However, many of the most successful Russian startups are those that have taken ideas that already work in other parts of the world and adapted them to fit Russia’s unique environment. Yandex’s search engine is far more popular than Google, while VKontakte outperforms Facebook and Ozon.ru fulfils a similar role to Amazon in the West.

Russian entrepreneurs’ enthusiasm for innovative imitation means that trends observed in the West often catch on in Russia a year or so later. For example, last year we saw rapid development in the gaming industry (e.g. Game Insight, Zeptolab and Pixonic), media (Clipclock, Movavi), e-commerce (Ozon, Wildberries, Lamoda) and travel (Ozon.travel, Ostrovok).

That means that recent trends from the West are a pretty good indicator of the likely areas for growth in the Russian market. This blog sets out five gaps in the Russian market waiting to be filled.

See the Displair and its inventor Maxim Kamanin in action:

DISPLAIR | Victor Kossakovsky from Focus Forward Films on Vimeo.

1: E-commerce infrastructure

In the West, the boom in e-commerce has been facilitated by services which make it easy for consumers to find what they want, pay for it securely and receive it quickly. Online retailers have developed stylish, easily searchable web and mobile storefronts, and there are also countless price comparison tools to find the best deals.

Sites like Amazon store users’ details, allowing them to make one-click purchases, while most banks offer authentication services. While national post services usually provide an adequate service, there are also many private couriers offering faster, more secure delivery, and consumers are able to track their items.

In Russia e-commerce is growing fast. Online retail spending was $11.1 billion last year, a 36% increase on 2011. This growth is largely fuelled by the rapid increase in internet penetration (61.2 million Russian adults were connected to the web in 2012, a 12% increase on 2011), which is likely to continue, especially outside of major cities.

However, at the moment e-commerce is held back from realizing its full potential by a lack of services already taken for granted in the West.

Lack of mobile stores

For example, although many online retailers now have impressive web storefronts, the same cannot be said for mobile retailers. Despite the increasing popularity of smartphones just 3-5% of visitors to online shops in 2012 came from mobile devices. In comparison, in 2011 18% of visits to US online retailers, and 14% of purchases, came from mobile. One of the main obstacles to mobile e-commerce is the cost of designing attractive storefronts and catalogs for mobile. One Russian startup, ecwid, which designs mobile and desktop storefronts for online retailers, is a global leader in this sector, and recently became the number one facilitator of Facebook commerce.

Lack of payment services 

There is also a lack of payment services, capable of receiving money from customers and returning it to them should they be dissatisfied with the product. This problem is even more acute regarding mobile e-commerce, with the significant cost of producing an app capable of processing payments apparently putting off many retailers. However, the experience of Tanuki, a chain of Japanese restaurants, suggests that this problem can be overcome.

A big distribution problem

Distribution is a big problem, and it explains why e-commerce remains concentrated in the regions surrounding Moscow and St Petersburg. Russia’s national postal service is slow, not very reliable and does not usually deliver parcels to people’s homes, so many online retailers have their own courier service. Ozon, Russia’s leading online retailer, uses O-courier, while clothes store KupiVip has its own fleet of drivers to deliver items to customers, who can try them on before paying in cash or returning them immediately.

Most of these services only cover the area around Moscow and St Petersburg, but as demand from the rest of Russia increases, so will the need for speedy, low-cost couriers like Chhotu, an Indian startup trying to solve similar logistical problems there, or Shutl, a London-based company that allows consumers to name the precise time and place that they want to receive their product.

2: Electronic Finance

In the West electronic money is already part of everyday life. People can manage their bank accounts online or using their mobiles, with almost all major banks now offering an app.

Startups like Simple, which offers banking with mobile as the starting point, not an afterthought, Moven, whose new app allows clients to pay for purchases using their mobile and keeps a user-friendly record of all purchases, and Square, whose mobile wallet not only allows you to pay at checkouts using your phone, but also provides tailored recommendations and offers rewards, have also made significant inroads into the financial services market.

Online banking is embryonic 

As e-commerce continues to grow rapidly and more and more Russians come online, the demand for e-money services will only increase. However, at the moment online banking is yet to catch on widely, while only Sberbank offers a mobile banking option. QIWI offers a range of payment processing services, including a wallet app which allows users to pay for goods and services with 7000 providers. There are also some early stage startups trying to gain a foothold. Instabank is currently testing a system similar to Simple, but which allows users to make transactions via Facebook and 2Can offers a card reader which can be attached to your mobile in order to receive payments.

But Russians LOVE loyalty cards 

E-money will eventually catch on in Russia. Banks will have to start offering convenient online and mobile banking options, and if they don’t, startups will have the chance to bypass mainstream banks completely, as Simple is doing in the US.

Widespread adoption of e-money will provide opportunities for startups in website and app design, and also for programmers to design effective authentication systems. Russians love loyalty cards, and often carry dozens in their wallets. This creates an opportunity for virtual wallet apps, which allow users to store all their loyalty cards on their phone.

The potential for financial services in Russia has not gone unnoticed, with one venture company, the Life Financial group, setting up a $10 million fund to be invested in startups attempting to take advantage of these opportunities, while QIWI recently raised $213 million in a Nasdaq IPO.

3: Digital Health

Digital Health startups worldwide attracted $1.4 billion in 2012, a 46% increase on 2011, and John Nosta, from Forbes.com reckons that 2013 will be the Year of Digital Health. He predicts that the combination of new technologies, increasing connectivity, access to a vast amount of health-related data and the need to reduce already skyrocketing costs will pave the way for startups that allow individuals to take control of their own health needs, including their lifestyle, diagnosis and treatment.

While digital health in Russia is still held back by a lack of funding, connectivity and access to government data, all these things are improving.

