Berberian's Blog

What, Why, Can and How – Picking the Next Business Idea

So now that the Zenie Bottle business experience is behind us – the three of us (Steve, Jim and myself) are spending all our time coming up and evaluating new business ideas. Our evaluation process is pretty basic – we just ask the same four questions over and over again.

What is the business?

We try to describe the business as clearly as possible. Often times we draw stick figures on whiteboards articulating the flow of goods or services identifying who is doing what and when. A common answer to this question starts with, "A dude comes to this web site and clicks…" While this may not embody the big idea or vision, it helps us understand what we need to create to get the business going. Often when I meet with folks and listen to their business, I have to stop them and ask, "OK so describe the process – specifically, step by step…" Many times people get stuck at this question. If this is too hard to answer – move on or keep refining the concept. For some ideas it is OK to be a little vague so long as the cloudy area surrounds something that can be defined later like the UI or interconnecting with a 3^rd party. If there are huge chunks to the flow where there isn't clarity or the process seems utterly implausible, we drop the idea and move on.

Why do people care about this business?

Once we get comfortable with the business concept we ask ourselves, "Why does it matter?" Do people really want this widget or service? This is generally, where we spend a meaningful amount of time hunting down people in similar industries and asking their opinion about the idea. We try to test the concept with friendlies or potential customers. If the idea is great but people are unsure of the value – then it's time to move on to another idea. If we get positive feedback on a concept then we do a gut check – people like to tell you what you want to hear – is their feedback simply them stroking our entrepreneurial egos or is the idea genuinely valuable? With Zenie Bottle we had numerous focus groups and they all said great things – but in our gut we always felt like we had a demographic issue – everyone liked the idea for different reasons. All positive feedback – but different – is a bad sign. It shows that the value proposition isn't clear or universal. If we don't get almost universal, consistent feedback – we refine the concept or move on.

Can we actually build this business?

I can dream up some great business ideas – but for most of them, I'm not the guy to run them. Know your limitations in terms of funding, experience, ability to attract talent, geography, etc… For example, some of my ideas require a tremendous amount of capital – while I have raised money in the past – I probably can't raise $1B for some mega buyout. The other part of the "Can" question is around the technical and/or social feasibility. A couple of our ideas are fantastic but only after they have 15 million active daily users. While building huge social network ideas are possible, we feel that success in those businesses is largely due to luck or extreme skill in social networking – two things we most likely don't have. Other ideas may be wonderful but are on the cutting edge of science and/or require very specialized talent. I'm not patient enough to build a business that requires a ton of research. Still other ideas while not particularly technical or require getting the whole world to visit our web site, require large organizations to change their behavior in fundamental ways – like asking retailers to change the checkout process at the point of sale. Ideas like that the "Can" question refers to the likelihood of convincing someone to change – possible but the value proposition has to be huge. The "Can" question really is about looking inside yourself and knowing what you are good at and what you are willing to tackle.

How do we plan to make money?

The fashion today seems that you really don't need to know this answer at the start, especially if you are a web company. I'm too old school to dismiss this as unnecessary at the founding of a company. If you have the idea that brings value to some group of people, you should have a solid sense of how you are going to make money. Now I'm not saying you need a specific rate card established, but you should be able to identify the points of value in your business. This will necessitate that you understand the fundamental economics of the business and broadly identify how much scale you will need to become profitable. I have to know the numbers before we say yes – fully understanding that early financial models are not accurate – they at least help us identify the key operational and economic metrics. "How you make money" also concerns personal economics. Business ideas that require a lot of capital always mean less equity for the founders. So if my goal is to make $X I need to factor in how big a business we need to build so that when we exit my Y% gets me what I want. Some smaller ideas may actually net us founders more money.

We tend to revisit our answers to these questions for every idea several times (and perhaps even after we commit). Some idea that we tossed to the sidelines a week ago may come back to center stage as we get more information. Anyone going through this process knows that coming up with ideas is the easy part – picking the right one takes a little more time.

WTC from my hotel

Amazing day in NYC 4/17/08

Tango Blue

At Raindance we often spoke to each other using strange coded slang. Words like jinky, minty-fresh and shandango where thrown around a lot. Tango Blue was a special code for "something's wrong – time to act fast!" Similar to Eject! Eject! Eject! using fighter pilot talk – but less alarming to those who don't know what it means – like "Code Blue" in a hospital.

Real Time example: Frantic CEO calls VP of Ops on the phone, "Network is down!" VP of Ops responds, "Can't talk Tango Blue!" and hangs up. CEO shuts up and waits for everyone to figure out what is wrong.

