Understand the Details

Given the geographic and time differences required by using offshore talent to develop your start-up company’s SaaS product offering, you must take the time and effort to understand the details of your SaaS product requirements.  This includes developing a proper functional specification. This document must be detailed enough to outline all of the capabilities and requirements of the website application and database. This is very important, as you need to provide a basis for which your offshore development team with the ability to analyze the needs and requirements from the technical side so that they can provide proper estimates of the total development costs and associated schedule.

During this process you also need to make a clear delineation between design and development activities.  Both are clearly different in focus and function.  During the design, generally done locally, you need to have a designer focus on the website look and feel and he necessary user interactivity that makes your website function as desired.  This needs to be accomplished before development begins. The end result or delineation point is generally the delivery of a complete architectural specification with an appropriate number of design files (.psd files) to your offshore development team.  The offshore development team then takes these results and does the necessary programming in the appropriate language for the targeted end application (e.g., website, Smartphone app, or tablet app).  The key here, to achieve successful results, is to proper delineate your requirements in a functional specification, understand the details of the design development process, and identify the proper handoff point so that both parties can do their respective jobs appropriate and deliver a successful SaaS product offering.

Get Multiple Quotes and Understand Their Differences

As in any business transaction it is important to get multiple quotes from different service providers.  If this is your first time developing a SaaS product offering, you will need to ask a lot of questions to fully understand the differences between the various quotes, their costs, and delivery schedules.  You also necessary need to understand what is required from you as the customer.  Questions you need to answer can include:

• Do you require a project manager with the appropriate expertise to manage the process from on-shore?
• How often will you interface with the development team?
• What are the development milestones?
• What do you need to deliver so that that development can proceed as required?
• Is this a “platform” based development or a “custom” development?
• Is there any license fees (one-time or recurring) associated with final product?
•  What does the development contract look like?
• What are the service and support terms, conditions and costs?
• Where will the development be hosted?
• Who will host the production product offering and what are the costs?

As delineated above, there are several different scenarios that you can run into when looking to source your offshore development overseas.  Make sure you get multiple quotes and that you thoroughly understand each quote and the differences between each.  Remember, the most inexpensive quote and shortest schedule may cost you more in the long run. In addition, you need to make sure you do not enter into a development contract that will tie you hands when you try to sell your start-up company. 

Check References

You need to do a reference check on your service provider(s). This is necessary and appropriate.  Remember you are putting the future of your start-up company in the hands of a stranger.  So, unless you get a recommendation from a trusted source, you need to do your due diligence and check at least three references.  In addition, develop a list of questions that covers all of your bases. This will do two things. First, it will allow you to ask the same questions to different reference sources to see how each responds. Second, it also provides you with a dialog in which to drive the conversation. During your reference check discussions, you may get off track, but you will have your reference list of questions keep you going forward as you move through the reference check.  Finally, ask tough questions to see how the references respond. This can include:

• “What didn’t you like about the development team?”
• “What would you do differently in the future?”
• “Would you use them again for a future project?” 

These types of questions provide the reference person with the ability to respond honestly to things that they would not necessarily bring up on their own.  These same questions will also provide you with a comfort level that cannot be achieved any other way.  Hence, by the time you are finished with your reference checks you will have a good feeling as to whether you want to move forward with this service provider or not.

The development of the SaaS business model and the requirement for “capital efficiency” from venture capital investors has required entrepreneurs to look overseas for their software development.  With the low cost of labor and the highly skilled readily available labor force, using an overseas software development team can significantly lower development costs and provide for the necessary capital efficient model deemed necessary by today’s venture capital investors. When looking to source their development from overseas, entrepreneurs need to necessarily understand the details of their development get multiple quotes and understand the differences, and check references.  By going through this process you will help facilitate a successful development and the delivery of a product offering that meets your requirements.

