I’m helping to judge and counsel the participants, and in doing so I’m remembering just how hard it can be to explain what you do from within your own company.

• You can’t hone your pitch: At an event like this, you’re speaking to investors, employees, competitors, and advisors.
• You want to explain it all: You’re convinced that you have to offer a tour of your whole product or service, which makes you rush.
• You’ve got the curse of knowledge, something Made To Stick talks about a great deal. Basically, you know your own product so well, you forget that others don’t know anything about your market or technology.

In a pinch, here’s what I usually advise people to do if they have no idea how it’ll go. You can break a presentation up into five chunks of a minute each, and use 2-4 slides for each minute, to get your point across.

Minute one: How big is the pie?

The first thing you need to do is set the stage. What industry are you in? What market are you servicing? Why is this segment of the world growing, or poised to gain attention? This part should feel like a TED presentation, telling the audience something surprising that inspires them to continue listening.

As you’re explaining this, remember that many of the people in the audience won’t know what you do. Give them analogies, or concrete examples from their daily lives. When I’m talking about cloud computing, for example, I often ask people, “do you use GMail, Hotmail, or Yahoo Mail? Where are all your mails stored?” They may not know clouds, but they grasp that concept quickly when it’s made relevant to their lives.

This is where you mention comparables — other companies that did well in an adjacent space, or who have had success in this space but aren’t competitors. Lucrative comparables make investors drool.

Minute two: Why is there still a piece of the pie left?

Now that you’ve told the audience about a huge opportunity, where’s the gap? What’s the shortcoming? Hopefully, this is a major disruption: The broad adoption of mobile devices; economic pressures changing budgets; consumer understanding of web applications; concern over healthy eating; etc.

You want to show a hard problem. If the market gap is easy to overcome, then the audience will question whether you can build any kind of sustainable competitive advantage. But if you state a hard problem that’s genuine, it’ll be interesting. Your problem doesn’t have to be technical, either: you might say that it’s hard to reach consumers, but you have a partnership that bundles your product in with something they already use.

This is where you can drop the names of competitors to show you know them, and know why you’ll beat them.

Minute three: Why will you claim that piece of the pie?

Now the audience is ready. There’s a change coming, and there’s an opportunity. At this point, you need to prove that you can fill the need. This is the only part of the presentation that should include a demonstration, and it should demonstrate only that you can overcome the big challenge. Don’t bother showing me the login page, or the account administration screen, if your key feature is a dashboard.

Also, if your value is the viral loop or the process, show that. Make it personal. If your target customer is a small business owner, for example, then give her a name and follow her through a day in her life. Making your product concrete will help others put themselves in your customer’s shoes and understand the benefit you offer.

Minute four: How will you make money from it?

Now that you’ve shown value, explain how you make money. This is simple accounting:

• What are your initial costs?
• What are your marginal costs (i.e. how much does it cost to deliver product or service to one more customer)?
• What are your revenues? Are they recurring or one-time?
• How do people find out about you? How will they spread the word? How much does this cost you to encourage?

Remember Sergio Zyman’s definition of marketing: Selling more things to more people more often for more money. How do you do that?

Don’t get into financial projections here. You’re not expected to use real numbers; instead, you’re helping the audience to think about the fundamental equation that drives your business. Revealing your business model happens in stages.

If you were Netflix (or in Canada, Zip.ca), for example:

• For a broad audience, you’d offer, “we have a monthly subscription model, and delivery is done via post initially. As networking becomes cheaper, we’ll switch to a download model that will slash our costs dramatically.”
• For your first meeting, you’d say, “customers pay us a monthly fee to ship them movies from a list. Our analysis of the cost of DVD purchase and the frequency of rentals shows we make money because people don’t watch as many movies as they think they do, and because ground-shipped mail is cheap.
• In a one-on-one discussion with an investor you might explain, “the average person watches 6 movies a month. We can rent out a DVD that costs us $50 fifty times, and shipping is $1. If someone pays us $25 a month, we make $13 a month.” It costs $0.06 to download a movie today, and that’s dropping by 50% a year; and a digital copy of a movie won’t get destroyed in the mail, so our margins will increase as costs go down and re-use increases.”

Don’t get into this kind of detail in an open forum unless you’re directly asked. But when you are asked, answer quickly, clearly, and without hesitation. Prospective investors are testing to see whether you really know your market. Also, if you have a convincing way to get the word out or drive down costs, emphasize it here. Remember — this is about your business model, not your technology.

Minute five: What do you want from the audience?

There’s always an ask. If you just present without a goal, you’re wasting your time. Some examples include:

• I want customers, beta testers, or referrals
• I’m looking for investors
• I want to recruit new talent
• I’m looking for service providers (lawyers, ISPs, etc.)
• I want feedback, criticism, and suggestions

Know which of these you’re after and leave the audience with a clear call to action. This conveys the impression that you’re confident, and you know what you want to achieve, which is a good thing.