Business Issue: We just dropped a 2000 way call with the CEO of Qwest – it's Tango Blue time.

By the end of February, we had a Tango Blue situation at Zenie Bottle. This is the story.

The decision:

By late February, Steve and I concluded that this idea of selling physical objects linked to a social mash-up wasn't going fly high enough to attract another round of investment. How'd we come to that conclusion? For us it was simple math – we had about three months of cash (another three if Steve and I decided to double down) and we felt we would not be able to clear a hurdle high enough to get financing. What was the hurdle? We determined we would need to show significant traction in the sales of bottles and/or meaningful web site activity with a growing rate of new user adoption. When we started, the hurdle was lower – launch of product and web site coupled with some early data of market adoption. What happened to move the 3 foot hurdle up to 16'11" – large amounts of VC activity in the social network and mash-up space. The deals in the social space that are being funded are no longer just ideas, they are fleshed out concepts that have achieved meaningful user adoption (tens, or hundreds of thousands maybe a million plus users). A cool idea is no longer good enough. We weren't going to get there in three or even six months.

The feedback:

For some close observers and employees the decision came as a shock. It felt like we were giving up even before we really tried. Most seed deals (which ours was) raise enough cash to last 10 to 18 months. So throwing in the towel when we still had 40% of our available time to get the business going seemed a little premature – especially since we decided to pull the plug just two months after our official launch. But I believe the job of an entrepreneur is to play fortune teller and try to see the future. We looked at our initial round of feedback and concluded that we couldn't affect enough change within the available time. While we hoped for a home run at launch, we knew that it would take some tweaking to get the concept right. The problem was the initial feedback did not give us any direction on how to tweak the experience. All the feedback was directionally different – which meant we had nothing right or some things right but for different markets/age groups. The bottles resonated with young kids and new age women that like to collect things. The web site resonated with young teens just getting into social networking. The web site mildly resonated with some late teens but only if it were more social and open. The invitation only mechanism worked well for retail and with parents wanting a protected web experience, but fell flat with the older market. Everyone wanted a free bottle but very few folks actually paid for them. Glass was seen by some as cool but as dangerous by others. Some thought the bottles were too big. The older people wanted the bottle to do something other than look nice – a few were happy with the bottle as a beautiful collectable. Any change we made would take time and not mitigate the market risk. So yes, we barely got going but after two miles into the 1000 mile trip, we lost the road.

We're lost now what:

Once we made the decision, we took immediate action. When I say immediate I mean within the next ten minutes. Steve and I walked out of the conference room and immediately sat down with the employees and walked them through the decision process. We then took stock of what we had. Great people, some cash, physical infrastructure, office space, a cool web site for sharing photos, 22,642 bottles and a fun story element that never launched. One way to wind down (not the preferable) is to simply run out of cash, liquidate whatever assets are remaining, let go of all the people and tell the investors that it didn't work. That didn't feel very minty-fresh to us. We determined that we had to find a deal for each of the various elements of the business if we were going to preserve any hope of returning some money to our investors.

Tango Blue:

I guess we were lucky. We found deals for everything we had of value. Employees were all found jobs that paid them the same or more at other local companies. We determined that we'd be able to return a portion of the cash to investors. We sold the web technology to a local company in exchange for equity (deal still in the works but should close). We exchanged our hardware for equity in another early startup. We assigned our lease to yet another local company and we have a web story element that will continue with very little cash investment. So for an investment in the Zenie Bottle our investors will get some of their money back and have equity in two other companies plus there is still the wild card that the web series takes off. And the bottles – well one of our investors took them at his expense to use as gifts (he has a lot of friends!). All these deals would have been impossible if Boulder wasn't such a tight knit entrepreneurial community. I'm grateful for all the friends that were able to extract value from our assets. Thank you.

The lesson:

I always say it isn't the idea – it's the execution. Now I think the idea has more value – don't get me wrong the execution is still the key determinant of success – but a wacky, whimsical idea can have the best execution and still flop. Looking back, the Zenie Bottle idea was a big risk – there was no data to suggest how the market would embrace this concept. We did focus groups and test runs of the web site but nothing seemed to indicate that we were missing something. I could be heard in the weeks preceding our decision ranting, "We're gonna be rich!" The market can be cruel – for every Lava Lamp, Rubik's cube, Pet Rock, and Webkinz – there are 100 Zenie Bottles. If it hit – it would have been great.

