Austin Startup has just run a piece on the 2nd Annual Capital Factory Demo Day:

The 2nd Capital Factory Demo Day is coming on September 8th. We will have 300 investors, press, and technology entrepreneurs in attendance to watch the launch of the 5 companies from our 2010 program. This is an invitation-only event, and we’re keeping the quality of the content and the networking as high as possible.

I went last year, and I found it interesting to witness, essentially, part of a process for bringing new companies to market.  The event was surprisingly good, the startups were surprisingly good, and the discussions were pretty interesting.  It sets a high bar for the second event.  I think there’s no doubt that Capital Factory and the Demo Day event have been good for the Austin startup scene, though the organizers will be the first to admit that this approach isn’t for every startup, or every entrepreneur.

I plan to be there again this year, schedule willing.

Austin’s economy has already been demonstrating a fair amount of resiliency in the last couple of years.  This week there’s been a flurry of good news for startups and entrepreneurs here.

First there’s the article from Bijoy Goswami in the Austin Business Journal, “Time has come for Austin’s entrepreneurs to make a scene.”  The ABJ has become primary source of business news for Austin business owners.  The article announces the launch of a news portal for Austin Entrepreneurs – www.abjentrepreneur.com.

Two of the first three articles:

Dachis buys third firm in 3 weeks

and

SolarBridge collects $15M in VC

Not sure how much overlap there will be with the kind of coverage we see on Austin Startup, which also focuses on entrepreneurs and startups in Austin, but it more of a blogging format.

I’m always on the lookout for the intersection of startups and process.  And recently Mark Suster put together yet another great post, this one about how to put your technical team together for your startup.  And specifically, the difference between your CTO and VP of Engineering.  He also has this fantastic graphic:

Engineering Team

To quote Mark:

“…In my view it is important to distinguish the difference between the CTO and the “VP Engineering.”  Because these titles are so often used I’m sure that some people will have hardened views about what they mean that are different than mine.  But for non-technical founders let me offer you a definition that you can use when you build a team.  The VP of Engineering is the person who still has great technical chops but prefers not to be a coding monkey (that term is meant in the most endearing of ways).

The VP Engineering aspires to manage teams.  They feel comfortable with C++ but also have a black-belt in Excel.  They are sticklers about managing unit tests, system tests and regression tests. In fact, they are passionate about automating testing overall.  They know how to estimate work units, how to manage the agile development process and how to get the most out of their teams.  VP’s of Engineering are essential to making sure the trains run on time.  The VP of Engineering is also your primary interface to your head of product management and often the VP of Engineering is somebody you would drag in front of clients to win big deals.

And first and foremost a VP of Engineering is a people manager….”

As Mark puts it, the CTO is your purist, a hardcore technical visionary and perfectionist.  Your VP of Engineering is about process, and values scaling the organization and having repeatable systems and processes.

Steve Blank’s blog has a series of posts regarding the entrepreneurship courses he and his colleagues are teaching at Stanford and Berkeley.  The thing that jumped out at me is that it sure reads like there is a process for teaching entrepreneurship.

Maybe that shouldn’t be surprising.  But it was already eye-opening for me to read the process-oriented approach Steve advocates for developing your business model (aka “Customer Development” , good read on wikipedia by the way), and a process for product development that is highly complementary to this (Lean Startup, advocated by Eric Ries among others).  But it looks like Steve is cracking the code for how to teach entrepreneurship.  Of course, proof will be how well the entrepreneurs who take his classes perform relative to peers who do not attend these classes, and how many other entrepreneurs adopt the techniques Steve is advocating because they’ve heard about them from his students or writings.

Til then, we can apply our own subjective judgment to assess.  So far so good.

