[Music] hello everyone welcome to the Harvard Innovation lab um this evening we have Michael Scot back uh for what uh I count to be more than 10 times to present his startup secret seminars um thrilled that you guys are all here this evening um tonight Michael's going be talking about turning products into companies and uh without any further Ado I want to turn it over to Michael so thank you all for being here thanks very much Neil get way and uh I hope that we'll have a lot of fun this evening as usual because we've
got two great guests so I'll get quickly into introducing them but I want to give two minutes background on this evening's session so as you know startup Secrets started as a course that would help people who have not had the chance to go through an experience of starting a business to find out what's it like and what are some of the things that you might want to think about and it's a a program that's really designed around the idea of having a framework rather than answers the framework being a basis for you to investigate the
right areas and the case studies and examples that we bring being examples that hopefully will stimulate you to see what comes into practice when you're actually doing your own business but as we did that framework one of the things that kept coming up is that people start in many instances with an idea or a product and I know a lot of you are in that category here this evening too and when you start with a product and you've got an idea about how you might build something a lot of questions come up that are unique
to you as a perhaps a developer or how have you think of yourself as a product designer or perhaps just an entrepreneur who's trying to go after a new Marketplace and so this evening session specifically came out of all the questions I've been getting or we've been getting as uh a stream of Consciousness for people who are trying to take that product and turn it into a company so with that let me introduce our two guests uh first of all we're lucky enough to have Greg favalora Greg if you'd like to just stand up and
make sure people know welcome here thank you Greg so Greg is actually going to give us a story that I feel is very moving because he's brave enough to share all the challenges he went through of having developed a technology that really struggled to find its market and because of his learning and experience he's obviously gained so much and he hopes to share that with you in a way that you can step through that experience hopefully without some of the challenges that he went through over many years and then we're lucky enough to have a
multi-time successful entrepreneur and founder who we've been who just recently backed again John mlan um welcome so John is um most recently CEO of of Belmont systems but is going to give us the case study on solid works so what do these two companies have in common actually a lot as it turns out both of them are involved in the 3D World so that said let's jump into the mainstream of tonight so which do you have is it a feature a product or a company now maybe you don't think of this question but as a
VC this is exactly how almost every entrepreneur that approaches us quickly gets qualified and um interestingly enough tonight we're going to think about is 3D something that's actually a feature a product or a company and we're going to have two examples about it but what I hope you will get a chance to do is start to ask yourself the question in terms of how you frame your own idea is your own idea just a feature or something you really believe could be a big product uh or more importantly something that you're willing to invest your
life in to build a company so how much you go about doing that well let's start off with a challenge to each of you there are five things I've put up here messaging photo sharing checkin and directory um I'll give you a clue each of these has turned into something so I just want to start by asking anybody in the audience is messaging a feature or is that a product or a company what does anybody think Fe feature how many let's have a show of hands for feature okay lots of features on this actually quite
a lot lots of people saying features okay how about those who think it's a product about another I don't know 20% or so okay who thinks it's a company very few people okay so we'll see about that one okay just uh we'll we'll bear in mind what you said I'm going to ask a question about um let's see what about check-in how many of you you use some kind of check-in when you go to a location you is anybody a mayor of something show show of hands for a mayor any any Mayors here we got
one mayor only one mayor can't believe it come on this is a social group all right uh is that a feature a product or a company Feature Feature lot of featur anybody think it's a company it's a okay but does that mean it's a company just cuz it is today does that mean to say it's going to be a longlasting company all right I've I've already tipped my hat here clearly everybody's on to the four square one so messaging a lot of you said that you thought that was a feature about a third of you
uh but messaging is all that Twitter does basically they took SMS and moved it online and guess what there's quite a lot of people who use that so maybe we now have a different view of that it's it's a it's certainly a product and I would argue that some people think it's going to be a very big company we don't know yet of course and we could could send that now directory I mean directory of friends if somebody said to you okay that's all I'm going to do is give you a directory of friends you
probably wouldn't have thought that would become a billion user Network called Facebook and that's part of the challenge of this if you look at any one of these things they might start as a feature and turn into a company now one of the ones that I didn't talk about intentionally I didn't quiz you on is photo sharing but I can tell you I would never have expected photo sharing to go from zero to a billion dollar valuation in a little company called Instagram with the pace it did so how did that happen I mean was
did they just get lucky or was there something that they did that was right or maybe it was a combination so these are the things that I think we want to investigate tonight we want to try to figure out you know what is it that makes some of these just a feature and some of them into a real company my favorite example is this one when the iPad was first announced there were a lot of people who just wrote it off oh it's just a big iPod it's going to do nothing significant in fact it's
staggering that you know Apple could come of such a crazy name you know it's just like how could this possibly be anything significant it's become the most successful single consumer device ever it's changed almost everything we do in fact we now talk about the post PC era because of the rise of the tablet and what was going on there was probably something that every one of us hopes that we'll have which is somebody had some Vision which by the way in Jobs's case he he declares that he never even asked audiences about it uh to
say that things would change if you gave all these capabilities to people into a magical device so some people have this in in a very you know Visionary way other people have it in a very disciplined way the point is there are probably all sorts of different ways and no one answer that you could turn a a feature into a product into a company but whatever happens I do think it's worth stepping back and trying to figure out what can we learn from those things so you know shift happens that's my polite way of saying
it uh and we're going to hear that story uh from you know Greg because he has some pretty good examples of you know what it takes along the way and what I really want to point out here is that you know you might have a great idea as you start the initial process of building your product or company but things change dramatically markets in particular and the pace at which they change sometimes is phenomenal for example the mobile world is probably the fastest changing Market segment I've ever seen just by virtue of the adoption curve
that it's on so during that period what you don't want to do is is OB yourself find yourself dropping into this Gap where you've developed something fantastic but unfortunately it doesn't take off like the iPad and you finding yourself now you know with a lot of investment behind you maybe your life uh wor still your life savings uh and you just don't have the either momentum or the hoods SP to get across that Gap and I will tell you that's probably at least 2third of the companies we see in the Venture World they just never
get across there and this is not a crossing the chasm only thing this is a significant Gap that we see in terms of the way people approach how they even start out you know building their product so I want to bring this to life right away by inviting Greg up here to share with us uh how he encountered his challenges with his original invention so Greg welcome good to have you up here hello hi it's nice to meet all of you I'm Greg favalora and uh I'm going to tell you a five minute version of
what is usually a hourlong story when told uh in other venues about inventing and almost commercializing 3D displays when this process of tech looking for a market starts out kind of awesome and then becomes painful and then it becomes this patent sale a whole 12 years later uh and by way of introduction so this was a previous chapter of my life that ended about three years ago my day job is helping to run a product engineering consultancy up the road in Arlington that does lens design everything from the Xbox connect to um toys so this
was our product um the company actuality systems which was based in a number of places it started in my apartment in Central Square then moved to reading then moved to Burlington then moved to Bedford uh before we collapsed created this device that looked like a crystal ball for scale I show it there in the corner with a uh Sharpie pen it would create imagery that looks like a hologram about the size of a basketball or actually about the size of a head and it would create floating 3D images that you could see without having to
wear those glasses that you wear at the movie theater and see it from any point of view all the way around for example here's a picture of uh a cancer patient who's doing very poorly uh he has a brain tumor and is laying down looking up at the ceiling in after 8 years in existence we thought was the best use of this technology was planning uh cancer treatment uh methods using external beam radiation oncology so it's a complex product and I won't really go into it in much depth haha except to say uh it worked
by shining thousands of patterns of light onto a rotating screen really quickly uh 10,000 times a second and that took quite a few technical miracles to work out so this is sort of the one slide of uh my little lesson to you tonight uh the the overarching lesson is that even if you have an awesome product you really do need to deeply understand at least one market where warm-blooded actual human customers will write you actual checks that you can cash in a bank and you need enough money more than you think you need especially if
you're working on Hardware to make the thing so it really works well it always takes more than you thought okay so this is a painful tale so at first uh uh we figured that if we built this hologram and mind you this is something I was obsessed with since I was an eighth grader entering this kind of stuff into science fair contests uh we thought if we built this amazing thing people would buy it uh so we had some guesses about where who would use it I mean we're not completely idiotic we thought at first
it would be extremely useful in mechanical CAD which is the relationship to the other speaker tonight we thought that customers could save tons of money if uh you could do virtual prototypes out of light instead of wasting money on interim prototypes rapid prototypes or what was then the first 3D printing bubble uh back in the late 90s anyway we focused on this epic task of building this device uh it turned out with insufficient funds so in Phase One in 1997 when all these docs were getting money like barbecue sauce portals and like weird chocolate B
things were raising tens of millions of bucks it took me 2 and A2 years to raise a measly 1 a half million bucks uh from investors and it was so hard me and my friends working in a basement like I said in Central Square it got to the point where I I talked to I think 40 different Venture Capital firms a ton of different angels I just needed a million and a half bucks I finally got one guy to say yeah yeah I'll give you 100K uh but you have to raise another 300K before I'll
write that check so at least he was the first guy in or first gal in so to speak and then I can do my first close so the technology problem was at the time I was coming out of college and grad school where I had a gadget that looked nothing like what we're trying to sell I had this thing that was like scavenged penlight lasers 64 lasers from those things that Ed that I ripped apart and put on a board and then I I was bribing these uh Harvard physics lab uh uh Machine Shop people
to like make them for me after hours and then I had this like spinning mirror and a spinning little piece of plexiglass and it kind of made like a little thing of HIV enzymes float in the air and and it was so insane that we weren't getting any money so finally I introduced myself uh through a lot of work to this guy po Bronson who if you were around in the '90s doing startups you would have heard of Po Bronson who wrote an oped piece in the Wall Street Journal saying isn't anyone making anything anymore
and I was like the poster child for that it was here's a kid in his basement looking HIV why isn't anyone writing him a check and that's what it took to finally get that first uh bit of money so uh a lesson there was about having hutba like you you just got to be hustling all the time an example of hustle in the late 90s was have an envelope of information about you on your person at all times so if you have a chance to like accost Larry Ellison before he gives a big talk at
Harvard or someone like Po Bronson you could say hey let me do a favor I'll take it to the airport but can I just tell you about my startup okay bye because then like after the talk everyone with lesser guts than you accosts them and you've kind of missed your chance so I'll stop talking about this first phase in a moment except to highlight the technical difficulty it was a 100 million pixel display who cares well that's a 100 times more than most displays that's probably a one or two million pixel display it was the
highest resolution display ever built and oh by the way it was a holograph and to make it work you basically needed like dilithium crystals you needed this thing called DLP which is a little semiconductor chip that only TI made and TI is the biggest pain in the butt company to work with that you'll ever find and we had to beg them for years to give us this chip and oh by the way there's no data sheet so we had to reverse engineer had to talk to this thing uh so that sucked and we're only six
people but I got my million and a half bucks and we got an office and hooray so in phase two um this is what my board Lov andly called the many-year fishing Expedition looking for a market so we had raised maybe another 8 or 9 million or dollars or so in a series of rounds they brought in a mature grown-up to run the company who came out of Silicon Valley places like McAfee and Netscape and he looked at this really kind of weird prototype that we had that sort of barely worked and he took on
the task of let's sell this thing let's see if people will write checks for this Gizmo and they did we had a lot of research Labs who wanted it a lot grad students would be cool to do threedimensional graphics on it so this kind of brings us to the second or third or whatever lesson which is listen really carefully tonight when he teaches you about what a whole product is and what the distinction is between a little component like a spark plug and a solution or a big thing like a car uh for example in
our case we had a display that would connect to a computer either from gigabit Ethernet or this thing called scuzzy that probably only half of us here remember what that is and uh and an API so an API is a way to talk to this device but that assumed that the customer was really smart about computer Graphics programming meaning like only a handful of people in in America so I had just enough money to place this one bet which was okay not only does my software team need to completely reinvent how rendering algorithms work and
