Over the past few weeks, LavaBlast has been participating in the Lead To Win program in Ottawa. At a high level, people starting high-tech businesses in the region are invited to apply to the program which helps them get to market faster and/or accelerate their growth. After a number of filters, the cream of the crop become a part of an exclusive business ecosystem of local companies. I joined without knowing what I was getting into but truly enjoyed the experience. Since one of my critiques of the program is that the website doesn’t do a good job communicating what the program is or what the benefits are, I thought I’d write a short post on the subject!

Who can apply?

• Anyone who is serious about starting a business than can generate six high-tech jobs over the next three years.

What is the process?

1. [filter] You submit a written application
2. [filter] You pitch your business idea to a board of reviewers before being let in.
3. Phase 1: You attend three consecutive twelve hour days (8am to 8pm) of hands-on presentations on various subjects (business idea, differentiation, sales, marketing, etc.).
4. [filter] You pitch to a diverse group (Founders, Funders, Professionals, Education, etc.) and are hopefully invited to Phase 2.
5. Phase 2: You attend three more consecutive twelve hour days of hands-on presentations (finances, accounting, legal, cash flow, sources of funding, etc.)
6. [filter] You pitch to another group of reviewers and hopefully graduate into Phase 3.
7. Phase 3: You’re part of the ecosystem
8. [filter] If your business is obviously going nowhere, you get kicked out.

Are the presentations any good?

Definitely. They’re a lot more hands-on than what you’d find in university courses. The 60 to 180 minute presentations are:

1. Given by credible individuals in diverse groups (local entrepreneurs, angel investors, venture capitalists, service providers, academia, lawyers working for “patent trolls” :), etc.)
2. Of tons of different subjects (there is more than enough diversity in the material to justify a 6-day commitment)

Why are there so many filters?

• To ensure that only high quality businesses are in the ecosystem.

What are the benefits?

• Strengthening the plan: You get validation that you aren’t crazy and that your plan makes sense.
• Networking: When 30+ businesses are put in a room together for six twelve-hour days, bonds are created between the companies. You get to know like-minded people much faster than at random networking events. One major part of the concept is to build an ecosystem that collaborates and generates leads for each other. Moreover, you meet tons of other experienced individuals that contribute to the community (networking is not limited to other startups).
• Increased credibility: There are dozens of government programs to fund startups and, because they know the value in the program, you’ve already proven yourself to them before starting discussions.
• Joint ventures: Apparently [have yet to live through this], businesses collaborate on larger opportunities brought into the ecosystem.

Review

What I disliked the most about the program are easy fixes and aren’t worth going into details (clarify website message, advance notification of the process & dates, facilities, etc). In general, a few small things could be improved, but the Lead To Win program is built around continuous improvement so these kinks will be worked out with each new session.

I have only good things to say about the concept, the presenters, the quality of the presentations and how good you need to be to get through the filters. The latter was something I was especially worried about, because weak filters would undermine the whole credibility of the program. You don’t need to be a superstar to get through, but I was surprised by some of the talented individuals who did get filtered.

I was also happy to see that most of the program was not tailored for people with dreams of VC funding. They burst that bubble fairly quickly. The program pushes you to reach an appropriate scale but I enjoyed how the focus was on growing your business and not about reaching 100 million in revenue in three years. This is a big thing to me because I like to avoid crowds of dreamers that don’t get anything done.

Conclusion

If you’re serious about starting up a high-tech business in the Ottawa/Gatineau region, consider Lead To Win.

For those of you who’ve been keeping track, we launched LavaBlast Software back in April 2007. A year later, we posted three software startup lessons about how we got started and followed up the year after that with four more fun software startup lessons. Now that Year 3 is complete, I should write another set of software startup lessons, but that can wait. Today, I feel we’ve come full circle because we’ve begun working on the type of fun project that we would have enjoyed doing three years ago, but couldn’t afford the risk. In a sense, it feels like a full circle and a new beginning for LavaBlast even though we’re simply working on a new product.

BookingBlast is going to be legen – wait for it – dary. Read on to know more!

Starting from scratch

Pretty much straight out of university, we started LavaBlast Software. We had no money so we had to be creative. By creative, I mean we had to be cheap, work hard and work on something low risk to pay the bills.  The recipe for success is simple and we’ve said it before. Let’s just say we sell to businesses and we keep the intellectual property. This strategy has allowed us to start from scratch and making a living. 

We already have BookingBlast’s building blocks and now have enough runway to execute on our idea.