I’m really looking forward to next week’s event, and to hearing what marketing veterans like Chris and Tara take away from it. Let’s hope the participants have a short, pithy explanation of their companies so we can understand them quickly and provoke some healthy, challenging discourse.

One of Rednod’s clients, FarmsReach, fits that bill especially well. They launched on Tuesday at the Green:Net conference. After ten months of hard work on a web platform that could actually transform the local, sustainable food industry, the company’s finally taking the covers off.

Best of all, the company won the inaugural People’s Choice award at the Launchpad event with CEO Lana Holmes’ great presentation. The buzz has been huge, and while FarmsReach is taking it slow, focusing on San Francisco farms and restaurants, it’s a model that can work across North America in short order.

Congratulations to the FarmsReach team.

Also worth checking out is Saul Griffith’s awesome presentation on the energy we use, which takes a decidedly engineering-centric view at the daunting challenge humans face in trying to slake our thirst for energy. Green:Net was an excellent — and thought-provoking — event.

Rednod has lots going on — much of which is related to Bitcurrent and the Complete Web Monitoring book — and it’s time to grow the team. To that end, we’re looking for a program manager. If you’re interested, let us know on Twitter or contact us online.

Here’s a detailed overview of the position.

Title: Program Manager

Location: Montreal, Canada.

Languages: Must be extremely fluent in written and spoken English, since most of the work involves managing and preparing content for U.S. audiences. French an asset, but not required.

Compensation: $30K – $40K, depending on abilities. Flexible work hours and vacations.

Summary: Event coordination, blog management, content research/creation, and content management for an early stage technology analyst firm based in Montreal.

About Rednod

Rednod is based in Montreal, Canada. The company is a “startup accelerator”, helping to plan, build, and launch new ventures with a particular focus on product management and product marketing. Rednod is also the business side of Bitcurrent, a technology research firm that produces events, publishes reports, and writes about emerging technology.

We also work on a range of technology events. We run the annual Bitnorth event, and help to produce Interop, the Enterprise Cloud Summit, Enterprise 2.0, and the SIIA Software Summit. We participate in many other events, including GigaOm’s Structure and Green:NET, Mesh, various DemoCamps, Web2Expo, and eMetrics.

While startup acceleration, event production, and technology research are our three main activities, we’re also actively engaged in new ventures of our own.

What we’re looking for

If that sounds like a lot of different things, well, it is. It’s time to grow the team. But as a small company, adding new people is the most important — and risky — thing we can do. Given the variety of work we’re doing, we need someone who’s just at home coordinating events, generating content, and using the Internet.

For the right candidate, this is a unique opportunity to dive head-first into the technology sector. But if this isn’t the job for you, it’s best for both of us that we know it up front. So we’re going to give you lots of detail about what we’re looking for — much more than you’d normally find in a job description. If you’re the right candidate, you’ll appreciate that. If you’re not, it’ll bore you.

The perfect candidate

Everyone’s got strengths and weaknesses. But here’s what the ideal candidate for the position will look like.

• Insatiable curiosity: You always want to know why. You believe in “as simple as possible — but no simpler.” You understand things by taking them apart, and then building them back up again. You’re constantly looking things up on Wikipedia, but you check the edit history to gauge how contentious the content is. When you see a graph, the first thing you do is read the axes. You inherently mistrust any graphic printed in USA Today. Despite a desire for the whole story, you still value parsimony.
• Superlative communications skills: You’re a flawless communicator. You read On Writing Well for fun. You’re a fan of Tufte, and the Lessig style of presentations. You know what works, what doesn’t, when to use long sentences, and when to keep them brief. You can’t look at a menu without correcting typoes. You think that Stephen Fry should be in charge of the English Language, but that Stephen Colbert should be Minister of New Words.
• Internet acumen: You have an opinion on whether Reddit, Slashdot, or Digg is better. You have an RSS reader, but subscribe to more feeds than you have time to read — telling yourself you’re a better person for subscribing to them. You’ve built websites to understand how they work, but you’re not a developer. You know Google hacks, like how to find things in a cache after they’ve been deleted. You suffer from social network overload. You know how long Twitter messages are –and why. And you’ve used analytics tools, blogging tools, and Google Analytics. Most of all, you learn new technology quickly.
• Organizational ability: You’re allergic to chaos. You dream in tables and charts. You know what GTD is, but you think it’s a set of suggestions rather than a way to run your life. You struggle with whether to sort your shoes by color, style, or height. You can juggle ten projects at once without letting something slip. You build process diagrams for navigating the local market. Perhaps most importantly, you know how to gently but firmly impose that organization on others, and to summarize complex information for quick consumption.
• An analytical mind: While you don’t have to be a statistician, you should want to analyze everything. The answer to doubt is analysis — whether that’s a spreadsheet, some web analytics data, or a survey. You know that the only way to improve something is to measure it, whether that’s a website, an Internet meme, or your own job performance.
• An eye for design: You don’t need to know how to design, but you need to recognize good or bad design — and give objective feedback to designers. You should be familiar with image editing, cropping, and adjustment tools, and with annotating presentations and PDF documents for feedback.
• A desire to change the world gently: We fervently believe that technology is rewiring humanity. The advent of accessible global digital communications is transforming our species, from how we do our jobs to how we fall in love, from how we learn to how we think. In a few short years, an Internet failure will feel like a stroke: We’ll have lost faculties we take for granted, and won’t know how to cope. While these might seem light lofty, high-minded thoughts, we have to ease ourselves into this transformation. Bitcurrent touches on many of the touchpoints between humans and technology, from public policy to web interfaces to cloud computing to mobility. It’s a fascinating place, to work and think, and you should want to spend time there.
• A thick skin: Humans make mistakes. Those mistakes are amplified when everyone’s working on a dozen things, traveling constantly, and using short-form, impersonal messages to stay in touch. To survive this, you need a thick skin and an allergy for drama. You need to say what you feel, then move on. Most of all, you need to assume that everyone else in the company has the company’s best interests at hand, until you have reason to think otherwise. This is a critical skill when working in any startup, but it’s particularly true here.
• A bias for action: Most of all, you must want to create change. Sitting still isn’t an option. You must be the kind of person who sends the first mail, organizes the event, puts the stake in the ground. Some people wait for external triggers to get them started; in this position, you are the trigger. There won’t be much coaching here, so you’ll need to ask for forgiveness instead of permission much of the time.