Create a Vision

When Henry Ford started the Ford Motor Company he had a concept and an associated vision to develop inexpensive automobiles for the masses.  He had observed that most if not all automobile companies of the day focused on developing automobiles for the rich, but he wanted to bring these same advantages and privileges that went along with owning an automobile to common folks.  So, his vision, from the beginning, was to develop an automobile company that was clearly differentiated from the other automobile companies of the time that focused on low volume production of expensive cars for the rich. Henry Ford’s original concept and vision was to develop a high volume production automobile company that focused on producing low cost automobiles.  This was unheard of at the time and seemed virtually impossible given the “state-of-art” of production methods at the time.  But with this vision and focus, he set out to accomplish this goal – develop a low cost automobile for the masses. This same top-down visionary-based approach to developing a start-up company should be emulated by today’s entrepreneur.  By developing a concept and vision you create focus and do not get distracted by other market opportunities that do not fit your vision, but only focus on developing the a product offering that satisfies the vision and long-term goals of your start-up company. Anything less will result in distractions and not allow you to focus on your vision, take you down many dead-end paths and not provide a road to success for your start-up company.

Develop a Strategy

Once you have a vision, you need to focus on developing a corporate strategy to follow this vision.  With the goal of developing a low-cost automobile, Henry Ford’s overall strategy was to become the “lowest cost” manufacturer in the automobile business. This meant:

• Developing an automobile design that had a low bill-of-materials cost,
• Develop a simplified manufacturing process,
• Lower corporate overhead and
• Minimize channel costs.

No one individual item would result in becoming the lowest cost manufacturer in the market, but all of these things together would result in implementing his strategy of becoming the “low cost” automobile manufacturer in the market.  So, as an entrepreneur you need to focus on developing a strategy that uniquely positions your start-up company in the market.  Do you provide the best service?  Do you offer a unique user experience? Do the most value to your targeted customers?  By developing a strategy that follows the vision for your start-up company this will allow you as an entrepreneur to focus and uniquely position your start-up company and its product offering in the market.

Define Your Tactics

While vision and strategy together set the direction of your start-up company, it is the definable and measureable tactics that are used to implement a successful vision and strategy.  In the case of Henry Ford and the Ford Motor Company, the overall measureable tactics were associated with the “cost” of producing an automobile. While Henry had had some success with his low cost strategy for producing an automobile for the masses, it was not until he moved from a “work group” production line to a “specialized task” production line when his goal of developing and producing the industry’s “low-cost” automobile was achieved.  The idea for this “specialized task” production line was taken from his visit to a meat packing company in Chicago.  By implementing similar production tactics of “specialized tasks”, common in the meat packing industry, into his automobile production line, Henry Ford was able to achieve his vision of producing the lowest cost automobiles for the masses. This tactic truly differentiated the Ford Motor Company at the turn of the 20^th century and allowed it to produce products for its target market – the consumer masses.  Today’s entrepreneurs also need to develop measurable tactics to support their company’s vision and strategy.  This will again provide focus and allow for measurable results that can be quantified and move them toward success in the market.

Entrepreneurs often take a “ready, fire, aim” approach to developing their start-up companies from the ground up. This approach to the market is does not provide focus and will result in a start-up company meandering and as a result losing valuable time and  energy focusing on market opportunities the do not make sense for your start-up company.  Alternatively, by taking time to plan and start from a “concept” and vision for your start-up company and then following this with an associated strategy and the appropriate tactics, this will allow you to develop a straight forward path and create a differentiated start-up company and product offering in the market.  In addition, this will also substantially increase your chances for success in the market.

Peter Mika is a researcher with Yahoo! Research in Barcelona, Spain. He will be in San Diego on June 19, 2010, to present a talk, The future face of Search is Semantic for Facebook, Google, and Yahoo!. In light of Peter’s talk, Barbara Starr — organizer of the San Diego Semantic Web meetup — asked him a few questions about semantic search.

What is Semantic Search?
Semantic Search, as it increasingly being used, is the idea of improving document search by using metadata or by searching on the metadata directly. An example of the first case is when we exploit metadata embedded in HTML — using microformats or Resource Description Framework (RDFa) — to improve some aspect of search. In the case of Yahoo! SearchMonkey, the metadata is used to enrich search result display. Examples of the second case are Semantic Web search engines such as Sindice that crawl and index metadata in RDF.