Giff Constable’s article addresses this age-old divide from the point of view of a software vendor.  In fact, I’ve previously written on this topic from another perspective, advising services companies to reconsider getting into the software business unless they can:

• Attract outside investment.  This acts as a proof point that your product effort has merit outside the four walls of your office.
• Separate the financial risks and incentives (form a new corporate entity).  This protects your successful consulting business from being stripped bare by the software development effort (and later, the software sales effort). And…
• Enter a market that doesn’t already have a good software solution.  In such a market, the product has time to mature through iterations and customers feedback (assuming you are mostly bootstrapping it)
• (alternately, get behind an open source project, which is a good strategy for reducing the cost of your complements)

Giff puts forward some really good advice, but it is all from the software perspective.  I’ll give my reactions to each bit of advice here, as well as my take from a “services perspective”:

“Keep it separate” – this is great advice, and mirrors my advice to services companies who want to build software products – keep it separate.  Giff doesn’t go into great detail about why, but if you keep it separate it leaves your financials a lot simpler, and makes it more clear how much capital your start-up has required to get lift-off. In fact, if you do form a services arm within your firm, you should look at the profit they generate as investment capital and reward them with equity accordingly.  Instead, product companies often resent their services counterparts and treat them as second-class members of the company.

“Focus” – If you get pulled into consulting work this will detract from your ability to deliver product.  I agree.  You need to have “someone else” deliver the consulting – this can be an employee of your separate Consulting LLC, or it can be an existing firm, or an independent contractor.  But if possible, best to avoid it being your development team.  And I mean that, sincerely, as a services guy – we want those product guys focused on making the product better.

“It is hard to turn down money” – Giff’s argument here is that the consulting revenue is tempting, but misleading – leading your firm away from its product software roots and into the world of becoming a consulting firm.  If you don’t find really good help, Giff’s imagery will be correct – subcontracting only works if you have really GOOD subcontractors.  Probably better to let them work directly for the client and get a royalty or finder’s fee.  But I disagree that if you take on consulting work that you also have to pick up a sales staff and project managers-  just stick to a small number of experienced industry veterans who can sell themselves based on their own credibility, and who can execute projects with little oversight.

“Conflicting Team Goals” – If you didn’t turn down that work (because you needed the cash) then you’ve hired people… now what?  Giff writes:

When you start talking about the glorious future of the business (i.e. the product), these hires start to question, “wait a minute, am I irrelevant to this future?”  That doesn’t help morale.

Great insight actually – this is exactly what can happen if you don’t understand how to lead a services team.  If there is an obvious services business alongside the product that you are building, then it should be obvious what the role of that services team will be in the future:  to enable partners and the channel to be successful using the product- a small number of experts to grease the wheels.  The next point he makes is a good one:

Further, you have a problem in your incentive structure.  Your business is structured like a product company, with a focus on equity, but you now have a business unit which should be structured like a services company, i.e. focused on cash flow.

Consulting doesn’t have to be cash-incentive based if you are willing to share software-company-equity with them.  The problem is that the software guys often don’t want to do this.  There are certainly consultants out there who would prefer cash over equity – put those guys on a contract, don’t hire them.

Giff’s final point on this one is that you have acquired a morale problem: your products folks are now stuck working with clients and hate it, and the client staff is jealous of the product team.  To the first part, keep your product team focused on product.  To the second part, client staff are “jealous” of product staff at software companies because software companies constantly make it clear who they care about most: the product guys – jealousy derives from being undervalued.

Distraction to Death – yes, if you keep the consulting in-house, inevitably a fire-drill will distract your product team unless you firewall things appropriately.  And, as Giff says, “Client services work is difficult.”  I think most folks on the product side of the house fail to understand just how difficult client services work is.  Often difficulty is judged by the complexity of the code.  But in fact the difficulty is in managing human expectations, emotions, and politics. And rarely does anyone take into account the sacrifices services teams make to travel to client sites and leave behind friends and family.