We’re tight on money, and in this economy, that means it’s a no-frills job. If you’re looking for a nine-to-five position with a predictable income, picture frames on your desk, office Christmas parties, and RRSP co-payments, this isn’t the job for you.

But there are lots of advantages to the position. You’ll get to travel to and coordinate industry events, rubbing shoulders with thought leaders and innovators. We have a decent office with great coffee and 3.5 Gigabits of bandwidth (yes, Gigabits. We like our net fast.) You’ll set the tone for technology discussions. You’ll have flexible work hours and can work from a variety of locations. If you’re looking to think and work on an ever-changing series of projects, some of which may evolve into businesses, this may be a good fit.

What the job entails

As program manager, you’ll have four responsibilities.

1. Event coordination. This involves working with various organizations to define program content, track down speakers and panelists, maintain a list of industry contacts, and perform research related to those events. It may involve attending 2 or 3 events a year, generally in North America.
2. Editing and blog management. We’re involved in several blogs for both ourselves and our clients. Each needs a publication calendar, content, editing, and maintenance. We’ll be launching other blogs, which may require Wikis, surveys, and other components. Each has analytics that must be digested and acted upon to increase traffic and make the sites easier to use. In particular, the publication of the forthcoming O’Reilly book Complete Web Monitoring will have a web presence that needs creation and maintenance.
3. Writing and research. Bitcurrent has published several studies (on cloud computing and content delivery networks) and continues to create content. Sometimes we sell the content; most of the time, we publish it online for the Internet community. You’re expected to contribute to that content not only by editing it, but by finding things you care about and writing them in conjunction with other members of the team.
4. Content management, storage, and retrieval. We generate a tremendous amount of data, from presentations to audio recordings of interviews, from business contacts to resources and links. This isn’t well organized today, but it needs to be. That means building a content management system that can accept various resources and make the available to Bitcurrent employees and/or outsiders. We’re not going to decide how this will work — that’s your job — but it might consist of a Wiki, a Google Site, a CRM tool, or some combination of them. You’ll be responsible for building, populating, and maintaining this system.

What we promise

This will be a varied, challenging, and fascinating job. We’ll give you authority commensurate with your responsibility. You’ll have a life, and time off. You’ll build things you’ll brag about for the rest of your life. And you’ll learn constantly.

How to apply

Get in touch with us online. Send along a resume, and point us at things you’ve done online or off that we’ll love. We’re looking forward to it.

There are ten distinct stages of defining, testing, and launching a web application. Each stage has some tools you can use, involves different people, and focuses on different kinds of data collection.

If you go through these stages in the wrong order, you’ll waste time and money. Do them in the right order—using some of the tools we’ve found here to help you along the way—and you’ll be much more likely to launch the right product at the right time and make it easy for your customers to access you.

Concept

In the concept phase, it’s important not to be constrained by what’s possible. Avoid technology; instead, focus on needs, how you’ll make money, and how you’ll get adoption. In fact, John Stokes of Montrealstartup told me about a Washington, DC-based startup incubator that insists its participants write no code for the first month of their three-month term.

