the following content is provided under a Creative Commons license your support will help MIT open courseware continue to offer highquality educational resources for free to make a donation or to view additional materials from hundreds of MIT courses visit MIT open courseware at ocw.mit.edu recap last night and give you remember what we had for an overview uh the first part was that um it's not about the business plan it's about planning that was the first point I hope you got uh the second one is that planning is not a static process it's Dynamic and therefore your plan is going to be dynamic however you uh you know write it down or or put it in slides that's the first set of points uh the second is the uh three wise or sorry the second is your goals and tasks in this whole process it's to create value and the second goal is to harvest some of the value and as we pointed out those are easy to say and it's increasingly hard to do uh the rest of the course will be telling you try to how to do those things the the questions that investors are going to be asking are the three wise why this why is this something important why now why is now the right time to do it and why this team why why is this group of people the right people and if they get through those the fourth one is why won't it work now I said that that's what investors ask and that's probably what you ought to be asking because the final point is the most scarce resource is not money it's your time so if you're not happy with those answers to those questions then you ought to iterate and find some new questions uh a new approach to those in fact tonight our speaker Bob has probably going to talk about how you've iterated few some things on that score okay so tonight uh we're starting down the path of filling in the business plan the first thing we said is you got to create value and one of the ways you can create value is to find a customer and Bob Jones who's one of our highly paid volunteers uh once again tripling your your income um Bob is um was a class ban of mine at Sloan uh people in the audience from Sloan do you know about the C function still going on you like that that's Bob he's the guy that organized the first C function um in addition to being a Serial entrepreneur yeah for those of you who are not from the Salone side of Campus the C function is consumption function in economics and you can picture what might be consumed at a Friday night uh consumption function so we'll leave it with that uh Bob's a Serial entrepreneur still at it like a lot lot of the speakers that we're going to hear from they're actually doing the very things they're talking to you about so this isn't just an academic exercise for them uh Bob's other uh claim to fame is he plays pretty good uh blues uh guitar and he has a blues band but U I'll let him decide whether he wants to say anything more about that and with that Bob the clicker is yours sir thanks Joe so good evening everybody i' like to congratulate you on the Good Sense required to sign up for one of the best courses that the Institute offers uh it's not the first course you you will take here that has you drinking from a fire hose but this one's pretty valuable stuff how many of you are in this because you're thinking of competing in the 100K competition good how many of you are contemplating making your living in entrepreneurship when you get out of here oh dear you poor things how many of you actually have something going right now wow well there's therapy available for you guys and and medication this is a little bit like a chronic illness you might be able to Tamp it down for a while and then it'll pop up again you won't be able to get rid of it once you're infected and Afflicted um I'd love some sense of what you guys are working on just some sense of the spectrum of who's doing what here do you have like a dog walking service for two income families or do you have something that detects the need for insulin and a patient with diabetes so somebody raise their hand and give me some sense of what it is you're working on please yes sir I'm sorry business what okay what's broke that you fix all right so you're sort of an Outsourcing service rent an expert good who else who else is working on something you can't all be it people yes sir I'm sorry say that again personalized oh well tell us a little more about that right I know that cancer is actually a family of disorders it's not so do you have like a set of molecular diagnostic tests which help determine which form they have and therefore which therapy they should get and who will be your customer who will write you a check the patient the hospital the insurance company how many of you are thinking about working in the medical Arena yeah okay you you know then that there's a sort of a cluster of customers that you have to work with the doc has to request it then you have to go arm wrestle with the purchasing agent or the formulary committee or whatever it's really quite convoluted okay well that gives me at least some idea of uh how eclectic you guys are so what I'm going to try to do oh Joe tell me how I make this Gizmo work on oh God turn it on really demanding okay I'd like to know a little bit about you I think we covered that I'm going to try and provide you with a couple of Hot Tips in the course of this 90 minutes I have the sort of quaint notion that if I'm going to ask you to pay attention to me for an hour and a half I ought to try to give you something of value in return I realize that's sort of old school but uh I hope to help you find some customers and succeed with your businesses and I'm going to do that using a couple of product launches that I was involved with um there are times when people speak to you and they say well there's been 20 clinical trials done and the results are almost indisputable this is not one of those this is anecdotal you're not going to be hearing the voice of God you're going to be hearing my opinions and they may be wrong disclaimer but I'm going to walk you through a couple of product launches and some lessons that maybe you'll learn and uh there may be an opportunity for equal uh equal opport embarrassment in the course of this evening um I will fulfill the responsibilities of leadership by embarrassing myself first and then I'll offer you the chance to follow on so um I went to a couple of schools I had a couple of normal jobs and then I realized there was something wrong with me and left and went off and started up three different medical companies in a row and uh took a break from entrepreneurship to serve as CEO of a soy Foods company it was a turnaround company was a dreadful mess took a couple years to fix it had to fire 75 people in the process so it was a lot of sort of block and tackle work then I thought it would be kind of fun and relaxing to join a boutique consulting firm helping people do what I did uh and it was fun for a couple of years and then it got bored