The wrong investors – Giff’s point here is that VCs and experienced Angel investors will typically not want to invest in companies with substantial services revenue.  “They want a scalable business, not one that requires an hour of work to get an hour of pay.”  This is a bit of a pet peeve of mine, that services businesses are considered to be “not scalable.”  There are multi-billion dollar businesses that would argue that services revenue is pretty scalable… and profitable.  But to Giff’s point- it is true that services companies get an hour of pay for an hour of work (or close to it).  Unfortunately for software companies, they often get much less than an hour of pay for an hour of work (lose money)…

There’s a dirty little secret in software – very few software companies are profitable on their software business.  I believe that most enterprise software companies now make most of their money on services rather than software.  Sadly, those services folks are not looked at as investors in the business, but as a drain on the business (in fact, Giff’s article makes that point: a drain on focus, morale, and priorities).

The real issue is that if you’re running a services business “right” – you don’t need outside investment.  The company organically funds its own growth.  From another post on Giff’s blog:

“the running joke [on raising VC] is that as a first-timer, if you don’t have a prototype don’t bother, then if you don’t have traction, don’t bother, then if you don’t have revenue don’t bother, and once you do have revenue – why bother?  ” — adityac, in comments of my last post

Exactly the issue with a good services company.  So investors can’t get good terms from services companies, and the services companies would be crazy to take the terms investors would want (to make their investment worthwhile).  As a result, services companies make for pretty unattractive investments unless the investor is looking for more mundane returns.  Services companies also won’t “pop” the way a service like Twitter can pop – because you *are* constrained by the number of work-hours you can deliver, and the number of skilled consultants you can bring into your firm.

Giff concludes with this:

So a consulting business can’t create a product?
That is indeed my argument: a consulting business has the wrong structure, processes, priorities and people involved to pull off a great new product.  However, a consulting business can be fertile ground for good *ideas*, because you are exposed to lots of client pain points.  If you want to be effective at creating that idea (or whatever it pivots into) and bringing it to market , you are better off spinning out a new company with a small, dedicated, product-experienced team right at the start.

Which matches well with my thoughts on the subject – in fact, at BP3 we’ve been exposed to quite a few good ideas for product.  But I’ll add another angle to this – it isn’t just about giving your product the best chance it can have of getting to market successfully – it is also about protecting your services business from being gutted by loss-leading spending on the product side of the house. I’ve seen more than one successful, profitable services company fold because they raided the cash cow to build and market a product – unsuccessfully.  And in the few cases where they raised outside capital from VC’s, the dilution to the services team was extreme. Better to keep these two organizations separate and let the investors have a bigger stake in a separate firm.

Really good, thoughtful post by Giff, and after reading it a second time, I’m even more impressed at the insights. At BP3, we’ve often been pressed by outsiders and our own team members to consider making product development investments – but so far we’re focusing on building the scale we need in our services business.  If we do something product-oriented we want to make sure it plays to our strengths and can be carved out as its own entity. Mostly, I like to think we’re mature enough to recognize that we aren’t ready for the distraction of splitting our focus on building a great services company focused on business process.

Congratulations to Bryan Menell for landing an interview with Fast Company about Austin’s startup ecosystem, as well as the background contributors to Austin being a great place to start a company.

I’ll boil it down to what I think matters most:

1. Great quality of life.
2. Abundant educated workforce
3. Abundant housing
4. Access to funding
5. Great ecosystem to support entrepreneurs (especially first-timers) and startups

Great quality of life is in the eye of the beholder- some like Austin for the weather (and some hate it), some like Austin for the music (and some hate the noise), some like it because it is “Weird” (and some hate the weirdness), some like the abundant water recreation (and some people prefer dry land).  Some people even like UT sports events!  (And some really really don’t)  Almost everyone likes the food in Austin.

The point is, there’s something for everyone, and usually more than one something. I think the quality of life in Austin retains people who otherwise might move: when they get laid off, when they pursue another job opportunity, etc.  In fact many people return to Austin after flirting with the Bay Area or Boston.