Workflow

This is where you stitch together the concept. I’ve mentioned Productplanner, and I’ll do it again here. Ideally, you want a big, blank wall with lots of drawnings of screens. I’ve even done this with push-pins and colored yarn to represent links.

While this might seem awfully old-fashioned, there’s something organic and accessible about a wall full of screens to represent navigation. You can put post-its of ideas on the various pages, and if put new designs atop old ones so people can quickly leaf through prior designs.

Wireframes

Once you know the concept and workflow, it’s time to refine the wireframes a bit. Tools like Balsamiq (thanks to Austin for the pointer) or Axure make this easier, but you can use Powerpoint in a pinch.

You can use your wireframes to do “paper prototyping” where you ask people who aren’t familiar with the app to “use” it, moving their finger as if it were a mouse.

The result of all this work is a set of requirements documents that describe the product. Then developers go off and code furiously.

QA

Once you have code — either an individual component or the whole application — it’s time to do QA. You should have a list of all the things each page is supposed to do, things like “when you click the login button it takes you to the home page.” The initial QA testing plan is where you check each of these things. It’s a test to see whether the code does what the requirements documents said it would.

Some people rely on spreadsheets for this stuff, but if your app is of any size, you probably need to integrate it with a bug tracking system like Fogbugz, Trac, Jira, or something similar. Ultimately, you’ll write scripts to run these tests automatically and that will become your regression testing system.

Don’t forget to run browser plug-ins like Firebug to see what’s loading slowly and what’s missing. Two great services for checking page performance are Webpagetest and Website optimization.

Unusability

If you know the app works, you still don’t know whether it’s unusable. Unusability testing looks for dumb things — places where everyone gets stuck. While you tried to eliminate these back in the Workflow phase, the reality is that you won’t find all the problems until you actually watch people using it.

The goal here is to validate the assumptions of the requirement document. Usually, you want to do an unusability test, then go fix what you found, then do another one. So don’t get five people in all at once to do testing — iterate. Test users are precious.

Set the test user up at a machine, and project a copy of their screen on a wall for all to see. If you like, you can use screen recording software like Camtasia. Encourage the test subject to talk about what they’re doing. And — most importantly — no coaching. It will be incredibly frustrating to watch someone try and use the app, oblivious to the big, red button saying “click me” in the middle of the screen. Bite your tongue. Watch them suffer. It’ll make the development team that much more eager to fix the problem and try again.

Also be sure to vary the browser, monitor, OS, and if possible connection speed. You may find certain resolutions make buttons invisible, or that when the connection is slow users will click something repeatedly.

Usability

While unusability was about finding dumb mistakes, usability testing is about making sure your target market can use your app or site properly. You’ll need to get users that represent your target demographic in. This means the same age, gender, and online experience, ideally from similar industries. If you’re building a site for truck drivers, get truck drivers to test it.

It’s harder to find targeted testers like this, which is why we did unusability testing first — we don’t want to waste our targeted testers on dumb mistakes we could find ourselves.

Situational

Once targeted testers can use the app properly under the comparatively ideal conditions of your office, go and watch them using it in their place of work.

This means it’s time for a field trip. If they’re truckers who will access the application from a pay terminal in a truckstop, go watch them doing it there. You’ll learn about other constraints such as noise, lighting, privacy, distractions, and time limits that weren’t obvious.

Alpha

Once you’ve completed situational testing and done the best you can, it’s time to roll out your stuff to alpha testers. These are people who expect problems, but want to try it anyway. At this point, instrumentation is essential. Let me be as blunt as possible on this point: It’s stupid to roll out software without analytics. You simply can’t know what worked and what didn’t.

Google Analytics is the de facto standard here. Install it, and use it to figure out what people are using and what they’re not. This tool can also show you where people are clicking, but I’m partial to the heat charts and A/B testing capabilities of Crazyegg for this stuff. You’ll augment your analytics with other tools as you get closer to release.

Alpha testing is about getting data in the aggregate, rather than from individuals, and using this data to improve the app. In the alpha phase, you probably know many of the users and can solicit feedback from them directly. Remember to train them to take a screenshot whenever they have a problem, and to send it to you as part of their report; this will help to identify client-side problems and to reproduce issues.

Beta

Beta is a broader release of alpha code. With alpha, you knew there were issues. With beta, you think it’s ready for release, but want to be sure. Because a beta will go to a larger audience, you probably want to include more feedback tools in the form of services like Kampyle or iPerceptions, or forms you embed yourself from someone like Wufoo, Surveymonkey or Google Docs’ Forms.

If you want to replay some user sessions with a relatively lightweight service, check out Clicktale. Other products like Tealeaf do this on a more industrial scale, as well as fixing other blind spots in your monitoring.

You need to worry about scale and performance, too. Of course, I’m partial to Coradiant when it comes to user experience monitoring, but there are lots of other good products to keep an eye on web performance. You’ll need a synthetic testing tool like those from Gomez, Keynote, Alertsite, Webmetrics, Pingdom, and others.