One startup, Cardio-Control, has devised a system allowing individuals to measure their own electrocardiographic (ECG) data which it hopes will bring down Russia’s high death-rate from cardio-vascular illnesses. Another new firm, NormaSugar offers diabetic clients a glucose meter and Knopka Zhizni produces mobile phones with an emergency button which, when pressed, puts the user straight through to a health centre.

In 2012, 6 projects connected with digital health received a total of $11.6 million in venture funding (see PwC’s MoneyTree report).

4: Digitization of life

In parts of the West, the Far East and the Gulf life is increasingly digitized.

Building and home automation ensure that lighting, heating, air conditioning, appliances and security systems are used effectively. Smart traffic lights keep traffic flowing, while smart parking places help drivers to find a free space and smart CCTV cameras identify anomalous behaviour. 3G and 4G coverage is expanding, allowing people to be constantly online, while augmented reality apps allow users to explore cities in new ways.

Moscow: smart city by 2016

Moscow’s government has incorporated many of these ideas into its plans to turn the capital into a ‘smart-city’ by 2016. It plans to install 1700 ‘smart’ traffic lights, as well as a network of smart parking spaces, which would communicate with an app to show drivers that the space is available.

The city’s authorities also plan to dramatically extend the network of smart CCTV cameras in residential areas and around municipal facilities, and to introduce a crime-monitoring system similar to CompStat in New York, which brings together data from across the city to produce weekly crime reports detailing where and when crimes are taking place.

There are also plans to integrate hotspots into city features such as benches, advertising boards and bins, while by 2016 high speed internet access is supposed to be extended to 65% of the population, and 4G coverage expanded to cover 95% of the city.

Increased use of building and home automation promises to improve convenience, comfort, energy efficiency and security in the city’s buildings and policymakers also hope that the introduction of hi tech data units into 75% of households by 2016 will greatly increase the amount of useful data available.

The plans are very ambitious and targets are unlikely to be met. However, any progress towards increased digitization of life presents innovative entrepreneurs with opportunities in data collection and processing, app design and the development of new technologies. One Russian startup already achieving success in this field is doroga.tv, from Nizhny Novgorod. Its system, which allows the public to track the location of buses and traffic jams is already used in 6 Russian cities, and it was also trialled in New York.

5: e-government

E-government, which uses IT to provide and improve government services, transactions and interactions with citizens, businesses and other arms of government, is growing in popularity across the world. It incorporates government portals providing citizens with information, the integration of many paper documents into fewer electronic ones and ways of paying for and receiving government services via the web.

Between 2010 and 2012, Russia climbed from 49th to 27th place in the UN’s World e-government development rankings. This suggests that progress is being made, but Russians still have to carry multiple documents and often must queue for a long time in order to receive government services, while complicated and time-consuming bureaucracy is cited by many as one of the main obstacles to business in Russia.

Mobile access to government services and e-ID

As part of Moscow’s ‘smart city’ plans, the government intends to introduce ways for residents to access services through their mobiles, payment terminals and even their televisions! It also plans to reduce the length of time it takes to register a business from 5 days to just 3 minutes, by integrating the 5-12 documents currently required into one electronic one. There are also plans on a national level to add multiple functions to the new national ID card, which is scheduled to start replacing internal passports from 2015.

The advance of e-government presents startups with a range of opportunities. Software developers, programmers, app designers and data analysts all have an important role to play.

Some companies will gain lucrative government contracts, such as Avtodoria, a Kazan based startup whose innovative system allows the authorities to track down rule breaking drivers, while others will provide related services, such as apps which streamline the process of paying taxes or receiving pensions, or programs which analyse the vast datasets made available to the public.

Conclusion: good opportunities for investment in Russian startups

Progress in Russia is rarely smooth. However, once the country is on a certain trajectory, it is very difficult to make it change course. That’s why the 5 trends outlined above represent good opportunities for investment in Russian startups.

The demand for services related to e-commerce infrastructure, electronic finance, digital health, digitization of life and e-government is sure to increase during the next few years. At the moment many projects in these sectors are at an early stage. Some will fail, but those that succeed could earn brave, smart investors a significant profit.

The post 5 gaps in the Russian startups ecosystem today (waiting to be filled) appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

I realize it’s not easy. I’ve done it, and at times it was a frustrating experience. On the other hand, it taught me a lot about my target audience, pricing model and product. For free. That’s why I would like to share how I’ve done it. Not as a “six-step-program-to-get-a-customer”. But to inspire*, and to have you hack your own way towards that first magical customer.

My first step, week one: the storefront

A simple landing page, stating our value proposition and a form to subscribe to our mailingslist.

Objectives:

• Test my value proposition (Am I solving a problem people care about?)
• Get e-mail addresses (Who cares about the problem I’m solving?)

Tools:

• Launchrock.com
• Mailchimp.com
• My Twitter account

Invalid excuses:

• “I first need a logo to launch that page.”
• “Maybe I should start a blog, get a corporate twitter account, gain more followers and then launch my launchrock page.”
• “I first need a domain to launch this page.”
• “I need a copywriter/designer/developer/online marketeer to launch this page the way it should be launched.”

The results:

• 1700 pageviews
• 335 subscribers (17,5%)

I was hoping for a 15% conversion ratio to validate the problem I was solving, so the 17,5% was a modest confirmation of my value proposition. 60% of the subscribers were from advertising agencies, 30% were clients and 10% were students or press.

What I did wrong:

• If you look closely at my storefront page, you can see I actually had 3 value propositions: “more insights, less KPI’s”, “Social media ROI, finally” and “Darwin will show you the impact of social media on your sales funnel”. It cost me a lot of effort later on to find out which proposition triggered the subscriptions.