There is a growing interest in both areas due to the increasing amounts of metadata available, and because we expect that end users will still prefer to write keyword queries, instead of formulating their queries in RDF query languages such as SPARQL. In fact, an important task in Semantic Search is the interpretation of user queries.
As a user, how will Semantic Search improve my experience?
There are a number of end-user benefits. SearchMonkey demonstrates how the experience can benefit search-result presentation. It makes abstracts more informative by including data, images, and video.
Semantic Search will also bring entirely new functionality, such as providing direct answers to factual queries but also aggregating answers. As an example, for the query “san francisco concerts”, a search engine would be able to show a timeline of events taking place in san Francisco, as opposed to asking the user to visit 10 or more links and collect the data by herself.
Eventually, the search engine could replace all data aggregators and domain-specific (vertical) search engines. We are not quite there yet, but the potential is there.

How does it relate to social networks?
It’s orthogonal to social networks and social search. Something might be relevant to the user because of our own goals and interests, but that could be amplified by the goals, interests, recommendations, and experiences of our friends.
This also means that while search engines could benefit from access to a user’s social network, social networks could also benefit from metadata associated with Web pages. This has been recently demonstrated by Facebook’s Open Graph Protocol. OGP allows users to share and “like” objects (such as a movie) as opposed to Web pages. This kind of “semantic profiling” will eventually give Facebook a much better picture of what their users are interested in.

Continue to Add Value to Your Product Offering Everyday

Start-up companies generally only focus on a given set of “core competencies”. These same core competencies generally do not always allow this same start-up company to offer a complete product offering in the market.  As such, as a start-up company you need to continue to add value to your product offering to complete your product offering and create a competitive position in the market.  This includes:

• Identifying and engaging in the right strategic partnerships to complete your product offering,
• Focusing on adding the appropriate features and functions to differentiate your product offering in the market, and
• Protecting your product offering by securing the necessary patents for your start-up company’s “core competencies”.

By focusing on adding the necessary value to your start-up company’s core product offering, you will be positioning your start-up company in the market and with your potential investors.  So, make sure that you spend the time and energy everyday to complete the necessary tasks that will add value to your start-up company. Although individually, they may be a bunch of singles, together they will allow you to develop a differentiated product offering and gain a long-term strategic advantage in the market place.

Always Engage with Customers

Talking with customers is invaluable to any start-up company.  Why, because it is only by talking to customers where you learn what is truly important to your customer base.  This includes:

• Prioritizing product features, functions and capabilities,
• Learning marketing channel priorities, and
• Identifying market segments and sub-segment growth segments.

In addition, by always engaging with customers, this will allow you do develop a personal relationship with these same customers. As such, when you are ready to bring your product to market you will have already identified potential customers that have an excellent understanding of your start-up company, its product offering, and why it will benefit their customers. Finally, it may be that one or more of these same customers will take a strategic interest in your start-up company and its technology, product or services offering and want to engage in bringing your company and its product offering to market. This will be invaluable, as these same strategic partners will have their own market channels and customers that will be interested in purchasing your product offering.  So, take the time to always engage with customers. This hitting singles approach to developing your customer base will benefit your start-up company in the long run and will often result in defining a successful go to market strategy with a much more competitive product offering.

Continually Develop an Invaluable Executive Management Team

As you develop your start-up company you will need to also develop an invaluable executive management team that will bring your product to market.  In this process, you may have early executive management team members that fall by the wayside, due to various personal and professional related reasons. This is just part of the process. What you need to do is to continually focus on finding and developing the best executive management team such that their backgrounds, experience, and expertise will necessarily make your start-up company successful in the market. The process of finding, securing and developing an appropriate executive management team is not a one-time event. It takes a lot of time and focus to identify what the necessary skills and functions are required to bring your technology, product or service offering forward from a “concept” into a value added product offering in the market.  In addition, you need to match this with the right individual executive management team members that can grow with your start-up company and offers the necessary skills and capabilities that are required by a fully functioning company.  Often, the executive management team members that begin with your start-up company are not the same executive management team members that will end of with your start-up company, once it becomes successful.  But, one truth remains, you will need to continually develop an invaluable executive management team, by hitting singles with each new team member, as it is this executive management team and its skills and capabilities that will make your start-up company successful in the market.