Release

Finally, you’re releasing the product. At this point, your focus should be on intentional misuse — someone trying to break the application or hack their way in — or on error reporting. You’ll be using performance management tools (to guarantee uptime and responsiveness) and analytics tools (to optimize conversions.) For smaller companies, something like Clicky is a good complement to Google Analytics as it provides more drill-down to individual users. But if you’re looking to do more complex things, you’ll be after Omniture, Webtrends, Coremetrics, or similar tools.

Now ignore some of what I just said

These stages all need to happen, and in an ideal world they would.

Sometimes, though, business priorities will require that you launch before you’re done. That’s fine; just be sure to worry about usability, unusability, and situational use even after launch.

I recently overheard a VC say “if you’re not embarrassed by your application when you launch, you waited too long to launch it.” While that’s not true for every kind of application, it’s certainly a good way to get feedback fast and to create a sense of urgency. And for rapid prototyping, you may combine some of these steps.

So take the phases with a pinch of salt; they’re not hard-and-fast steps prior to a release, but they all need to be considered. Following them will ensure a better final product that customers adopt more, use more, and are ultimately more likely to pay for.

You have a unique idea.

No, you don’t.

Ten other companies are working on the same thing. You can win through execution, but the VC you’re going to visit next week has already met with them.

A VC will sign an NDA.

No, they won’t.

Why would they? They already know more about your competition than you do. And incidentally, they’re not telling you about your competitors, and they’ll do you the same courtesy — they aren’t in the business of burning bridges.

You’ll continue to have control once you get investment.

No, you’ll share control at best.

You’ll have bosses, and your first — and only — responsibility is to make them a reasonable return on their investment in a reasonable timeframe.

Your product or service will grow virally.

No, you’ll have to compete for attention.

There’s simply too much noise and a huge number of conflicting messages. It’s extremely unlikely that your product or service will hit any of the growth targets. Your prospective investors know this; it’s one of the reasons they don’t think you’re worth as much as you do. Just because you build it doesn’t mean they will come.

Your idea is worth a lot of money.

No, ideas aren’t worth anything.

Working code, revenue streams, defensible patents, market attention, and positive customer feedback are worth everything. Smart investors don’t back an idea — they back a team’s ability to make an idea real.

Ads will pay for growth.

Nope, sorry — ads are so 2005.

Online advertising is crumbling, and as Google and other look to pay their bills they’re going to be less willing to share the spoils. Even giants like Facebook and Twitter struggle with how to make money. If you don’t believe me, go watch a great video on why price is the missing part of most startups. While you’re there, watch them all.

Code is hard work.

Not compared to sales it isn’t.

You can control coding; in fact, you have total control over it. But you can’t control sales, because it’s soft and squshy and human. I know many more salespeople with yachts than I do coders, and yachts are a pretty good way to keep score. We live in an attention economy: It’s not what you know, or even who you know — it’s who knows you. And salespeople are masters at making others know you.

Usability isn’t as important as architecture.

Yes it is.

Look at a Wii. Or an iPhone. Usability makes it easier for people to try you out. If you need inspiration, go study Productplanner’s library of common website design paths. The whole focus is to get people engaged as effortlessly as possible.

You can build in monitoring later.

Nope, build it in up front.

How else will you know if it’s working or broken? With free tools like Google Alerts, Crazyegg, Kampyle, iPerceptions and Clicktale to get started there’s simply no excuse. Want to know what to watch? Check out Startup Metrics for Pirates.

You’ll hit your schedules.

Nope, they’ll slip.

Usability will delay the release. You’ll find fatal bugs, or the infrastructure won’t scale, or there will be a security breach. You can’t plan for the delay, even by planning for it.

That’s ten. I could go on, but ten seems to be the right size for a list.

In the wake of economic collapse, founders and CEOs are being told to reel in spending and prepare for the worst. There are two obvious reasons to do this: Less funding and lower revenues. But it’s the third, less talked-about reason that should really make you worry.

Update: Stacey at GigaOm has a great piece on this, looking at some hard numbers.

The obvious reasons

First, it’s harder to get capital to fund your business. Interest is the cost of money—and with less money floating around, the cost just went up. That means your business is now competing with other possible investments. Unless your startup has a tremendously promising proposition, it’s unlikely to get more money; and if it does, it will come with onerous, highly dilutive terms.

Second, revenues are at risk. Many startups bank on ad revenue, and that’s in decline. Paid search is the only form of advertising that seems to work, and Google’s sharing less of that with its partners. If you’re smart enough to have a real business (after all, sales is the missing piece of most tech startups’ business plans) then you face customers who will be pinching their own pennies.

That means the money you have now, plus the revenues you can bring in, is what you’re going to have to live on for the foreseeable future. And since neither of these is easy to grow, it’s time to cut costs.