My second step, weeks 2 to 6: the meetings

The hardest part. I e-mailed the 330 people on the list asking for a meeting to discuss the problem and pitch my idea. After a lot of reminders and follow-up calls, I was able to score 25 meetings.

Objectives:

• Find out why people responded to the storefront.
• Get feedback on the solution we wanted to build.
• Get a € 4.800 commitment to try the product for  a year and be a part of the advisory board.

Tools:

• Keynote
• Survey questions to ask during the meeting
• Wireframe to illustrate what solution we wanted to build
• Highrise CRM to facilitate the follow-up

Invalid excuses:

• “I can’t draw a wireframe”
• “No-one wants a meeting with me”
• “I’m not that good in making up survey questions”
• “My slidedeck won’t be pretty enough”
• “I haven’t really settled on pricing”

These are the survey questions I came up with:

These are the slides I used to demonstrate our solution:

The results:

• 25 meetings & responses to my survey
• Survey quotes I could use on our website to build trust with prospects
• 4 paying customers

The 25 respondents were kind enough to give me honest and sometimes harsch feedback. It turned out I was wrong about many assumptions I made concerning the product. (I was convinced it had to look like a funnel. Everyone disagreed.) I also noticed people didn’t lack data. They just didn’t know what to do with it, or how to get the insights they were looking for from that data. This was an insight we could build on.

The people who signed up as customers were a direct or indirect part of my network. People who had no connection with me whatsoever lacked the trust to sign on in this early stage. I added a task in our CRM to follow-up with them in a few months. Some of them signed on when we had something more than a few wireframes.

What I did wrong:

• I was talking/selling way too much in the first meetings. It took me some time to switch into ‘listening’ mode. The survey questions were a way to force myself to shut up.
• My survey questions were very biased. It was almost impossible for someone to give a wrong answer.
• I tried to get quantitative results from these surveys, but this was impossible given the limited amount. The fact that I was talking to my target audience proved to be more important than the tools I used to talk to them.

My third step, week seven: having a product without having a product

Objectives:

• Gather product feedback from our first four customers
• Refine our sales process: use the logo of our first customers and a first case study to build more trust

The tools:

• Two freelance developers for one week
• Myself, the copy-paste monkey

I hustled my way to four sales. Only one problem: there was no product for the customers to use. Two freelancers were going to build the first version of the product, which would automatically collect data from API’s (Facebook, Google Analytics, Twitter, Adwords, …), process that data, and visualize it on a dashboard. The problem was it would take them 12 weeks to build, and I only had one week.

In what I remember as a creative but sweaty meeting, we decided to scrap everything that wasn’t absolutely necessary. The end-result was pretty down-to earth: the front-end worked like it had to, but the entire back-end was replaced by me, the copy paste monkey. I would wake up every morning, log in to every analytics account of our customers, and copy paste their data manually into Darwin Analytics. By the time our customers woke up, they could log into Darwin Analytics, and have all the data they needed.

It’s safe to say this way of working was not scalable. But it’s not like people were banging on our doors screaming for Darwin Analytics.

Invalid excuses:

• “I can’t even pay those two freelance developers for one week!”
• “The first version of my product can’t be build in one week. Im-possible.”

The results:

• Four customers who signed up before the product existed, and gave very helpful feedback on the first version of our product in a customer advisory board.
• Logo’s we could use in our revamped sales presentation, to build trust with prospects.
• Time to prepare a seed-investment

What I did wrong:

• I wasn’t measuring how clients were using the product, this could’ve learned me a lot
• The people on my advisory board were busy, which made it harder to get them in a meeting. If I were a better scheduler, I could have gotten more feedback meetings.

And now…

After the first four customers we got a seed investment (200k) and some government funding (50k) for the research we are doing. 3 people are working for Darwin Analytics full-time, and we are looking for two more to join us. At the time of writing, we have 11 clients using the product. Some of them have become true Darwin Analytics fans, which makes working on the product even more fulfilling.

Our test-driven approach remains one of the things that defines us most. Right now we’re testing our marketing with paid advertising and different landing pages, and we’re using usage data from clients to change our product. I’ll write more about this later.

If there are some general rules I would share with you after these first few months, these would be it:

• Eliminate dependencies. ”I have to do x before I can do Y” is just an excuse not to get started.
• Don’t be scalable. Surely mailbox had a lot of traction before they got started. You’re not mailbox.
• “Sales cure all.” & “Always be selling” – I didn’t invent these, doesn’t make them any less true.
• Prepare for a marathon, not a sprint. A quick silicon valley exit probably won’t be for you. Build a business that can outlast you.
• Know your runway. You can experiment all you want, but make sure that you know how much cash & runway you have left.

*A lot of people  deserve credit for being an inspiration. Check them out at the Darwin Analytics karma page.

I love feedback and fresh ideas. Go nuts in the comments:

The post Confessions of a lean startup: how I got my first customers without having a product appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

2012 was the first year that Axel Springer derived more revenue from its digital properties than from its national newspapers – and those print publications are not the least (Springer’s tabloid Bild, still printed on 3 million copies, can move public opinion all by itself). In Q1 of 2013, Springer’s Digital Media division again reaffirmed its position as the group’s strongest operating segment by increasing its revenues a whopping 20.9 percent compared to the first quarter of 2012.

So naturally, after my talk with Schibsted, I also wanted to hear about how Axel Springer is reshaping itself into a digital company. Schibsted decided very early on to put a lot of firepower behind classifieds, adopting the motto “the internet is made for classifieds, and classifieds are made for the internet”.

Schibsted innovates radically, following Clay Christensen’s advice on how to disrupt yourself almost to the letter. Spin out, spin in, allow spun out brands to compete at lower prices with its own parent brands, the works.