boring and I left and started up another company which I'll tell you about maybe a little bit in the course of the evening so a couple years ago the Wall Street Journal did a study uh during the last recession of who succeeded and who failed and did the people who succeeded aggregate around any particular plans and they did one group turned out to be cost leaders they aggressively cut their costs and that was their differentiator that's not you the other group were innovators and they focused on building brands that might be you but there was a fundament question that the successful ones ask which is how is your end user dissatisfied because that's where the opportunity lies and at an August institution like this one it's often thought that the answer is technology but it doesn't have to be if there's 50 kids in town that want a bicycle and there's no bicycle shop that could be your opportunity so I'm going to make an assertion right up front which is your business might survive but it won't Prosper until you know what are you really selling and there will be a couple of times tonight when I may interrogate you ruthlessly on this point who wants it so literally who cares and how do you find them and I know that our friend Steve talked to you a little bit last night about raising Capital but it's kind of a dirty secret amongst investors that most of them really live in Terror because they know that if they invest in 10 of you guys eight of you are going to fail you're all smart good-look Charming I'm sure you're good to your parents and all of that but you're going to fail which means their investment's going to evaporate and investors venture capitalist in particular raise money themselves they go around to Pension funds and say please contribute to our fund and if you lose their money they are unable to raise a fund next time and find themselves unemployed so oops the emperor is not wearing any clothes so when they look at you they want to try and figure out do you have a chance of succeeding with your business and the experienced ones know there's really One non-negotiable requirement and that's you have to have customers you don't need to be smart you don't need to be be good-look you don't need to get rich if you have customers people will think you're smart you will make money and if you make enough money they'll think you're goodlooking so they want to know do you have any customers will you have any do you even know you need them and by the way have you done some homework how are you going to find them and how much are they worth are you going to spend $5 to acquire a customer whose lifetime value is $3 oops probably not a good idea how long is it going to take you to get there how many do you need in order to reach Prosperity I think there's two descriptors that you want you'd like to be important and you'd like to be unique and of course the sweet spot is when you're both so I think you can make a pretty good argument that air is important arguably not unique and I don't want to traumatize any of you but some would argue that MIT decals are unique but possibly not important possibly so can you make a a decent business selling either of these well yes no people do people do give me an example of an opportunity to sell air Kims Kim labs okay that's a bit exotic any of you guys scuba dive I did my checkout dive off Catalina Island in California I was about 100 feet down in the kelt beds o I've got about 15 minutes left I would have paid a lot for some air you know those packages that have all those little bubbles in them and you get really neurotic and pop them all you know what that company's called sealed air Corporation 6 billion and of course the opportunity for to take 15 cents worth of material and sell it for four or five dollar obviously is picking the right positioning and the right opportunity so I'm being a little tongue and cheek here obviously but the point is to figure out who is going to find your offering unique and important so rather than start with how fabulous your product is who cares who actually thinks it's Unique who's important figure out how you're going to find them and tell them about what you got and then take their money now simple is not the same as easy this is simple it's not necessarily easy but what happens if you can't meet those two requirements I give you a hint kind of fish is that right that's what's going to happen to you you will flounder so let me give you an example this was back in the day I joined a company in California it had been 200 million in annual revenue for 12 straight years excuse me arguably a sleepy business and they got bought by an entrepreneur took them private leverage buyout said I want to kick up the sales of this outfit 50% in 3 years and take it public so he fired the senior management team brought in a bunch of ostensibly energetic entrepreneurs and gave everybody some stock so here's some stock for you and here's some stock for you and here's some stock for you and let's not argue let's make this worth something really a very good idea it was highly motivating I was running the clinical nutrition division really profitable we would make a leader of solution IV fluid for $3 sell it for 70 nice margins but I had a bad habit of going out in the marketplace and I did and I discovered that this business was going to go away Managed Care was coming changes and reimbursement structures Etc and it was going to go away before we had a chance to go public this was bad news I needed to find a new opportunity so I thought about it and I thought well this this science of nutrition is so awesome for people who are in the Intensive Care Unit it ought to be pretty good for people who are just out walking the street maybe we could reposition this go for a much broader Market nobody had done it power bar didn't exist none of those things happened but like most entrepreneurs I had uh it was a Triumph of energy over good sense I said let's try it even though no model for Success exist existed I had spent some time at Baxter and I knew something about the market for people who have kidney failure at the time there were 400,000 of Market was growing like crazy and every one of the patients who was on dialysis went three times a week to one of 1300 dialysis centers in the country all of which are identified in a federal document so I knew where to find them I knew literally where they would be on Tuesday Thursday Saturday now when your kidneys fail you can't casually do something that so many of us do which is have a drink because you're unable to eliminate the fluids so it's not uncommon for a dialysis patient to gain 8 to 10 pounds between Monday and Wednesday part of what dialysis does is it rings out that extra fluid so these patients are fluid restricted for due to other things that your kidneys do for you many of them are clinically malnourished and the only nutrition supplements that were available were liquids