Bryan’s list of startups only scratched the surface.  What I find interesting about Austin is the diversity of businesses that have been started: furniture,  groceries, consumer websites, enterprise software, chips, food and beverage firms, ad firms, music venues, ticket sales, music promoters, manufacturing, biotech, batteries, green building.  And I’m still just scratching the surface still.  I think you get this diversity in Austin because of the background support for entrepreneurship, and the willingness of the workforce in Austin to bet on startups and work in them. Well that, and because you can work at a startup and then play with your band at the Saxon Pub.

The news this morning in Austin (besides the chill wind blowing here today) is that BMC just bought local startup Phurnace.  Additional coverage from Austin Startup and Redmonk.    There are a few friends and former colleagues over there, and I wish them well at the new firm!  There have been a flurry of IPOs and (mostly) acquisitions in Austin lately, which will hopefully presage a new round of interesting startups growing up in our town.

What a great post by Steve Blank, yet again, as he reveals a classic cautionary tale from start-up land (“The Elves Leave Middle Earth – Sodas Are No Longer Free”).

It’s about the Sodas no longer being free.  Seriously.  Coke. Diet Coke.  Mountain Dew.  No longer free.  Free drinks are part of start-up culture and lore, and it is just one of the little perks that founders do for their companies when they themselves are interested in free sodas too.

Shouldn’t matter, right? But it does:

But the damage had been done. The most talented and senior engineers looked up from their desks and noticed the company was no longer the one they loved. It had changed. And not in a way they were happy with.

The best engineers quietly put the word out that they were available, and in less than month the best and the brightest began to drift away.

Worse, as he sat there in the board meeting as the free drinks were getting canned, he was amazed that none of the experienced VC’s in the room objected, or pointed out the folly of this change in policy – from free drinks to paying 50 cents.

Steve was amazed that they didn’t speak up.  But I’m not.  Its like Marvin Haggler once said: “It’s hard to get up and do roadwork when you’re wearing silk pajamas.”  The VCs have forgotten why free drinks matter to engineers.  They’ve forgotten what “road work” is like.  Its surprising that Steve Blank still remembers it so clearly (perhaps the academic/historian part of him hangs on to these memories).

As Steve recalls it:

Then the new CFO got up to give her presentation – all kind of expected; Sarbanes Oxley compliance, a new accounting system, beef up IT and security, Section 409A (valuation) compliance, etc. Then she dropped the other shoe.

“Do you know how much our company is spending on free sodas and snacks?”  And to answer her own question she presented the spreadsheet totaling it all up.

There were some experienced VC’s in the room and I was waiting for them to “educate” her about startup culture. But my jaw dropped when the board agreed that the “free stuff” had to go.

I sure hope Steve spoke up and let them know what a mistake they were embarking on.  I know he wasn’t on the board, he was a guest – but all too often I’ve seen bad outcomes come to pass because no one felt comfortable or felt it was their place to speak up for what they thought was right…

I lived through one of these transitions as well, but for our firm, it really was the beginning of the end – not just a sign for people to look around, but a sign that the management of the firm had dramatically changed their priorities to reflect a new, tougher, economic situation, and the layoffs that were about to come.

Andrew Chen asks this question in his blog.  Its a good read from several perspectives, but I’ll just pull out the couple of bits that people developing processes should be thinking over well and good (I like to read the work of thought leaders outside the BPM space to see how their ideas might apply to BPM):

Back to Steve Jobs – what does he really do?
Long story short, my hypothesis is that Steve Jobs is one of the rare CEOs who is very focused on product desirability. In battles with the business and technology goals, desirability will almost always win out.

And what is “product desirability”?  It sounds like understanding the “voice of the customer” to me (but broader than typical six sigma definition of that term).  Having an understanding of what will matter to your customers is a key driver for success for your processes.  The definition of customers is a bit vague :  users, primarily, but also people impacted by the process (often, your end-customers)…

• What makes your process desirable to your customers?
• What makes your process desirable to your internal users?
• Who is responsible for representing desirability of the process?