Most successful start-up companies are generally not made from a single homerun event, but are developed through a hitting a bunch of singles that continue to add value to your start-up company from the initial vision and concept to the final successful functioning entity. By taking this “bunch of singles” approach to developing your start-up company, you will reach your final goal of success in the market place.  So, do the little things every day that add value to your start-up company it will lead you down the road to success in the market.

Constantly Innovate

Venture capitalists and angel investors want to be assured that their investment in an early-stage company not only provides a competitive advantage in the market, but is protected to create significant economic return in accordance with the risk of their investment. This is generally accomplished with patents covering the underlying and core intellectual property of your start-up company.  With the ability to offer 20 years of protection, patents can provide these same investors some level assurance that their start-up company has developed a unique and protected position in the market, with the possibility of substantial financial returns. 

Entrepreneurs also need to create value for their investors and their start-up company, by continually innovating and subsequently protecting their company and its intellectual property by filing patents.  A number of companies have developed very successful competitive market positions by developing massive patent portfolios to define and defend their technology and their unique position in the market.  One excellent example is Qualcomm, San Diego, CA.  Although Qualcomm did not invent CDMA technology, they pioneered its use in the digital-cellular phone market. To protect its position, Qualcomm has amassed a substantial portfolio of patents as they relate to CDMA technology and its application to the digital-cellular phone market.  This has uniquely positioned the company by offering a proprietary technology that currently has a significant percentage of the cellular phone market worldwide.  So, as a start-up company you need to continually innovate and develop new patentable technologies, products and service offerings to uniquely position and subsequently defend your start-up company, providing a long-term competitive advantage in the market.

Determine the Potential Value of Patentable Ideas

Not all ideas are patentable and in addition, even among those ideas that are patentable, not all of these same ideas provide any significant potential value to your start-up company. So, as a start-up company with limited funds, you need to determine which ideas have the potential to be patented and among those ideas, which patentable ideas are broad enough and significant enough to bring substantial value to your start-up company. Therefore, you need to take the time to evaluate the merits of each idea to determine the broad protection implications of the underlying intellectual property as they apply to your start-up company and its technology, product or service offering.  If an idea does not really add any specific protection to the “core competencies” of your start-up company and its technology, product or service offering, then it is probably not worth the cost of developing, filing, and prosecuting a patent.  On the other hand, if you believe that this new idea will provide broad protection and help to uniquely position your start-up company and its technology, product or service offering in the market, it is probably worth pursuing. Alternatively, if your potential patentable idea has the ability to open up and substantially protect new business opportunities that can add significant long-term economic value to your start-up company, again they are worth pursuing. Therefore, take the time really understand the potential value of patentable ideas to your start-up company’s long term competitive position in the market. This will allow you to determine which potential patentable ideas are worth pursuing for your start-up company.     

Lower the Cost of Developing, Filing and Prosecuting Your Patents

It is well known that developing, filing, and prosecuting patents are very expensive.  Often it is prohibitively expensive for start-up companies with limited financial resources.  With patent attorney fees ranging from $250 to $500+ per hour, the cost of just filing a single patent can break the bank for your start-up company.  Fortunately, there are alternatives out there that allow your start-up company to take advantage of “off-shore” patent attorneys that work with “on-shore” law firms, offering a proven and economically viable alternate that will allow your start-up company to do patent searches, as well as to pursue patent development, filing and prosecution at rates that are substantially less than the traditional patent lawyer or patent agent alternatives.  Two firms that offer inexpensive alternatives to the traditional patent development model include Brain League (www.brainleague.com) and Lexntech (www.lexntech.com).  Both firms have proven track records for researching, developing, filing and prosecuting patents both domestically and internationally.  Each offer a slightly different business models, but both offer viable “off-shore” based alternatives to the traditional high hourly rate-based “on-shore” law firms.  So, as a start-up company looking to protect your intellectual property and to uniquely position your company in the market, it is worth looking into these two “off-shore” alternatives, as they will substantially lower the costs associated with searching, developing, filing and prosecuting your start-up company’s patents.