Ramping up

Some may stop here – but that’s not enough for us. We have greater ambitions - we’re looking for something bigger - for a greater reward. Based on the assumption that it takes a decade to launch a successful business, we’re not even a third through. We’ve passed through survival and have been growing steadily, but we’re now anxious to move to the next level.

We feel we can get there by converting the enterprise-level software we’ve been producing to date into more scalable Software as a Service (SaaS) products. We’ve been wanting to do this since day 1, but needed short-term revenues.  We’re now re-investing into LavaBlast to give us this flexibility. (I guess that visit to an unspoiled private tropical island will have to wait.)  We toyed with a few concepts during the past year, looking for software products that:

1. No per-client customizations (greater scalability)
2. Sold to businesses, not individuals (faster revenue)
3. Shorter sales cycle, lower recurring dollar amount per sale (easier to commercialize)
4. Related to our existing work and/or future strategies (reuse and upsell synergies)

Hold your horses! I’ll describe BookingBlast’s awesomeness in a minute.

Context & Goal

Our short-term goal with this project is knowledge. We’ve been building enterprise software for a while and want to dumb things down and start aiming for higher volume, but we need to adapt our know-how. We see BookingBlast as a practice run whereas our business is a marathon.

Our long-term goal is growth, in terms of revenue and the size of the company.  Lots of the enterprise-level work we’ve done can be commercialized to a broader market but we need a longer runway.

Spill the beans already! What’s BookingBlast?

BookingBlast allows service-based businesses to accept online bookings. Reservations are accepted only during available time slots and deposits are paid online, in advance.

To clarify, our software will allow customers to:

• Book your child’s birthday party online
• Book mobile clowns/magicians/comedians online
• Reserve a massage / spa services online
• Book your chiropractor from their website
• Book a photographer from their Facebook page
• … and accept bookings/reservations in many other industries.

That’s it. It’s not rocket science. It’s been done already – there are many competitors in this space – the market exists. The barrier to entry is low. But that’s not stopping us, because we have a plan. What better way to test our plan than to go out and execute it?  The worst that will happen is sales will be lower than desired and we’ll still reach our short-term goal of knowledge. We’re not betting the farm on this – it’s a stepping stone in the context of our longer-term vision.

How did you come up with your secret master plan?

We understand that this is a marketing play more than a technical one. We’re not inventing a killer product, although we can be innovative in our implementation. We decided it was in our best interests to share our plans for BookingBlast with people from diverse backgrounds and get them involved in the process. Ian Graham of The Code Factory always says the engineering students/graduates from the University of Ottawa are more secretive than the ones from Carleton University and we decided to prove him wrong. We openly solicited feedback on Google Wave and at TeamCamp. In the end, we found that we’re not that crazy after all as this validated our initial opinions. We did discover a few interesting twists which we plan on using, however.

Therefore, our plan is not secret – you’ll hear more about it when our product will be in beta. However, here a few lessons we learned from our experiences with collaborative planning.

Phase 1: Internal research

We looked around to find competitors and market penetration strategies. We discussed this internally over a coffee and did our homework. I produced a one-page executive summary of my initial plans.

Phase 2: Feedback solicitation via Google Wave

We published a private wave and invited two dozen random people. We made sure to invite people who were not extremely close to us because their feedback would be biased. We made it clear that the participants could feel free to ignore us as we didn’t care to force anyone into open collaboration, especially if they were busy with their own work. We found that the people least close to us were the ones who contributed the most to the discussion. Within 24h, the discussion had grown to approximately 8 times as long as the original executive summary. Within the next 48h, the discussion grew a bit more, with a few late-comers giving their comments.

The early discussions were the most valuable. They brought in new elements and got everyone involved. They definitely changed our strategy. However, as the discussion grew, I felt that most people lost interest because there was too much to be read. The barrier to entry had been raised, which caused most of the late-comers to elect not to participate. Initially, we thought this was a bad thing as we wanted more feedback, but in retrospect, we feel that what needed to be said was said early on. Had we discussed the same material with each person individually, we would have elicited the same comments over and over. Redundant feedback is not useful (other than for validation) and is a huge time waster.

In conclusion, open collaboration is a great technique to elicit feedback very quickly. I am greatly thankful to those who participated.

