Startup-CEO.com (Eli Portnoy)

Why is it that there is nothing worse than business travel? For all of the advancements we have made in the past 50 years, air travel has continually deteriorated. And no, I am not just talking about taking off our shoes, or checking in liquids, I mean the entire flight experience.

Last night I flew to Mexico City to visit our customer service office. I have never had such a horrible experience. My flight left at 1:50am and was supposed to arrive at 6am. Not only was the flight delayed, but everything about the flight experience was terrible.

One hour and fifteen minutes into a redeye flight, as you can imagine most passengers were sleeping, yet that is exactly when the flight crew decided to turn on all of the lights to serve drinks. This was incredibly insensitive to the needs of the passengers, and completely unnecessary. It would have been just as easy to serve with the lights dimmed or even off. There was no need to wake up the entire plane.

This might be a unique and extreme example, but it points to a deeper issue; flying comfortably is no longer a concern of the airline. They want to get you from point A to point B, much like they would any other type of cargo.

This is not just a rant against the airlines – there are great business lessons to learn about customer service and customer satisfaction. I believe that the problem’s the airlines are having with customer satisfaction doesn’t stem from the reduction in services (food, blankets, pillows), but from a change in the airline’s culture and attitude towards the customer. When Delta or American Airlines stopped providing pillows, they sent a message to all of their employees that customer service was secondary to cost cutting. The message they should have worked very hard to communicate was that everyone in the company will now have to work especially hard to satisfy its customers to make up for the lost perks and benefits of flying. Think about JetBlue or Southwest, by far two of the most beloved companies in the sky, and neither of them ever served meals. The difference? Their culture and attitude towards the customer.

So as a CEO, whenever you think of your customer don’t automatically think of adding extras and perks to keep them happy, but perhaps consider working on the culture of your business, and making it as customer friendly as possible. The customer knows when a company is trying to serve them because it loves them, or when they are throwing in perks because they want to get more out of each customer.

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There is a prevalent theory that in today’s world of limitless communication the easiest way for a start-up to launch is to rely on viral marketing. The idea is that whatever product or service you are introducing; the main distribution platform should be word of mouth. Proponents claim that the internet lubricates viral commiunication. They point to the successes of YouTube, MySpace, Skype, Facebook, and Flikr and infer that because these sites grew exponentially through word of mouth and they are internet based, that therefore all consumer facing internet properties can and should be distributed the same way.

I read a post in startup-review.com about Myspace. What I found most fascinating is that the launch for Myspace.com was more traditional than it was viral. It was only after it had achieved a certain user base that viral tactics began to work. This is an interesting fact that calls into question how a company should market itself in the internet age.

If we analyze the five companies that I mentioned as examples: Youtube, myspace, skype, facebook, and flikr, an interesting trend emerges. They are all products of the network effect. What I mean by this is that these sites are completely worthless without a network of people. Much like the fax machine is useless unless at least two people have it; these sites need a significant users base to be effective.

Youtube needs uploaders and downloaders. Myspace needs profiles and viewers. So does facebook. Skype needs callers. Fliker needs photos and views.

These sites did not work because of viral marketing, but rather they received viral marketing because they worked. Myspace and Skype are the clearest example of this. They both started with great distribution platforms, and only once they had that core group of users did these sites become more effective and worthy of spreading virally.

A second misconception is that a network site, once it has the network, tends to attract an even bigger crowed because it has a bigger pool of advocates to spread its message. While this might play some role in the equation, the reality is that the more of a network a site has the better product is, and thus it becomes an easier viral sell. As the site gets better and better, it is able to get users to speak about the product, and has an easier time keeping new members. It was only after our example companies became effective through their primary distribution channels that they started seeing their exponential growth.

What I am saying can easily be applied to the pre-internet fax machine. Initially it was difficult to sell a fax machine because there was no one to send faxes to. A lot of marketing and sales efforts were spent getting these machines into the hands of a few businesses, and eventually a network of fax machines was formed. The value of each fax machine increased exponentially, and before anyone knew it, people were jumping to get their hands on one of them. The viral/buzz was created not because there were more evangelists out there, but because the fax machine was becoming a really indispensable product.

Viral, word of mouth, buzz, and all other web 2.0 fads are great in theory, but in practice, if you want to build the next great consumer facing application, and rival the success of skype, myspace or facebook, then make sure you have a strong distribution network in place first.