how to draw a display device in cylindrical coordinate space which no one had ever done before let's use our last remaining pennies to build what's called an open jail API that way if they have a well-behaved Graphics application like solid works or a thing that shows pharmaceutical designers some molecules on the screen they plug in our software plug in into display and boom whatever they were doing continues to work while a hologram of all this stuff floats in the air and that got us a lot of the way there uh but it uh was also
this beginning of a long painful story for us so the very condensed version of what happened was we we did what our mentors said and what any smart person would do which is to figure out a market go to a whiteboard on the horizontal axis write the names of market segments things like mechanical CAD pharmaceutical design luggage scanning remember this is like just post 2001 uh military visualization porn was really never on the list and that was kind of weird anyway uh video games oil and gas uh and a couple other things like that then
on the Y you write the 10 biggest accounts you could think of or the accounts that you could sort of reasonably hope to get into and you talk only to those accounts you work your tail off trying to get into those places you might have to write letters you might have to sit on their doorstep you might have to fax them if you know what faxing is uh or some of these little brief emails so we could talk later about what a good email looks like and that's some supplementary material available to you guys after
this class in none of those cases so sorry here's a Seduction That will trip most of you up in all of those cases they said this is the best thing ever your parents must be so proud of you I want 10 of these you sayg great write me a check it's 100K they oh I don't have $100,000 can you like show me a paper explaining why it's worth $500,000 so that my check will kind of earn me 400k in profits and I'll say no I'm really sorry and so you go on to the next market
so the lesson there is if you're going to go waste a whole ton of money on engineering make sure you don't just know the names of markets or the workflow of those market segments understand who'd be writing you a check why they would make money from writing you a check and so on and so forth really map The Living heck out of this flow of money uh and as an engineer I have this sort of anti- well then when I was younger and naive anti-s salesperson anti-marketing bias I thought if you're not using diodes or
writing code you're just wasting my time go away and that a good salesperson was just like usually like a guy you know had like a hairy chest and like this big necklace and stuff oh I was so wrong when I started doing marketing and sales I realized this is really hard stuff so it would have been much wiser if I and if you had budgeted some money for a really good marketing person and by marketing person I don't mean at first writing ad copy even though that's valuable I mean someone who does product marketing someone
who could really deeply understand a customer and really Define the market that that customer buy into and then do the all important almost as important as a CEO job of betting the entire company to write something called a marketing requirements document that defines what on Earth the engineers and their crazy cubicles have to make so several lessons in one there so what happened we failed to identify that Market at the last minute by the way we did realize it could help uh cancer patients but none of the Venture capitalists we talked to in 2006 or
2007 cared some of them understood medical devices some of them kind of sort of understood displays but no one understood both and I'm sure we had a lot of missing pieces that they wouldn't tell us about but that's another topic called if they don't hand you term sheet they're saying no uh but they never say no phase three I'm almost at the end here uh we brought in yet another CEO after very horrifically scary year where I was the CEO of a company of 20 people who I didn't hire uh we raised a little bit
more money and our CEO said Greg man I love this display stuff we got to stop making displays no one's giving us money but we know about drawing pictures of cancer and we know how to do fast processing on this thing called the GPU and I know a lot about prostate cancer I know let's convert the company into one that will write Machine Vision software to help radiation oncologists plan a very prevalent form of prostate cancer treatment called breiky therapy uh it's gruesome and it's like a squeamish kind of thing but essentially it's about a
third of all prostate cancer patients get this if it's early stage prostate cancer where we put 100 little seeds that are radioactive into the prostate which is about the size of a walnut and it's really not visible too well on ultrasound and we thought we would cure that problem uh and we almost sort of did and to get there I had to completely pivot man I hate that word and pivoting for us meant forget your photons forget 3D displays forget Holograms you're going to go to your physician get like 10 vaccines so you'd be allowed
to sit in in these really bloody scary procedures at like Brigham and Women's Hospital and stuff and watch all these things and we learned a lot and uh it didn't help because in 2009 the market tanked so there we were we had raised 15 million which seems like a lot but it's not over 12 years all that was enough to do was make a product that just barely made a 3D image and then year after year we just we called it putting lipstick on the pig just improved a little bit but the core of it
was kind of bad furthermore we never figured out the market so I urge you to raise more money that you need especially if you're selling atoms and photons rather than bits and really understand the market so what happened so in 2009 our CEO left he said Greg i'm expensive I'm going to do you a favor and leave good luck to you try to go go close some deals I looked at the books and realized I had one month of cash in the bank so I pleaded to my employees uh can I just pay half as
much and maybe help me put these things in boxes onto eBay we called up and you ever wonder like what do companies do that go out of business with all this stuff there's a website called clean outyou office.com and these two guys show up silently like with this red carpet and they kind of come and they take everything away silently it's like the dudo fixes problems on that TW Tarantino movie Pulp Fiction and and they're cool cuz at least they share the profits with you and that helps you do some but we never threw away
the patents my board was smart enough to one day insist that I file 100 patents that turned into 30 patent applications that turned into 20 patents and we held on to those and I tried to sell them because I thought I should go down with the ship or at least try my hardest for these 70 Angel Investors that I had and I got a job because I have a family we tried for a year and a half to sell these patents and everyone said no except for one publicly traded company and that was awesome and
we worked for months my wife and I knew all our financial problems would disappear if we could just sell these these patents and then the week before signing what happens the president's gone from that company so I'm like oh my God and I became like depressed this stuff happens and no one wants to talk about it you get depressed because you think everything's solved and then like the trap door is Pulled Under you uh but our patent broker and I could teach you about patent sales later if any of you care about that stuff said
Greg yours is not going to be the first patent portfolio I don't sell we're going to keep doing this so he kept at it for another 6 months finally we got an offer from a company with and when a deal is going to happen it happens like it just there's no Heming and ha the paperwork gets done and it's done so just a couple weeks later this thing was sold so I had a small exit from it my CEO had a small exit and we wrote little tiny checks you know couple dollars or a couple
tens of thousands of dollars to people who had given us Millions but it was nonzero and uh that that gave me some some sort of refreshing uh pause there anyway if what I have said in the previous X minutes resonated with any of you uh Michael is making available to you all the full like 60 slide epic of this with a lot of tips on things like how to close a sale or what books to read to write your own patents and things like that and that'll be on your website thank you I don't know
about you but the most important thing that I heard at the beginning was this one word there were a lot of this going on in the audience just wow is that what you do you create a 3D display that's just incredible and so that was my first reaction when I was listening I was at an MIT class where Greg was presenting I was like good God that's an incredible invention and if you think about that invention there just must be many many applications for it yet 12 years later as Greg has just taken us through
there are a lot of challenges to Turning what was a breakthrough technology into a business and so tonight the goal I'm going to try to you know bring to light is how might we have helped Greg um if we' had him in this class you know 15 years ago and that's what this is all about this is like how could we think about things before we trip into all the challenges so Greg thank you for teing that up so beautifully that was a was an awesome job so here is the Product Company Gap and actually
um literally I think there are so many things that could fill it that just relate it back to our startup Secret Series there are three in particular obviously that I would focus on there's the go to market there's the business model and there's the execution and I'm going to focus on just literally pieces of those that I think will help you tonight and I'm going to do so by bringing uh John up here later on to talk about the solid works story this is solid works' product that John and his team built and that is
the company that they built that ultimately became part of Doo systems and you can go past that building anytime you want by the uh uh wolam Reservoir there so this stuff on the Other Extreme can work and so what's the difference between these two stories and what can we learn from both we'll hear John at the end so that we don't steal all his Thunder now the first thing I hear from almost everybody that I'm trying to Mentor is it's all about about the product well it may be I mean certainly if you think about
what I hear from most entrepreneurs Apple just creates such amazing products they're going to fly off the shelf well we're going to look at that a little bit because it's always Apple that I hear people refer to but here's one of the things I want to point out to you that's important because it's something that you need to know in advance when you first start your business 100% of your expenses almost invariably are in engineering it's everything about building that product but then it changes to expend ending money on proving the market acceptance and and
you could hear in in Greg's case that started a little bit later than you probably would have wanted it you know he mentioned he obviously wished he'd got a marketing person sooner in particular a product marketing person to do that product Market fit so it starts to flip what's interesting is that as you start to repeat and scale sales and marketing literally flips to being all the expense of significance so I'm just going to ask you how much do you think as a percentage of R&D sorry percentage of sales Apple spends on R&D anybody just
like give me a number 5% okay 5 10 I heard over here anybody more than 10 any bids anybody more than 10 okay so somewhere between five and 10% okay what do we think they spend on sales and marketing way more way more okay yeah because marketing is all you marketing is your pipeline it's about pull so you have to create awareness to have a pipeline and you don't without a pipeline you don't have a business thank you I could you come join me for the second kind of useful I think we're going to have
a good spokesperson here that was great absolutely right so here is the latest set of financial statements you can go download these from Edgar anytime you want they actually spent 2% on R&D a shockingly no number now it's not a low figure because they're a big company but 2% just think about that it's triple the amount in sgna and this is very typical this is not just Apple this is rohit's company demandware public company but was a startup here in in uh Massachusetts just seven or eight years ago well actually nine years ago I should
remember was there from that day where we had 100% of our original spend you know on the product team give or take and now uh we're headed towards a place where even in demand's case we will be twice as much uh we'll be spending twice as much on the sales and marketing and that's not including you know GNA so this is a very typical flip that happens and in general I would like you to think about this you're going to try to build a product where you can reduce the cost of all that sgna the
more effectively you build it the more specifically you for example intersect the market and the more friction you take out of the go to market process and enable your customers uh then the more likely you are to have a successful business model at the end of it so what if you thought about this like an architect and you planned right up front and said we want to end up being a very profitable company where we know we make 20% drop it straight to the bottom line and we want to have a product that's going to
fly off the shelves How would you go about building your company and how would you go about building the product to make that uh experience the case so that's what tonight's really about this is our agenda um and I'm going to try to get through at least the first two sections fairly fully and then cover at least one piece of the of the last piece and what I want to talk about is how we can develop value and validate it uh as a product and then how we can design it to fit the marketplace and
introduce a couple of terms that will build on some of the things that I know people here use a lot like minimum viable product and again I see some of you snapping pictures and stuff uh don't worry all this is up on my site uh in case you haven't seen up the top you can just go to mj.com this will be up there literally live uh as you walk out of here tonight so let's start with developing foundations the thing that I hear most is you know people obviously want to try to build something highly
valuable and usually with some kind of a notion about what they're going to do to solve some kind of a problem and then they want to validate and if you're doing all that right then obviously you're probably on to a winner but there are lots of challenges in that the first thing I'm going to try to do is help you extract the most value from it so when you start your development you could just develop it all yourself or you could think about how could you develop the minimum viable product and then even less than
that only the piece that is your core value now I cover core as part of my business model session but basically it's the notion that you literally only build what is your exceptional capability so in Greg's case he had this capability to to for example create a 3D image but displays that wasn't a core competency right I mean Texas Instruments had that core competency and they ended up being dependent on them that's another story but you want to try and find out what it is that's your core piece and John for example talk about that
when he he comes to tell you tonight about what he's doing in his new company then to develop faster I really recommend you think about things that are changing in our world we didn't have this when I was building products but crowdsourcing is a great way to build products you know when you go to put up your website is that your core competency I I doubt it go use odesk or Elance or whatever for your landing pages or or create some basic wireframes using you know people who are probably a tenth the labor cost of