Springer, according to Ulrich Schmitz, of the company’s Electronic Media Division, was slower on the uptake. It came late to the game, in 2005 to be precise, a time when Schibsted had already perfected its classifieds business model, launching free classifieds sites in Spain and France. Sites that would go on to crush the competition and become blockbuster properties. Springer, by comparison, wasn’t nearly making a euro from digital back in 2005.

Schmitz: “We started our digital growth initiative in 2005. At that time, we had almost zero euro in digital revenues. We had some activities with content sites, but almost no pure online businesses.” This is how the press wrote about Springer’s digital strategy in the year 2000:

Springer did already have an investment in Stepstone at the time, Schmitz says, the Norwegian startup that had outraced Schibsted in the jobs classifieds. “To be honest, we were convinced that online classifieds would become a huge business, but we started on a small scale.”

In its initial digital growth push, Springer was not looking for startups, or trying to launch its own new brands, like Schibsted, says Schmitz. “We decided on a policy of investing in new business models if they seemed to be sustainable. We invested mostly in companies with a clear track record and huge growth potential.”

“Classifieds was one area. Another was performance marketing. We were an early investor in Zanox, an affiliate marketing startup, and Idealo, a price comparison site which is now the market leader in Germany. A third market was what we call content sites with a strong community around it – like aufeminin.com, a newcomer in the content market that wasn’t related to our existing brands.”

The strategy was to opt for bigger investments in companies that were already substantial, like Zanox, which was “a big investment at the time”. Schmitz: “We really opted for big tickets, late stage investments. We still do. We wanted and still want companies that are either already market leaders or on a clear path to become market leader, or at least with a decent potential to become number one.”

By big tickets, Schmitz does mean big tickets: it paid approximately € 625 million for SeLoger.com (which is French for something like “to settle into one’s home”), the market leader in real estate listings in France. As recently as 2012, it paid € 127.5 million for the Belgian market leader in real estate classifieds, Immoweb. “It’s the same league,” says Schmitz. “When you have a look at our investments of the last year, we’re trying to build up a substantial portfolio of market leaders.”

The strategy seems to have worked pretty well: this is how Springer stacks up against the other European players (2012):

If Schibsted is more of a betting company – making very clear choices and executing radically on them, Springer has a more cautious approach.

Says Schmitz: “We never made a bet. It was always very calculated. What we do is to try to develop the portfolio as organically as possible: we buy substantial businesses and generally invest in line with our core competences: classifieds, content of course, and marketing. All the companies we acquired have seen growth after our investment – which might be a difference to other media companies.”

How about e-commerce, I ask. Other publishers are risking themselves into e-commerce, lured by the fast growth of e-commerces, and the huge revenues – even though the profits are low. “Well, we have Idealo. Price comparison is very close to an e-commerce, but we don’t have an inventory risk there: we don’t have the goods on stock. We’ll want to keep it that way.”

So part one has been quite successful for these two European players: pivot from print only to digital too. The question now is: will they make the transition to global players too? Publishers have a tendency to remain very close to their home markets. We see France, Spain, Belgium, Central and Eastern Europe in the list of countries where Springer did acquisitions. But what about Latin America? Asia? And, why not: the US? How difficult will that be?

Schmitz: “I don’t think that it will be necessarily difficult. But I do agree that it will be a challenge. Digital businesses are international businesses, and you have to have a clear look to which country you want to launch in.”

“But we have some good examples already in the portfolio: Stepstone is already very international. It is part of the strategy to internationalise. That’s also what makes the business today so radically different from how it used to be. Classifieds were a national or even a local business. Now they’re at least national or international. And I think there’s still a lot of space to expand.”

Avito.ru recently merged with two competitors – usually a sign that the market is maturing? “We think it still grows. I think there should be room for more profitability. When you have a huge market share, you grow with the digitziation of the population. It depends on the market how much growth there is. We still see growth, and more importantly: we see it as a stable business.

Which may be why Axel Springer is now turning its attention to early stage investments too – a new approach for the company. In February, it announced the “Axel Springer Plug and Play” accelerator, to be started in Berlin, in cooperation with the California based Plug & Play.

“We laid a good foundation with late stage investments to expand our business and we will continue to focus on this area. But we now also want to get closer to emerging businesses. It’s important to understand what’s next and that means you have to get closer to startups, and do business in the startup area: to invest in them, but also to cooperate and to open the doors in both directions.”

“And we are quite well positioned for this too – we have a constant deal flow: we get roughly a 1000 offers a year, many of them early stage. But still, for many startups Axel Springer was a company to approach later in the game, and we wanted to get in touch earlier. It’s a completely different business, but I would say this working with emerging businesses is important to us now.”

And Springer is prepared to go a bit further outside its comfort zone here, says Schmitz. “We have fixed the center of focus for Axel Springer Plug and Play on the same areas that I described before: classifieds, marketing, community and content. But I think we’re willing to take a slightly higher risk here. It’s nice when it’s media related, but we’re fine if the link with media is somewhat fuzzier.”

So, say I’m a startup. What do I bring to Axel Springer? Schmitz has clearly heard this question before: “You should bring technology, or at least knowledge about technology, and you should bring business understanding. I see very few – too few – people working with content, which is admittedly hard to monetize. But mobile, there is a lot of room for new businesses. We recently did an investment in a company working on location based services. It’s been a buzzword for the last fifteen years, but I do expect the real business to come now. What I’ve seen so far, it’s only just beginning.”

Springers first call for applications was still running at the time of the interview, but Schmitz did see a few trends already: “I think we see a lot of people working on a serious business model. And I think that’s the right direction. We see more people working on technology – going further than “let’s put this and this together and see what it does”. These founders put a lot of thought into their business, and I hope this will be the future of the business.”