The third reason

But the really scary part of all this is the third reason: A delayed exit. When I started working in tech startups, I thought all that mattered was cost, investment, and revenue. But I quickly realized that investors care just as much about exit strategy.

The ideal exit, of course, is an IPO—a long shot at best, fraught with risk but full of rewards for the right company. For the time being, let’s just say: Don’t go there. The markets are too volatile, and investment has fled to more predictable instruments like precious metals, bonds, and treasury bills.

On the other hand, you could always build a profitable company. This is a common “exit” for small business owners, who are happy to pay themselves a handsome dividend from their earnings rather than try to get a one-time payoff. It may work if you have a majority share of your startup and your investors can’t force your hand. But for institutional investors like VCs, this won’t work: They want to show a return on an investment so they can close out the fund that backed the company in the first place.

Which means you’re probably planning on exit by acquisition.

Why big fish eat small fish

When a big company buys a small company, it does so to acquire its products, its technology, its customers, and its employees.

When deciding to acquire a startup, the buyer asks itself four basic questions.

• The build or buy question: What’s the cost to us of building what this startup makes?
• The accretive revenues question: How long will it take, and during that time, how much will they earn?
• The IP and risk question: Will we get sued for copying them?
• The synergy question: How much additional money can we make by cross-selling their stuff with our existing products or services?

If those four questions get good answers—meaning that the accretive earnings plus synergy plus IP risk are greater than the cost of building it themselves—then you’ll get acquired.

The trouble is, the current economy changes those four answers.

Why big fish aren’t hungry right now

It’s easier to hire people in a down economy: Workers want stability, and startups can’t afford to entice star workers with high salaries or the promise of lucrative exits. So the cost of the big company building it themselves drops.

The pressure’s off: The startup won’t be making as much money. It’s not able to fund fast development. It can’t afford marketing. And lack of demand means it won’t attract rainmakers in the salesforce. So accretive revenue is lower.

Risks are smaller: The startup is unlikely to mount a legal defense, because it can’t hire lawyers; and even if it did, it would distract itself from the core task of building a business. So the risk of IP litigation goes down.

Synergies are less obvious: With customers pinching pennies, they’re unlikely to buy the additional bells and whistles that you, as a big company’s partner, have to offer. Which means it’s harder to prove synergistic revenue to a potential suitor.

The result is delayed acquisitions, or none at all, during which your resources dwindle until the big company can acquire you for a pittance.

Okay, now I’m depressed

In this situation, you need to behave like you’re building an annuity-style business that would pay dividends, and reinvest those dividends in additional growth. Don’t grow in anticipation of sales—grow because of sales. Meanwhile, partner with your potential acquirers so they get a taste of that synergy when—and if—the market recovers.

The good news is that by recognizing yourself, you can capitalize on your strengths and mitigate your weaknesses. The bad news is that many leaders don’t realize which of the three they are until it’s too late.

So today, it’s time to meet the product CEO, the sales CEO, and the finance CEO. And to decide which one you are.

Product CEO

The product CEO has faith in what they make. Its benefits are so obvious, so readily apparent to anyone, that they’ll win. There’s no need to market the product, or to worry about margins; that’ll work itself out.

How to spot one: These CEOs tend to demo their product by focusing on features, turning a presentation into a tedious tour of screens. They resist pulling products apart into sub-products, believing that more features means more value. Their offerings tend to be harder to use, but tremendously powerful. They want long, long lists of features with priorities and detailed descriptions. They’re convinced that “if you build it, they will come.” Obsession with competitor feature lists.

Where they come from: Engineering, technical support, product management, sales engineering.

The damage they do: These companies tend to have trouble crossing the chasm; they get traction with a core early-adopter market willing to invest in learning about the product, but because it’s too complex to explain, they fail to get the word of mouth needed. These companies also hit the wall harder than most, because their belief that salvation is around the corner, so they race to the next release rather than looking at the financials or growing revenues organically.

Sales CEO

The sales CEO doesn’t care what they sell, as long as they sell it. They know that getting customers is the hardest thing. Their favorite slogan is, “never mistake selling with delivering.”

How to spot one: The company commits to feature sets without properly specifying them first. Often, features are developed to satisfy a single customer. If schedules are too slow, the sales CEO may try to substitute services (i.e. people) for working code. But once the customer buys the product, the sales CEO is off to the next deal, and executive support for the completion of promised features evaporates. The company has frequent revisions to its product roadmap, and is often showing futures to close deals. And your feature list has ten “top priority” features.

Where they come from: The salesforce, of course. Some sales engineers fall into this trap as well, but their technical selling means they’re sometimes more balanced.