Along the way, I made several mistakes. We started very frugal but as we approached launch we ramped up expenses – when we hit a two-month delay we burned a lot of cash waiting. We ramped in anticipation of success when we should have ramped after we hit our mark. I over complicated the idea – mixed too many metaphors and layered in too many experiential elements. The simple idea just wasn't challenging enough for me – the complex idea was too much for the market. Simple works – I should have sought my challenges in the marketing and refining of the product. I underestimated how much cash it would take to build this idea by a factor of 5. If we had the runway to take 24 months to try several concepts we might have found an idea that resonated in the market – but when our idea didn't hit we did not have enough time to reformulate the business.

The one thing we did get right was to face the facts and act quickly. In the end, our investors may make some money – the two companies we did deals with have great promise. While I'm personally humbled by this experience - I at least can take some consolation that we called Tango Blue before it was too late.

File New.

Push the Button a Million Times

We're searching for the little magic button that delivers a deluge of food pellets to our cage.  We've been pushing a blue button for six weeks and have only gotten a few pellets.  We think there might be a red button – but we haven't found it.  Or perhaps we simply need to push the blue button harder and longer.  Maybe we need to pull the green lever.  So now starts the Zenie Bottle period of rapid experimentation where no idea is too wacky. Here's what is happening in the next seven to 14 days:

• Opening a retail kiosk in the local mall
• Experimenting with different lists and zip codes to seed the market
• Reaching out to all our contacts to make some connections with celebrities
• Opening up the web site so anyone can buy a bottle or create an account
• Launching our facebook application
• Enabling our text messaging features
• Interviewing experts on our demo to perhaps engage as advisors
• Considering the possibility we are resonating with a different demo
• Start production on our web series
• Reaching out to local media to tell our story
• Brainstorming crazy bottle stunts – like leaving bottles all around a town in every Starbucks or shipping 100 bottles to a radio station

At this point, we are still just a concept.  Once we find out what works with the market and the best distribution mechanism – we'll push that button and become a business.  As a matter a fact we'll push it so fast we might drown in food pellets. Like a rat in a cage – just gimme some positive feedback.

Here is a bottle of our team:

View more Zenie Bottles

What the hell is this and who sent this to me?

Actual quote from a Zenie Bottle recipient. How you respond to these types of emails can make the customer love you or hate you. When we reached out to her – she was elated.

1100 bottles were shipped into the wild last week. About 700 have found homes (45%+ have converted to users so far) – the rest are still in transit. Unfortunately, Mother Nature took a bite out of us this past week and delivered a record cold spell across most of the nation. The Zenie's are designed to withstand temperatures of 15 degrees Fahrenheit. Below that, we have issues. Looks like some 200 arrived frozen. Now this isn't all bad. It turns out it's an opportunity to make these young adults really happy. Check this out:

From user Kristen:

I recieved a free bottle through the Zenie promotion along side a few of my friends. They arrived to us broken with all of contents soaking the box! This is simpl unacceptable. I would like to requesst another bottle free of charge. If you deny me of this I will write reviews about your company's terrible customer service and treatmet. I did surveys and feedback for your company so I hope you grant my request

Our reply:

Kristen,

Thank you for contacting Zenie Bottle, with record lows across the country we have had some of our bottles freeze and break. I'm sorry that your bottle was one of those that broke. Our bottles are designed for a freezing level of 15 degrees but not -10 degrees!

If you're in a cold weather location, we will re-send you a bottle as soon the weather warms up. If you're in a warm weather location we'll send you one immediately. In the meantime ….

Do you have a specific bottle color that you like? Checkout...

Jim and the Zenie Bottle team

Her final response after a few exchanges:

Thank You Jim. You are so great! Thank you for your kindness.

No substitute for great service.

Brighton Beach Memoirs

My daughter is playing Laurie in the Neil Simon play Brighton Beach Memoirs opening at the Longmont Community Theatre tonight. I've seen the rehearsals – it's going to be a great play. Longmont Theatre puts on great shows – everyone involved gives so much to each production. This is Marlo's 5^th play at the theatre. The sets for an all-volunteer staff are amazing – they're better than many professional productions I've seen. The theatre is unusual as far as community theatres go. First, they've been around for 50 years (most die after 7 years when the founding members move on to other things). Second, 85% of their operating budget comes from ticket sales – donations only make up 15%. So to survive this long on ticket sales speaks to the quality of their productions. Actors drive from all around, including Denver to audition. Too bad Boulder doesn't have a theatre as well run as Longmont. If anyone wants to go (PG-13 content) – email me and I'll hook you up with tickets. (Or you can buy them online here.) Here are some photos of the set (imagine a life size dollhouse).