How about the quote I saw in Forbes some time ago, that Germans were so risk averse “that most of them don’t even have a credit card”. Schmitz: “I don’t see this when I look around in the startup community. It might be that Silicon Valley based startups think bigger, but they also have a bigger market than German startups, of course.”

Which begs the question: considering what we said earlier about Springer being mostly a European company, how good a partner is Axel Springer for a European startup? Can it take my startup global? Schmitz: “Our reach is mainly European. We understand Europe very well, and the differences in all the European countries. That’s a huge asset. Localization is more than translating the language. We can see that very clearly in the real estate sites that we operate: the UK market is radically different from the French or the Belgian market.”

And the last question: what about all the heat in the startup market – all the accelerators, corporate venturing initiatives, incubators, in house accelerators: are they making life harder or more expensive on Springer?

Schmitz: “No. It has always been hard to find the right startups. And there’s no rules as to how you can get to them. On the contrary, I think we need those initiatives. I’m glad that we’re beginning to see more of them, that it’s becoming part of an ecosystem. A normal ecosystem needs competition. We speak with all the others, and I expect us all to foster the startup community. All the accelerators: they’re convincing more potential founders to start a business, and that’s fine. That’s what we need.”

The post Strategy: how Axel Springer calculated and then bought its way to European digital dominance appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

Back in 2000, the fourth largest search engine in the world – Yandex – launched a free website hosting platform called Narod. It quickly became extremely popular, becoming one of the 10 most visited websites in RuNet and reaching a whopping 2 million websites created by users.

Of course, the strategic goal of Yandex was to increase the number of searches on its engine – much like Google when it launches new services.

In 2005, uCoz (of which I’m the international development manager), was founded by two Ukranian developers. It was launched to help Russian internet users create and host free websites. Initially, we wanted to give users a complete system to build a website – a platform for people to practice their CSS/HTML/Javascript skills. The idea wasn’t to go up against Narod directly, because our focus was different. Where Narod was mostly a GeoCities for users with no technical knowledge, uCoz was a little more technical. Of course, once you hit a few hundreds of thousands users, distinctions like these matter little.

Lesson 1: as a startup, it’s quite possible to take on an established competitor

Pretty quickly it became obvious that we were competing for the same users. Because we were a startup on a budget, we mostly focused on product, service and community.

Our advantage was our focus. I think all along, Yandex focused more on developing its core architecture and search algorithm. Developing Narod further was less interesting for them, which allowed us to become the market leader. I think Yandex has more than three thousand employees – things are more bureaucratic there than at a small company like uCoz. We’re sixty.

Lesson 2: you can grow based on service and community

We also never spent money on advertising, because we just didn’t have the money available to do that. When we received funding in 2007, we used again to improve the product and expand the team. I think that’s really important: our growth was due to providing a good product, and taking care of our community of users.

Narod did keep its servers up to date and tried to keep the users happy, but I think we were just that little bit more focused on developing a full product, as well as on customer satisfaction. In 2008, we overtook Narod as the number 1 free website builder for the Russian market.

Lesson 3: keep your “frenemies” close

While some say that startups should market themselves to the big corporates – you never know when they might start a shopping spree, I can’t say that we every marketed us directly to Yandex or Narod, with an eye towards acquisition. We did go into a distribution partnership for Yandex Search. (In hindsight, maybe we should have kept our competitors even closer.)

Lesson 4: you need some luck too

What was a bit distracting to us, however, was having that big dog in our backyard while we were trying to grow internationally. uCoz was market leader in the CMS space in Russia (we’re now regarded more or less as the “Russian WordPress”) but having Narod trailing us so closely made it hard to make bold moves internationally.

We did expand to other markets and localized – we have a German and English language version, but we were somewhat hesitant to invest heavily in international offices. We were eying Brazil, a huge, emerging market.

And then we got lucky. Yandex decided to discontinue its Narod offering. And then we were lucky again. When Yahoo discontinued GeoCities, it shuttered the service, leaving a lot of users unable to save or export their projects. Mail.ru did the same with Boom.ru. Yandex didn’t want to put its users through that and went looking for someone who could take all those sites off its hands. They came to uCoz, their direct competitor. That’s a rare strategic move from the largest tech IPO in the Russian market (valued at $ 8 bn today). And it’s also a big step for a startup like uCoz, which is only in it 8th year of operations.

Shortly after, we launched our Portuguese language service – the 16th. And with that “big dog” in our backyard on our team, we can also begin to think seriously about opening up offices around the world.

My conclusion is that we should do this more often in Europe. For the growth of the European tech startup ecosystem, there’s a need to see more examples of large companies shaking hands with smaller players.

Photo: Greg Westfall, Flickr

The post Keep your friends close, but your frenemies closer appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

The event will bring together companies with appealing investment proposition looking to boost their business with top-tier investment companies from Bloomberg Tradebook’s network.  Companies are going to network with and pitch in front of well known investors to identify potential matches.

This time, after the success of the Hungarian Innovation Day 2012 (supported by the British Venture Capital Association and EBRD VC fund), InVendor broadened the scope and scouted companies from Central- and Eastern Europe, Middle East and North Africa. 

Here’s what we’re looking for:

InveAst is a great opportunity for promising CEEMEA companies to get connected with top-tier VCs in London if they have sound business model, disruptive strategy and the aim to get funded. We are looking for early stage and more mature companies also, the only criteria is the global scalability of the ventures.

The event is free of charge, but invitation based (12 shortlisted companies and selected investors are invited). Application for companies is open until the 15th May through http://inveast.net/inveast-london.