what's in here in Massachusetts in Estonia where I was last week there's lots of places to do this stuff effectively and then find ways to be just smarter in terms of how you co-create things this is a whole section on itself so I want to give you at least a clue to it the first secret I want to give you is something that I see the really good startups do over and over again they don't build everything as though the only customer is out outside the building they immediately start thinking about how could they build
on themselves what do I mean by that well if you know you've got for example a multiplayer uh sorry a multi-level product for example let's say you've got a design tool that is used to customize your e-commerce site why don't you do exactly what we've done now at demandware create a platform that your internal Engineers actually use to build your product on why because immediately you're creating a customer relationship even though it's an internal customer for your product you're forcing yourself to see whether your internal Engineers can actually use your platform and whether that platform
actually is going to work when you now expose it later on to the outside world it's such an obvious thing to do yet I see very few companies do it the good ones make this really quickly a part of their culture so that they're always thinking about how do we serve the customer how can our platform be more open more extensible Etc so be your own customer and then on this open extensible thing if you've got a core that's really tight think Linux and all the various different pieces that have got built around then make
it open and extensible so other people do things like add drivers to it which would have been wonderful if if uh we could have taken Greg back and said hey Greg what if you'd been able to do this openg thing from day one would that have made a difference help yeah I mean he he right away once he got that was able to interface with other products that had this standard and he said something very important there which is he also made open apis which we'll talk about a little bit later on and then you
know we have a world which is full of community is now Building open source literally millions of lines of code that's available to you free why not access it don't build everything if you can avoid building it and just use other people's uh developments than leverage that uh the largest community in the world of Open Source happens to be a company I'm lucky enough to back called aqua building on Drupal there are over a thousand people who contributed to building Drupal 7 it's the largest open source community in the world and there is no way
that Drupal would be as successful as it is if it wasn't open source CU nobody could possibly develop all the features and functionality that's required to move at the pace of the web to do everything from integrate with Facebook at one extreme to PayPal at The Other Extreme and in between with CRM systems so this is something that's very fundamental so before you jump into building your product think about how could you build it effectively and very efficiently with all those kinds of ideas smarter faster be better cheaper effectively then the next thing is value
I would say this is the challenge that that I'd want you to uh think about maybe even step one in fact before you even build your first feature what problem is it that you're solving and who are you solving it for and how significant is it is it really really important this is the subject of a whole Workshop in of itself the value proposition Workshop but I'll just say something that's so critical to the thinking here remember when we first heard Greg's invention we went wow 3D that's huge I mean that must be enormous we
we all inherently think you know things must be 3D cuz we live in a 3D world but 12 years later you are still seeking in the market right I I want to ask you a challenging question because I know is uh Gordon here from MIT Gordon did you join us yeah he is great um Gordon is is uh not to to pull you up out of the blue Gordon is somebody who's who's looking at developing a 3D product and I know you're advising him do we know what Market there is for 3D yet seriously I
mean it's it's a big challenge yeah go ahead so yes sometimes people ask me well if I had the money to do it right or the Cheapo technology to do it again what Market would we look at as far as I know the only successful uh Auto stereoscopic display Market are these handheld gaming devices the Nintendo 3DS and maybe viewfinders for 3D cameras but I still think that given a cheap enough core technology all of the markets that we were looking at become open again because the barrier to sale is much lower and they might
buy it for a novelty or maybe I'll get lucky and have a return on investment so I think that's sorry question but I just want to add one one point before we ask that question so um a real difficulty we had through the life of the company in assessing if a market was a good fit was that for visual products we couldn't figure out how to demonstrate an idea or get meaningful feedback unless we built the thing right I couldn't figure out how to send a smart marketing person in to ask questions because invariably everyone
would imagine liking a hologram but it wasn't until they saw it that their answers became meaningful yeah yeah so the paper prototype didn't work in your case this is the thing that I want to get uh clear first of all is that if you don't know what problem you're solving and you're not clear that it's valuable we're in trouble right there and so this is why we don't want to be in the situation where we just invent technology or find some breakthrough and get all excited about it and in particular what I want you to
try to do even before you go anywhere near building your minimum viable product is just ask yourself this question question do you have a problem that if you solve it is really valuable because a minimum viable product is irrelevant if it doesn't solve a valuable problem and to be specific viable does not mean valuable they are two very distinct things and I see way too many people caught up in this I've got a great MVP but what problem does this solve I don't know well then you really don't have anything so it's this valuable piece
that's so important now in the workshop on um what is effectively the the value proposition we talk a little bit about how do you qualitatively value this and and my simplest recommendation to you if you haven't watched that Workshop is just do a before and after scenario and the before and after should answer what Greg was getting at which is okay if somebody didn't have a 3D display before and then they had it afterwards what did that mean did that mean that they had some little bit of Joy or did they did relieve some incredibly
chronic pain and afterwards they ended up with Incredible Joy well as you can tell Greg did actually end up focusing on a marketplace where that potentially could have PL panned out which was in the medical world where you know literally removing people's brain tumors uh could have been incredibly valuable but it's not an easy thing to do this and it's what you really need to focus on very early on now we're lucky to have uh Abby ficner with us who's actually just recently done a workshop on agile validation well actually validation I call it agile
V validation and I'll come back to that but the validation piece is a very important part of this because you don't want to guess this stuff you want to get out of the building and figure out what the customers are uh for this particular proposition and understand why they think if they buy this they will get incredible Joy now there's an important thing Greg said earlier on which is by the way selling is an important piece of your validation but how you sell and who you sell to is also extremely important so you mentioned for
example Greg that you sold to researchers and that turned out to not really be a big big market right this is a big issue lots of of small companies find what might be what I would describe as the Mirage markets Mirage markets are all over the place uh you know research Labs is a classic one you really don't have a market until customers are paying for something and trust me even if you think premium is a great strategy we'll talk about it later on in the end your validation needs to be dollars and then Greg
said something really important which is it's even more important even when they start paying for it to ask this question about why why are they paying for it what is it that they've said I'm going to actually spend money on this for and until you understand that problem you haven't done any validation so I'm not going to recreate all the great work I encourage you to go look at aby's talk which uh gives you a lot of the great tools for going and doing this um my favorite one is still you know for all the
landing pages and web prototypes and surveys you might do go get yourself some prepaid customers if a customer is willing to write you a check for you to actually deliver something then they've probably got a real pain uh and Kickstarter for example is you know in effect doing that but obviously it's just in a little different form it's in a crowdfunded form form so I've mentioned value proposition you can find it on the site um there's one other piece for you to really understand tonight that that I use a lot which is what I call
the gain pain validation and that is to say you really need to understand not just the gain you're giving your customer but the pain they have to go through to actually get that gain so Greg gave a perfect example of this if as he came up and answered that question if 3D displays were you know 100 bucks and they were incredibly easy to plug in to everything we did every day then I'm sure we'd all use them um in effect the gaming Market has in fact done that they've found a way to make it easy
enough for people to get on their Nintendo or whatever it is a 3D display that actually gives some value whether it's just fun or entertainment and at a lower cost enough price and so that's the pain piece if if Greg could have reduced I see him nodding you know all the pain of producing that display down to 100 bucks I mean you probably would have opened up a whole bunch of markets and I bet there will be some 3D markets that will open up the Greg Center this would have been the Greg Center and and
maybe it will be in the future so that's what we want the rest of you to figure out is how do you become part of the Greg Center so uh the next thing I hear is people have what I would describe as multifaceted value props and what are multifaceted value props well here's an example one of the companies that came in to pitch us this week actually they're already an investment of ours is selling Security Solutions password Solutions and on the one hand they sell these to e-commerce sites like demandware and to banks that need
secure log in in the other hand those people aren't really the customer the real customer is the consumer who logs into those sites you know to either buy Goods or to do transactions so they've got a very challenging problem they've got to get both the consumers excited about their solution and yet they've got to have the merchants enabled or the banks enabled to actually make that solution really work that's a multifaceted value proposition that's tough what if you could just pick a problem and say look if I solve this problem for you produce for example
a product that makes makes it possible for you to check interference on any engineering part you ever do in 3D and by the way as simply as you ever Drew in 2D would that be valuable I guess so is the answer that John's going to share with you later and you got you know One customer the engineer or the designer or you know whoever it is and you got one value prop and I really encourage you because I hear this so often to not get caught in this if you got multiple audiences pick one and
find one starting value proposition for you okay again just to reduce that whole value prop section to this next piece there are a lot of things we talk about uh for those of youve been in the session finding discontinuous defensible disruptive innovation for example and then finding markets where it's unworkable unavoidable and it's urgent but there's also one piece that I want to bring out which is where is it underserved where is the marketplace um not being well served for the problem that you might develop and then this leads to what we're going to talk
about now how do you target that and segment it so Greg already brought this up and um most people talk in terms of product Market fit what I'm hoping to do in the next you know five or 10 minutes is to show you that product Market fit is not a simple thing it's actually very important to double click on it and figure out actually go to market fit so in Greg's case I think he talked about you know this whole idea of coming up with market segments and how many years were you into your business
when you when you realized that this was important well we weren't all done but uh yeah so we we listed them on day one yeah but we didn't understand the true complexity of a lot of them till year three or four for example the word Medical Imaging is actually diagnostic Interventional and then 10 sub Specialties under that exactly it's segments within segments within segments and this is the thing I'm going to encourage you to do when you look at product Market fit don't think about your Market as medical think about it as Medical Imaging and
then go down into the next segment the next segment until you can really figure out what is the basis on which to uh Target your product so when you talk about minimal viable product yeah you might shrink your product down to a small piece but it's still unless you figured out which segment to go after a large area for that product to cover and so it's all about trying to find this fit so it's actually hard to put this up in in pure uh simple Graphics so I'm going to actually use the Whiteboard to do
this with you and then we'll we'll use my slide afterwards so um actually let me steal one of these ones here so we can keep Greg stuff up so the idea that I I want you to think about is as follows if you could find a bullseye to initially Target and the bullseye was incredibly well defined it was very tightly defined and your product perfectly mapped it then you would have a product Market fit and if you could keep that as a consistent fit as you went customer after customer then you'd be very successful but
usually what I see is this people Define their MVP they say they've got this Marketplace for example medical and now they go out and they start talking to customers they find one over here one over here one over here maybe one over here one over here which one do you pick which one's right and if you just go down the typical process that most people go down what they'll do is they'll start building features for this person start building features for this one maybe pick a few there and pretty soon what happens to your minimum
viable product it starts becoming a pretty big product it adds a lot of features a lot of functionality and what you've really done is just expand your need for resources the one thing you don't have lots of you don't have enough Engineers you don't have enough cash you're trying to actually conserve that until you get to some repeatability so what I want you to do is this I want you to do the exact opposite I want you to look at every single one of these guys and say what is their need what's their pain and
how can I find one or two of these that line up that actually have exactly the same pain and need and when you do that two things happen number one is your product as you move to match those needs doesn't change so now you don't have to expand the footprint of your product and number two is your road map for your business about how you meet those needs is completely consistent your find the same channels to go after them the same messaging and positioning the same tactics and so forth and I purposely Drew this on
a diagonal because the mistake that most people make is to say oh a vertical or a segment oh that must be SMB or maybe it's medical versus government or maybe it's Financial versus uh you know consumer whatever the reality is it sometimes doesn't fit neatly like that it's actually sometimes completely different to that it might be people who have a specific um for example compliance need and compliance might work across for example Pharma and financial services in fact it might be anybody just to give you an example who has the uh need to trade derivatives