Andrew goes on to define what he surmises are Steve Jobs’ duties:

So his role isn’t that of a designer, but rather Chief Design Advocate. This means:

• he makes it clear that products should be “insanely great”
• he recruits a top design team, and protects them from competing goals
• he is willing to spend money, adjust technology processes, all for the goal of highly desirable products
• he convinces financial analysts, industry pundits, etc. that product design is very important

As Andrew says – is there any reason that any company can’t be doing this?  Or that you can’t be doing this for your processes?  Making sure the processes are great, that you have recruited a top BPM team that is focused on making the processes valuable to your customers?  Spending money, adjusting technology, to support highly desirable products?  Convince the folks that hold the purse strings that processes and process design are important…

Very few companies do this… It could be the differentiator for yours.  And there’s no reason you can’t do it.

I recently wrote a guest article for Austin Startup that just went live today here, about Conformity, a startup in Austin attempting to solve a core process problem for enterprises using SaaS and Cloud applications – how to manage, govern, and provision these applications in an enterprise that cares to protect itself.  Its a clear need in the market and another demonstration of the confluence of enterprise and Web 2.0 innovations.  If Conformity is successful it should help make SaaS applications (even BPM SaaS applications) more palatable to the Enterprise market.  Thanks to Bryan Mennel for the opportunity to contribute to the discussion.

It was just over 2 years ago that I decided to join Lance in starting BP3.  The day that I decided to take the plunge, my wife and I (along with our daughter) met with her sister at a local Chinese/Cantonese restaurant in Austin and had dinner.  We don’t usually talk about my work at dinner, but we spent most of the dinner talking about it that night. I had just decided to inform my boss for the last 4 years that I was going to leave and join Lance in starting BP3, and was getting my thoughts together for that conversation.

After a very good dinner, the bill came with 3 fortune cookies.  I opened one, and inside were three fortunes, rather than one:

“Now is the time to try something new.”

“You have executive ability. Apply this in the future!”

“Your present plans are going to succeed if you stick to them.”

Far be it from me to argue with the fortune cookies.

Its been a great 2+ years with BP3 – I couldn’t ask for a better team to work with, and I’m very grateful to the customers and partners who saw fit to invest in our success, just as we invest in theirs.

Chris Dixon’s blog, which I recently was turned on to by another blogger, recently opined that the only college major that matters is Computer Science.  Nice to see someone sticking up for my major!  Naturally my bias led me to believe this post was sheer genius.

Of course, let’s put this in context:  Chris is pre-supposing that you are interested in being involved with software companies.  But given that context – if you are interested in working at a Google, Yahoo, Facebook, or any of the startups they’ve gobbled up over the years, the easiest and best way in is to know how to write software. And if you’re going to do anything else for them, it would be good if you at least know what code looks like.  As Chris puts it:

Why is it so much better to learn computer science in college (or before)?  Because after college it’s very hard to find the time and discipline to teach yourself coding.  On the other hand, it’s pretty easy to pick up business skills, economics and all sorts of other skills on the job or in grad school.

He’s right.  Learning computer science requires a lot of long, uninterrupted time to focus on what you’re doing and get the job done.  There’s a reason computer science labs are open all night, but libraries typically have closing hours.  A program isn’t done til it works. That paper is done when you feel like it is done (and you’ll probably get a better grade on it).  The rigor required of proofs and code forces you to spend quite a lot of time on learning the art of coding. Very few people have the free time, or the discipline, or both, to really learn computer science well if it is not done in college, or as a kid, or as their full-time job.  And it is difficult to get a software job if you don’t know how to write code…

I think one of the saddest things is that the media (newspapers, television, blogs) have convinced everyone that all the software jobs are leaving the US.  Meanwhile, corporate America is, in some cases, helping make it so – by actually sending lots of those jobs overseas.  But in fact the total number of software jobs in the US has increased.  And, a computer science major will prepare you for more than one possible career (when I was a kid, I thought computer scientists just wrote games for a living – what else would you use a computer for, right?  So the media scare on this front is a bit overdone.