As a start-up company that desires to uniquely position itself in the market and at the same time be assured that it has protected its intellectual property, you need to develop patents that protect the underlying intellectual property associated with your start-up company’s technology, product or service offerings. By doing so, you will create long-term value to your start-up company and to your potential investors.  Accordingly, as a start-up company with limited funds, looking to create a unique position in the market, you need to constantly innovate, determine which patentable ideas create significant value for your start-up company and at the same lower to costs associated with the developing, filing and prosecuting your patentable ideas.  To do this, currently the most cost effective approach is to work with patent firms that provide a combination of “on-shore” presence, with “off-shore” patent execution.  This will provide your start-up firm with the ability to cost-effective develop a portfolio of patents to develop a unique and defendable position in the market.

Do Your Research

All entrepreneurs want to begin writing their business plans on day one.  This is a big mistake, especially when you are trying to lower your potential investment risk and at the same time validate your business proposition.  As such, spending the time doing the necessary primary research to validate your business model is the first and most important step to creating investor-focused business plan.  Why, because many times your first impressions regarding your start-up company’s business proposition can be improved upon, based on this same primary market research.  That is, what you first believe is a strong business proposition, can often be substantially improved upon and presented in a much stronger light, once you have taken the time to do your market research by analyzing the markets, your competitors, the general trends, and subsequently developing a go to market strategy.  Therefore, it is important to take the appropriate time up front to do the necessary research to validate your start-up company’s business proposition. This will make your technology, product or service offering much stronger and at that same time provide you with the necessary background information to properly defend your business proposition to your potential investors.

Talk to Your Customers

The best way to validate your business proposition is to talk to your customers. This step is often over looked by entrepreneurs.  These same entrepreneurs generally believe they “know best” and that customer will buy their technology, product or service offering sight unseen.  That is, in many cases entrepreneurs do not believe that they need to take the time to validate their business proposition by talking to their customers.  This again is a big mistake.  Why, because if your customers do not like your product offering or do not see the value of your business proposition in the same light as you do, you will never be able gain market traction and bring a successful technology, product or service offering to the market.  This is not really a surprise to most entrepreneurs, but being in a hurry to secure funding, they often skip this step in validating their business proposition.  This will come back to bite you, as some of the first questions from investors will be: “What customers have you talk with? Who is interested in purchasing your technology, product or service offering?”   If you have not talked with your customers, before they consider investing in your start-up company, your potential investors will require you to do so.  Therefore, take the time and make the effort to talk with your customers early to validate your business proposition, it will serve you well when engaging with potential investors.

Validate Your Business Model

Finally, being money managers, venture capitalists will want you to have validated your business model against your competitors’ to see what is substantially different, and where your business proposition provides your start-up company with a long-term, competitive advantage in the market.  At the same time, these same investors want to know how and why customers are going to buy your technology, product or service offering. Therefore, as an entrepreneur, you need to validate your business model in the market and against your competitors.  Seldom are start-up company’s business models unique in the market.  Generally, there is always a competitor or similar business model in a non-related industry that start-up companies model their business proposition upon.  As such, investors want to know this and at the same time be assured that your business model has had a history of success either in your targeted market or in other markets with similar product offerings.  So take the time to validate your business model. This will not only help you assure success in the market it will instill confidence with your potential investors.