The damage they do: Overcommitting and underdelivering is a common accusation, but the damage that sales CEOs do is more insidious: They can’t say no. So instead of building a few features for a larger market, they tend to build many one-off features for a scattered market. They’ll also often hire a salesforce early, believing that “the market will tell us what it wants,” which burns a lot of capital. Finally, the company will often be a hybrid of services (people) and products (technology)—and the two seldom mix well.

Finance CEO

The finance CEO thinks that if they get the business plan right, it’ll magically happen. Sometimes, the business plan makes sense—the economics of a Netflix, for example—but more often than not, strategy emerges as a combination of plans and what happens that’s beyond your control. Nevertheless, this CEO believes that if every factor in the business environment can be modeled for the next 24 months, the answers will present themselves.

How to spot one: Frequent changes to the plan on paper to make sure it’s accurately modeling the real world, long before anyone knows what the real world is like. Focusing on minutiae and buying industry reports that show market size. Concern over margins very early on, rather than worrying about adoption first. A desire to have detailed product roadmaps far out into the future, when they’re likely to change anyway. Lots of time in planning meetings, rather than doing.

Where they come from: Primarily finance—CFOs, controllers, and accountants—but also project managers with a strong belief in schedules and planning.

The damage they do: A complex business model is hard to adjust, so they may resist changing things in the field just to see what works. When things go right, they often infer things from the model that ignore the complexities of the real world—for example, if every time we add a salesperson the revenues go up by $200K, we should keep adding them.

How to mitigate your CEO DNA

You’re probably one of these three. If you are, the first step is to hire, and delegate to, people with the other two skill sets. Realize that they’re smarter and better at it than you are.

The second step is to try and figure out where you’re leading yourself astray.

• A product CEO needs to get out and sell more. You’re not entitled to an opinion on sales until your salesforce wants you on the sales calls with them. You need to make fewer, simpler releases. You need to pick one feature and talk only about that. Books like Made to Stick, as well as the 37Signals mainfesto on product development, should be on your must-read list. You also need to think how product features will affect the business model: What do they do to market share? Margins? Cost of sales? Ability to demo? Support of the product once sold?
• A sales CEO needs to understand that the company’s long-term success, not their commission check, is what matters. You should force yourself to think macroeconomically: If I could have only one feature this year, what would it be? And why isn’t that my top priority? Read older Joel On Software posts, like this one on why good software takes 10 years to make. You have to trust your product team: Adding more people won’t speed things up for at least 4 months; simplifying and focusing will—as will not changing your mind each time you meet a customer. On the business model side, you must recognize the need for pricing and terms standardization, and you need to regard pricing and licensing as strategy, not tactics. Finally, you need to decide if you’re a product or a service company and stick to it.
• A finance CEO needs to understand that the world is a messy place that can’t be summed up by a formula. You need to spend time with the product and sales team, and get involved more. Read some marketing strategy, starting perhaps with Mintzberg’s piece on crafting strategy. You need to pad your schedules, put buffers into your models. Instead of one complex model that itemizes cleaning supplies, make three rough ones—one for success, one for likelihood, and one for abject failure. Be open to one-offs and special deals if they might reveal a new line of business or different positioning. And be sure to recognize the importance of intangibles like word of mouth even though you can’t put them in a spreadsheet.

I’ve seen smart CEOs of all stripes struggle with running their companies, and with shaking off their default behavior now that they have sales, product, and finance responsibility all at once. If you can achieve the Zen-like balance of all three, you’ll thrive.

But knowing your weaknesses is the first step to fixing them.

Normally, I try to keep this blog focused on startups. But I wanted to share some of what I saw while there; I believe it holds some important lessons for entrepreneurs as well as a few guidelines for how to run your businesses in the coming drought.

On my arrival last week, I walked past Lehman Brothers mid-meltdown. Town cars were parked three deep, and suited executives with confidence-inspiring grey hair fled the guarded doors into the safe embrace of stretch Lincolns.

The rank and file had a different fate, however. Bewildered middle managers, identical but for the splash of color around their necks, walked blinking into the bright sunlight. Satellite trucks from the major networks were parked across the street, their cameras trained on these now-unemployed workers, hoping for a tear, a dropped box of office supplies, or a soundbite for the evening news.

But I’m not sure the decay sank in. Every conversation I overheard that week had something to do with the meltdown, but most of them looked at its silver linings.

• At Interop, buyers seemed undeterred by the market fallout — after all, it meant record numbers of trades filling their networks, which meant bigger machines and more tools to manage them. Spikes in traffic are good news for virtualization companies, too.
• Web2Expo’s startups weren’t fazed, and finances were seldom on their minds. Web startups are valued more on aspirations and eyeballs than cold, hard dollars. Built atop pay-as-you-go cloud computing, these ventures are less dependent on large injections of capital than they were a few years ago and can often be launched from a Macbook, a coffee shop, or a dorm room.
• Buttoned-down hardware architects and pony-tailed Quants roamed the crowded halls of the Roosevelt Hotel at the High Performance on Wall Street conference. There, exhibitors like Microsoft, Cray, Rapidmind, HP, Sun, and dozens of boutique hardware companies promised to squeeze microseconds out of banks’ automated trading systems.