As Chris states, not everyone who majors in Computer Science will write code for a living – any more than everyone who majors in History ends up studying it for a living.  You can still go on and get that law degree, but now you’ll actually understand some of the stuff you’re protecting or litigating.

So maybe Computer Science isn’t the only major that matters – but it might be if you’re in the software business.

Yesterday I was fortunate enough to attend Capital Factory‘s Demo Day ’09.  The brainchild of Josh Baer, along with partners in crime Bryan Menell and Sam Decker, Capital Factory attempts to find promising startups, and then connect them with just enough help and advice to get them over the hump.  Its essentially an attempt to develop a good, local process that can produce winning startup concepts by putting a virtuous cycle of ingredients together.

Part of the process is Demo Day – where the best concepts get to present to a panel of investors, as well as a packed house of interested people in the Austin and startup communities.  I attended for a few reasons.  First, because I’ve always been interested in the software startup community in Austin.  Second, because Josh is an old friend and I was curious to see how his latest endeavor had turned out (he’s had some really interesting previous ventures, like OtherInbox).  Third, quite a few of my colleagues and friends were going to check it out- and if something like this is worth the investment of their time, that’s a good proxy for it being a good investment of my time as well.

Finally, I wanted to attend a Red Velvet Events‘ produced event – this is my wife Cindy Lo’s firm, and often I’m watching the kids while she’s at an event, or working for BP3.  She did a great job, and there were a great number of compliments from the managing directors of Capital Factory, as well as many of the attendees.  I’m biased, but for my money, Red Velvet Events is the best event planning firm in Austin (not that your event has to be in Austin to benefit from their expertise!).

I have to say I found this event surpassed my expectations in nearly every respect – starting with the fact that the coffee was good enough to drink.  The keynote by Mike Maples, Jr. was clearly in his sweet spot and he shared his thought process around evaluating startups. He does a great job calling out what could be differentiating, thematically, in Austin – the intersection of social and enterprise software (consumerizing IT).  He has a point – there are an awful lot of startups that could be described this way – and some enterprise software companies (like Lombardi) are offering newer products that adopt more social web features (blueprint). Don’t take my word for it – watch the Ustream video! (the first capital factory link above).

The startups gave really good presentations – across the board I was impressed with the professionalism and quality of the pitch, definitely exceeded my expectations.  Which is good, because there were a whole lot of Austin entrepreneurs in the room.  The panel of VC and Angel investors gave some really good feedback, especially for the first presenter (Cubit Planning).  It looked like the common thread for all but the last startup (Sparefoot), was that they needed more thought about the go-to-market plan.  Luckily, that’s a place where investors can really help a lot (and have the financial incentives to get it right).

My favorite was Sparefoot, which can be simply described as “Uship for self-storage” – and I really think they could change that market. Second favorite was the PetsMD concept – but if I were them I would change my pitch around go-to-market to simply describe it as “OpenTable for Vets”.  Because if you can win the scheduling application for veterinarians, then you have a real barrier to entry for new firms, and leverage for pursuing all the other concepts (content, product sales, social/community features).

After the demos, the attention turned to the panel of VCs, which Josh Baer moderated masterfully.  I think the consensus favorite quote “Austin startups have great ego to ability ratio compared to the Bay Area.” Overall, I think a couple of the investors came off as very credible and capable.  In particular, though, Mike Maples, Jr. clearly made an impression on the room.  The number of tweets extolling his virtues was pretty large today – and I think there was a room full of entrepreneurs who would love to have Mike investing in their startups.  A key differentiation – he has heart, and isn’t afraid to show it.  Entrepreneurs want investors to be as passionate as they are about their prospects.

There’s some good coverage of DemoDay ’09 in the Statesman, and here (where Austin Startup goes into some details behind the program).  A bit of live blogging on TechDrawl (and interviews with the founders of the various companies on TechDrawl’s site as well), and on Twitter if you search for #dd09.  This was a great event for the companies presenting, for establishing Capital Factory’s credentials, and for Austin.  If anything, I’d suggest next year alloting even more time for networking because it really was a fascinating cross-section of people from the Austin tech scene.

