Just Do it – Right from the Start!

The most frequently asked questions I get from entrepreneurs center around what’s the best way to start a company and raise money. As many of you may know, I am on a mission to not only demystify this process but also to openly and transparently streamline the path entrepreneurs take to realize their potential. Hence, the creation of my Startup Secrets series. This article is a case example of how to not only just do it, but get it right from the start.

It always starts with people

The most important decision a VC makes is whom to back. Our best results come from backing entrepreneurs who are uniquely qualified to solve a problem.

It gets really exciting if the problem addressed is big, difficult and is some combination of Urgent, Unavoidable, Unworkable and Underserved. (For more information on these 4U’s and other ways to get started, see the Startup Secrets workshop on Value Proposition and this LinkedIn post on "As a Budding Entrepreneur - Where to Start").

Then on a personal level, it becomes just plain irresistible when a team forms that is dedicated to solve these types of fundamental problems with a strong culture and a clear vision/mission to build a big company.

Enter Jason Purcell, Jeremy Redburn and Rob Gonzalez – a founding team who are not only seasoned entrepreneurs but who have been extremely thoughtful in the way they approached the whole startup process, forging a distinct culture and tackling a clear problem with a vision into a huge market.

Startup Secret: People uniquely qualified to solve a big problem with a vision and culture to execute have an immediate competitive advantage.

The VC perspective

As VCs, we have no job without great entrepreneurs and market disruption, so I track both. I came to follow this team through their success at Endeca and I have tracked both the ecommerce and content space for over a decade through my industry focus and work on things like the future of cloud computing survey. I also, of course, have relevant investments such as Demandware and Acquia in these areas. So you could say I knew I’d want to invest in this team in this space before they even pitched; and that would not be an overstatement.

But here’s the cool part. They were smart enough to figure out for themselves what they needed and who they wanted as investors for their own reasons. I encourage entrepreneurs not to think about this as raising money, but finding a fit and building a partnership with all their stakeholders, particularly in the early days of a company. (See the Harvard i Lab workshop on Funding Strategies)

Engaging

When I first sat down with this team in the fall last year, it was just the three founders. But they immediately talked about the ecommerce market, issues they’d seen with it and their vision. They got me intrigued and we agreed to start talking about how the vision would evolve and in each meeting they proved their ability to rapidly iterate with customers and focus their thinking. The voice of the customer and their vision about the market was clearly in their DNA.

This is really a parallel process. For example, one is constantly building the relationship and experiencing how we work together.

In the early part of this year, they really impressed me as they were preparing to make their first few hires. They attended one of the Harvard i Lab Startup Secrets classes and invited me to do a private workshop on one of my favorite topics -- Culture. (For more information on that Culture Vision/Mission see the workshop on Company Formation) The fact that this team saw it as a priority for themselves this early was just plain impressive. Jason led the charge about finding consistency in order to hire the right people. In our session, he and the team discussed important values they were looking for, such as smart people whom they could empower, who would be good listeners and learners to bring them on and enable them to run fast.

First meetings at WorkBar Boston

During that session the founders began to infuse their vision and mission into their corporate culture to get everyone on the same page and energized around the same goals. Companies that do this early can apply all their energy to important external goals like winning in the market.

Startup Secret: Operationalize culture to harmonize internally so you can focus externally.

Subsequently, as the founders have hired their first team members, their idea of empowering individuals has become operationalized and ingrained in their culture.

They have hired extremely bright people and given them the freedom and flexibility to figure out new ways to do things, to work independently, to create, to fail – all while giving them support but not dictating what they do.

Startup Secret: "People perform best when they are free to think in an unconstrained manner focused around a clearly-defined problem."

One recent example is with an intern, now a full-time employee, who was a journalism major with no marketing background. They gave her the responsibility of owning collateral creation to help the sales process. She was free to experiment, interview designers and interview customers in the field. Needless to say – she flourished with the assignment and has subsequently been hired full time.

Timing is key to Funding

As I mentioned earlier, I started to work with these entrepreneurs over a year ago during their process of defining the market challenge they were trying to solve. After testing the idea repeatedly and considering many different angles, they realized the problem was real and began to hire against that problem while bootstrapping the company. At that point, a lot of companies would have jumped right to getting funded. In fact, they knew I understood their market space, the problem they were solving and that I thought of them as a tremendous team. At that point, that’s more than enough for me to fill any other gaps in the early stage. And we don’t expect early stage entrepreneurs to have all the answers before we fund them! (See "Entrepreneurs don't need all the answers") But to their credit, the founders did not want to just take money.