insure things like that I said well duh what's wrong with that why don't we make a supplement that's high in the stuff they need doesn't have the stuff they don't need doesn't have any fluid Let's Make A nutrition bar we had the technology to do it we created something we called regain we weren't required to do a clinical trial it was just food but we did Kaiser Permanente for those of you who live in California stuff worked got the results published in a The Archives of the National Kidney Foundation peerreview Journal good scientific support all the biomarkers improved patients got better we said well we know how to do this we know where to find them we know how to find the market leaders let's call the renal Physicians let's call the dietitians it's like we've developed something that's high in what your kidney failure patients ought to have and doesn't have any fluids in it what do you think the typical reaction was wish I thought of that so well how many of you patients do you think of your patients do you think this would be suitable for I'd say well all of them how many days a week would you recommend this seven say what how do you feel about $3 a bar sounds right to us we said this pretty good little business here let's do it we said how you feel about the competition they said well yours is the only one doesn't have any liquid in it it's obviously going to have a strangle hold on this Market it's perfect so we said well this pretty good opportunity for their corporation it's going to replace some of the revenues let's make a whole bunch of it let's take the beauty shots and make the brochures let's haul in the Salesforce set up a commission plan train them on how to do it give them some incentives to go out there and sell it and let's launch which we did it was a complete disaster just an absolute failure revenues came in at less than 10% of what we forecasted and to make matters worse I was part of the senior management team and we would meet once a week conference room once a month we would go over how our business was doing so I'd have to stand up in front of my peers and say well our forcast for this month was $400,000 and we came in at 32 they'd say Bob didn't quite understand you what was that number 32 so what did I do wrong tell me why yes sir your customers didn't like it my customers didn't like it tell me more about that what didn't they like they were happy with the liquid supplements that's a perfectly plausible answer but it's not the right one it's a very good speculation happens not to be the problem go ahead sir taste taste well that was a factor we thought it tasted pretty good but it turns out when your kidneys fail something shifts in your pallet and protein tastes like spoiled meat oops that was an issue what was the big issue what was the fundamental flaw the the most obvious thing that I did wrong in retrospect go ahead sir uh okay that's a pretty good question who paid for the product we're closing in on the issue okay here's a hint What's the title of my talk tonight that was a clue okay so what did I do wrong yes sir misidentified I misidentified my customer you may be Exempted from the rest of the course that's exactly right who did I survey I surveyed the clinicians but they don't buy it and they don't put it in their mouth and eat it oops perfectly logical in the pharmaceutical world you call on the doc the doc writes a prescription doesn't matter whether you like it or not you got an earache take this stuff for five days your earache goes away too bad for you if it doesn't taste good if I get her to write the prescription I'm done not in this business in this business they have to go to the store themselves pay for it with their own money buy it eat it like it and buy it again well when we finally talked to them they didn't want it and they couldn't afford it okay who gets endstage renal disease well it turns out that 33% of them get there from a lifetime of mismanaging their diabetes and 44% of them get there from a lifetime of mismanaging their high blood pressure so three4 of my Target customers have not taken care of themselves for their entire life why would they start now furthermore once your kidneys fail and you end up on dialysis a well-intended social worker sort will say well Bob you got to be in here Tethered to this machine three days a week obviously you can't work so I'll put you on public aid well now you don't have any money if you do have $5 you're going to spend it on beer and cigarettes not on my product there was one final issue what was our sales Channel at the IV nutrition company we sold to hospitals with this business we had to sell to retail pharmacies and they wouldn't carry it well let's talk about that for a minute because that's kind of fundamental if you ever want to have a laugh on a Saturday afternoon walk up to the pharmacist and your local Walgreens or CVS and say I've got a product you've never heard of from a company you've never done business with and I'd like you to carry it and watch as he falls on the floor and Hyster hysterics why well I wasn't familiar with this I'd never had any exposure to this world and finally one day one of them kind of put his arm around me and said Bob come here see this foot of shelf space it's a linear foot right I have Crest toothpaste on that foot of shelf space I have all these complex algorithms that are going to tell me within a couple of dollars how much revenue this foot of shelf space going to generate for me each month now if I make room for your product and push Crest off there put your product on I don't want to lose any money so don't go to any trouble just write me a check they call it slotting fees you might call it extortion with most of the major Pharmacy chains the tab is a million dollars a quarter plus 6% of your Topline revenues Plus guaranteed resale so if it doesn't sell they ship it back to you for full credit and you put one SKU in each of their stores and fill the entire pipeline for free they'll pay you if anybody reorders it pretty expensive well we couldn't afford that so we had a few problems with this business model that we' put together and we were trying to show Wall Street we were good candidate for a public offering and if we had our public offering the stock that we handed out was going to be worth something my failure was jeopardizing our ability to do that which meant Not only was I in the dogghouse with my boss but also with my peers and each month I would say well you know it's taking a little longer to take off than we thought give us a while to keep moving with the Salesforce and each month it continued to be a train wreck and it went on for an entire year ruined a year of my life because as this gentleman said over here I misidentified my customer so what do we do about it well we learned about inside sales we said 25% of these people take care of themselves we ought to be able to find them furthermore somebody ought to pay for