and that's actually any Fortune 1000 company that does anything internationally so it may fit across multiple verticals and so the point about a segment is it may be unique to your particular product and it may not be neatly neatly defined so I'll try to just show this to you on on a slide so you can get beyond my handwriting so we're trying to avoid this stretch this fit and stretch problem that first occurs by trying to go after too many needs that are dissimilar to start off with and instead what we're trying to find is
a product Market fit solution where every one of these uh needs that you identify is the same and at that point you have what I call a minimum viable segment so the minimum viable segment can be tested very simply it gets tested by do things repeat without you having to to change your product and change the way you go to market if they do you found a segment and what I mean by repeat is literally customer by customer can you meet their needs and as you repeat your product does it say the same and if
it does you're on to a winner you're now going to be able to continue to move this business forward without adding more cash adding more Engineers trying to change your marketing every time you go out to Market and it's a tremendously magical thing because another great thing comes out of it you get reference you start to dominate this segment where now with one two or three customers who all have the same needs who can talk to each other and say yeah I'm getting the same benefit as you you start to become known as the leader
in this segment and because it's not big hopefully you've been nice and defined about it you can dominate it really early on and quickly Define yourself as being the market leader for 3D CAD cam in whatever it might be engineering and so forth and that's what we want to get you to we want to get you to a place where early on as a startup you're starting to have traction so I'm getting lots of hands up so let me pause here go ahead so I want to know how do you find these pain points and
how do you get these perspective customers to talk about their pain okay the the problems that that they have um I'm going to repeat that question but in case anybody else wants the mic how do you find these customers and how do you find their pain points to repeat John do you want to take a shot at that you've you've done this many times before I'd love to tell you that it's a really simple solution it's this it's Sho leather um I think I think the point that Michael's making is there are so many people
you you want to get rid of the people that that sort of show you all the buying signals I'll share some of one of the failures of a company that I led called Cloud switch where right after the the 2008 credit crisis it was a company that was helping basically people take their data centers and extend it to the cloud and every customer I went to I mean I saw buying signals like I've never seen before people leaning in people kind of wanting to get started but nobody was willing to necessarily write a check some
did but then Clos looping it uh people wrote checks for the wrong reason and so I think the answer to it is you just got to get out of the office and you got to get in front of people and so try and pick two or three people in a segment in the same segment and if two or three people sort of say no guess what it's probably they the worst is not the people that say no the wor the people say yes and then so you got to grade it yourself to sort of say
are they saying yes to be polite or yes they're interested are they giving you the Japanese yes like yes I heard you but not yes that I want Mo forward so that's what you got to look for and I think the danger is the danger is is is when it's biased and what I mean by that is if it's only you going to that customer or a couple of customers that's dangerous if you have a partner or somebody else you can have to help you kind of um balance your view I think that's also very
powerful and beneficial but it's Sho leather you just just got to get in front of a lot of people and categorize it same segment different customers different different vertical segment whatever so I really think by the way uh there's no possible way that that could said that better you really do have to get out meet greet and go through a lot of kissing of frogs before you figure out you know where your prince is but in particular what I do recommend is this and I'm sure John did this in many different ways which is create
your score sheet your scorec card and um it's going to evolve and you saw the way I put out you know the dots in effect you want to create every time you hear a need try to get really specific with the customer ask them over and over again did you hear the need right what is this particular need and what if what if I solved it what particular problem would I be solving for you and then here's the critical piece and what would you pay for that and don't forget to ask that question and then
if you really feel like you've got them at a place where they say that they will pay for it ask them okay so would you be willing to write me a check in advance I'm not saying you're going to get this a lot of times but you know you're onto a winner if the answer is yes and actually I've started two companies where I had checks before I got any funding from customers can I can I just give one I'll give you one visual to take away because there may not be a lot of things
you hear tonight but I think this is one of the most important way back in the time machine there was a company called computer vision that's where John HK was the founder of solid works and he and I met and worked together and computer vision was getting crushed by this company called PTC at the time and um and computer vision spent I think probably 50 maybe even a hundred million trying to build a next next Generation product and they were all over the map and I remember John Herer going out to San Diego and met
the development team out there and the guys that were running the project were kind of frustrated because they weren't getting any traction they weren't making progress and one of the guys I probably shouldn't say his name but he he uh I'll call him R CU that was his first name um he said John what should we do and I think this is a visual I'm a visual person put this in your mind he sort of said i' padlock the door and I put a big sign that said nobody can come in here until they sit
down with at least three customers so when you ask the question about it it's shoe leather padlock the door get out of the office and go talk to a bunch of people great so just to keep us on track I'm I'm gonna move on to the sort of the follow on from this so this hopefully is now very clear to you we have a challenge to move from minimum viable product to minimum viable segment if you do it right once you've figured out your minimum viable product and you've got your segment sorted out then you
get a repeatable product and you know you're on to a winning when you're starting to do that and in in the answer to your question by the way what happens is these needs need to line up if they're over here and over here and over here you've got your problem occurring again and you want to be willing to throw these out in order to stay on this so let's wrap this segment uh just because I want to give you enough of a a framework that when John comes up you can see it all fit together
hopefully you now understand that if we can get this minimum viable segment we're going to find a way to keep your product footprint and resources focused and we're going to be able to get people who with the same needs will reference each other and ultimately you'll be able to get Beach head um a segment that you can dominate that will ultimately be the place that you build off now there is one thing that I I've also taught in the value Prop class but I want to cover quickly here and that is trying to find a
segment where it's not just a nice to have need it's a blatant critical need especially if in the in the busines to business world and so I'm going to use an example that I live with every day because mobile is so hot that I see dozens of mobile startups all the time and they all come in and say the same thing well there's a billion smartphones out there now and so if I get 2% of that marketplace with this new app I'm going to have a really successful business at you know 4 bucks 99 an
app sounds great reality is a little different the reality is there are a lot of people who could potentially use a mobile app so how do you zero in on a segment that's actually going to have a real pain point and a real critical need and this is really just designed to give you an example of it what if you said instead of anybody with a mobile phone you said well mobile professionals well that's at least perhaps now getting into the business world as opposed to just consumer but there's a lot of mobile professionals what
if you then said field workers and those are as opposed to desk workers and what if you said people who are out in the field servicing Goods uh and products as opposed to sales people now you're narrowing it down again what if you then said servicing medical equipment as opposed to just for example fax machines well not fax machines gez I'm dating myself um Mak for example you know postal machines um you know the classic office equipment um and instead of of businesses you said within hospitals and then you said let's go one step further
the that those machines were being used for critical care so now we've got all the way down to a place where instead of for example doing something that is not Mission critical if these machines are not serviced somebody dies okay now I think we've got to a critical need people care about that so we've actually just taken a path that has got nothing to do with the particular size of the business or you know particular feature function what we've done is we've figured out where there is a paino where you need a mobile professional who
can go out in the field and service medical equipment in hospitals for critical care where if it isn't done people die that's what I want you to do when you come and talk to me about building your business figure out where is there a blatant critical need that will have such an impact that you just can't live without it and that's what this segmentation exercise should really be about is figuring out how to both get those repeatability uh repeatable uh requirements but also in in an area where people really care about it now you've answered
that value question that I was talking about as well which is to say if you solve this problem is it valuable so it's not just a viable product it's a valuable product makees sense see a lot of people nodding so putting all that together this is no longer just product Market fit it's about uh go to market fit it's about naring your target segmenting it and it's vital as I mentioned right up front for everything being consistent for messaging and positioning all the way through to how you deliver your product and those of you seen
my classes before will know that I'm never going to give up on this subject the number one thing I wish startups did more of is focus and as narrow as possibly to start off with what people always come into my office and do I've actually rubbed the diagram out but is they come in and they say well we've got this big Market opportunity I'm delighted to hear that but if you go after it all at once it's going to be like boiling the ocean and so what we're always trying to get you to do is
think about those small segments you can do uh dominate to start off with and I wish that the story wasn't this way around but most startups fail because they tried to do too much and they end up Contracting on failure I would far rather you could expand on success even if it is one customer at a time and the most successful companies do that they figure out how to build up from that success on each of those particular problems that line up One customer at a time so because people ask me this all the time
there's a post up on my site about it how do you get the balance between wanting to get somebody excited about a big market and at the same time starting with something very small and the post is entitled vision versus execution but I keep getting more challenges about it so uh even with the post I've added add to it this following diagram think about Greg he had his technology breakthrough he figured out how he could you know create a display uh out of thin air which is stunning uh so he had a vision and obviously
he went through a lot of execution to get through this what if we'd helped Greg in advance write out a road map to say Greg over the next several years we're going to turn that into a feature a product a solution for a particular Marketplace that you can ultimately build a company around with a business model Etc if we could have set that roadmap up for Him in Advance life would have been a lot easier because he would be constantly validating he's nodding so I must be on the right track here and for you as
product people because a lot of product people say well I don't want to hear about the business stuff I want to hear what would it mean for me as a product it's basic things you know how do you get usability up front how do you get partners and services and whole product in your product how do you get the solution into uh the hands of real customers that become referenceable how do you get the market segmented when your Beach heads get repeatability on it and then how do you get to a place where you now
can afford to actually involve uh you know the next set of Engineers to build a product line that gives you a scalable business that ultimately turns profitable it it isn't actually a lot more complicated than that there's just a ton of execution in it um and along the way you know you'll be building a team that can do that and as actually you were hearing from John a lot of the challenge here is figuring out how to do that at scale so I give you one you know simple view of a road map and I
give you one startup secret to go with it you know if you're on the right track if you always validate this from the customer standpoint so yes I sit in a lot of board meetings I'm very happy to do so but I am absolutely the most irrelevant person to impress in the board meeting who cares what I think I would far rather you came in and said here are the 10 customers that care about this this and this that rather than hey we met our cash flow forecast it's meaningless whether you hit your cash flow
forecast what matters is that you're answering a customer need and that you're proving to me that you've moved from having just a feature to a place where customers are buying it repeatedly that matters that means you're moving down this road map and so no matter what anybody tells you create the basics for U metrics to validate along this road map that are external figure out whether it's a net promoter score which some people love and others hate or that it's retention and upsell which Drive huge amounts of value or lifetime value whatever it is that
you want to use make sure it's customer based if you've got customer based metrics to validate your progress or on on road map you are going to know whether you're on the track to building a a feature a product or a company and so this is I'll add to that post because people keep asking me about it uh and hopefully this gives you a sense of this all right well we're starting to close this Gap we have validated value uh not just features and we've designed to fit um go to market but now what we
want to do is uh architect to attract those customers and I'm going to talk a little bit about at least a piece of what uh comes into play there which is the go to market and business model so how do we architecture attract um and basically I was trying to think of a way to explain this um in a simple term and that's take all the friction out of it and it's what I call creating slippery products the notion of a slippery product going back to my gain PR ratio is that all the cost associated
with a customer seeing uh trying buying implementing deploying and owning your Tech technology what if we could take it to basically zero take all the friction out of it this is the piece of the value prop uh Workshop if you want to go look at in more depth what if we could literally make it possible to slip into the lead imagine that everybody else is running on the running track with shoes and you suddenly get at your own lane now which is ice and you can just skate along it you're G to you're going to
