need more help from here, Craig looks like a good guy to know (although I have not met him personally).  And, if you are ever in a jam, your marketing firm or development firm often have access to many good resources to assist you here.

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Thursday, August 11, 2011

Lesson #72: The 10 Basics of Website Design

Posted By: George Deeb - 8/11/2011

We have all visited great websites, and we have all visited terrible websites, and have a good sense to what users are expecting in deli...

We have all visited great websites, and we have all visited terrible websites, and have a good sense to what users are expecting in delivering a terrific user experience.  The primary design decisions are centered around the site's: (1) look and feel; (2) competition; (3) usability; (4) site navigation; (5) headers and footers; (6) home page; (7) interior page layout; (8) content/SEO goals; (9) templates; and (10) social elements.  We will discuss best practices for each below.

Look and Feel.  Here, we are talking about the graphics, colors and mood your site creates.  Such look and feel should be consistent with your brand.  So, the color scheme should match your logo and other marketing materials.  And, use graphics that are most consistent with your brand image and desired demographics (e.g., photos of teens, if you are targeting teens).  In addition, I am always of a fan of keep a site clean and uncluttered, doing more with less.  And, keep in mind, B2C sites are designed differently than B2B sites. And, even within B2C, best practices for e-commerce sites are different than content sites or social networking sites.  So, plan accordingly for your industry.

Competition.  You can't launch any website without first studying the key competitors in the marketplace to know what you are up against.  So, as an example, if you are launching an online video portal website, what are users used to seeing from sites like YouTube, Hulu, Netflix and Vimeo.  And, not only offering the core set of features and functionalities that these sites offer, but how are you improving on such experience to distance yourself from the competition, and emphasizing such key differentiators within your design.

Usability.  If a user can't easily and quickly find what they are looking for from a website, they typically get frustrated and move on to the next site.  To me, this element is the most important element in any website design.  As an example, Craig's List is not a pretty website by any means, but at least it is easy to use, which satisfies the needs of millions of users. So, make sure your users can find what they are looking for easily and quickly in your website design, within one click from the home page, where possible.

Navigation.  There are major navigation buttons, typically at the top of the page, including deep links therefrom as you scroll over the tab.  And, there are sub-navigation buttons, typically below major navigation buttons.  The major navigation buttons should most simply summarize the major content areas of your website.  For example, at iExplore, we had a "Trip Finder" tab to find trips, a "Guides" tab to research destinations, a "Community" tab to engage with other travelers, and a "Deals" tab for special travel offers.  These were the four primary areas of our website.  In addition, we had deep links therefrom, to assist with one click navigation from our home page.  As, an example, when you scrolled over the "Trip Finder" major navigation tab, the user could easily and quickly drill down to "Africa Trips", "Europe Trips", and "Asia Trips".  Sub-navigation tabs should be used for other important areas of your site, typically determined by key marketing objectives of the company.  These could include tabs like "Our Newsletter", "Our Blog", "Special Offers" or other important pages you think are important for your users to know about.

Beyond the content areas of your site, you need to incorporate other key elements into your major or sub navigation tabs, including "Contact Us" and "About Us" as two most expected tabs from any website.  I am also a fan of using a wayfinder bar, so the client knows where they are within the navigation of a site, from any page therein (e.g., Home > Trip Finder > Asia Trips > China Trips).  And, in all cases make sure your site includes a Site Map page, for users that need help navigating the site (and for the additional SEO benefits site maps provide).

Header/Footer.  The header is the top of every page on your website, and typically includes your main navigation buttons.  This is very valuable real estate, above the fold (within initial screen view) from any page a user is looking at.  Sometimes web publishers use areas of their header to publish advertising, or add website analytics tracking codes.  The key with your header is understanding that not all users enter your website from the home page.  Most likely, users are entering your site from an interior page indexed by Google.  So, use your header for the most important elements of your site that you want all users to know about, as it is often their first introduction to your site.  The footer is the bottom of every page on your website, and typically includes business or legal related links like "About Us", "Contact Us", "News", "Terms & Conditions", and "Privacy Policy" (which should be clearly stated on all websites).  So, think through which elements are most important for your headers (above the fold) and which elements are most important for your footers (below the fold).

Home Page.  A user needs to understand your business as quickly as possible from your home page.  To me, that typically includes a simple one-sentence description of your business front and center.  And, more often these days, that includes a prominently featured brand video for your business.  So, don't over clutter your home page with a lot of unnecessary clutter.  Make sure your corporate messaging is clearly understandable within the first five seconds after a user lands on your website.  In addition, whatever core site functionaly that drives revenues for your business should also be front and center.  As an example, on Expedia's website, their Air/Car/Hotel Search Engine is prominently featured, as it is the core of their business.