this let's try Medicaid now you may or may not know that Medicare covers you if you're old it's a federal program Medicaid covers you if you're broke it's a state program what do you think are the chances that Illinois and Indiana have the same program Real Slim we got it reimbursed in 40 States it was almost as fun as 40 consecutive Dental extractions I said this is just a god- awful way to make a living sold the business parenthetically yes we did well enough in our group with our other products that we compensated for the shortfall with this and when we sold the business we didn't make any money but we recouped our investment so I escaped financially intact spiritually battered and abused much wiser but considerably sadder but let's fast forward a couple of years I did two more of these things and got better at it and after a while got recruited by a group of docs at Harvard Med school and they hauled Me In from California tough sales pitch to my family because we were in Southern California I said it snows in New England right does so we launched a new company with these guys we looked over all the stuff that they were working on figured out none of it was going to come to Market before we ran out of money said well how you guys feel about diabetes the answer was well we like diabetes okay well we need to be in a field that's big enough to get us noticed in a need that's small enough that we can handle it with one poor underpaid employee so I had an intuition that there was something they needed and weren't getting statistics at the time there were 10 million people diagnosed with diabetes four million of them used insulin you have diabetes and you eat something your blood glucose goes up and it stays up because insulin incorporates it into the cells brings it back down and if your body stops generating insulin or if you stop being sensitive to insulin then it stays up and causes all manner of problems four million of these 10 million people injected insulin to lower their blood sugar and if you get it wrong your blood sugar goes too low well most of the publicity for the damage that's done from diabetes comes from it being too high it's a leading cause of blindness kidney failure and peripheral amputations so it's catastrophic in introducing tight control that's three meals a day three small Stacks a day regular injections of insulin restricts the bandwidth good thing to do triples the incidence of low blood glucose and it must be treated right away because you faint which is bad if you're stuck in a traffic jam and it's particularly bad if it hits you while you're asleep if you're awake you start feeling clammy and tremulous and you know you've got a couple minutes to go drink some orange juice or eat a candy or whatever and elevate your blood glucose again but if you're asleep you may not wake up okay so what do they do about it well typically big injection of insulin big nighttime snack the hope that the two will balance each other in the course of the evening unfortunately doesn't work because everything in the nighttime snack turns into glucose at the same time so the spike is higher but the duration no longer translation grossly oversimplified is that the food runs out at about 2 in the morning the insulin is still working and from 2 am until you get up is the danger zone we had a bunch of f focus groups I lost control of myself threw the moderator out of the room walked in and said well now that we've explained this stuff to you tell me what your greatest fear really is what do you actually worry about and they all sort of said well I'm afraid I'll die in my sleep I sleep in that Lazy Boy in my living room or I have an alarm clock that goes off every hour or two just to make sure I don't have a good night's sleep ever thought well that's gripping and the parents of kids who had diabetes say every night I worry about my daughter I go in and I check on Jessica at two in the morning my wife and I stand there and say she awake I mean is she asleep or is she in a coma I don't know we say Jessica wake up what what you all right yeah I was asleep good go back to sleep it it sounds comical but it's quite gripping we said well we we've identified something emotional here so we put together a combination of nutrients that turned into glucose consecutively sucrose protein unco cornstarch being fundamentally a marketing guy of course I dubbed at time to release glucose right those ingredients are in a birthday cake but we managed to get a patent on it anyway because if you use those ingredients in conjunction with materials that say diabetes you're violating my patent how about that novel and non obvious to a person of ordinary skill in the art and you have one of the great experts as one of your resources that's your host Joe hadzima I hope you'll talk about this a bit later so we did make it taste good tasted sort of like fudge and we gave it a non-medical name would anybody care to guess why I heard I heard a murmur but I don't see a hand yes ma'am that is true but that was not the explanation sir again you not have to go through FDA well we didn't have to go to FDA but that's not why we did we gave it a non-medical name sir because you're trying toce yes but perhaps not the fear that our audience would think we talk to our patients our customers something I'm going to encourage you to do and they said Bob I'm not a diabetic I am a person who has diabetes I'm a lawyer I'm a banker I'm a professional I have a condition but I manage it it just like you might have a headache but you manage it it's nobody's damn business whether or not I have diabetes and if I end up in a meeting that lasts half the night and I have to consume your product I don't want the other people around the conference table knowing I'm medicating it's none of their business thank you furthermore I had been arm wrestling with the FDA because I wanted to put four diabetes on the package and what our customers told me was if you do that I won't buy the product so I was trying very hard to do the one thing that would have scuttled the business fortunately our customers advised us and we listened and they said our kids have sleepovers and they have to do one of these at night and they would rather eat worms than be different from their peers so make it look like something they can offer for their friends like an energy bar Ed to release glucose hey guys you want one so I said okay we're bringing some consumer marketing in to all this science so this time around instead of just talking to clinicians they were important but they were not sufficient we talked to parents we talked to patients we went to all these things at elementary schools that parents of kids with diabetes would attend and you know those little bitty chairs sat there with our knees is banging against things and took lots of moms to lunch we learned an awful lot about this how many of you know someone who has diabetes it's really important to