Startup Secret: The best time to raise capital is with (a) all the potential or (b) plenty of proof.

Salsify decided to show both potential and proof. While they certainly had tons of potential having refined their idea and problem set; they wanted to get a better sense of what the market validation for their potential solutions was. To do that, they bootstrapped the development of their Minimum Viable Product (MVP) and then started to get feedback from initial customers including cosmetic manufacturers, a consumer electronics retailer, industrial parts manufacturers, a medical device distributor, and others both in the U.S. and Europe. This really helped them to hone the value proposition that they ultimately synthesized as, “It’s like GitHub for product content management.”

The Value Proposition framework we used works as follows:

• For (target customers) -- Manufacturers, Distributors, and Retailers who sell products through online channels (their own websites, retail and distribution partners, marketplaces such as Amazon.com, etc.).
• Who are dissatisfied with (the current alternative) – Who lack a flexible solution to store all product content in one place so it’s easy for teams to collaborate in real-time and for marketing to create a customized feed for each downstream retail channel.
• Our product is a (new product) -- Cloud-based Product Content Management Platform.
• That provides (key problem-solving capability) -- a global network for companies to create, manage, and exchange all product content - including images, attributes, product relationships, etc. - with each other.
• Unlike (the product alternative) -- existing enterprise Product Information Management (PIM) systems that do not allow marketing teams to easily exchange data with their partners, or product data syndicators which only provide a one-size-fits-all version of products to retailers.

Along the way, we also tackled one of the other core areas that follows MVP, The Minimum Viable Segment or MVS. (For more information on go-to-market segmentation and targeting see this overview and this presentation on turning products into companies).

Next, I invited one of my old friends, Geoffrey Moore, (author of “Crossing the Chasm”) to join us for lunch. Geoffrey was quick to point out the criteria needed to find visionary early adopters and we discussed what segments we might find them in.

May - working lunch with Geoffrey Moore and first napkin sketches of MVS thinking.

This kind of work helped the team focus their early go-to-market thinking and validation. It caused them to throw OUT a few early inbound inquiries, again showing the team’s discipline in not pursuing just anyone that pursued them.

Startup Secret: "Don't just pursue anyone that pursues you. Pick all your early stakeholders such as investors and even customers to carefully fit YOUR needs."

Only then did the team turn to funding and decide whom it wanted as a funding partner. In their words "It was less about the money and more about finding a partner who would add distinct value to the team". We’re pleased they decided to work with us and also subsequently chose another great investor in Matrix Partners who we’re excited to work with. We jointly believe they’ve certainly taken the right initial steps to set them up for success in the future.

The founding team taking an ice cream break at our home, during a day of waterskiing, tubing, knee-boarding, kayaking, paddle-boarding, badminton, volleyball and general consumption and exertion to celebrate the series A closing!

So after several months of working with the three founders from the earliest days of their idea, we are pleased to announce the official launch of Salsify and $8 million in Series A. This is just the start – and imho they have done it right from the start. Here's to many more great entrepreneurs learning from their approach and getting the funding they deserve to pursue their dream.

Of course there's more than one right way to start a company so please share your comments of what you've learned from your start below...

With thanks to : The Harvard i Lab, The team at Salsify, my partner Ric Fulop, David Skok, Geoffrey Moore. To learn more, please visit www.salsify.com.

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At Underscore VC, Michael and his team partner with daring entrepreneurs to invest in founders and build from inception to market leaders. As a former entrepreneur turned VC, Michael has backed and built teams that have created billions of dollars of value focusing on large, market-changing technologies such as Cloud Computing, IoT and Big Data as well as disruptive business models such as Open Source and SaaS. Current representative investments include Acquia, Cazena, Demandware (NYSE:DWRE), Mautic and Salsify.

Follow Michael on LinkedIn, Twitter @mjskok, his website, and in his Harvard Innovation Lab class, Startup Secrets. Follow Underscore VC on the web and Twitter @UnderscoreVC.