Phase 3: Feedback solicitation via TeamCamp

Ottawa’s primary co-working location, The Code Factory, hosts a bi-monthly event initiated by Chris Schmitt called TeamCamp. Once in a while, TeamCamp will have a pitch night where the participants pitch their idea to the group and get feedback. This is a very informal round-table setup but you get to chat with interesting people in Ottawa. A few weeks ago, I pitched BookingBlast to the group. This was great validation for our online booking software, as it proved that we had properly thought it out. Some new strategies were put on the table, but the biggest lesson learned is that you don’t need to spend months thinking about your project if you’re agile enough to adapt it along the way.

Furthermore, we finally had someone stand up and say our idea wasn’t good enough, something we had been waiting for since we started planning BookingBlast. Given the small scale of the project and the low barrier to entry, I was expecting most people to shoot our idea down quickly. Maybe I watch Dragon’s Den too much and read too many angel investor/venture capitalist blogs. In any case, this brought forth great discussions where it appeared other individuals were reading my mind while defending our online reservation software for me.

We’re now ready to start implementing the project! (In fact, we’ve already started and it is progressing nicely!) 

We need your help

We’ve posted a basic information request page on our website. If you know business owners that would be interested in participating in our alpha/beta programs, please have them sign-up to our newsletter.  We’re approaching the market in a different fashion that what the competition is doing, so we’d love to talk to business owners directly.

Since a good portion of our readers builds software for other businesses, we’d also like to talk to web developers that manage business websites.

Also, feel free to share your thoughts on BookingBlast and how to make it work in the comments. We’re thinking of openly blogging about thinks like SaaS pricing and gathering data concerning some of our strategies for future discussions and commentary.

This post is a follow up to one of our previous posts that discussed starting a software business during the recession. In this post, I want to focus on the cash flow aspects for very early stage software startups. A few years ago, we started the company with nothing in the bank and we've managed to not only survive but prosper regardless of today's tough economic conditions. It is possible to launch a software startup with no money: the tradeoff is time. It will take longer to get out of the very early stages.

Context / Introduction

Before starting, I'd like to point out that the tips that follow are only valid in a particular context:

Understand that these tips are for the very early stage

• Your first business goal is to get out of the very early stage as soon as possible.
• Lots of these tips concern petty little details. However, together these details matter when at the very early stage, when you're fighting for survival.
• Survival is a huge milestone but it isn't the end goal

You have no money and aren't interested in loans.

• If you have no money, this is probably your first venture. I strongly feel loans are a bad idea for your first venture, but others have different opinions.
• Cash is a great accelerator - once you've launched your first business you'll probably have a need for speed and will either have cash or be more open to debt/equity financing because you'll have already learned what you have to learn in organic growth.

You're starting a software company.

• It is possible to start a software startup with limited cash. You've picked a good industry. If you wanted to become a dairy farmer, you would need a massive initial investment. However, for a software startup, your investment will be time writing code - not acquiring assets.

Tip 1) Sell to the right group

Since this is your first business and you have no money, you need to establish a consulting sideline selling to businesses that will give you a good return for your time (even if you're building a product for individuals). You won't be able to pay your bills selling $20 licenses to individuals in the early stage. We recommend selling customized versions of something that will help you grow your core product, as long as you can keep the intellectual property. Read more about this strategy in our previous post.

Everyone values the dollar differently. The earlier stage you are, the harder it is to define appropriate pricing given your credibility level and you don't give the same value to each dollar as your customers. As you grow, you’ll find your sweet spot and will be able to focus on your consulting clients that are right for you.

Eventually, you should aim at moving out of consulting, as it doesn't scale.

Tip 2) Minimize your expenses

Assuming you have no money, it's important that you only spend when necessary. At a high level, you need to be versatile and be able to do as much as you can on your own. Later, you'll be able to delegate but not in the early days. Of course, know your limits and get pros to do things that are impossible for you to do properly.

• Don't hire an accountant to prepare invoices for you. Learn how to use accounting software and do it yourself. Only hire the accountant for an annual review or for real accounting work. Once you know how, it will take you a few seconds or a few minutes to do the most common tasks - you won't be paying someone four hours of work at a high hourly rate. 

• Don't hire a law firm to review a simple non-disclosure agreement sent to you by a customer. Learn to read legal text on your own. Only hire a law firm when you've got something important to prepare or review.

There are plenty of examples of ways not to spend money when you're just starting out and have none of your own. It's time to learn things on your own.

Be smart about the commercial bank account you choose

I've dealt with a few different banks over the years. If you're a tiny business, it is good to know a few simple facts and comparison points.