go have these conversations and finally I said well what kind of advertising do these people see there are all sorts of diabetes magazines out there so I bought a half a dozen of them and the typical ad was on the back cover a full page blow up of a hypodermic needle just the thing to make you feel warm and resonant right I mean the copy would say my needle's sharper than his needle doesn't hurt as much buy mine I said ooh so we put together an ad with this agency that had flying pigs it was just so ludicrously out of place in this magazine nobody turned the page and there was some kind of lame copy about sleep per chance the dream Etc right everybody read it and we ran a little violator across the corner of the ad says for free sample call 1 800 and our number stuff started happening we were at 238 Main Street up above what was at the time a barber shop in a little ratty office when we started getting a 100 calls a day we needed more phones 200 calls a day we said said gez we better get some people to answer the phone Kendall Square of course has more Geniuses per square foot than most places so we basically just went downstairs with the mirror and we held it under people's noses and if it fogged up we said would you like a job and fill the office 300 calls a day we said God we can't keep track of these people on index cards we better install a database 500 calls a day 500 calls a day we went off and rented some of these tables and stuck like three computers on a table and got all these people sitting there elbow to Elbow we said I think we're on to something I'm going to fast forward to something here we ended up in all of the major Pharmacy chains and all of the major wholesalers I'll tell you about that and the amount we paid for slotting fees was Zero unprecedented in our field I think the lesson is that understanding our customer as opposed to with regain thank you for your observation helped us build a better product and a successful business so how do we reach them well we said who influences them who's our customer who's their influencer how do we reach the influencer where do they spend their money and we discovered all right back up I hate to be crude but there are some people who have diabetes who are just determined not to take care of themselves so should we spend time and effort trying to reach them so how do we find the ones who do take care of themselves and furthermore are willing to spend a little money on their care answer they're seeing a clinician the clinician called the certified diabetes educator and their Association I know this will astonish you is the American Association of diabetes Educators and if you go on their website there's little tab locate an educator you put in 02142 out comes a list name contact information Etc we said well what do the Educators worry about we know what the patients worry about patients worry they're going to die in their sleep they go see an educator what does the educator worry about who would care to speculate what do the diabetes Educators worry about that we could hook on to in a phone call well that's one they'd like to know that what you have works thank you what else when I asked them what's your greatest professional frustration anybody care to guess what their answer was yes sir oh my God that's absolutely right I tell them what to do and they don't do it drives me crazy we'd hear it over and over again single greatest professional frustration the medical term of course is compliance they don't comply so we said well we need to figure out how to address that so we'd call them up having located and by the way I know that these days an increasing number of people are terribly uncomfortable picking up the phone and calling someone without five emails to set up the appointment first so this may strike you as like emotionally difficult to just make cold calls but we did and when they'd answer the phone we'd say our company's worked with a group of docs out of Harvard Med school and we've invented what looks like a candy bar for addressing nocturnal hypoglycemia and the patients love it do you have 30 seconds say again and we talk to him the last thing we would say in the conversation is who else that you know should we call oh you got to call my friend Susie cream cheese she would absolutely love this so we'd call Susie cream cheese and we say Susie Janet says we ought to call you oh how's Janet well you know her dogs's got a hip problem going to go in for surgery but other than that Janet oh she loves that dog yeah she does anyway she said we should call building relationships right so we started doing this stuff pretty soon we ended up with several thousand highly trained clinicians talking about our product on our behalf and their reward was not Financial their reward was that their patients came back to see them and said this stuff's awesome and they complied so we built a little float we said we have a Salesforce and we're calling on the Educators the Educators if we do this right will tell their patients the patients will call us and buy the product well that's attractive but it's not the path to financial Heaven because there's this group out there called retailers how do we get into the retailers maybe we could have the Educators call the retailers maybe we could have the patients call the retailers maybe then we could call the retailers and we'd make more money well this weekend if you have the opportunity stand in a pharmacy and watch the pharmacist when they answer the phone right they've got this phone tucked in the a pharmacy you got 12 seconds so how did we address this well people would call we'd send them a free sample by the way we had to put in some questions because we made it onto one of these web pages that said this outfit's given away free fudge so we got plenty of phone calls from people who were never going to be our customer so once we figured that out we had to start asking some qualified questions tell us what brand of insulin you're typically using if we heard how uh oh I'm sorry we don't have anything for you next right but we'd sent him a sample we'd follow it up did you get our product yes did you wake up dead no must have worked guys that was a joke we're providing free shipping if you'd care to order okay love it we'd take their order we'd track it carefully we'd call them back and say aren't you bow out don't you need some more why yes then one day we'd say you know this free shipping is coming to a close and we're going to have to start charging you for it and I know you go someplace to buy your insulin wouldn't it be more convenient to buy this stuff at the same place you buy your insulin well yeah it would okay we did some homework there's about 3% of the people in the country at the time had diabetes and they were worth about 24 4% of retail pharmacy purchases because you go in and buy toothpaste and a greeting card they go in and buy a blood glucose monitor strips right