kill everybody so that's the visual I want you to have as we go through this we want to Define ways that your product can become that slippery so what is slippery it's a little but bear with me the idea is that somewhere in here are some gems that you could all find that will help you move forward at uh you know break neck Pace as a skater it's simple low to a no initial cost it should install easily it should prove value quickly play well with others be easy to use the ROI should be obvious
and your customers should look should be in a place where they can't live without it it's that sticky I will guarantee you that if you figure out how to do all these things your product will sell a lot more cost effectively and that whole equation I started with up front will be a much more profitable one for you so let's jump through these simple simple should be simple right why is it that you know you've all heard these quotes if i' had more time I'd have written a shorter letter uh I could go on and
on there's many of them I even had a hard time thinking how should I get simple across so I went back to First principles okay well it's the opposite of complex and simple if it's an advantage means that complex is a disadvantage okay so how could we actually Express that as an equation and I came up with an equation which I won't bore you with how I got to it it's really simple and that is that your advantage is your Innovation times the Simplicity and I'll trust that each of one of you is smarter than
me to figure out how this might be disproved but I also really believe this I've tested it over the years and what I see is this any Innovation if it's simple enough has the potential to be adopted the more complex it is the more likely it is to to run into all the issues that you were hearing Greg talk about how would you get it to integrate with something how would you get it to work with existing Solutions uh or how would you even realize its potential and so you can find this on the website
don't worry but I will tell you if you think through the Simplicity of your product as the basis on which people can actually understand it and work with it you will find that it will give them advantage and my favorite example of this when I first gave this talk actually a long time ago to give you a sense of how long I've been um you know working with this thesis was when Microsoft came out with their you know entertainment center their remote was actually more complex than the one that's up here I couldn't find the
most recent image of it but they had dozens and dozens of buttons and then Apple came along and they had three buttons and guess what that did everything that that did and which one was more successful that doesn't exist anymore this one isn't yet by the way a product in mainstream for Apple but they've sold millions of units of it and actually people use this for you know controlling uh the their PCS Etc and there are examples that people are are finding very popular today so how many of you remember Knowledge Management I'm really dating
myself now it was a huge category good there are a few other people here who do Knowledge Management was supposed to be a multi-billion dollar market for some people it was there were companies like Lotus Notes that got going and built on it it's nowhere today because it was horribly complex for people to put Knowledge Management in place along comes evote Evan note is Builders note taking it's incredibly simple it's probably the best Knowledge Management tool I've ever used why because I can just access everything about it I can capture notes you know take pictures
even take recordings share it with anybody anywhere in the world even if they don't use evote on the web now of course some of that infrastructure wasn't there for when Knowledge Management was created but you know it's obvious if you try to go in and Pitch this to somebody that is a lot of work that's what Knowledge Management used to look like when we were pitching it and yeah I used to have to sell this stuff in in one of my companies wouldn't you rather just take out a tablet and capture it that simply so
this is why simple is so important and I've already mentioned to you one of the key things that I recommend you do which is really give up everything other than the core capability that you have of value as the starting point for your product try to reduce it to the absolute essence of what it is that you do uniquely well for somebody and then everything else either figure out how to leave it out of the PO the Box um or more importantly uh figure out how to work with others to partner with them and I
think that is the essence of why so many products are successful or unsuccessful okay so that's the simple piece the next piece of slippery L low to no initial cost this is a favorite for Consumer apps people are always trying to find frictionless ways to get trial I'm a big believer if you can take the cost out of customer acquisition that's great uh and certainly it can be very successful if it helps you identify customers or have them identify themselves because there's no barrier to them trying something that's a wonderful piece of it there's a
wonderful article for those of you who haven't read it I've put the link up here it was written a number of years ago by the editor at wide about free economics and how free is actually the new uh black in those days uh that people would say is going to help you you know get your product to Market but I will be clear it's not the all be all and end all there are some real failings to it so uh Free Fall actually is what happens to startups that just never figure out how to get
Beyond this they they realize um that they can get to customers but guess what people are paying what uh sorry valuing it as to what they're paying for it which is nothing if it costs you nothing and there's no barrier to it and and you heard Greg give an example of this as well then they're probably not valuing it and the perceived value is often zero too if you're giving something away people don't value it as as you know a premium product obviously and ultimately you do have to upsell these people to have a business
you know unless you're not for profit so what's a good example that had I think has done that very well uh I could have used Lots here I picked LinkedIn because a lot of people I think were really skeptical about LinkedIn LinkedIn did this very well uh initially it was absolutely free and uh for a whole uh range of people it still is today I don't pay for LinkedIn um yet I get value out of it and what they did was to give people a way to network and connect with each other that gave value
but they monetized from people who would actually use that Network Head Hunters recruiters and so forth so for you and I we're getting valued by the connections but for people who are actually in recruitment business in the HR world it's actually a network that they can tap into that they can charge for and so what you really want to do is figure out uh early in your value proposition where it is that you're going to monetize and initially if you're going to go the free route you know give value to people so that they will
engage with it because there's got to be a virtuous circle for people to actually engage uh and then if you're really smart figure out how to do it with some kind of verality built in reality is usually something that causes people to immediately take an action when they see the value of your product so um specifically that they want to share it very quickly and the quicker they share it the more viral your product is so this uh What I Call Value uh virtual Circle viral network is what you want to build if in you're
in the consumer world and try to do that in a way that gives you a basis to later monetize it but be aware that if you don't monetize it in some way you know free doesn't mean anything except you know you're not delivering value so onto the ey in Slippery you want products that install easily and integrate well so that that they're not tripping you up and I'm astounded how many times great Innovation is built in isolation of where it's going to get integrated it turns out this is the whole reason that enterprise software is
dying it's because people find it so hard to implemented if you ever heard of this term shelfware shelfware is because people don't think about this this particular Factor so you know that so why not think about it up front it's again reducing the pain for customers to try adopt and deploy your product so what is some of the ways you can do this well um the strategy that that um you know Microsoft adopted very well when it was behind in the web was something called an Embrace and extend they literally went in and figured out
how to embrace the web and extend what everybody else was doing they didn't try to take over the browser initially uh they were very clever about how they went about this it was a great strategy and that term's now been used many many times you want to try and do the same thing Embrace what everybody has as either a business process or a product or or infrastructure and then extend it and open and extensibility has become a whole way of building products in fact um I pulled this graphic out of some work we're doing in
the open source world where the growth of a open apis is just taking off uh you know when Greg was around and he was trying to get his openg GL API out it was probably considered quite a big deal to have an open API today everybody has open apis there's open apis for almost every web service you can think of and I really encourage you instead of saying okay we're going to build everything figure out how you might integrate with all those restful apis for example why would you ever create a payment tension there's many
different ways that you can use payment gateways today uh if you're in the Commerce world and thousands of of uh different you know Merchants now except for example whether it's PayPal or if you want to use excommerce underneath it you know means to to integrate that so you don't need to build that you can just use it and you'll be much more easily integrated into people's workflows if you do that and this is the thing that I really want to get to which is a non-technology thing that people forget there is an assumption I hate
assumptions but this is one I want you to make change is risky painful timec consuming and costly it just is especially uh in the Enterprise world but it is even true for consumers people resist change all the time so imagine that you have incumbents whether they're applications or they operating environments or business processes or the biggest one of all is usually human people just don't want to adopt new processes if they've leared a way of processing an order and you come in and tell them they've got to learn it completely differently you are putting up
a barrier to entry for yourself you are creating yourself a cost so learning for example to operate a 3D instrument is hard it turns out people are still struggling with this you know we looked at a company that was doing haptics again spin out of MIT the problem wasn't technology it was training people to actually use this for real applications it's a lot of friction in that so whenever you're building your product think about how you might make it install easier and the Simplicity uh the simple way to think about this is the products that
integrate um and play well with others encourage others to with them so again because we have Rohit here um I will just give the example from his company demandware when we first uh were investing in the company we knew that e-commerce was a complex area and so we focused on building the platform but we also knew that at some point it would become important to integrate with all the people that are involved in for example Auto processing the backend customer uh um Pro Uh custom fulfillment Etc and then all of the people that for example
would be at the front end doing the marketing and then experience management Etc so we created an open API an open program uh called the link program and we made it possible for other people to integrate with us and us to integrate with them in fact we started pre-integration out I'm not suggesting you do this right up front but I'm suggesting right up front you think this way you think about how might you create an open and extensible platform that will integrate well with whatever is in your customer's hands okay on to the the first
P you want something that proves value really quickly how many times have you downloaded an app from the App Store and deleted it within 2 minutes anybody here done that lots of you okay that's what obviously we're trying to avoid we want consumers to get instant gratification out of something and say hey I've got value from this let me start using it and in the Enterprise it translates to something a little bit more complex but just as significant which is rapid payback people don't expect instant gratification but they expect payback within a 3month period would
be ideal but certainly within 6 to 9 months and not greater than 12 months if it takes you longer for your product uh for your product to give value than 12 months you're in trouble because you're going Beyond people's budgeting Cycles even and in this day and age people want results fast so rapid payback is incredibly important but how do you do that it's easy to put these things up well here's a tip you can actually create self-proving value in your products and the really good companies I'm seeing today build this in their products again
from day one they're actually putting in place the metrics and the visibility into what's the product that's being used for this is from one of our companies n with the analytics on exactly what value is being delivered by the com by the product so they'll take a baseline right away when the product goes in and they'll show you this is how much uh storage you were using before for example and this is how much we've reduced your storage and reduced your cost so you're actually measuring for the customer right there so they can't even avoid
it how much value you're delivering to them now there's no question about whether you're delivering value it's being shown to them so self-proving value through analytics is a fantastic thing to build into your product early on and it will help you in your your justification your business case and in many scenarios with your customers the next thing we talked about was you know if we're starting with a very small minimum viable product something that's really tight how will it build to meet real broader needs so you you mentioned one of them uh which was reli
ility availability scalability this is not so much targeted that but if you have a set of functionality you want to disclose I'm a big believer in in doing it progressively so that's the second p in other words don't confront somebody with everything so they're literally like falling off a cliff with this huge learning curve um and it's just so difficult to jump into but take them step by step through disclosing the capabilities of their product so this might be a difficult concept to grasp without an example so I brought one here turns out uh the
company I was mentioning earlier Aqua has a challenge with Drupal Drupal is so broad there are tens of thousands of modules for it uh and what it does is enable web publishing for uh people who want to turn their companies into a media company so uh for example connecting with everything from your customers and partners and suppliers to your fans or if you're not for profit to contributors that's a lot of functionality so we decided what we'd do is create a product called Drupal Gardens that would literally get you live on the web designed to
online in 15 minutes that's a very different experience but way than what you would have if you went to the open source um you know drupal.org and tried to put all this together and create a website in 1550 minutes there's no way you do it so we did that but we also realized that the minute people did that they' quickly start asking questions of like okay but I want to do things like for example put blogging on there or I want to have a community and enable people to connect with me so we would enable
