Startup Diary Month 6 – The Best Advice a VC Can Give a Startup

Strategy

Early on in our startup founding, I received an amazing tip from a general partner at a Silicon Valley VC firm that was the very best advice I have ever received as a startup CEO. If you follow it, you will save months of time wandering in the desert to get to the nirvana of market and product fit. Here it is:

“I urge you to think hard about the category you are going to be in.”

Why is this amazing advice for startups? Let’s look at Aaron Levie’s company Box, a company that has  achieved product and market fit (for more on that subject, read Mark Andreessen’s blog on product and market fit). Gartner’s  Monica Basso defined the category for Box and called it “Enterprise File Synchronization and Sharing”.

Box's category spans several established markets.
Box’s category spans several established markets.

When Box got started in 2005, there was no such category called Enterprise File Synchronization and Sharing (EFSS), and even Gartner still says that the EFSS “market is still developing and relatively immature”. It has taken 9 years for this category to have a name, defined players, and market size, and is a category that’s created from an overlapping venn diagram of established markets. Yet, Box and its competitor Dropbox, which arrived here from the consumer file sharing space, are duking it out to capture a large market share as quickly as possible.  Says TechCrunch: “For the full-year period that ended January 2014, Box’s revenues grew to $124 million, up from $58.8 million the year prior.”

Box, like Dropbox with its Dropbox for Teams business product, which starts in the category “Social and collaboration”, is looking to take away budget from companies that play solely in one of the other market spaces, such as:

  • Storage and backup
  • Content management
  • Social and collaboration
  • Cloud virtualization
  • Enterprise mobility
  • Mobile file-sharing

For example, Gartner tracks the market for distributed system archiving as a subsegment of the storage management software market, saying, “This market will continue to see strong growth, experiencing a five-year CAGR of 14.1% through 2017, from a baseline of $1.61 billion in 2012.” That’s just one of the market segments that Box could take market share away from.  Box and Dropbox are creating a new category of software, by taking slices from other market categories that are well-established. Box can help a large enterprise that is spending hundreds of thousands of dollars on storage hardware and software solve both storage and collaboration challenges simultaneously, while saving money and improving employee productivity. For example, Instead of an enterprise spending money on buying and installing EMC’s Elastic Cloud Storage appliance and using EMC ViPR , EMC’s initiative around software defined storage, as well as collaboration software from Microsoft Yammer, they could use Box or Dropbox, and store files in the cloud, while also enabling collaboration.

Market and category thinking is a must for monetization.

The VC partner who gave me that advice is from an established Silicon Valley venture capital firm. It is a firm that I have great regard for, because it invests in startups that are built to last, no mean feat in the Silicon Valley startup ecosystem. Its partners have been founders or early employees at startups, yet they’ve been around long enough to know how the best startups are themselves built to last. I called that partner to update him on our startup venture, OnBoardify, which is in in stealth mode, and to ask him for advice.

Note: I called the VC partner to ask for advice, not for funding. I did it well before we needed to raise funds. And that’s the single piece of advice I personally can give you, if you are thinking about approaching investors, whether angels, accelerators, first round, or broader fund-management VC firms. Pinpoint someone who understands the type of company you are building, and then call them to ask for advice. In this case, the partner looked at our deck, and spent about 45 mins on the phone with me. He noted that there was no category called “Deploying quality enterprise applications”, which was the positioning we were starting with – and, because we’re in stealth mode, we haven’t changed it on the OnBoardify web site. He suggested strongly that I think hard about what markets and categories we are in, and he jousted with me as I handled objections, thinking quickly on my feet. When I suggested that we pursue building collaboration software, he said thoughtfully “Collaboration software is a really crowded marketplace.”

Over the past few months, as our product has matured, we have realized that, like Box and Dropbox, our product takes a slice from several established categories – including Application Development, CRM, and IT Management. Since we haven’t launched, we’ll keep the specific sub-categories under our hat for now.  Now, as our product is being used by companies, and we thought harder about the categories and markets, we realized something amazing.

We could be a billion dollar company one day.

…and that’s because the dollars being spent in these specific categories are large, and we will save companies money by switching from expensive, hard-to-use enterprise products in those categories.

It all started with the advice that VC partner gave me. What really impressed me about that partner was that he took the time to listen and then coach me on the topic of market sizing, competitive markets, and early market capture. The “category conversation” It has been the steering wheel of our corporate strategy, product priorities, and sales and marketing execution. We realized what it means to build something really big, and while our product still has many gaps, it’s within striking distance of solving a really, really, big problem, and one that companies spend tens of billions of dollars on today. I’d like to thank that person for his time, interest, and coaching. That’s the kind of partner I want helping us take our business to the next level, because he was willing to help even if there was nothing in it for him immediately. And that’s the best kind of VC, folks, the guys and gals who are in it to make startups better than they are today – to those winners will go the spoils.

So, fellow entrepreneurs, drop the donations bowl, and instead, ask for advice from your investor outreach. It’s worth more than any check anyone can write. And may you join the billion dollar club as well. See you at the lounge!

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2 thoughts on “Startup Diary Month 6 – The Best Advice a VC Can Give a Startup”

  1. Famous Saying”Story Well Begun is Half Done” applies here very well.It just goes to show that if correct steps are taken to build a Start Up in a Systematic way,Sky is the Limit.

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