they're worth a lot of money so we'd say well why don't we set it up so you can pick it up wherever it is you buy your insulin where is that and they'd say oh Yos Pharmacy I say would you mind if we call Yos no no no you tell that turkey that Mabel wants to buy this stuff I've been buying from him for years hold on a second let me get you his phone number right so yast would answer the phone we'd say Yos we've just been selling our product to five of your customers that have diabetes they want to buy it from you and you don't have it what who is this okay let me back up ghost and I'd walk him through here's the five customers so what can we do about that ghost would say well you know we probably ought to have it but I can't possibly buy this without corporate approval I mean we're just one Walgreens right I mean you got to go to Deerfield to corporate headquarters Yos we know that but we also know that there's a level below which you can buy without corporate approval that number is probably $100 well yes it is well you'll be pleased to know that our initial starter pack cost $99.95 and I can take your purchase order right now and by the way if it doesn't sell you don't need to ship it back to us for refund we'll take your word for it throw it in the the trash we'll send you back the money okay nobody ever mentioned slotting fees why not what did we have that gave us the ability to trample all over that convention who said customers Excuse me while my heart beats that's exactly right so we've talked about this a bit the uh oh you know there was a neat thing we did a lot of these Educators would have a class on Saturdays one Saturday a month they'd bring in all of their people talk about new developments in Diabetes Care and like everybody who's got to write a monthly column or a blog or whatever it's hard to come up with content so we'd say well when's your next one of these oh it's a week and a half do you if you have your whole agenda set up yet no if you like this would this be something worth talking about to your patient population well yeah actually well we'll send you the stuff we'll send you the literature but let's suppose they do like it they're going to ask you three questions how's it taste how much does it cost where can I get it tastes like chocolate fudge you'll figure that out for yourself it's a dollar a bar how do we answer the third question oh man there's a shop right I send all of my people too well can we call him and tell him that a week from now you're going to a week and a half from now you're going to be sending some people no we can do better than that tell that bonehead to get in here on Saturday morning he can stand up and talk to him himself and he can see what we're doing and he'll stock the product very cool pharmacists would agree nobody ever mentioned slotting fees and I bet you know you know why not so was good now we were in with the retailers but one day we discovered retailers really didn't want to deal with us they wanted to deal with wholesalers why not well there's about 5,000 different items in even a small drugstore and they don't want to be sending out 5,000 taking in 5,000 invoices and sending out 5,000 checks so wholesaler consolidates all that the truck comes brings them a bin sends them one bill now if you think getting into a retailer is difficult try the wholesaler so we said well if we could do this oh my goodness we just need wheelbarrows to carry out all the money how do we do it we said well what do the wholesalers care about the wholesalers want to know know that there's an order already there that this is going to be painless they're fundamentally lazy make it easy for them we said okay what can we do we looked about and realized there was a trade show coming up in New Orleans we hadn't planned to go but we said we we ought to go and let's find the 25 drugstores I think it was Walgreens that are surrounding the area and let's tell them them that we're going to be at this show we're going to be meeting with the Educators and we're going to be pimping excuse me selling our product and that they should stock it and in fact they should pre-order it which we did they took the orders or pardon me they gave us their orders and then we called the wholesaler that Walgreens used and said you don't know me but I've sold a bunch of this product and I've built in a margin for you you don't have to do anything I'm going to take their order I'm going to ship their product I'm going to send you the money that you would have earned if You' done this even though you haven't earned it and you haven't done anything what I want is for you to put us in your system just key Us in the system so that if they reorder they can call you and I've built a business for you tell me that again right but I wanted to be able to say to the Walgreens when they said GE we've sold all that stuff we could say great call your wholesaler he's got it of course he didn't but he was in the system wholesaler called us poof off we went one last example we got a letter one day sitting in the office from a major Retail Pharmacy chain headquarted in clear waterer Florida we're drawing up our planogram for the coming year who can tell us what a planogram is Sir that's exactly right when you walk in and you see all these products at different places they've got that laid out like a blueprint and many places in fact have a room somewhere near their corporate headquarters with shelves and they put stuff on it and they step back to look at it and they photograph it and I mean there's of analysis we're putting together our planogram for the coming year if you'd like to be a part of it you have to come to Clearwater Florida for a 15minute meeting we didn't solicit this letter just sort of washed in they evidently had heard about us so I said who runs this meeting well it's a guy named Jeff I called a few people I knew in the industry and said how is Jeff rewarded for this they said Jeff spends a whole week having one 15minute conversation after another all day long five straight days oh my God this sounds like something out of Dante's Inferno or something this is terrible but he's rewarded by the amount of slotting fees that he can extort from these eager vendors I said well we don't have any money but let's do it anyway so we went down there and we're sitting in this huge Lobby and there are all these people with these like poster boards that look like endcaps and briefcases that open out to be these fabulous displays and they're all sitting there like God can I walk your dog can I pick up your dry cleaning please put me on your shelves there were two of us there and we were empty-handed other than one little portfolio we came in and we said this isn't going to be like your other 15minute meetings this week because we're startup we don't have any money we're not going to give you a nickel but we propose to spend five minutes telling you who we are five minutes telling you what