Sponge Castle

Last week my daughter had to make a scale model of a castle for her history project. She wanted to be different. She didn't want to use cardboard or balsa wood. She wanted to use an unusual material. She asked her teacher if she could use rice krispies – but he said no. She asked me for ideas. I had to be careful. If I suggested the wrong material – I'd be the one making a scale model of a castle. We decided to go to Home Depot and look around for ideas. I found the perfect material – sponges. This was a brilliant idea. Soft, flexible, easy to cut and shape and no need for parental involvement (she's in 7^th grade so she needs to do stuff on her own). I thought it was genius and I convinced my daughter to take my advice. We bought a bunch of those cheap rectangular shaped cellulose sponges and Marlo went to town. I asked her if she wanted to let them dry out first since they typically shrink after they are wet. We talked about it and she and I assumed that if you never wet them – they'd say fresh looking like they are when you first open the package.

After two days working on her project she was done – good thing since it was due the next day. The final step was painting the castle – which she did. She left to go to rehearsal for the play she is in and came home late at night. She finds me and asks me to look at her castle. Well between the wet paint and the drying in the open air for two days – the castle was all shriveled up and deformed – it even buckled the glued on cardboard platform. I started to laugh – I couldn't stop – the whole thing was just hilarious – come on a sponge castle. It was my mistake but Marlo was taking the heat. She got upset and started to cry – she became very articulate on why her castle sucked and how it would bring disgrace to her and her family. On top of that, the teacher made a comment in class that morning, "Well tomorrow should be very exciting, Marlo is bringing in a SPONGE CASTLE!" Which really isn't as bad as it sounds; Marlo has the highest grade in the class – and he is a great teacher – but she wanted to show everyone she wasn't crazy. I simply couldn't stop laughing – Marlo ran up to mom asking her opinion of the shriveled up castle. Mom said it was fine. By 1:00am Marlo finally calmed down and went to bed.

My laughter subsided and I started to feel bad – really bad. I was exhausted but I knew my fatherly duty – I had to fix the castle while she was asleep – ugggh (just what I was trying to avoid). I started work at 1:00am – by 1:10 I had the glue gun, cardboard, scissors, paintbrushes and the castle. I went to work and started to cut and glue and buttress up the curving sponges. I'd get one wall set and then the pressure of the curving sponges would force another to pop out. By 1:45am – I made little progress. I started to laugh again. What was I thinking – it was a sponge castle. I finally gave up.

In business, sometimes you just have a sponge castle – no matter how hard you try to make thing go your way – it's still a sponge.

Here are some pics of the final sponge:

P.S. She got an A – I'm sure for originality – but when she brought it home it went straight in the trash – at least she is laughing with me now.

Zenie Bottle Story

One of the unseen elements of the Zenie Bottle experience is the bottles have a story.  This part of the business is a total blast to work on (well really the entire business is a blast).  In about 2 months the story will be unleashed in full force - but here is an early teaser... Enjoy! Oh yeah - buy a bottle, you'll be glad you did - click here to get an invite code:)

Zenie Bottle is Live

On February 27^th, 2007 we founded Zenie Bottle. Today we are shipping out 1,100 bottles to our seed group – teens between the ages 13 to 18 (plus a handful of friends and family). The initial strategy (cuz every startup has an initial idea then changes when they get some market feedback) is to make the site very exclusive (the only way to get an account is to buy a bottle – the only way to buy a bottle is to know someone who has one and they chose to invite you). We'll see if this works – with a group of pre-launch folks we got some feedback that this might be too exclusive. We'll find out soon enough. In the meantime checkout the site – and if you want a bottle – and you know you do – ask me for an invite or click the big green button on the site.

Wind the Frog, Apollo 13, and Jenga

Well we're finally going live with the Zenie Bottle web site (early version – many things still being worked on).  Whenever we had a major launch of software at Raindance Todd Vernon used to say it's time to "Wind the frog."  Which really refers to the scene in Toy Story where Woody yells, "Wind the frog!" to set off an elaborate chain of events to rescue his friend Buzz Lightyear from the evil kid next-door.  Going live with a web site (especially a complicated one) is really an Apollo 13 experience – a delicate set procedures – never before accomplished in real life – that hopefully doesn't blow up as we execute each step in the sequence.  Once executed you feel as if the whole thing is a Jenga tower – a beautiful yet delicate sculpture that can collapse at any time if the wrong piece is moved.  I love moments like this.