them to just turn on modules as they needed them but not right up front we did not give you 10,000 modules out of the box that would have been totally overwhelming and then by the way if you get to a place where all these modules that we've put together for you simply are not enough we go one step further we can actually say just export the whole thing and now you can take any of the 10,000 modules you want out of Drupal and create your own site so that there's no lock in so this is
a completely seamless experience it's not perfect but it's made a massive impact it created tens of thousands of sites within months of launch and through things like templates and so forth they're just a huge plethora of sites that have been created very successfully with this Progressive disclosure approach so I really encourage you again to think about that progressively disclosing of of features as part of your slippery products okay we're on to the first D which is easy to use and apply and here I have an expression that I've used for years which is Ubie what
the hell is Ubie it's it's not something from Star Wars it's out of the box experience which was if you open up the wrapping and everything felt great right out of the box you you had this amazing moment where you just would like dying to use the product and if you notice people even pay attention to that in packaging well in software and in services and so forth have that same experience give your customer that just absolutely delightful experience where they want to engage with you and you might say well why is this a big
deal um I'll give you an example that's very real and by the way simple things like templates that I just showed you for things like theming Etc that's why Apple was successful with with its uh you know many of its products is that they gave you templates right out of the box to make beautiful photo albums or or to do things very simply but in the Enterprise world that is the single biggest reason that seil struggled seil went through such torture with its customers to get their their products up and running and so it was
an easy target for Salesforce to come along and say we're just going to give them a delightful experience it's like Nob brainer you don't have to install anything and right away you can start using it cost you very little and the experience is going to be great and you can customize it and start adding stuff that's why this is important and a whole company has disappeared in my opinion because of this and a whole new one has emerged and it's say Goliath in our space so this is really important stuff okay on to the r
your Roi should be obvious so in um consumer experience this is probably not that important consumers don't think about Roi but they still think about you know they're spending something uh to get something but in the Enterprise world it's totally critical you need to have a quantifiable Roi at some point when somebody starts writing big checks for you they will ask you for what the return on this investment is going to be and it should either be increasing revenue or reducing costs or maybe in your very early stages because it's not easy to to show
Roi uh with an initial breakthrough it might be so new it should be at least driving competitive advantage and uh certainly in the early markets so that's what people look for The Visionaries are looking for competitive Advantage so again how might you do this well you can build on that idea that I mentioned earlier of of um self-proving value but you can also do things like one of my companies unites did which is they built a calculator and they can show you why what they do which is desktop virtualization and the management of that is
going to generate a return for you turns out it's a complex problem and they solve it they reduce storage they make it easier to manage desktops which are very expensive uh and they can give you an Roi right out the box and finally you want to have a product that is sticky that is something your customers can't live without so it isn't a question for them whether they get up the next morning and use it again they just have become completely and utterly uh dependent on it now I mention that iPod uh story up front
the big iPod how many of you got iPads Lots how many of you would be willing to give them up nobody oh one person okay I need to hear why I I think uh I have an iPhone and I have a Mac and it's just sort of in the middle so that's the one thing that I can kind of get rid of okay so Apple saturated you fair enough um I you you and my wife would get along great cuz I have way too many products in in between uh but the truth is we have
all become very much uh dependent on now whether it's our phone or our tablet as a means to do everything from communicate to entertain ourselves and so whether we call it critical or not it certainly becomes sticky and so we want to Define products that really fulfill some kind of need that customers fall in love with and they just don't want to give up and so in a nutshell look for ways to build slippery products that embody all of these different capabilities and if you do you will probably do some very basic things like for
example increase the gain your customers get reduce the pain they they have of acquiring you and end up building some interesting companies around it so I'm going to encapsulate all of that if you never remember slippery or any of that stuff it's up on my site uh into one simple notion what if you could build a truly disruptive innovation that was so exciting that people had to have it yet it had no disruption to adopt it people do this a little company called VMware did this they basically found a way for you to take server
utilization from in the teens of percentages up into the 80s or 90s without you changing your applications or changing your Hardware or anything they just put a layer in between that virtualized all those resources that is disruptive innovation with non-disruptive adoption and if you can find products and services that do this you are onto a winner and it's really worth spending time to do this it's worth time spending time to think about how could you make this kind of impact in in my own portfolio I have a simple example which is these iPads that have
been the theme of our discussion tonight actually are great except when you take them to the Enterprise and you personally own the thing the last thing you want to do is give that device over to the Enterprise to take control of it you want to keep your photos and your music and all your personal stuff on there the Enterprise says but hang on a second I want to put an application on there that will enable you to you know get access to email Etc so uh in this custom example Estee louder actually wanted to use
uh the iPad to get out and sell their products because it turned out there was a much easier way to sell than having people at the counters and it turns out people trust iPads more than they trust sales reps when they make recommendations funny that so that was driving up uh Revenue by 40% all good um but they were having a hard time actually deploying those applications keeping them up to date and training people until aan came along and basically did this via the cloud saved them 2 and a half million helped them roll out
177,000 iPads and deliver it worldwide with no it touch so now this is how EST La is delivering their apps to help increase their sales and what we basically did here was give them all the gain of rolling this out with no pain associated with you know traditional it involvement in this and um all the pain that would have been involved in actually uh doing this which is deploying and installing to the iPad um is taken out it's all just handled via the cloud so this is what we try to do now at this point
just because I really want to give John more time I'm going to stop but I'll tell you the the next two pieces you can find on my site um and it's all about architecting to attract using packaging and pricing techniques uh so I'm going to flip through these there's a technique that is basically a simple way of doing this that you'll see if you want to watch the go to market section I describe it in more detail and I have an example there a case study from aqua and uh even though I know you were
dying to talk about whole product I'm not going to cover that tonight either uh but again I'll make sure this is up on my site and we'll give you some uh background on it so John if you're ready sure I'd like to bring you up and uh and give you the time to to go through your piece great well thank you um certainly interesting to hear stories and as you were going through it Michael I just sort of had flashbacks to to failure moments that we had uh at solid works and also a cloud switch
uh let me give give you a little bit of a a background of who I am and I'll make sure I give enough time to to answer questions at the end I'm currently uh CEO of a new company called Belmont technology uh I assure you that will not be the name of the company when we release uh the product and we go to market but let me take step back in time and tell you kind of the evolution of what's happened in my career and what I'm doing now but uh to do that I'll go
back my my trainings I'm mechanical engineer by training I have been in the design space uh and software world for what way too many years I won't give you the exact number but way too many years and it started back as a mechanical engineer at the University of Rochester and you'll probably be able to do the math it was 1983 I worked in the laboratory for laser energetics which was a nuclear fusion lab and I had a summer job and I was doing mechanical design and the guy I was working for this guy Frank dwit
realized I was far better at computers than I was designed and at that time PCS had just come out and so here I was using mechanical draft in board he understood that I knew a little bit about computers and he said why don't you help us find a cad system so I had to go out and sort of learn about what CAD systems were out there and it turns out AutoCAD was just starting and there was a bunch of of new software startups anyway helped him uh select a cad system and at the same time
we had a lot of drawings and at that time I don't know if people have ever heard of a company called dbase and we ended up basically building a a database system for drawings and so here I am 30 plus years later helping people build SL select CAD systems and also helping them Find engineering information why because the pain as Michael talked about before is still pretty significant so fast forward uh I joined a company called solid works solid works how many people have ever heard of solid works okay it's a 3D CAD company uh
based in walam now today it's about a $600 million company I joined it when we had our first sale of software so the product that just started to come to Market and uh and joined the company and and had a bunch of roles there uh like most good startups uh for those that are either thinking of joining a startup or or joining a startup um you know you want a good a lot of good utility players early on so I had a bunch of roles in Marketing sales building the partner development uh platform the the
partner uh uh application area and uh we're ultimately acquired by Dao systems and we ran it as a separate company and I was a CEO there uh from about 100 million to roughly about $400 million company and then took some time off and then joined a company called Cloud switch which was a enterprise software company focused on helping people take their Data Center and extending it to the cloud uh and that company uh we went through a lot of the similar paining points um that we heard about earlier uh but ultimately uh realized that the
sales model we had wasn't going to work and we started building some strategic relationships which ultimately LED to a quite a successful outcome with Verizon which now actually they've almost tripled the size of the staff and they've done a lot of great work with them and in November I hooked up with uh with a bunch of the team from solid works which is kind of scary because we're a lot older and a little grayer and but uh we sense an opportunity and I won't go into too many specifics about the opportunity of what we're specifically
doing but I'll I'll characterize the the the essence of of kind of the opportunity in front of us and that is the world in which we live and how people design products is changing uh people like my age and a little bit older are starting to retire and and younger generation is coming in so there's demographic shift and the demographic shift is one where guys my generation sort of go to the Internet younger people live in the internet and so they're in this hyperconnected world and yet they come to companies that do design work and
they sort of see the cad system in the corner and it's this this system that basically everything's locked down and so we believe there's a shift happening in terms of of how people work we think there's a lot of Market pressures and and and the design process is changing and we sense that how people build products is changing the computer infrastructure has changed the cloud is is clearly having a huge impact in how and what people do and we think there's a business model opportunity so those four forces converging create an opportunity at Belmont it's
a company that got funded by Michaels firm as well as Commonwealth Ventures and we raised 9 million in November we started the company in November and we raised $9 million and then uh just uh April 1 and it wasn't an April Fool's joke we ended up raising $ 25 million dollar in a preemptive series B round this gives us enough money to build our product and get the market and and and uh hopefully along the way um in case we do stop our toe have enough Capital to kind of see us through and I tell
you that's one of the experiences that uh that having a little bit of a of a a failure and I'll call Cloud switch was a success ful outcome but one of the things we realized is that the market for cloud software was early when we started this and we faced a situation where Capital was going to be a big issue for us if we didn't change our model and so with with uh with Belmont when the opportunity to raise more Capital came in and it was at the right sort of terms we we decided to
go ahead and do it enough about my background let's talk a little bit about what cat is if you look around us all the products in our lives whether it was the coffee machine this morning that you used whether it was a tablet that you picked up this morning your phone whether it was the the car that you got in to turn the clock you know the the radio in the car whether it was these these whiteboards the projectors the cameras all of these things are products that are designed so to understand the cad world
you have to step back and realize this is a big Market why is it a big Market because all of these products have to be designed so think about it somebody somebody in the the world figured out the size of glass and the type of glass to use here but also what the length of these rails should be how it should be assembled so when you think about even just this simple example there's an engineer somewhere in the world that built an engineering model designed that created specifications sent it to a manufacturer who had to
build that so look around your world and you realize this is a big Market this is a market that today represents over $8 billion in terms of software in four companies alone when you think about end user spend it's probably north of 1010 billion and what are these companies doing they're building software to help engineers make mistakes on the screen and not with the end product and that's the key Insight is that allowing people to prototype in in a digital format it's far cheaper than to go ahead and build the product and actually create failure
in the marketplace so that's the market that we focused on early on at solid works with some fundamental opportunities that we think were possible so solid works 3D CAD system let me give you simple reason why solid works existed have people heard of parametric technology PTC okay I'll do do a quick step back lines and arcs people did mechanical engineering design with lines and arcs Auto translated that lines and arcs from drawing boards into the computer you had large companies that were doing on Main frames and Min computers AutoCAD did that same functionality but did