Ironically, these are the very systems that turned complex derivatives into a financial house of cards and allowed deregulated banks to lend many times their worth at unrealistically low rates. If there’s one thing I learned last week, it was how much banks depend on technology to make money. Here’s a quick lesson I got late one night in a bar from a colleague who should know:

For every dollar a bank has, it can lend out several dollars to others. This is based on the thinking that not everyone wants their money back at the same time. If they did, you’d have the kind of run on the bank that triggered the great depression.

The ratio of money held to money lent — the leverage — is therefore key to the bank’s profits. Banks that can demonstrate that they analyze risk well are allowed more leverage, so they have tens of thousands of computers crunching numbers. Greater oversight means more strident restrictions on overlending, and as a result, more investment in risk analysis.

The TV networks weren’t helping matters, either. They could have explained deregulation, or lobbying, or the banking system. But none talked about Teapot Dome, or Eisenhower’s rant on the military-industrial complex, or the abandonment of the gold standard, or the cross-party Financial Services Modernization Act of 1999 (all of which, IMHO, are required reading for an informed electorate this year.)

Instead, many news stations furiously pointed their fingers at a political party, a natural disaster, a religion, or an industry rather than taking a step back and looking at the big picture. This is a tragedy: If any city has the media clout to explain things, it’s this one.

New York is media central, and most companies there pride themselves on their openness. Walk up to NBC, or CBS, or ESPN, and you can stroll their historic properties or watch a show being filmed.

Not so with Fox News: The windows are opaqued, affording no glimpse of goings-on to curious passersby. You can’t cross their courtyard, and a lone guard intercepts people who stray onto their property or take pictures. Rows of heavy concrete “flower pots” make the place look more like a threatened embassy than a News Corporation.

The economics of New York may be changing a little, too. Even the stratospherically wealthy are tightening their Gucci belts a little; one story talked of how a socialite was forgoing her birthday-present facelift in favor of a more modest Botox treatment.

Meanwhile, most citizens seem oblivious to how this all affects them. Frankly, I’m surprised everyone isn’t withdrawing all their money from certain banks that dabbled too much in sub-prime mortgages — but for some reason, that hasn’t happened yet. Yet venerated brands like Washington Mutual are so bereft of assets that nobody’s bidding for them, forcing bailout engineers to step in and take over bad debt and bureaucracy, turning the free-market US into what is — at least temporarily — one of the largest socialized governments in the world.

The clothing store in the front of the Lehman Brothers building said it all.

As I left the city this morning, delegates were filing in for the Clinton Global Initiative, which aims to ease the ills of the world by encouraging its leaders and captains of industry to help out. Across the city, at the UN, George W. Bush was giving his final address to the nations of the world, while Iran’s president Ahmadinejad waited to take the stage later in the day.

With Times Square thronging around us, my Iranian cab driver and I drank in the events of the week and listened to the speech. I looked up at the landmark Lehman Brothers sign to our left.

Normally, the Rednod blog is about startups. This time, it’s about shutdowns. The world’s finances are in a flat spin, and America is on the cusp of an election that will decide much of the next century (this excellent piece from Worldchanging is well worth your attention on the matter, particularly if you’re planning on selling technology to Americans.)

If you’re an entrepreneur, it’s never been more important to focus on the fundamentals: Getting to revenue quickly, finding a niche that sustains market ups and downs, being frugal with spending and questioning every dollar, avoiding debt, and waiting as long as possible before diluting your cap table or bringing on investors that aren’t in it for the long haul. IPOs are nowhere in site, and running on your own fuel indefinitely is a prudent decision.

We’re watching large public companies — indeed, entire industries, from housing to travel to finance — collapse. For startups, this is indeed the best and worst of times.

Syntenic

No more. Their new site just launched, and with it a description of several cloud and managed hosting offerings. It’s great to see this kind of technical acumen in a Montreal company; the city is gradually evolving the kind of ecosystem that can support a thriving startup community.

Disclaimer: Rednod and Bitcurrent run on Syntenic’s servers. They’re smart enough that I’d risk seeming partisan by writing about them.

The interesting part now will be to work with each of the Short Bit presenters and figure out how to cram something interesting into ten lean minutes. Many of the sessions are around the theme of “The Other 99 Percent,” and we have some panels around that too. So if you’re one of them (you know who you are) expect me to start stalking you this week.

Time to go order swag, now I know the attendee count. I suppose a T-Shirt is table stakes, but I’d love to find something more appealing/sustainable/durable.

If you haven’t signed up and paid for Bitnorth yet, this is your last week to do so.