Entrepreneur

Snatching victory from adversity

(Editor’s note: Serial entrepreneur Steve Blank is the author of Four Steps to the Epiphany. This column originally appeared on his blog.)

Sometimes what sounds like bad news when talking to customers might be your finest hour.

As we started E.piphany, we got out of the building to test our hypotheses by talking to potential customers in and around Silicon Valley. On one of our most memorable visits, we met with Joe DiNucci, the VP of Marketing at Silicon Graphics who was generous enough to brainstorm the types of problems corporate marketers had. At the time Silicon Graphics – with 2+ billion dollars in sales of 3d workstations – was one of the hottest hardware companies in Silicon Valley.

The conversation seemed to click as he checked off every one of the issues we thought might define our product:  no closed-loop between expensive marketing activities and results, lack of department and corporate wide visibility to real-time sales and marketing data, browser versus client-server application, etc. We came up with a rough estimate of how much Silicon Graphics could save if they had a way to solve these problems, and together did a back of the napkin ROI (Return on Investment) analysis.

Next we started enumerating what form a solution might take and what kind of features a product should have. Amazingly we came up with a feature list that was pretty close to the one we were building.  I was feeling like a genius so I went to the next step and I asked Joe: “It sounds like Silicon Graphics might be interested in working with us to be an early customer?”

The answer was not what I expected.: “No not at all.”

Say, what?  Why?  “We also decided that this was an important problem to solve, and since we couldn’t find any vendor selling it, my director of marketing wrote the software to do it. We’ve built and deployed the product throughout Silicon Graphics. It’s called Mine Your Own Business.”

Talk about feeling your bubble deflate fast. I went from feeling the high of believing that I might have an early customer in an innovative company to the low in realizing that they’d never buy anything from us. And worse, what we had envisioned as a product so unique that no one had thought of it, someone had already built. We wouldn’t be the first. We were doomed.

I left Silicon Graphics feelings discouraged. But on the drive back to E.piphany a few things hit me.

  • A credible customer told me that we had hit on a high-value problem
  • They couldn’t find commercial software to solve this problem.
  • It was an important enough problem that they invested effort to write their own software.
  • It had been deployed inside their company and there were real world users
  • I could now point potential investors and visionary customers to the widespread use of the product inside SGI as a proxy for our product

The more I thought about it, the better I felt. This was a validation of our ideas not a negation.

The next day I called the VP of Marketing back and asked him if I could get a demo of their software. Soon I was in the office of John McCaskey, the director of Silicon Graphics Science Industry Marketing who wrote Mine Your Own Business. As he went through the demo, I realized I was looking at working code for a big part of what we had spec’d as our first release.

I told John he ought to join our startup. “How many of you are there?” he asked. “Three, I said. “Including me. Four if we count you.” John rolled his eyes and tried to change the subject. I said, “We’re three now, but if we do this right we could be selling $100 million dollars a year of your software. Wouldn’t you rather be doing that than working at a big company?” That got his attention. “Well who’s funding you?” My turn to pause, “Well no one yet, but every VC thinks it’s a great idea.”

Watching someone rolling their eyes twice is not a good sign you’re going to close the deal, so I grabbed the phone and called Bill Davidow, a legendary VC whose office I had just left. “Bill, do me a favor,” I asked, “Can you tell this guy how big the enterprise software market can get?”  I don’t know who was more surprised, Bill Davidow in getting a call from me (since he had just told me he wasn’t going to invest in our new company – his firm having funding Rocket Science, the previous company I had just cratered) or John having watched me get the VC on the phone on the first ring (pure and unadulterated luck.)

Bill was kind enough to spend a couple of minutes educating John about the opportunities for a startup like ours, and enough of a gentleman not to mention he had passed on our deal.

Thirty days later John became the fourth co-founder of E.piphany.

Sixty days later we convinced Silicon Graphics to license us all of John’s code for a dollar. (During the craziness of the Internet bubble E.piphany’s market cap would be greater than Silicon Graphics.)

John’s boss, Joe DiNucci, the VP of Marketing of Silicon Graphics became E.piphany’s VP of Sales.

Finding that a potential customer wrote their own software (or hardware) to solve a problem is good news, not bad. There’s no stronger sign that you’ve identified a high-value problem.

Photo by Rüdis Fotos via Flickr


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