our product is and five minutes telling you why you want us on your shelves anyway and he sort of kicked back in his chair and he said well it's your 15 minutes sport whatever you want to do so we spent the first 10 minutes saying we're so fabulous as you would expect and in the last five minutes we said Jeff this print out is of the people with diabetes that have contacted us in the states where you have stores there's 10,000 of them all of us are asking us the same question where can I go to buy your product how would you like us to answer their question he sat there and he looked at us for almost a minute which is like I'm hold your breath for a minute sometime it's agonizing and he started grinning and he said okay you're in so he said well you know we want to Stage this we'll go in where we built the demand I hate returns and Etc but Nar a word about slotting fees I bet you can guess the next thing that's going to pop up why not what gave us that negotiating power we had thank you it wasn't for being smart or charming or anything else it was just good old hard work but we came in there and essentially said you're not generating the demand we we are so we're not paying you for it we're bringing you business so impressive growth in sales real high reorder rate a lot of good publicity ended up selling the business to a billion dooll pharmaceutical firm everybody was happy so I was 10 years older at the end of two years but I learned a lot so tell me what should I have learned from this what might you have learned given that many of you raised your hands when you said you were in process of doing all this stuff what should I have learned what should you have learned that will help facilitate your progress with your business and my current Venture so let's have some hands tell me what I what I should have learned from this and which maybe you can have gleaned what mistakes should I avoid going forward what things should I do that were right help me out in the back yes did everybody hear that okay let me paraphrase with the first one the disaster I did focus on some of the stakeholders but not the key ones not the customers who are actually going to buy it it's important to know and I think I asked this question of one of you who's going to write the check who's actually going to put their money on the table for this and then who influences them so that's uh certainly one of the more painful but crucial lessons anything else else that's fundamentally it by the way but if if you got nothing else listen to that yes sir well we certainly tried this gentleman said we made it almost impossible for everyone we contacted to say no how did we do that go ahead sir that was part of it but each time I call somebody that didn't know me what homework did I do first pardon me filing out what motivates them what do they care about all right people think of selling as this sort of Tainted activity and it can be but a hugely important component of it is just finding out what people want okay I think you need to know what they're really buying and I think you have to have some positioning I think if you have a product that's for everyone I'm sorry to tell you this but it's my opinion that it's not actually for anyone you need some focus and I'm also sorry to tell you nobody actually needs your product they might need the benefits I actually don't need these glasses what I need is to see better so I hired in the consumer sense of the term I hired glass some of you hired contact lenses some of you I'm willing to bet hired the surgeon to do the little laser procedure but all of us had the same fundamental need we wanted to see better we just took different routes to get there so sell the benefits first and I'm a huge believer in Market segmentation I don't think everybody in the market is equal and I think there's a lot of them who aren't going to be your customer and I like to segment them by motivation to buy bu what I have I think there's a small group at the top feeling the pain right now underneath that I don't know let's say I have something that reduces the likelihood of heart attacks so if you had a heart attack yesterday and you're still alive you could be a good customer for me if you're not alive I'm sorry we won't do any business together his immediate family they're in the second tier they're worried gez maybe we should pay attention to this down below that people who are kind of vigilant and then there's a huge bunch of people that's just a graveyard for you don't go there start at the top couple reasons if you can't build a business there time for your next idea think of yourself as a jockey not as a horse if you start at the top and you fail you might be a very good jockey you just picked the wrong horse pick another horse oh also by the way if you're thinking one day you might sell your Venture you can go to big company X Johnson and Johnson and say guys I spent $1.98 and penetrated that block at the top you have a million you can take it further down you can do the math let's talk about the discounted value future earnings and pull together a little purchase package right if you can't succeed at the top you don't have a story but if you want to change your buying habits it requires a lot of motivation and I'm sorry if this sounds manipulative it's just blunt I think pain is very motivational fear greed vanity these are I mean I'm not trying to list the seven deadly sins here but but ask yourself what would cause people to stop doing what they're doing now and buy what you have are they dissatisfied with their current Cancer Care are they dissatisfied with something that you've got what's going to motivate them to change their buying habits and I got to tell you virtue is a tough sell buy my vitamins because 20 years from now the antioxidants will have caused you to have few mutations at the end of your chromosomes I don't think so so with that as a context what was I really selling with the one that failed I was selling virtue take this stuff and your biomarkers will improve what was I really selling with nightbite by the way answer that question for me what was I really selling with nightbite sir Peace of Mind peace of mind that's exactly right in fact once we figured that out all the lights went on and the ad copy wrote itself it was corny one bite and the rest is easy right but we got it that's exactly what we were selling so with no disrespect whatsoever you have a question question um going back a little toal how do you know that well I knew in fact that slotting fees were a big part of their revenue and not having them normally would make for a no-o but what I produced for them was a pretty nearly guaranteed income stream which exceeded the value of the slotting fees I also introduced the topic of competition I said our customers have mentioned you as their favorite Pharmacy or the our customer the pharmacist have mentioned that the wholesaler they most like to do business