Get a business account with a variable monthly fee

• Don't bite when they offer you a $50/month fixed rate. You won't have enough transactions to make it worthwhile to upgrade. When you reach that point, switch to the fixed rate plan that is a best fit for your business. You can easily save $480 per year.
• Some Canadian examples: Desjardins: $7/month, TD Canada Trust: $12.50/month, Royal Bank of Canada: $6/month
• Some variable plans charge transactions on top of the minimum monthly fee. Do your homework.

Know the minimum balance you need to get it for free

• Save up to $150 per year by making sure you don't go under the minimum.
• Some Canadian examples: Desjardins: $2000, TD Canada Trust: $8000, Royal Bank of Canada: n/a

Get an ING Direct Savings Account
• Some customers may pay you in advance or you may get grant money. Bottom line: you may end up with cash that you can't spend for a few months to a year. (Actually, you can spend it if you know more will be coming in - depends on your management style.) If you do have it in the account, earn interest on it.
• Business accounts often don't give interest. If they do, the interest is horribly low if you don't lock it in. (Not paying service fees is often more than the amount you'd earn in interest anyways).
• ING Direct's account is free. They have the best rates I've seen for low amounts that can be withdrawn at any time.
• Best of all, they have a referral program. Both the new member and the referrer earn $25. In today's market, this could easily end up being worth more than the interest you'll generate in your first year. Our orange key is 33514316S1 – go ahead, signup (personal or business) and you’ll help support us and receive $25! :)

Don't get a commercial credit card for your purchases

• Unlike personal cards, they're not free and most don't have any rewards programs.

Do you really need to accept credit cards?

• It is a good fit for some users or services, but know the costs. If you have few transactions but most of them are high value, you're better off with a wire transfer.
• Some banks charge you more for wire transfers than others.
• Remember that cheques are slow - you don't have access to the funds are week.
• You'll be paying $20-50 per month plus 2-3% per transaction. This quickly amounts to several thousand dollars.

Will you be dealing with multiple currencies?

• We're a Canadian company but we have lots of clients in the US and in Europe. In the very early days, we chose not to open two separate bank accounts (one in each currency) because of the associated ongoing operating costs and increased accounting complexity.
• Banks all have different exchange rates. However, I've found one bank consistently gives us a significantly worse rate when receiving transfers in another currency. A few percentage points makes a huge difference as the size of the payments increases.
• The larger your conversion, the better your rates. Talk to a specialist like @JamesonBankTrav.

Minimize your telecommunication fees

Don't get a commercial telephone line via large companies

You'll pay much more than needed. Investigate Voice Over IP solutions such as Skype. You can get your own telephone number and free long distance in Canada + USA for an annual fee of $60. This service saves you hundreds per year. Don't get a fax unless your customers nag you for your fax phone number often enough. If you need one, look at online services such as myfax.com which deliver faxes by email and give you toll-free fax numbers for less than what you'd pay to get a separate telephone line in your office for the fax, without the clutter of a deprecated device.

Don't sign-up for a massive cell phone plan if you've got empty pockets

Depending on what you do with your phone, you can save upwards of a thousand dollars a year by downsizing to a prepaid plan. Smartphones are great, but depending on your situation, it might be a wise choice to minimize those expenses. Let's hope you're not locked into a crazy-expensive three year plan! In the end, this is a personal decision which depends on your personality; once you've tasted a smartphone you may be unable to go back. Just keep in mind you might be paying much more for your cell phone than the much faster Internet connection you use all day.

Minimize your rent

Use a co-working facility

One tip often given to people starting their own company is to avoid renting office space too early in the process. Instead, work from home or from a more affordable co-working location. Not only do co-working locations reduce costs, they help you build your business because of the contacts you can make there. Once you’re read, upgrade to shared office space.

Don't minimize everything

In addition to being able to exchange services with other companies to cut costs, there are a few places where you can't afford to cut costs.

Your Image

One thing you don't want to be cheap on is branding. Your image is everything - quality needs to be high. Get nice business cards created by pros. Don't do your own web design if that's not something you specialize in. Your product will look amateurish and you'll lose sales. There are tons of affordable graphic designers out there: find one and have something nice created. Use online marketplaces such as 99designs. Since you're still a software expert, however, you should know enough HTML and search engine optimization techniques to be able to maintain your website. If you're a horrible writer, have someone review your content. This basically boils down to knowing your limits; there are some things you won't be good enough at even if you try.