Interior Page Layout.  As for interior page layout, there a lot of ways to design a page.  You could have one column, two columns or three columns, depending on your needs.  The number of columns is typically driven by business needs (e.g., showing related links to the page you are on) and advertising needs (e.g., making room for advertisements to be published on your site).  As an example, on iExplore's "Guide" page for Egypt, we would have a left column including a table of contents for the Guide (e.g., When to Go, What to See, Geography, Climate, Culture, Photos, Videos), and our right column would publish advertising.  Figure out the needs of your business, and plan your interior page design accordingly.

Content/SEO Goals.  Website content can only be consumed in small amounts.  So, I recommend only a few paragraphs of content on each page, above the fold where you can.  Users simply won't read long pages of dense content online, as they would in a printed newspaper or book.  So, keep your content messaging short and sweet.  And, if you need lots of content for whatever reason, break it into digestible amounts on separate pages.  But, more importantly, content is king for getting you indexed in the search engines.  The more content pages you can publish, the better it is for getting lots of pages into Google's index and driving free traffic for your website.  So, as part of this, make sure you put as much attention into the code of your page (e.g,. title tags, photos tags, content density of keywords, metatags), as you do into the content itself.

Templates.  Design your website in a way that it can easily be re-skinned for third parties.  For example, iExplore not only ran their own website, they also ran the adventure travel websites for Expedia, Travelocity, National Geographic, Discovery Channel, Lonely Planet, Fodors and Frommers.  Each of these strategic affiliates required iExplore to publish such sites in their respective look and feels, and with their headers and footers, for a seemless user experience.  So, if affiliates could be important to your marketing efforts, make sure your website is built in a way that it can easily be re-skinned and templated per the needs of your partners.

Social Elements.  Socially-driven functionality has become mandatory in any site design these days.  This not only includes links to your blog, Twitter page and Facebook page, this includes incorporating the ability for social sharing within the actual user experience.  So, when a user sees something they think their friends will like, then can easily email it, or post it to their own Twitter and Facebook pages, to get that viral buzz growing for your business.  And, more sites these days are including the "Feedback" buttons on the left side of all pages, to get real time feedback from their users, to help improve their user experience.

My recommendation is to engage a website designer that has a proven track record of success and is up to speed on all the current user expectations.  Make sure to look at their portfolio of sites, to see if you think they are nicely designed.  And, be sure to ask to speak to their references, to see how the design process went, including listening to guidance, providing valuable input, hitting desired timeline and hitting desired budget.  There are many good design firms out there, including Doejo here in Chicago.  But, let's be clear: not all designers are created equal.  You have to do your home work to save a lot of unnecessary heartache and wasted redesign expenses down the road.

But, more important than anything is doing a lot of focus groups and consumer usability testing early in your design process, to make sure users "get it" and understand how to use your site, as intended.  I will tackle usability testing in my next lesson.

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Wednesday, August 10, 2011

Lesson #71: Launch Fast! Fail Fast!

Posted By: George Deeb - 8/10/2011

A few key words of wisdom I give entrepreneurs is: (i) launch fast; and (ii) fail fast.  I'll explain more of the guts of this guida...

A few key words of wisdom I give entrepreneurs is: (i) launch fast; and (ii) fail fast.  I'll explain more of the guts of this guidance below.

Launch fast simply means figure out a minimal viable product (MVP) and get it into the market as soon as possible.  Too often an entrepreneur wants to build a "Rolls Royce" solution with all the bells and whistles that are in their head, instead of simply launching a functional "Ford" to start, and evolving to the "Rolls Royce" over time.  The MVP advantages of the "Ford" is: (i) it is less expensive to build with your limited startup capital; (ii) it can get your product in the market faster, before your competitors do; and (iii) it more quickly allows for consumer testing, to ensure consumers really like the core service and truly need the additional luxuries that would get built into the "Rolls Royce".

Fail fast simply means you want to learn whether or not your model is working, and has a reasonable chance for profitability and long term success, sooner than later.  Too often an enterpreneur: (i) hasn't clearly identified the key success metrics for their startup; (ii) doesn't put the proper tracking and processes in place to ensure such success metrics are met; and (iii) hangs on trying to keep a bad idea on "life support" for too long, simply because they can't walk away from their "baby".  All that does is continue to invest "good money" after "bad money", and exacerbates your pain and capital lost, when you ultimately have to shut the business down.  So, make sure you are clear on your ultimate success metrics and pull the plug sooner than later, as soon as it becomes clear you are not heading towards long term success.

Too often, an entrepreneur is afraid to fail, and unnecessarily prolongs their misery.  The sign of a smart entrepreneur is one that does not get too emotionally invested in their idea (to being blinded beyond the point of rational business judgment) and knowing that failing is OK, allowing you to "fight another day", albeit in a new startup or different direction that has a better chance for long term success.

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