Links to the startups:

Sparefoot – wow, great looking site!

Cubit Planning – the longer-term play, but probably the most defensible play.

PetsMD -to me this is Open Table for veterinary practices…

Famigo – social gaming for families (lost track of the site link… updated link)

Hourville – great site for hourly contracting – I can definitely imagine cleaning services and independents leveraging this.

UPDATE: kudos to Capital Factory, there’s now an article on Tech Crunch here.

AND there’s now a crunchbase widget:

I read a blog post recently by Mick Liubinskas on first-mover advantage.  But the underlying analogy he uses is compound interest, arguing that the advantage of being “first-mover” is the chance to start accumulating learning and experience earlier than others, and to let that learning compound year after year. In this context, being “first-mover” isn’t that important – but learning from your experience and customers, and then growing from it is.

I can’t say for sure how well the analogy applies to startups generally, but it applies to the BPM space quite well.  How?  Through luck or by plan, most of the BPM plays have been slow-developing. They’ve grown quickly by enterprise software standards, but not so fast when compared to the growth rates that many software companies enjoyed in the late 90′s.  That growth rate has been manageable enough that the companies have organizational learning, and actually benefit from it, rather than being spread so thin that the organization isn’t earning that compound interest on experience.

Similarly, I think companies deploying BPM could do well to consider the power of compound interest.  In early months on the first project, the benefits of experience for your core BPM team aren’t quite so obvious, but as you are able to grow your capability by an increasing amount in each turn of the BPM project crank.  You can speed the learning curve by hiring or contracting expertise to your team, but it takes investment over time to make BPM a part of your team’s, or company’s, DNA.

This notion of compound interest in learning is part of the fundamental principle behind the consulting business as well – by having learned from so many BPM projects, we look to lend our expertise and experience to our customers to help them achieve a “second-mover advantage” – moving faster by skipping some of the dead-ends or detours that we might have experienced in our own journeys.  Regardless, this article reinforces something I’ve always believed in – a steady consistent investment usually performs better in the long run than big changes up and down over a short period of time.  There’s a cost to starting up, and a cost to shutting down, and with steady investment you start to earn that “compound interest” on your investment that is increased efficiency and organizational knowledge.

Eric Ries’ presentation on “The Lean Startup: a Disciplined Approach to Imagining, Designing, and Building New Products” has three processes depicted for “product” development.  I put product in quotes because I think you can accurately substitute “service” or “process” and the presentation still applies very well to the situation if you assume that some technology or other development activity is required to support your service or process.

Here’s the presentation, but allow me to call your attention in particular to slides 20, 21, and 22.  In slide 20, you see the traditional waterfall strategy, which Eric explains is appropriate when you know the problem well, and the solution is also well known and understood.

In slide 21, we see an Agile approach, where the problem is known, but the solution is not well-known and understood.  In fact, a decent number of agile projects get into trouble because the problem is not well-understood and they get caught in what feels like “churn”.

In slide 22, we see the introduction of the Customer Development Process to the mix, and the situation is one where the problem is not known, and the solution is also unknown.  So part of the journey is to discover the right problem to solve, as well as the solution that solves it.

I think a lot of BPM projects would do well to adopt this third method (or an adaptation of it) as well.  At a high level we may know that there is a problem (opportunity), but we may not understand what that problem is at a detailed level that would allow us to design a good solution.  So we have to do some level of customer development (in our case these may be users) to understand the problem adequately, and then use an iterative approach to get the proposed solutions improved and adapted as quickly as possible.  At the very least, when taking on a BPM project, one has to keep an open-mind to improvements that haven’t been thought of, and to new problem-identification that may happen over the course of the project.

A blurb about the slideshow is available on O’Reilly here.

Also, a more in-depth presentation was done previously on the Customer Development Methodology:

This version goes into a lot more detail on how to build the startup around this methodology, and makes a stronger case for why you need to iterate between business plan and hypotheses before funding, rather than proposing a business plan, getting funding, and *then* testing the market… its a good read!