Hardware & work area

We agree with Joel Spolsky's view that you should buy the best computer hardware and computer chair you can find. These are your primary tools and they are relatively inexpensive compared to your salary, even when you have very low revenue. One investment that is definitely worth it is a second monitor as it tremendously increases your productivity.

Your health

As much as your work environment is important, you should also value your health. Even if you're living on a very tight budget, don't eat hot dogs all day. Proper nutrition and good sleep cycles keep you in good health and makes you more productive. You should not be falling asleep in the afternoon. Starting your business is a marathon, not a sprint. Make sure your lifestyle is well adapted for a marathon.

Tip 3) Leverage your money

We've already covered this part in a previous blog post. Know what government funding opportunities are out there. Some require matching contributions. Some are based on your expenditures. Look around for these opportunities but mostly talk to other people to know what's out there and what's worthwhile.

Tip 4) Cash flow projections for dummies

You should always keep an eye on your cash flow, not just your revenue. I've created a very simple Excel spreadsheet to help with our cash flow projections. This one is simply a template with some random numbers in there. The one we use internally is a bit more complicated as it includes things such as currency exchange rates, taxes, etc. Build it however you like, but I've found that the two most important elements in there are:

1) Past Sales versus Projected Sales

What are my known sales (recurring revenue) versus what serious leads do I have in the pipeline. Being conservative, I base my business decisions on my past sales not my projected sales because I've learned that projected sales are often postponed. We have long sales cycles that culminate with a large sale which has a big impact on that month's revenue. Separating known sales from projected sales is of critical importance because of this because we either make the sale or get zero revenue from that customer in that month. If you're selling lots of lower value items (subscriptions to your service, for example), each individual customer has less impact on your total monthly revenue.

2) Runway

Given our current burn rate, when will we run out of cash if none of the sales in the pipeline are realized. This is useful to help you decide if you can hire and/or if you can give yourself a raise. It can also make you realize you're heading towards a problem and you need to correct the situation as soon as possible.

It would be nice to have a simple, open source, application that helps business owners track their cash flow projections in this fashion. You could go overboard and integrate it with accounting software, but I think it's nice when it's simple.

Conclusion

When you start your first company, and you have no cash on hand, you need to focus on making money and keeping the little money you have. Survival is a major milestone, but remember that it isn't the end goal. You'll learn tons of things along the way, and once you do leave the very early stages, you'll need to manage your cash flow properly. Later on in life, you'll probably start another business - this time you hopefully won't be as strapped for cash - and you'll be able to speed up the whole process.

I'm not sure what is harder between:

• A) Going from nothing to survival
• B) Going from survival to success

I do know, however, that going from nothing to survival appears a lot easier if you have cash to start off with or if you've done it before. Since success is in the eye of the beholder, it all depends on what you want to achieve.

This is Part 7 of an ongoing series of lessons learned during the first years of our software startup. Feel free to take a look at our first year (Part 1, Part 2, Part 3) and our second year (Part 4, Part 5, Part 6). Today we'll talk about of the key lessons that we learned in university that helped us during the first two years of our business: versatility.

We recently presented to a class of computer science students at the University of Ottawa where we spoke of the single most important thing I learned in university: the importance of versatility. To make a long story short, we strongly feel that the more versatile you are, the more valuable you are to a software startup. Small startups don't always have the luxury of assigning roles to each employee (quality assurance manager, database administrator, usability expert, website maintenance, etc.) because of the team size. The founding team is responsible for all of the aspects of the business and they must face fresh challenges every day. The wider the breadth of experience, the better the team can propose cost-effective solutions to their customers. Today's software engineer must be aware of the tools at their disposal, whether they be open source or not. In a sense, this is where a founding team with complementary skills and experience is almost mandatory.

University courses usually introduce subjects that self-learners wouldn't necessarily discover on their own. Although one might not directly apply the theory learned in courses, individuals grow their knowledge base which might eventually help them solve problems efficiently. As an example, data structure and algorithm course gives students the knowledge required to know when to use a hash table or merge sort, even if in practice (almost) no one implements min-max heaps on a daily basis. You probably won't be opening your probability charts for a Gaussian distribution this month, but the lessons learned do help you solve problems such as “which point of sale does an abnormal number of refunds” efficiently. University is all about gathering tools to be able to face all the problems you will encounter in your career.