Early stage investors are risk adverse by their very nature. They have to be, because investing in start-up companies is very risky.  To lower the investment risk for your potential investors you need to take the time to validate your start-up company’s business proposition to the market place. To properly do this you need to: do your research, talk to your customers and validate your business model. By doing this you will not only arm yourself with the proper information when presenting your business proposition and investment opportunity to your potential investors, you will also instill self confidence and confidence with your investors. This will lower your potential investment risk and help you on the road to securing funding.

Increase Your Credibility by “Knowing” Your Business

The best way to prepare for investor meetings is to know your business.  As such, you need to do months of business planning and preparation just to get to the point where you are truly prepared for meeting potential investors for the first time.  Winging it will not go too far, as you will lose any potential interest from your investors if they know that you are not fully prepared, and trying to skate through the funding process. Remember, professional investors usually specialize in a given “space” (e.g., biotechnology, IT, wireless), and as such they are very well read in this area of focus and know all of the players and the current and future trends in the industry.  You need to be just as “knowledgeable” as they are, as you are trying to convince these same potential investors that you and your start-up company offer a unique technology, product or service offering that can create a long term sustainable competitive advantage in the market. This is no small task, but by “knowing” your business you will have required knowledge to create a credible story line for your technology, product or service offering.  Therefore, before you call one investor to set up a meeting, make sure you have taken the time to “know” your business, as this will substantially increase your credibility with your potential investors.

Don’t Stretch the Truth, Just Say “I Don’t Know”

When presenting in front of potential investors for the first time, many entrepreneurs want to always appear knowledgeable on all subject matter and all questions that are posed to them.  If you are well prepared, you will most likely be able answer 99% of the questions or subject matter posed to you during your first meeting with potential investors. That being said, there will always be one or more questions that you either don’t know the answer to, or did not prepare for.  This can be compared to preparing for a test, as you know you are ready, but it is that one thing you did not spend much time on that will catch up with you at test time.  To get through this many entrepreneurs try to “stretch the truth” or their “knowledge base” in a real time fashion in front of their investors. This can be a real untenable situation. In the worst case scenario, your investors know you are “stretching the truth” and you will instantly lose all credibility.  Alternatively, this approach will lead to more follow-on questions regarding the same subject matter and again you will be out on limb, just hoping to be able to get through the line of questioning without getting caught.  These scenarios can be easily avoided by just telling the potential investors, “I don’t know and I will get back to you.”  This is the best approach, as in this scenario you do not put your credibility in jeopardy and you still have to ability to impress your investors with your follow-up answer.  Remember, sometimes investors are just asking you questions to see how you will react.  So again, do not put yourself and your reputation out on a limb by “stretching the truth” in an effort to appear knowledgeable, as this approach will not work with potential investors.

Investor Due Diligence will Validate Both You and Your Start-up Company

Finally, as an entrepreneur, your “credibility” needs to stand up through the investor due diligence process. Therefore, any half-truths, or “stretching of the truth” during your investor meetings will be invalidated during the due diligence process. For professional investors, this due diligence process can take three to six months.  Therefore, during this process, you need to be careful to represent you and your start-up company in a truthful manner at all times. Accordingly, this due diligence process will require you to address all aspects of your start-up company, including:

• The development status of your technology, product or service offering,
• The members of your executive staff and their participation in your company,
• Any and all invested capital, and company debt,
• Strategic customer relationships,
• Market size and growth potential,
• Customer development status,
• Corporate capitalization, and
• Other

By truthfully and fairly representing your start-up company’s investment opportunity you will be fully validated through the potential investors’ due diligence process. This will also provide them with the assurance that they are dealing with a first class, reputable team, making your start-up company a much more favored investment opportunity for potential investors.

Most entrepreneurs and potential investors do not know each other when the meet for the first time.  As such, the onus is on the entrepreneur to quickly gain credibility with these same potential investors. This is accomplished by knowing your business, never “stretching the truth” and presenting an investment opportunity that will stand up to thorough due diligence by your potential investors.  By doing so, you will increase your immediate credibility with you investors and the potential of receiving funding from these same investors.  So, take the high road and present you and your start-up company in a straight-forward, honest manner, it will serve you well with your potential investors.