BobDorf is the world famous guru of startups, consultant, author and successful entrepreneur, under whose leadership eight companies have successfully entered the IPO. Thanks to his solid experience, Bob Dorf has more than valuable knowledge in the development and launch out of various startups. How to formulate the idea of a startup? What should be its team? Where to find funding? How to build a business plan? Dorf's answers to these and other important questions for the founders have helped many businessmen around the world to make their ventures successful.
Bob Dorf explained to E-xecutive.ru. how to program the startup for success.
E-xecutive.ru: What happened to Webvan?
Bob Dorf: Webvan stuck to its business plan with a single-minded focus, hiring staff, building warehouses and spending large sums on marketing and capital equipment. They kept executing their business plan as if everything was fine, but failed to ask, “Where are the customers?” By assuming they knew who the customer was and what he or she wanted, Webvan scaled prematurely—long before they realized that their customer repeat-purchase rate was nowhere near the revenue model that was the underpinning of their financial plan. By the time they noticed the lack of high-frequency repeat business, they’d committed much of their capital, and the real results showed that the guesses or hypotheses proposed in their revenue plan were wrong in dramatic proportions. But by then it was too late to fix them and the company went out of business.
E-xecutive.ru: What do you mean by the presentation of the idea to the market has changed?
B.D.: Sorry I don’t understand the question. The key failing was the signing of a $2.6 billion contract to construct 26 more automated warehouses for grocery delivery nationwide, long before they had tested and proven the validity of their forecast that most customers would repeat their order process each week.
E-xecutive.ru: What changes didn’t they take into consideration and what was the reason of the bankruptcy?
B.D.: Webvan didn’t acknowledge that its business plan was unrealistic and scale back or retrench; instead, it forged ahead, sticking to the plan and continuing to spend. As is typical with many well-funded startups, particularly during the US “internet bubble” period, entrepreneurs assume that because investors have put money into their business, the investors are endorsing the business plan exactly as written. The entrepreneurs then just go forth and do exactly what the business plan says, and stop talking to or observing customers to see if the customers actually do what the business plan says they are supposed to do(like buy once or more a week, for example, which very few Webvan customers did, even though the plan said they would).
E-xecutive.ru: What is the difference between the Turn and the Failure? (рicture 2.1 of your book).
B.D.: Failure is a normal part of the startup process and should be embraced, because it helps founders learn. Pivots are responses to those mistakes. A pivot is a major change to one of the nine business model hypotheses based on learning from customer feedback. Pivots happen often in Customer Development. A pivot is not a failure, provided the founders learn from the result and use the learning to improve the business model based on failed customer enthusiasm for some aspect of the business model (which can be price, channel, and other things that are not about the product itself.)
E-xecutive.ru: What of the Turns is more difficult for the startup in psychological/ management / financial terms?
B.D.: A startup’s founders and its investors must recognize that a startup is not a business at all on its first day, but instead is a team of passionate people launching a search for a business model that is repeatable, scalable, and profitable. This means that everyone involved must be comfortable that searches are not linear and cannot be accomplished on a timetable. When you search for gold, you find it when you find it, not on a date certain by any means. This is the most difficult thing for the startup team—and particularly the investors—to get comfortable with. …the uncertainty. Very few startup business models from the first day of the startup’s founding will look very much like the successful business that emerges much later, particularly when Customer Development methods are used to iterate and evolve the business model with agility and speed.
E-xecutive.ru: How long time does it usually takes to state the idea?
B.D.: It is very difficult to put a time frame on this. One of the brightest entrepreneurs I’ve met in a long time spent six full months conceiving and refining six different business models—the crisp, simple statement of the key business elements. After six months, he quit his fulltime job, Moved to Moscow, and began reviewing, comparing and contrasting the six different businesses with venture capitalists, other funders, and with other entrepreneurs. When he obtained concensus about which of the six was the strongest, he began to work on building his business.
E-xecutive.ru: What is the real start of startup?
B.D.: A startup begins with the vision of its founder(s), one or several people who are passionate about a new way to solve a problem or fill a need. Founders use that passion to attract other team members to the task, and to aggressively drive customer discovery feedback that makes the business idea far stronger. In our view, there are no part-time startup entrepreneurs; thus the startup begins when one or more founders commit to giving 100% of their time, energy and passion to the new idea. At that point, they begin drafting an initial business model that is the starting point for their search for all the key elements of a successful company.
E-xecutive.ru: What is flexible model of business?
B.D.: A business model describes the flow between key components of the company, including value proposition, customer segments, distribution channels, customer relationships, revenue streams, resources, partners, cost structure and activities necessary to implement the business model. It is used to track a startup’s progress through the Customer Development process.
E-xecutive.ru: How flexible should it be?
B.D.: It should be very flexible. Founders will update the business model at least weekly to reflect the learning and insights gained from getting outside the building and talking to customers. Almost every business model for a successful business has changed radically from start to success. The startup process is quite Darwinian in nature. Only a few of every thousand startups actually evolves as a great, sustainable company. Most if not all of those have iterated their business models repeatedly on the road to success.