Furthermore, most new grads grasp the importance of software in a software business. However, lots of people forget about the business aspects. When launching your own startup, you need to have some basic business experience: accounting, marketing, sales, legal, etc. If you've never done your own income tax or budget before and don't know much about software intellectual property, you'll eventually run into problems. In a small software startup, every dollar counts and you want those high-paid experts to do what they're suppose to: solve you hard problems. You don't want to be paying them 200+ dollars an hour to do data entry, but that's what will happen if you don't have a basic understanding of accounting.

In addition, we feel that all computer scientists should have basic knowledge about the various open source software licenses out there, even if they aren't working on open source projects. Why? Simply put, your goal as a software engineer is to avoid reinventing the wheel and write the least amount of new code (less code means less time writing it, less time testing it, less time supporting it). When solutions already exist and can be found on blogs or other sources, it is very tempting to re-use it. However, depending on the software license, bringing this code into your project can have significantly different consequences. Some licenses mean “do what you want with it, but don't sue me if it doesn't work” while others mean “if you import these fifty lines of code into your project, your project becomes open source and you must give a copy to anyone that requests it”. There are tons of nuances, but it doesn't take long to get up to speed. Although we learned this in Dwight Deugo's excellent course, anyone can get up to speed with a few hours of googling.

One area we haven't mentioned yet is communication / social interactions. We track our time using RescueTime and, over the past 12 months, we can confirm than more than a third of our day is spent on communications. Not only do we collaborate within the team (project planning, testing, managing, etc.) but we also need to maintain relationships with outside parties (clients, prospects, suppliers, etc.). I think the simple fact that we're spending a third of our time talking/writing is justification enough to force ourselves to improve our communication skills. We're definitely not English majors, but we know how to express ideas in simple way that facilitates communication.

In summary, if you want to launch your own software startup after university:

• Take some business courses
• Take some law courses
• Try to improve your writing skills (reports, blog, etc.)
• Improve your communication skills (oral presentations)
• Try to avoid student loans!
• Get as much work experience as possible (coop terms, summer internships)
• Do more than what is expected of you

Passion is the key to success

We've explained how versatility is important, but we should mention that passion is required. We feel it is critical than we tackle any work with the same passion that drives us when developing software. That means balancing bank account statements at 10PM on a Sunday night with passion, if needed. That means attentively reading a 20 page legal document, on a Friday afternoon when required. That means writing a quote with enthusiasm even if the last three failed and someone stole your car stereo last night.

We never feel thrilled to do accounting, but once started, it is important we make the best of it and focus on the task at hand with as much passion as possible. Unfortunately, motivation needs to be intrinsic and cannot be imposed or learned. Some of us can find passion in certain tasks more easily than others, but it is possible to get the same thrill of getting things done regardless of how boring the task is in appearance. Programmers know the importance of getting “in the zone” where productivity is at its maximum. This “zone” is not exclusive to programmers or writers: it can be reached during any task. We're not psychologists in any way, but it does appear that constant observation of how a task is supposedly boring doesn't help productivity. Self-awareness and re-evaluating how a task is executed is definitely a good way to find process improvements, but it shouldn't get in the way of getting things done. Convincing yourself that a task needs to be done, done well, and done efficiently is the first step to getting “in the zone”. Stop thinking about the pain and, eventually, it will go away. Passion improves throughput. Passion improves quality. Passion helps you get back to software development sooner (or whatever you like doing).

While we're on the subject, we've heard another rule of thumb: success is one third hard work, one third contacts, and one third luck. Assuming you've got passion, you've got the hard work area covered. Assuming you've got passion, you'll be able to inspire other people and build a network of contacts. It's going to be harder, but you can do it. Finally, assuming you've got passion, you'll make your own luck. This is probably the hardest fact to accept in business: regardless of you/your team/your idea/your contacts, business is not an exact science. You can improve your chances, but nothing is guaranteed.

This concludes the lessons learned in our second year. I would not be surprised if we added more lessons in twelve months, as we never stop learning new things! If you're thinking of taking the plunge, you should as it is definitely worth it!

This is Part 6 of an ongoing series of lessons learned during the first years of our software startup. Feel free to take a look at our first year (Part 1, Part 2, Part 3) and our second year (Part 4, Part 5). Today we'll talk about one of our failures.

When you run your own company, you never run out of things to learn. We feel we've made great progress learning from our successes but mainly our mistakes. As Bill Gates once said, “It's fine to celebrate success but it is more important to heed the lessons of failure”.

In this line of thought, it is much easier (and faster!) to learn from the failures of other people than your own. It is for this reason that In Search of Stupidity and Founders At Work are on our recommended reading list for anyone launching a software business. We've talked about the books before on this blog, but must mention them again, as they are such a great reads.