About Bloomberg Tradebook

Bloomberg Tradebook is the agency broking division of Bloomberg. We service and trade with the majority of the leading institutional investors globally. The business is a leading platform in high end algorithmic electronic trading. As part of our Specialist Research Service in the TMT space, we started to introduce Start-Ups in 2012, to this Bloomberg Financial community of TMT angels, private equity, venture capital and leading innovators. This is one of the biggest financial networks in the world. Our leading platforms (evenings) are NOTWICS (Now thats what I call Start-Ups) for early stage businesses and GROW, for later stage businesses.

Website: www.bloombergtradebook.com

InVendor Investment and Innovation Ltd.

InVendor Investment and Innovation Ltd. is a consulting house providing sell- and buy-side M&A and related strategic advisory and scouting services for corporate clients and organizing deals for startup companies. Beside our business accelerator services we also offer end-to-end, one stop shop solutions to our corporate clients that create value during mergers and acquisitions. We are based in Hungary, although we are tightly connected to neighbouring countries’ markets and main capital hubs globally. We have day-to-day working connections with Iceland, Finland, Russia, the UK and the USA. InVendor is an organiser and contributor to a great number of well-known international industry events (Hungarian Innovation Day, Startup Sauna Warmup). InVendor is member of HVCA, the Hungarian Venture Capital and Private Equity Association.

Website:  www.invendor.hu

[Photo: _dchris, Flickr]

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His interest in Lean Startup methodology and customer development was sparked by reading ‘Four Steps to the Epiphany’ by Steve Blank – the father of customer development. It’s an important book for the lean startup movement, but it was also one of the hardest to read books (it’s now republished in a more accessible version and under a different title).

But as Kromer explains it, reading about Lean Startups is not enough. You have to go out and do something with it. “Knowing the philosophy is not enough to succeed. The skills of lean startup and customer development are very, very practical skills. You can’t just read a blog and say: okay, I can do a minimum viable product now. I bet you’ll still put about 9 too many features in your MVP if you do it the first time. It’s not about the philosophy – it’s about the skills. It’s like basketball: you won’t become Michael Jordan by reading his biography. It doesn’t work that way.”

“It’s also really hard.” One of the things Kromer noticed, he says, when he was doing his own products back in the day, was that his iteration cycles “started out fast but slowed down. It’s really hard, even if you believe in the method.”

He waves to the Nest’Up startups, who are filling a whiteboard wall with Post It notes in all available colors. “They’re creating landing pages now. Some have already built a landing page, but they’ve learned nothing from them. They collected e-mail addresses – from their mom and friends and family. They don’t know what they’re learning, because you have to do it a few times to get it. So that’s what they’ll be doing for months: build landing page after landing page after landing page. Test this behavior, then test that behavior. What channels are the best? They’re all different, very pragmatic skills.”

(Does that also remind you of THIS?)

So what’s the hardest skill, I ask. “Saying I don’t know. The ability to challenge your own assumptions is very difficult. You can do it, but it’s really hard. You have to be able to say: I believe this, but I don’t know it. Sometimes it takes a good framework – like the business model canvas or the Luxr customer persona. That can help to provoke the right questions.”

Luxr is not a brand of lean startup, says Kromer. “It’s a way of teaching Lean Startup, and especially the part about customer development: how to speak to customers and get the info that you need faster? It’s important to realise that the knowledge that you need is out there, and you have to get out of the building to get it.”

It’s a dogma of the Lean Startup, but it’s still not as widely accepted as the tweets and Facebook shares would indicate. “It is hard to find customers and talk to them, and get useful information from them. And engineering entrepreneurs tend to be a bit introverted. Generally, they prefer to build rather than talk to customers. All entrepreneurs have a tendency to explain to me why talking to the customer won’t work. “I think it’s rude to talk to strangers about their personal finances!”

When I go outside the US this generally becomes a bit localized (grins) – “in Thailand it’s rude to talk to strangers!”, or “in Mexico we never ask about people’s finances!” But none of them turn out to be that big of a deal: people everywhere just love to talk about their problems.”

Even the occasional Ford reference bubbles up, says Kromer (you know: if you ask customers what they want, they would ask for faster horses). “It’s a typical argument against lean startup. But if people tell you they want a faster horse, ask why. To win races? Or to get your goods from one end of the country to the other. Ask for the root causes, the basic motivation. Or you’ll build something silly.”

Which, of course, brings us to silly startups. Why are there still so many of them – the consumer apps that don’t really do anything? “Because it’s easy to think that people want it. People want to be Mark Zuckerberg. They want to be famous rather than wanting to solve a problem. There’s still people who don’t get any further than scratching their own itch. Like: we’re a bunch of introverted guys and we hate networking. Let’s make an app that allows us to meet similar people at SXSW and which eliminates the need to talk to anybody. (rolls eyes) It’s SXSW! Everybody is similar to you! Oh, or the apps that promise to “solve business cards”. Look around you – people love business cards.”

“I guess a lot of people just want to create a button that people want to push. It’s a bit like engineer bias: it’s just so satisfying to build stuff. And it’s likewise a huge ego boost to see people sign up. Vanity metrics are so hard to eradicate because they feel so fantastic. It’s very seductive.”

Even after successfully launching your company, talking to the customer stays important, says Kromer. The story he tells about Salesforce is very reminiscent of the story that Ian Collingwood told recently about companies that don’t much care for customer contact.

“There’s a feature in Salesforce that allows you to put Salesforce in bcc when you e-mail a contact, so that the mail will show up in Salesforce. Unfortunately, if the person that you bcc’d wasn’t in your Salesforce contacts, Salesforce would just discard that e-mail. So I called them to ask about a solution – be advised that this was years ago, they might have fixed in in the meantime. But the answer I got from the customer service agent was: yes, I have that problem too. I wish we could solve it. So I said: well, what do your engineers say? His answer: “I’m not allowed to talk to the engineers”. How can you learn what your customers want?”