E-xecutive.ru: Russian consultants think they are able to provide startups with the good advices for the business development. Do you think the consultants really can?
B.D.: The first ingredients in a successful startup are passionate, highly skilled, dedicated team members. Nothing can replace those ingredients. And the starup idea has to fill an urgent customer need or solve an urgent customer problem in order to have a market, or demand for its products. Since very few startups are adequately funded in Russia or anywhere else, it is problematic for startups to find the capital to hire outside resources like consultants as a rule. They’re better off finding founding partners with expertise in specific areas like product development and sales. What’s more, you cannot expect the proper level of commitment, intensity and availability of consultants, especially not on a startup budget. So the startup must build its expertise from within. Sometimes, consultants in specialized niches(web user interface, digital marketing) can be employed on a short-term basis to help the startup in a very specific aspects of their business. But the costs of outside consultants are most often a luxury few startups can afford.
E-xecutive.ru: Can the consultant replace the market opinion by himself?
B.D.: It is highly unlikely. In recent years, the only force that has changed a market opinion is massive viral marketing. Instagram, for example, achieved tens of millions of customers in its first few short years—not because of a consultant, but because the product was extremely exciting to consumers, who were eager to share the results of their Instagram use—and referrals to the company—with their friends.
E-xecutive.ru: Have you ever seen the crowd sourcing incubator for the startups?
B.D.: I don’t know what this means. I have seen crowd-sourced funding for startups, and this is becoming quite popular in the US, namely soliciting modest prepayments from many customers in order to fund the startup with customers’ cash. This is governed by many regulations in the US, because it’s a form of capital raising, which is most often regulated. There is an increasing number of complaints from people who sent money to purchase a product from startups, but were never shipped the goods.
E-xecutive.ru: The community of managers E-xecutive.ru is going to set up The Intellectual incubator Startup.exe to support the development of the startup ideas. Is the crowdsourcing good for the incubators?
B.D.: There are many venture competitions that bring startup ideas together to gauge their interest among innovators and investors. In my experience, crowdsourcing can be a valuable tool for a software application or a physical product. So this is one avenue of funding, far less appealing than obtaining some seed capital from the incubator. Crowdsourcing is very new in the US and is making some headway, but also facing challenges such as the lack of delivery on promises by startups who raise money by pre-selling new products. I am not sure how quickly this unusual, very American idea will catch on in other markets.
E-xecutive.ru: Have you ever seen the crowd funding of the startups?
B.D.: We are seeing a surprising number of crowdfund financings in the US. Mostly they seem to be for products rather than services, since people generally want to get something for their investment. There are regulatory issues and our government is investigating the propriety of crowdfunding to protect unsophisticated investors. There are some real success stories, but they are few not many. I am not yet confident that crowdfunding is a powerful technique for truly scalable startups striving to be huge. Here’s a good article about the subject: http://www.nytimes.com/2013/01/06/business/crowdfunding-for-small-business-is-still-an-unclear-path.html?pagewanted=all&_r=0
E-xecutive.ru: What is the difference between Bangalore, Israel, Shanghai and other New Silicon Valleys?
B.D.: Very hard to generalize, but if you compare any of these “new” Silicon Valleys to the real thing, the “old” one, these are the major differences.
Silicon Valley has a complete entrepreneurial ecosystem, including smart founders, skilled developers, lawyers and accountants who understand startups and termsheets; investors who are comfortable with the risks of early stage investing; and perhaps most important a culture where countless seasoned successful entrepreneurs are willing to coach, mentor, and give advice to the next generation of entrepreneurs. In addition, as my partner Steve Blank says, “geeks don’t buy airplanes and Porsches, they invest their riches in companies.” As a result, every time there’s a successful IPO, it creates scores or hundreds of new millionaires looking for the next great idea to invest in, advise, and prosper.
Silicon Valley has many, many successes to look back at, and these successes encourage the entrepreneurs and investors to move forward and take the necessary risks to succeed. This does not happen in very many other geographies. Even New York is only recently reaching this point in its “success track,” stimulating further startups based on past successes.
E-xecutive.ru: Do you have an idea what the Russian startups are?
B.D.: I have met with about 75 or 100 startups in my trips to Russia to teach at Skolkovo and visit with founders, investors, incubator managers and the like. My biggest concern is their general weakness in customer-facing issues such as marketing, customer acquisition, web UI, and competitive differentiation. And there are too many clones, and not enough truly revolutionary thinking. The market for internet commerce is very early and fragile in Russia, which adds to the challenge, as does the relatively low level of internet penetration. I do find that many Russian startups offer bold innovative ideas, based on the many brilliant scientists and engineers trained and “grown” in your country. But they and many Russians fail to recognize that a successful startup is much more than just a product or a piece of software—it’s a complete business model that is scalable, repeatable and profitable. Until Russian entrepreneurs learn this—I hope with help from The Startup Owner’s Manual—Russian startups will not blossom as fully as I hope they will someday.