Learning from failures is an important part of self-enlightenment but failure, as you can expect, is not something people like to share with others. Therefore, it is hard to find good stories that describe the steps that lead to failure and what could have been done to turn the failure into a success story. In this spirit, I feel it is important to describe one of LavaBlast's failures. I hope that this will encourage those of you who also run startups to post about your own failures, so that we can collectively learn from our experiences.

Even though we build software for the franchise industry, we cultivate a love-hate relationship with it. We decided to launch a business that focuses on franchises for many reasons; one of them being we fill a need in the market. Simply put, we build operational software: our clients need our software to run their business. Amongst the other software companies that build software for the franchise industry, many of them focus on converting web visitors into franchisees, in exchange for a hefty commission. This populates (read pollutes) the Internet with thousands of sites focusing on franchise opportunities. This is something we strongly disliked as it makes it hard to find anything related to franchising on the Internet without landing on one of these websites. (Don't get me wrong... these sites do provide a good service, but make it hard to find anything else.)

Being users of DotNetKicks, a site that aggregates news/articles/blog posts about Microsoft technologies, we thought it would be a good idea to launch a similar site based on the franchise industry. The end result would be a community-driven franchise news site that keeps people informed of what was going on in the franchise world: franchisors going bankrupt, unhappy franchisees, new franchises, franchise trends, franchise humor, etc.

Normally we would have said that this was a crazy project as there was nothing in it for us in exchange for hundreds of hours of programming time. However, DotNetKicks being an open source engine built using the same technologies that we use on a daily basis, we figured it would be easy enough to launch our own engine based on this code. Thus, Franchise NewsBlast was born. In less than a day's work, we had the site up and running and ready to receive content.

We knew we had to create some base content to generate interest and get the ball rolling. We therefore carefully read hundreds of articles and picked the cream of the crop to post on Franchise NewsBlast. We wanted to fill every section EXCEPT for franchise opportunities. Once that was complete, we contacted hundreds of franchise-related websites to inform them about our new engine. We promoted our site to the few bloggers in this space. We wrote a press release and sent it on a few channels. We wrote blog posts on Blue Mau Mau, the largest community-driven franchise website (which we also published here).

To make a long story short, after investing over a hundred hours (most of which in promotion, as the coding had already been done), we had one subscriber. Yes... only one person registered to post and rate articles on Franchise NewsBlast. ONE person joined our free site. This person also runs twelve-or-so franchise related blogs. Obviously, he registered to self-promote and we were happy about this as this is exactly what the site was intended to do... but when there's no community to rate the posts, the site has no value. We never reached the tipping point for it to go viral.

Practice makes perfect. Over the course of the following months, we signed up to various franchise news sources and cross-posted relevant articles. As time passed, we did gain readers but very few posters. We also gained spammers that were obliged to block. We reduced our quality standards in order to keep cross-posting on a regular basis. After three months, the site still stagnated and we discussed the inevitable: shutting the service down.

Three months later, the site was still online as it costs next to nothing to host. However, we're shutting it down today as it hasn't attracted any interest since. We're officially calling this project a failure. Why did it fail? Was it the software? No, the software is great – take a look at the DotNetKicks website. Was it lack of marketing? I don't think so. We did invest tons of time initially to make this work as we wanted this to be our gift to the franchise community.

Before starting this project, we did not know if the community would be interested in this online service. We thought it was a risky project, but were willing to lose a few hours to promoting our altruistic gesture. In the end, we believe there are simply not enough people that are interested in this type of service. If this is not the case, then these people are simply not computer savvy enough to see the value in such a service and/or find us. The last possibility is that we didn't promote it to enough people, even if we gave it our all. (Of course, we never paid a dime for advertising which might have helped us reach the tipping point.)

We've decided that the root cause of this failure was misreading the community and distorting our perspective on the market. We looked at the franchise market from a software engineering perspective: a classic mistake made by developers. This is exactly the reason why most software is unusable: developers don't spend enough time thinking like people or getting feedback from users.

Since we launched Franchise NewsBlast, an online franchise communities called FranMarket was launched using the Ning social network generator. Franchise Market Magazine is the originator of this community and we are happy to see they've started building the online franchise community. They've got more users, but our blog has more traffic than they do, according to Alexa. Franchise Brief is probably the simplest yet most active franchise new aggregator we've found but it doesn't appear to have lots of visitors.  Blue Mau Mau is still the biggest player in the online franchise community, and it is the online community for Franchise mavens.