with is you they have of course other wholesalers they don't concentrate all of their eggs in one basket I'm hopeful that we can do business because otherwise I will have to go to number two so how would you like me to hand their need can we work together right again it don't get me wrong we did get told to hold no from time to time and and in fact if you're going to be an entrepreneur I hate to tell you this you will kiss a few frogs out there nature of the Beast right okay as I started to say some of you are taking MBA courses that are focused on marketing I'm going to give you an entire year of business school level marketing and two bullet points find out what your customers want give it to them end of lecture now there's all manner of sophisticated regression analysis and etc etc that can be employed to do this but if you lose track of these two fundamental points you've missed the point so Focus and I hated the boss I had that said this to me because I could never get it out of my head drove me nuts it was so corny he'd say Jones there is no Hocus Pocus that takes the place of focus I think you're killing me but it's true so a different way of looking at this it's not sales it's detective work if you were to succeed do some detective work find your customer rather than promote your product because your customers hire these things to do a specific job design your product to do the job they want for a specific customer go find them and if you've done this right the selling will be easy how do you do it talk with them coold calls oh God literally phone calls emails are helpful but they're not adequate talk to them serve surveys are helpful they're not adequate talk to them some years ago I wanted to do a deal with a group in Finland that had invented a margarine that lowered cholesterol and I was intrigued Johnson and Johnson offered them a huge sack full of money our startup couldn't compete we lost but I watched what J&J did and I went into a number of supermarkets it's actually didn't take long I stood off to the side next to near where people had the margarine and I would watch customers come in the stuff that Jay and Jay had was about eight times as expensive as traditional margarine margarine Shoppers would come in and they'd look let's see1 [Music] 19139 $8 dollar for doll4 I'll take the $139 so I would stop these people and say excuse me I was thinking of buying this $8 stuff and I noticed you didn't how come you didn't oh man I got all manner of other ways to take care of my cholesterol besides I don't feel bad so talk to them know them how do they view their problem and think about your service and ask yourself well how are they solving the problem now more importantly what are they spending their money on now to solve this problem and there's a great quote attributed to Henry Ford they said Henry do you ever ask your customers what they want and Henry said oh hell if I'd asked them what they wanted they'd have said Faster Horses right so understanding what's behind that was part of Henry's genius you do have competition okay my regain customers needed my product they didn't want it I couldn't sell so what matters is finding people who want it and figuring out how to communicate the benefits in just 30 seconds and this is harder than you think because if you don't really understand the benefits good luck trying to put it into collateral material put it on your website any of that stuff and of course as Steve probably told you yesterday you're unlikely to raise money customers buy benefits so some of the questions what's broke that we fix who cares do they have any money as a working musician I know that it's just feudal to try and make something for that market guitar players are all starving how do you find them how are they solving it why is what we have better um I'm going to zap through a couple of these um I want to spend a second on this though this all right all right something that we're doing with our little outfit we said let's and we're not the only ones doing this mind you but we are applying this start with the ideas Identify some unmet needs Etc go interview people who might want it and then make a Bare Bones version of the product we're making a 2 and a half ounce beverage that helps you sleep at night and we made a little prototype and it looks bad it tastes bad and you can't get the cap off arguably this is not a good profile for a retail product but we had one primary concern does it work if we give it to 30 people and nobody goes to sleep well then we stop right there silly to have spent any time making it look good so go out there and see if you can identify customers for launch and in fact the first group of customers that we thought would be suitable for our business turned out to be wrong I had a really bad five or six weeks where I got told no all day day every day for five or six straight weeks finally figured out they don't want it they might need it but time to iterate once you get it right then you can get about the business of doing your branding and packaging more formally and then you can get about the business of growing the company and by the way you might be able to raise a little money at a couple of those points a little money to build your prototype and then once you figure out what you're doing a little money to actually take something to to the marketplace because you have reduced the risk but that stage of the game is hugely useful and I submit that that's what a and his team have done already they've made a minimum viable product they're circulating a pancake mix and they're getting valuable customer feedback Al your recipe calls for sparkling water I don't keep sparkling water at home how can I make pancakes without sparkling water oh useful right okay so we're going to skip what I'm doing now um though of course it's fascinating we're out of time so I have one set of final questions where customers go for help how are you going to reach them paint a picture of who's going to write you that first check what evidence do you have that they will pay for your product this was crucial to me for the gentleman talking about calling on IBM and calling on people who would want his augmentation of Google what evidence you have that somebody's going to pay for it how much and then it calls for someone who's I don't know kind of a pervert to actually be responsible for sales although some of us like it who's going to do it I don't think we have time for any more of your questions with regret so let me summarize the only non-negotiable requirement for successful business is your customers and if you're going to succeed you have to have something that's unique and important for someone you gave us a great example of pivoting that from the head of IBM to college students all right it's got to be important to someone so figure out who can't live without it go find them and tell them about it and take their money thank you very much