“The other end of the spectrum is a company that’s called Soldsie. There, every person talks to the customer. As a matter of fact, it’s how they recruit. Soldsie is a SaaS that allows you to sell stuff on your Facebook page. Your fans write “SOLD” and their e-mail address in a comment and they get sent an invoice. It’s something that you see and you say: this can’t work. So when they get new staff on board, they put them in a call with a customer. And the customer tells them: this is the best product ever! (laughs) They’re doing over a million dollars a month in transactions now, and they just closed a round of funding. That’s the power of really talking to your customers.”

The post The black art of customer development (2): interview with Tristan Kromer of Luxr appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

The day before yesterday, I visited him again. He now offers fish, chicken or fried risotto balls. No more asparagus. No more exotic salts. No more burrito’s. A limited range of sauces. I told him Gordon Ramsay would be proud of him: such radical choices! Such a short, sweet menu.

If you’ve never seen ‘Gordon Ramsay’s Kitchen Nightmares’, the number one advice he gives restaurant owners is: make the menu shorter. Choose a few dishes that you can endlessly nail exactly right, and then proceed to endlessly nail them exactly right. The advice never fails to scare the restaurant owners, who are usually already struggling, and who can be relied upon to find numerous reasons why this is a bad idea. “But we have a family that always wants to order five different dishes. They’re our best customers. We’ll lose them!” Most of the time (when he’s not yelling at some chef) Gordon Ramsay can be seen reassuring nervous business owners that yes, they will still have customers if they offer a shorter menu.

Like them, and like many startup founders , the owner of the fish and chips shop was initially afraid that his core product (hot, fried food) would not appeal to everyone, so he decided to add something (burrito’s). Did it please more people? Maybe. Did it improve his business? On the contrary. This is what he said: “The menu was costing us about 75 orders a day because people didn’t know what to choose: which food? Which of the sauces? Which salt? Which side order? At the same time, the demand for tables was far greater than the number of people we could seat. So we decided to speed things up by reducing the number of choices.”

The move hasn’t hurt his business, on the contrary. It turns out that people go to a fish and chips shop to eat deep fried fish with chips. They don’t care which salt is added. They also don’t care that there are no burrito’s to be had. Who would have thunk? Today, the message was reinforced again when going on a bicycle tour: we stopped for icecream at a place that offers two tastes. Vanilla and mocha. That’s it. It’s incredibly easy to order and the stuff is incredibly good.

Both places are thriving, because they can focus all their energy on doing a very limited range of things incredibly good and fast. And I realised that this I’ve been hearing this in some version in all the recent interviews I did. One was with Tristan Kromer of Luxr (about to be published), who told me: “Without knowing anything about your business, I can generally tell you that your MVP will have nine features that it doesn’t need.”

In my recent interview with Eric Wahlforss of SoundCloud, he said that SoundCloud is now now trying to reduce options. Less navigation, to make the product clearer and easier for new users. The same was true in a recent blog post by Hermann Simon on how to become a “hidden champion”: focus. When I read this line in his blog, I literally laughed out loud:

“When Manfred Bogdahn invented the retractable dog leash in the 1970s, he gave up his job as an engineer and ever since he’s been focused on leashes, leashes, leashes. His company Flexi makes only one product: leashes.” (Manfred Bogdahn with his leashes is my new hero.)

The pattern is clear by now: don’t be afraid to think hard about what the value is that you offer customers. It requires some nerve to say out loud: we’ll be all about fish and chips, and nothing else. But when you have identified your value proposition, just proceed to offer it. Be obsessively, freakishly predictable in your quality.

I look forward to reading your stories of successful reduction of your product in the comments! (And I would equally enjoy it if you have applied this successfully to a service business.)

[Photo: asgw, Flickr]

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Even the most successful economies can’t wholly avoid the impact of a global downturn.  But those economies that we know as ‘emerging markets’ have fared better than most during the downturn, and have proved to be far more dynamic than the more mature markets of the Eurozone.

Innovation = challenging the status quo

There is a natural pioneering spirit endemic in emerging market businesses. Perhaps that’s because, at this stage in their development, they have everything to gain, a lot less to lose, and are already well accustomed to overcoming huge problems on a daily basis: problems, for instance of poor infrastructure and communications, and a hard to reach or low income populus in their home markets.

So, as the mood in mature markets, for most of us anyway, moves away from ‘affluence’ to and closer to‘austerity’, perhaps now is the right time for business in Europe to look at what the best of emerging market businesses are doing, and to try to apply those principles to their own situation.

Innovation is vital for any start-up companies hoping to make their mark.

It’s what will get you noticed – and if the market and media start talking about your products and services, they’ll be doing your marketing and promotion for you, free of charge. But innovation needs to take account of the current economic environment – and that’s something that emerging market business do very well, because they’ve always had to.

Here are two contrasting examples that make the point.  The British company Dyson produces household vacuum cleaners that retail for as much as €500.

4000 miles away inIndia, students are being equipped with a new tablet computer, the Aakash, costing the equivalent of just €16.  While the products themselves aren’t comparable, what is interesting are the drivers for their development.

For Dyson, it’s upselling to a select and already established market segment, while for Quad, the Indian producer of the Aakash, it’s creating a whole new market where none existed before: simply because, for millions of Indian people, the cost of a tablet pc would normally be way outside their reach.

The Aakash may well turn out to be what has been called ‘disruptive innovation’, a term coined by Harvard professor Clayton Christensen to describe the way in which a product is designed primarily as a simple ‘no frills’ offering to the bottom of the market pyramid but is then adopted further up the pyramid, displacing more established competitors. It may not have the sophistication of an Apple iPad – which can sell for as much as €600 – but in these straitened times, many consumer choices are driven by austerity not affluence.