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On Tuesday of this week I was invited to meet with a substantially large company. We were there to discuss our services and whether there was room for a joint partnership. I sat at the conference table in front of a two sr. executives and a product-line manager. The combined age of the 3 people I met with was around 6 times my own age. For every one of these meetings that I had attended, they had been to hundreds. They knew this and they tried to make the most of their “advantage”.

Experience is critical in business, and there are no books to read, no lectures to attend, and no shortcuts to take. It comes slowly, painfully and naturally.

We young entrepreneurs might not have the same experience as those who have been at it for 30 years, but our youth is a strenght as much as a weakness. We are able to bring energy and passion business and as long as we surround ourselves with experienced advisors, I like our chances.

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In yesterdays post I wrote about the importance of good projections when making purchasing and hiring decisions. In some cases though, it is impossible to make even remotely accurate projection.

Take for instance a web-based business about to launch that is trying to determine the amount of users and bandwidth that they will receive six months from now. They will most likely have an excel spreadsheet where they use the size of the market and a few other numbers to determine how many users will be on the site in 1,3,6,9,12 months and even as far out as 5 years. Not even the founders themselves will believe these numbers (most likely because they will think to themselves that they are being conservative). There is a 1 in a 1000 chance that the site will become the next youtube.com and hit the founders projections, but most likely the actual figures will be significantly lower. 

Having worked at a top management consulting firm, and having done countless market sizing projects for Fortune 500 companies, I can tell you with certainty that it is not only startups that have trouble with certain projections.

So the question for a startup CEO is how to make decisions where there is little concrete information, but where being on the low-end of the equation is equally as catastrophic as overspending on overly optimistic goals. 

A simple, yet effective, framework for making such decisions that we have started to use is to find what we call the “upgrade sweet spot.” That is getting to the point not where you can handle your expected traffic, but where you can easily upgrade to handle it later.

This means that you don’t need to spend the bank to be fully scalable today, and don’t skimp out so that you will have a problem tomorrow, but rather spend to the point where you can easily scale-up if it becomes necessary.

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So much is said about how critical it is to be scalable, but probably equally, if not more important, is not over investing in infrastructure. As a startup CEO, some of the most difficult issues that you must consistently grapple with are projections. Most startups live and die by their monthly burn rate, and so keeping costs under control is paramount. At the same time, most purchasing and hiring decisions have to be made a few months ahead.

What this means is that startup companies are always pressed between projecting growth and containing costs, and even the slightest mistake will derail the entire operation. In our early days I was much more optimistic about our projections and tended to plan accordingly. This meant that we had excess office space, staff and hardware capabilities, and it almost killed us. 

At the same time, under planning is equally as dangerous and much harder to swallow. It could potentially lead to the business dying because it couldn’t grow fast enough. That is like loosing out on the lottery because you didn’t have enough gas in the car to pickup the winnings.

After it became evident that our projections were killing us, we tightened all of our metrics, assumptions and growth rates and we gained experience. We also put a lot of emphasis on our projections and assigned responsibility and accountability for the numbers we were getting across our small organization. Over the past few months we have been getting better and better at projecting not only revenues and costs, but also users, bandwidth, hiring needs, and everything else that we depend on. 

If you are just starting a company, I strongly recommend that you do everything you can to manage projections, and to work as hard as possible to make sure that you have a good handle on them, because your business will live and die by them.

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A few days ago someone compared our trajectory to that of an old fashion popcorn popping experience.

Popping popcorn the old fashion way consisted of dumping the kernels in the pot, turning on the stove and waiting, waiting some more and waiting a little bit more. Just when you waited so long that you felt like it was time to just do without popcorn, you hear a pop, and then another, and another and another, until the entire kitchen comes alive with popping sounds.

I think it is the perfect analogy for a start-up. You put in so much time into getting the business ready, and aside from a few very lucky companies, results don’t happen soon or fast afterwards. Rather you wait, and you keep chugging along, until you cant wait any longer, and all of a sudden one good thing happens, followed by another, which leads to another, and before you know it things have picked up.

So if you are just starting or thinking of starting a business, bear in mind that the road will require patience. If you are already in the game and nothing seems to be working initially, don’t give up, it never happens right away. And if you are hearing popping all around you, congratulations, there is no greater feeling in the world!

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