it on a laptop what people really would love to do though is not just put lines and arcs on a screen they wanted to be able to see things in 3D for young people like you you can't imagine a world that wasn't 3D but trust me not too long ago everything was done in 2D so big companies like computer vision came around around and they allowed you to build 3D solid models the biggest benefit of that was understanding how things fit together and making sure that things didn't interfere with each other and car companies airplane
manufacturers would spend Millions tens of millions of dollars for these systems the problem was if somebody designed a car and some the the design team designed every loved it and they came in they said that's great but but make it a little kind of wider here and a little bit longer the guys in the white lab Coates to go back in redesign it and four five six months later they come out with the design PTC did something phenomenal there was a brilliant brilliant guy by the name of of Sam gurg allow these solle models to
change and this idea that you can make changes quickly and be able to see it iterate much like a spreadsheet that allowed Engineers to be able to have rapid design changes that was value and they had incredible success because what their value proposition was we all know you love 3D solid models cuz you can see how things go together the problem is you could make changes they allowed people to make changes and they made a fortune they built an amazing Enterprise They had an amazing sales team and they had great technology and so when we
were starting solid works in the early days people said nobody needs another solid model or PTC owns the market the problem was the following there was a ton of people that had their noses up against the glass they want wanted what PTC had but they couldn't afford it it was too expensive it was too hard to learn too hard to use that was fundamentally the value that we created at SolidWorks and today it's a $600 million company the question and and extremely profitable generated close to almost a quarter of a billion dollars in profit each
year so the question is how do you go I we knew there was opportunity the question is how do we go and capitalize on that opportunity and I want to show four numbers 153 there were many reasons why solid worth were successful but I think fundamentally this is one of them anybody know what it is deer if you go to solid works today and ask anybody it's it's part of the culture it's part of the DNA of the company so I'm not going to go through a lot of hypothetical examples I'm going to go through
specifically how this impacted the company I remember our first sales meeting we were going to sell our software instead of 20,000 $30,000 through a direct Salesforce we're going to sell our software at $4,000 and we're going to sell it through a VAR value added reseller Channel meaning independent people that would represent our product they'd get it at a discount and sell it so the question is when we got all these sales people together for the first time these are different Independent Business people maybe 250 people came to walam Massachusetts we had a meeting and we
had to tell them where should they go selling where to go Focus because they thought our product was great and we put this chart up I didn't put the numbers there the first time but guess what if you look at the vertical axis this is the number of seats this is the number of Engineers that we wanted people to sort of look at and focus when they going out and trying to sell a product and this is the sales cycle and most of the people who were Independent Business people they wanted to go and sell
20 30 seats 40 seats I remember a guy coming to me from Detroit saying I have a really good friend inside of Ford he runs powertrain and I know we can work with their data I want to go sell them would you come out and visit with him and I said I hope you don't mind while you're selling at Ford if we had two other resellers in your backyard to go focus on the opportunities that you're not going to be focusing on he wanted that upper left quadrant big opportunity well guess what happens with the
guy at Ford they bring him in and they love it people want validation they love it this guy's selling saying this is awesome the guy at Ford wants to buy our product so he spends a little bit more time showing it to them and the guy inside of Ford in powert train says you know what our guys love it the guys actually in styling they want to see it as well so can you come back next week and show them product again and all of a sudden the sales cycle instead of two months and three
months starts being four five six months and the guys are like well we got to get some business closed they said the good news is people really really love it and you know what we want to do we want to do a pilot we want to go ahead and buy your product but instead of buying 60 seats guess what they ended up buying three so what we wanted people to focus on is one to five seats 0 to three months and that became known inside of solid works is 1503 a 1503 account why was that
so important because as that guy was selling thinking he's going after 60 seat opportunity if this is time and this is real this is losing money this is making money and these guys are massively sort of undercapitalized they're out there selling selling selling thinking they're going to get this big deal gets extended out gets extended out and what up happening they get business they get the PO but it's for three four five seats and they're losing money and these are guys that can barely afford to make payroll we wanted them quick hits get out it
served our strategic interest to get into a lot of accounts yeah um a lot of sales guys we use expected Valu from expected value perspective that wouldn't make sense because it's a big deal and so did you take that into account sure most of these sales guys most of those people are thinking about expected value they're probably sales guys that are making what 150 200 Grand a year these sales guys were vars their sales people were probably making 65 70 grand a year we needed people to go out there and get quick hits get into
the account and and the most important thing was actually qualifying out accounts so we didn't go for big strategic selling we wanted to be like weeds popping up through the concrete in fact we tried to think I was talking to John HK who was a founder of solid works just the other day and he's with us at at B we were talking about it kind of what was the perfect opportunity and one of the perfect opportunities was not a 10- seat deal that had Pro engineer remember these are people with their noses stuck up against
the the glass door wanting what what was inside but they couldn't afford it so it was not to go to an account that had 10 seats of proe and saying let's go ahead and and try and convince them to convert and switch over to us conversely we didn't want them to go to 10 seats of 2D users AutoCAD users and try and have them all all switched to solid works because we would have had to go through and teach them all about 3D solid modeling go through this long sales process only to have them buy
one or two seats we called it the modeling saturation index a really kind of nice nice term and what it was was we wanted them to have two or three seats of proe that were exposed to 3D but had eight seats of AutoCAD because they already knew the benefits of 3D by having those two seats there but we wanted them to get the advantage why didn't they have the other seats eight seats move to 3D well probably because it's too hard to learn too hard to use and too expensive yeah this this might be a
question out of ignorance but in thinking about sales cycles and thinking about the more impactful sales versus the little to but at volume why wouldn't you have affiliate marketing channels or web channels selling this as opposed to people that you have to spend time and money on training and likewise how much of this was business development versus sales like this almost sounds like an exploration in what is what is the model of the sales versus order taking great so the first question is why didn't we have affiliate marketing and web based sales well contrary to
what Al Gore said about the internet I mean it didn't exist no no it didn't exist I mean I'm being being a little cute here I mean in fact when we started solid works we were having a decision about and I know this is going to be in the way back time machine but we had a debate and I remember it being in the in the order room kind of the the shipping room we we had a debate whether or not we should have a website and I know you can laugh but we said what
would we put on the website we said well we could put our address directions maybe some marketing materials and then we all laughed because they said you know someday maybe people will download updates for a software and we all cracked up laughing and you know what we were one of the first 100,000 websites registered in the world okay now why why would why wouldn't you use affiliate marketing of course you'd use that today but we had vars these are value added resellers these are businesses independent businesses that were selling other products already selling Consulting Services
selling training we needed these people one to survive they didn't have a lot of capital but two they wanted to go out and expand their customer base and we wanted them too it was critical for us to go through get customers to try the product use the product get successful with the product because we knew there would be viral adoption once people started using it it would draw other customers into this into this solution yeah I was wondering how do you figure out for a different business what is your 1 153 well we were lucky
early on that we kind of got it right but we knew we knew there was a tendency the good news is we knew there was a tendency that people wanted to pull us up into higher accounts and larger accounts and we knew with our sales channel that we had and our price point we couldn't afford to have a direct sales force going out and selling $4,000 software so we knew we had to go through a VAR channel that was part of our business model early on and we knew that they would be attracted to try
and go after the bigger accounts so we had to intentionally force them to go smaller one because quite frankly they weren't hiring the top talent that we needed so we had there was an impedance match that we had to have with their skill set their presence and and and our ability to kind of message to them so we had to keep it incredibly incredibly simple so it was just simply about kind of focus and and repetition of message does that make sense um so the benefits of this model in incredible predictability in terms of of
Revenue stream the question was could we scale this that was a big question I just noticed Rich was back there and he probably remembers the first board meeting we had our Revenue plan our first year I think it was 3.8 million we kind of upped it to to $4 million and and we had no idea what we were going to do and we ended up doing something like 12.8 I think in the first year but it was all about sort of scaling keeping focus and and having a repeatable process now how did we know early
on we didn't but we spent a lot of time with customers and with vars in the early message there was a lot of four-legged sales calls our regional people going out with the vars and doing sales calls understand what the objections were but it was all about kind of basically getting customers to adopt the product get into production and we knew that once they got into production they'd start shipping files around that would create the viral nature of people trying to understand what our business was about to give you an example about why this is
important and about scaling a company I just want to share one one one point we started growing the company and 1503 was all about predictability Revenue stream what turns out that this is a philosophy we had to be able to take an order inside of the company be able to process the order get the product ship it out to a customer and be profitable be profitable with with at a $2,400 price net margin to us going a little bit further when we scal this up and we had to do an upgrade cycle we were shipping
out boxes these boxes had to be shipped and they weighed 15.9 9 oun why because it's 16 ounces UPS charged higher Freight weight so this became a cultural mentality inside of the company in terms of execution and the strategy was simple get inside of the account land and expand that's how we built the business did this did that mean we only went after small small companies no as we grew and we grew the account base we ended up getting to some significant counts I remember being on a panel with the CIO from EMC about selling
to large accounts I'm like why the hell am I here we we we never called on EMC at the high level we end up displacing proengineer at EMC you know several hundred seats why we did it three four seats at a time and once we got to about 00 seats they had to deal with us so that was our strategy let me just turn about some other practical things we had an ecosystem inside of solid works Michael talked about it before in terms of whole product and core one of the things we understood early on
as solid works is we were going to focus on core modeling and we're going to have Partners do the rest but we had to build a partner system to build applications on times times on top of solid works how did we do it well first thing you got to realize is partners are interested in only one thing your customers but how do you get customers if you don't have any partner applications on top of it we proposed a simple three-step process first was this idea of kind of marketing cold fusion it was all about getting
credibility through numbers how do we you know create press releases relationships we had a very lightweight program early on about quote unquote what a partner meant step two was about focusing on a few select Partners in each vertical market and in this case we went through we wanted to create some leaders in the analysis World there was a bunch of big vendors they wouldn't give us the time of day we chose the number three vendor and we said we're going to make them number one in our space so we went to each segment and picked
a vendor and just through sheer for force and kind of be hugging them we got them to build integrated applications and once they started to get mind share in our Channel and we got credibility and they started getting sales the big guys had to follow so leaders you know first was marketing cold fusion leaders set the pace and the third was that followers will follow and the irony here is this that the followers were actually the leaders in each of these categories ring the IP they did we were a platform we were a platform that
they built on top of I just want to share another kind of couple of thoughts that I know we're running late late on time here meet your enemy you're in a startup the only Advantage the only Advantage you have is time that's the only Advantage you have you may have a clever idea you may have some IP but the install based guys have customers they have Capital they have presentence they have a megaphone the only thing you have is the calendar you got to be able to move quickly so I have was saying and it's
something that I think is a cultural one I would share with you events Force actions what did everybody do yesterday pay their taxes right was that yesterday why did you do that because if you don't the government makes it really painful they created that event on April 15th to make sure you paid your taxes so events Force actions find ways inside of your company to go ahead and put deadlines we used to have solid works World we'd have 5,000 people come to an event we'd do it once a year and it costs us roughly $2
million inside of the company and forget the fact that the benefit was we'd got these you know all the users together and they'd be these shaved head zealots that go out and tell everybody about us afterwards and create all the energy if you strip all that away and forget all the media exposure if the only benefit that we got out of spending that $2 million as the company was growing was to get people together on one day and force decisions it was hugely worth it because it forced people to align and make decisions so this