The lessons to be learned?  Innovation needn’t mean expensive upgrading of products to appeal to an existing – and often overcrowded – market.  Create a new market to meet an unsatisfied need, create noise around your products, challenge the status quo.

The post Innovation: what we can learn from emerging market success appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

• belong to the top three in its global market or is number 1 on its continent
• has less than $ 5 billion in revenue
• and is little known to the general public.

I have identified about 3,000 of these global leaders, 1,300 of which are located in Germany. Germany has by far the largest number of hidden champions, and they are the true secret behind Germany’s ongoing export excellence. Most of the hidden champions have been leading their markets for a long time. So how is it possible for a start-up to become a hidden champion and how long does it take?

Ask Frank Thelen. The first hidden champion he created is ip labs, the global leader in software for digital photo albums. Founded in 2003, ip labs ascended to world leadership in its market within four years. It was sold to Fujifilm in 2008 and is now a division of this giant that leads the world’s photographic market.

Frank Thelen – 15 Years Of Founding & Hacking from HackFwd on Vimeo.

In 2012 Thelen started out with a new venture, doo.net. With this company he is re-thinking documents to make the dream of a paperless life come true. His goals? Frank leaves no room for doubt: “My goal is to become a world market leader in 48 months. We are 100 percent dedicated to this goal.” When doo launched in the Apple App store in February this year, it was immediately ranked as top downloaded App in over 50 countries. And this is where all the hidden champions started out: with high ambitions to become the best in the world – a market leader in the truest sense.

The most promising way to achieve this position is, of course, to start a new market yourself and to offer something which nobody has offered so far. But how can you achieve this seemingly outrageous goal?

Lesson1: Apply relentless focus

Focus, focus, focus. You have to concentrate all your resources on the focal point: the customer. When Manfred Bogdahn invented the retractable dog leash in the 1970s, he gave up his job as an engineer and ever since he’s been focused on leashes, leashes, leashes. His company Flexi makes only one product: leashes. Day and night he thinks of leashes. Only focus leads to world-class status.

Lesson 2: Keep at it

An indispensable ingredient of becoming a hidden champion is never-ending endurance and stamina. Of course, each start up-entrepreneur needs endurance. But to build a global organization and world market leadership it often takes one or even two generations of continuous entrepreneurial energy.

Lesson 3: go global

Focus makes a market small. The market for dog leashes in each country is tiny. How do you make it big? By globalizing! On a global scale each market becomes big. Today Flexi is present in more than 100 countries, makes 12 million leashes per year and holds 70 percent of the world market. There’s no doubt that focus plus globalization is the success formula for the most ambitious start-up entrepreneurs. Of course continuous innovation, closeness to customers and enthusiastic employees are needed, but the two indispensable pillars are focus and globalization.

I personally know what I’m talking about. I have practiced the hidden champions strategy myself. In my first life I was a university professor with pricing as my research specialty. After 16 years at universities, I quit and together with my doctoral student Eckhard Kucher I founded the business consultancy Simon-Kucher & Partners. We started by focusing on price consulting – and globalized. Today we have 690 employees who work out of 25 offices all over the world. In 2012 our revenue was 145 million euros (189 million US dollars). We are regarded as the world’s leading pricing advisor and thought leader.

I can assure you it works. Have courage! Focus and globalize!

The post How to turn your startup into a ‘Hidden Champion’ appeared first on European startups, entrepreneurship and innovation news: Whiteboard.

“Biggest shift since the WWW”

When Scoble started to talk about Glass, he did not try to understate it’s importance. Quite the opposite, he mentioned that some see it as the “biggest shift since the WWW” and judging by his enthusiam, he seems to agree that this might become true. In fact, only author Bruce Sterling (who also held the last talk of the conference later that afternoon, on design fiction), showed a rather sceptical reaction to Glass, when he was allowed to try it out like several other members of the crowd. Everyone else seemed very positive, yet at times “challenged” by the new technology.

Here’s: Bruce Sterling trying on the Google Glass:

MVP rather than state-of-the-art

One very interesting and fairly unexpected take away about Glass from this talk was that it’s actually rather resembles at minimum viable product – and not the state of the art in wearable computing. Scoble mentioned a number of hard design decisions that Google presumably made to make Glass the limited, yet potentially valuable product it seems to have become:

• the battery is small. This results in a rather low battery-life, but also a light-weight product.
• the video-capturing is limited to 720p quality. Here, Google abstains from directly competing with camera-only Glass-like products – at least for now.
• no augmented reality capabilities. Here, again, Google avoids over-loading the product and competing with products focused on this application.
• limited number of voice commands. According to Scoble, this has made Glass very accurate in recognizing voice commands, including those made by people with UK or Australian accents – but not yet in recognizing German accent commands he stated to the amusement of the audience.

$1600 – a hefty price tag?

Generally, Scoble gave a very positive “review” of the product he owns and uses for a little over a week now. Some commenters (from among the NEXT crowd) on his Facebook profile even suggested that he should be considered as (paid) Glass evangelist by Google. Rackspace (his current employeer) might have a word in that, but in principle, it sounds like a very good idea. Scoble only seemed to be somewhat critical price of the $1600 for developers – he also expects the price for consumers to be significantly lower though.

If you want to hear for yourself what Robert Scoble had to say about Google Glass and the Age of Context in Berlin, you can listen to this interview by Derk Marseille from Friday at Six, in which he touches upon some of the main points:

Alternatively, you probably also can hear a similar talk at the The Next Web conference in Amsterdam, where Scoble speaks today and tomorrow. (At this point, I have to note that I’m a bit proud that we in Berlin were first in Europe to have him speak about Glass!)

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