There’s a really thought-provoking blog on startups, Lessons Learned by Eric Ries, and in a recent post he details his thoughts about “the Launch”.  His advice in a nutshell:  Don’t Launch.

It sounds so counter-intuitive when so much of the hype and mystique around startups is about The Launch.  Much like The IPO, or The Liquidation Event, it seems inextricably tied to the process of starting up:

1. Draw business plan/product idea on paper napkin
2. Get angel funding
3. Build out slide deck and prototype for investors
4. Get Series A Funding
5. Launch
6. Build virtuous hype cycle
7. Go public

Or something like that…(YMMV)  However, Eric points out that most people conflate the announcing of a new product/service with the making of that product or service available to the public.  It turns out, he is advocating to do the latter – make your product or service available – without the marketing launch.

He makes compelling arguments:  that the launch is a tactic, rather than a strategy.  He points out that there are pitfalls to a launch, as well as rewards (for example, mis-positioning, and setting expectations unrealistically high).

What Eric does a really good job pointing out is that your time and energy in your startup is much better spent on improving your product and service offering, on iterating it, and building up your operational capability, revenue stream, pipeline.  In other words, focus on the basics of running a business.  Don’t focus on the Launch. Put into process terms:  the Launch is a step (tactic) that cannot ensure success in the process of building a successful startup.  It turns out that you need to focus on all the more process-oriented aspects of your business:

• Product Design & Development
• Service Design & Delivery
• Sales
• Operations, etc.

Some would say this is focusing on substance over flash – and isn’t that pretty appropriate for a process-focused professional? After all, when the process is the star of the show, there’s a little less glamor, but the bottom line results speak for themselves, and those results are generally sustainable over a longer period of time- launching isn’t something you can do well in a repeatable fashion for your product- its a one-and-done moment in time.  And as a result, as Eric points out, the risks associated with this single tactical action can be negative, but the positive side is a temporary boost if all goes well.

Capital Factory is getting off the ground in Austin, TX, as recently reported by TechCrunch.  Austin has always had a pretty supportive culture around startups (I remember reading once-upon-a-time that there were 400 small “hi-tech” companies in Austin with an average employee count of less than 4).  I don’t think it is because of incubators and venture capitalists and efforts like capital factory that we have a lot of startups in Austin – rather, I think the fact that we have a lot of startups brings these types of efforts together – it provides the critical mass of “demand” for the kind of funding, services, and mentorship (and collegiality) that these programs bring to the table.

Hopefully some of these ideas will turn into big, successful businesses that will continue to make Austin a great place to live and work.

So Austin has set up a great site called the Austin City Connection.  The front page is a little tough to navigate, I have to admit, but I link to some of the pages within the site and check back periodically to see what’s changed.

One of these pages buried on this site is a map of local businesses and of local business districts where local businesses are strongly represented.  Right now that includes the districts around South 1st Street (pictured below), East 5th Street, East 6th Street, East 11th-12th streets, Guadalupe, and North Loop Blvd.  Its complete with different icons for art, automotive, health, construction, eateries, engineering, laywers, real estate, retail, service, etc.  There are a few obvious omissions still (South Congress anyone?) but I really like the treatment of each area rather than just trying to look at one map of all of Austin at once.

Buried at the bottom of the page is a set of links for “all business types”, which lets you see the whole Austin map with businesses of that type highlighted.  And sure enough if you click on Consulting, there we are in the northwest quadrant of the map, although you have to zoom in to see us because in this view we’re buried right under Red Velvet Events, which is in the same building with us:

It seems like a great investment any city can make in their community, at very little cost. By focusing on business districts, the site focuses more on the way people shop – hitting several places in one area, rather than jumping around from one area to the next. Cities do so much to promote big business (tax incentives, tax rebates), it’s nice to see the city doing something to promote local providers of all kinds