idea of putting deadlines and events is critical because it's reinforcing the only advantage that you have the other point about this is we have a saying the perfect is the enemy of the good early on you just got to get your product done get it out there and iterate I'll share a couple other thoughts what you think versus what you know everybody tells you to beta test beta test beta test really really important far more important if people aren't paying you for something they'll tell you all day we saw it at Cloud switch ton of
people loved it ton of people loved it how many people would pay for it and when they ended up paying for it we ended up realizing they were paying for something very different they were not paying for the product they were paying for education I'll share a couple quick thoughts we had a subscription service program inside of solid works today it's a $300 million business I just want to share some insight about how we decided what to charge how do you you decide to price your product figure you can build it on what it costs
or you can figure out what the market is willing to pay for it it it sounds like you could bear a $2400 price point on the other side so it sounds like like $600 per so we went out and saw what other what the competitors were charging the installed base up until the point when we started solid works there was no idea of subscription based revenue is a shrink wrap model and the the large install based guys were charging list price and 18 % so that was kind of what the market was used to so
we went out and sort of said okay we know that we're going to charge at least 18% we have a lower price point so the question is what will we charge and we thought about different price points and then we also sort of looked at and said wait we have to align not just what our interests are in terms of what it costs but also our vars because we wanted our vars to be able to go and support customers so we had to line what their support model was along with what we wanted to make
so we went and started from the premise of what would a customer pay from a VAR perspective how many people could they support so we looked at the VAR profitability equation that that internal sort of Step between us and the customer because we needed them to make customers successful so we ended up saying okay they can handle this many customers in terms of calls this is how many customers times whatever money how much money do they need to make and what would be our margin so we started actually at the end user work to the
middle work back the end user and came back point point is it's not just about the money you want to receive you got to align each step in the process I'll just share some other thoughts we all talked about turning products into companies I love this saying it's easy to start a company it's hard to build a business at the end of the day you are trying to build a company but you're really trying to build a business events Force actions the perfect is the enemy the good one of the things I think at solid
works today I don't know they have a, 1100 people inside of there we have a small company we have 17 18 people but we're starting with the same Mantra that the most important thing you can do is hire well I think that's an incredibly important thing hire people that scare you with their confidence salespeople couple insights if you have a salesperson that says they don't really care about money they're not a good salesperson fire them I'm dead serious sales people work on two two components reach behind their back and look for the coin slot they
are coin operated and if they're not you are not going to be able to put the right incentives in place sales people are motivated by money if they're not they're not good salesp people they may be great people and they may be great marketing people but if they're not motivated by money they are not good salese the other thing that motivates salese is recognition if you got a salesperson that is not concerned about how they Stack Up and rank versus other sales people in your company get rid of them salese are naturally aggressive and they
they're competitive they want to make money and they're competitive those are the two drivers in salespeople that's not to say they wouldn't be valuable for your company but they're not going to be great salespeople as CEOs or Founders the other thing that you're doing is you're creating a culture I talked about 1503 as a strategy it was about a culture we had created a culture that every step in the way we're going to make money in terms of being able to be efficient we also cared about customers that we didn't know the names of that
was a cultural thing we built a company on the backs of companies that we never even knew the names on a broad basis they're not companies that you would look at and have Billboards and have logos and say you know Nike using our product most of the people were suppliers to Nikes or mold shops we were damn proud of what they did and we felt great about what those customers did and we celebrated their successes but the point is we aligned the company consistently in terms of product pricing product packaging and and and culture throughout
um fundamentally the last part I'd say is with all of the challenges and I won't bore you with the cloud switch ones we ran into some some difficult times but remember uh it really is about the journey that's why most entrepreneurs do it most entrepreneurs start companies because they see the world and how the world should be so as you're going through that Journey understand that yes while success is great and money's great the journey is also part of what's fun with that I'll open up for any questions you may have so I mean one
of the things that you did there which I I know is you know literally part of the Legacy you left at solid works is you very early on established this culture of having a clear and consistent way that the product was sold that was profitable and you even create a disruptive business model this whole subscription uh plan which many of you have heard me talk about that in fact I would say if you agree the subscription model was as important in many ways uh in your success as anything else it was gamechanging so as the
team looks looking around this room is is thinking about starting up a company now and you're you're doing it yourself right now what would be the one or two things you'd say think about right upfront in your product that will make a difference to enable profitable suring and a culture that is successful great great question so one of the things that we we learned really I'd say by chance um we tried to figure out with our customer base you know what version of the software so we weren't a SAS based application people had to install
our software and so one of the challenges we had I mean up until we started software companies didn't actually when when they went through distribution they didn't necessarily know who their end user was so by having a subscription service we sold through vars but we demanded up front to know who the user was once we did that we at least had a relationship with th with those customers but we didn't necessarily know what version people were on and so we had this tool that we called a performance monitoring tool very early on and it was
a little bit kind of like a little nugget of software that was on on on on their PC and would send back aggregate data we would only look at it in Aggregate and we could see what version people were on we could also see what different addins they had so this idea of of of of analytics and measuring we did it to solve a problem it turns out it was a huge enabler for a business decision later on so I'd like to say we designed it in the in the beginning but it was something we
introduced kind of three versions into the product but let me give you an example what it did since we could figure out what version people were on we also knew which applications they were using along with solid works and what we found is if you took the number of customers and on the Y AIS and the number applications that they were using on the x-axis it was a massive ski slope meaning not many people were using more than two applications with solid works and we could figure out which were the most popular applications and these
weren't ones that we wrote ourselves these were partner applications so we had this really long tale of people not having many applications they were one different application and whatever else so we had the opportunity once we looked at that we were fighting a price war with Autodesk Autodesk had AutoCAD 2D and they bundled their 3D solution and they were undercutting us some price and we realized that all the value of these applications were not being used by customers and so we went out and started to find out why well it turns out many of the
vars that we're trying to sell these applications it kind of wasn't worth their hassle to go back to a customer and sell a four or $500 application what we said then is okay are there groups of these products that we can bundle together you know kind of use the oldest trick in the book why because it worked and we said can we bundle and create solid works solid works Office Professional and office premium and we took these otherc that weren't really being used by people we bundled them together and in the middle of a price
war with Autodesk we took our price point from $4,000 for a base product to $5,400 to $7,500 and along the way increases subscription so we created greater value for the end user greater value the vars and greater value for solid works and for those application Partners yes on the marginal seat that they might have sold of a photo rendering product they weren't going to get as much money but I went back to each of them and said look you're only making 15 grand 20 grand from us how about if you give me a blanket license
we'll pay you 100 Grand and I went to a bunch of different technology suppliers and we bundled all those together and we raised our ASP by over 50% in the middle of a price war with our biggest competitor and we grew our volume Pro you know commencer I mean it was tremendous you would normally think by raising your price in a price World we'd see diminished volumes we actually grew it tremendously so it cre and once we did that when new entrance came in we had a higher subscription Revenue base so it was defensible so
when people came in with other products and wanted to get our VAR channel to join them and take take their product on there were some vars owners these are small businesses that were waking up on January 1st and they had a subscription business of a million and a half to $2 million they weren't going to go to a competitor so we built in kind of a a barrier from people stealing our Channel and that all came about by accident in terms of analytics so the idea of understanding early on what's Happening can pay huge dividends
later on I'd like to say we had the genius to figure it out early we didn't but we soon capitalize on it yeah uh so you kind of touched on this but I'm curious which did you find more valuable both in the early stage and as you grew the data behind the product or the product itself great question the data behind the product or the product itself so the product itself was an amazing product let's be really clear the team built an amazing product and it only got better the question we tried to do is
we had many people were using this product and they were building for example pneumatic cylinders okay festo is a large German conglomerate that builds pneumatic cylinders you go through a factory you can hear all the you know these are all things that are cylinders moving things down a factory line so festo use solid works and so we had this great idea you know all these people that are building bearings that are building Motors that are building Fasteners can we take that and and create a business either selling content so we created a website to allow
people to download content in 3D and use it and we went off then and said can we create a publishing solution because all of these manufacturers that made bearings and motors and everything else had to create cataloges and they were creating paper cataloges and we said look you're using solid works already why don't you go and create a 3 electronic catalog so we built a whole business around doing that and guess what we failed miserably you know why why one simple thing we thought because we know festo and we had relationships with the engineering team
we thought we had a relationship with that customer and here's where if we had done something fundamentally different we could have been successful in it I thought and I'll take responsibility for it I thought we have a relationship with that customer why can't our team go and sell to the marketing team inside of that company guess what I should have treated as a completely separate company because it turns out the engineering people didn't even know the marketing people in these companies and oh by the way I shouldn't have used our sales team I should have
gone out and hired media salespeople to go after that opportunity so it was whether it was you know kind of just arrogance I don't know I thought we had a relationship with that customer and I thought that would transfer over into the marketing department because they had the data fla assumption and we after three years you know of spending a lot of money and a lot of time we kind of finally realized that and and made a little bit of a business of it but it was a real you know um even even knowing that
do you is then the answer that the data is not as valuable as the product or is it that the data is only as valuable as you leverage it we tried to leverage it and we did a poor job of it I still think the value I think that the data um I think fundamentally the data could have been far more valuable than we than we were able to take advantage of it but no the business let's be clear the business was building CAD software and support that's you know that's where 600 million you know
billions of dollars of end user and billions of dollars of market value was created by solving a design problem the content I think could have been used far more strategically and we we screwed up on it so just because of time I'm going to give everybody a chance to chat with John afterwards but I want to wrap up up um I want to say thank you very much John that was just outstanding um there are so many points John brought out it's probably going to be difficult to summarize them but I will just uh highlight
a couple that I think you know you can find very actionably he highlighted analytics which you talked about in Slippery product is one of the things I really am a big believer in you can build that in early it can help you with your justifications with your you know your uh proof of Roi Etc um and I think one of the big things that we you know heard from John here is how he really focused on building something between the product and the company which is this goto Market methodology that become became a a piece
of the culture that really enabled the company to be successful and uh if you go back to that road map that I was talking about this is where I think if you took nothing else away from tonight you really have to spend time to think about when you're building your feature or your product or hopefully ultimately Your solution you're thinking all the way along the line about what is it that you're doing to serve that Marketplace and how do you reach them in a profitable way that can become repeatable and scalable to build a company
and I know it sounds simple but 1503 was that and it's why John's company actually was able to get scale because it was reduced to such a simple level that even a $60,000 sales guy in a VAR could carry that message and could effectively execute on it repeatably over and over again to scale that business and that's the kind of formula that I want you to hear tonight from somebody who's built a $600 million business out of it because it had nothing to do with the technology in the end although the technology was critical at
the beginning and John is noting here I can trust me we as investors here were very proud to see this but it is a lesson for all of us to take away it's about figuring out how to work this road map Beyond just the the product and Technology it's why also I started up front pointing out that a small piece of the p&l is really the R&D so much of it is on this go to market sales and marketing and there's more on the website on that and I want to take a moment just to
again thank Greg and John very much for making our evening this evening thank you very much [Music]