Why are online communities failing in the franchise world? There are many reasons, but we can't claim to know them all. The franchise world is composed of franchisors, franchisees, franchise prospects, and franchise service providers.

• Franchisors: There aren't that many around. They're not the bulk of the community.
• Franchisees: There are more franchisees and we can see them being very vocal about the issues they have with their franchisor on sites like Blue Mau Mau. However, most of them are probably too busy running their business to be spending time learning about events in other franchise systems. (And they have better sources than public websites for news about their own franchise.)
• Franchise prospects: Prospects are the largest part of the community. They are interested in hearing everyone gossip about a franchise they're thinking of buying when doing their due diligence. However, once they do buy, they're probably don't care about what's going on in the franchise world anymore (as they are now franchisees).
• Franchise service providers: There are lots of such consultants/firms, but as you can imagine the goal is to sell services to others. It's the equivalent to putting a hundred lawyers in the same room as six startup founders. The service providers are not generating the news and hence are not usually that interesting (there are some exceptions – Michael Webster). Service providers like LavaBlast are part of a healthy community, but we're not what defines it.

What's left? Not that many people: and the cream of the crop is already using other services such as Blue Mau Mau. We ignored the classic “know your market” recommendation. We feel that's why we failed. We are disappointed but we don't regret trying out Franchise NewsBlast. After all, we did learn more about the franchise world and we did make a few contacts. Best of all, it gave us a story to write!

Now that we've told you about our failure, we would truly appreciate it if you did the same! Think about your recent failures and blog about them! Everyone fails once in a while! There's no shame in failure as if you never try anything, you'll never go anywhere!

We're six months late to inform people that you can/should still start a software company in a downturn as this has been covered already here, here, here, here, and here.  Why are we six months late informing you of this, you ask? We have been incredibly busy building software for our existing / new customers during this period. For reasons left unexplained, we've seen the number of leads in our sales pipeline increase dramatically since the start of the recession. Furthermore, people have been coming to us for consulting services thanks to the reputation we've built since we launched LavaBlast.

If we had to name a single element that has helped us / will help us during the recession, it would definitely be our capacity to discover commonalities between seemingly different situations, abstracting them out and generalizing the problem. We can build systems for people who may not be in the franchise industry, but have similar needs. This lengthens our runway. This is one of the skills that we learned in university (more on this subject in Part 7).

If you take a deeper look at what LavaBlast does (building customized software that helps collaboratively manage a franchise) it is easy to notice that we're solving a problem in a particular vertical that is present in numerous other business contexts. We build operational line-of-business applications (aka help-me-perform-my-daily-tasks-easily software) that are used by franchise owners and franchisors (aka different-users-can-see-different-parts-of-the-data-while-sharing-some-of-it software). Without going into greater detail, many businesses are looking for software that helps them simplify their day-to-day operations and reduce costs, recession or not. It might not be as scalable as a consumer-focused website and not as glamorous as other projects, but it does have its challenges and is a great type of business that one can bootstrap!

[ We'd like to thank Leigh Hilbert for the "Lava Blast" picture seen above. ]

A mix of software products and services

In the Part 1, written last year, we describe how LavaBlast builds products (franchise management solution, franchise point of sale, etc.) but also services (as we adapt our software to each franchise's business processes). To help sustain development in a bootstrapped startup, software consulting is often a necessary “evil”. This year, we did do some consulting but managed to make the best of it. We've made a few interesting realizations that we've shared at a recent TeamCamp event at The Code Factory and would like to re-iterate here. This discussion assumes you're building software for other businesses instead of consumers (for obvious reasons, it is easier to bootstrap a software startup that targets businesses).

Typically, software consulting companies produce the same kind of software a couple times for different clients before deciding that it would be a good idea to build a product that addresses this same problem. At this point, they've delivered source code to each of their customers, as the customers retained the intellectual property rights related to the produced software. Therefore, to build a product and commercialize it, the consultants need to start from scratch. Although this may seem bad as the firm loses time and money rebuilding the product, it typically allows them to “build it right” thanks to the lessons learned during the first iterations. The product's architecture is well implemented as the main variation points have been clearly defined.

Simply put, we did the opposite and have kept the intellectual property rights from day one. (How? We got lucky that our customers had limited funds to invest and knew the value of intellectual property.) We sprinted for over a year building the core of our solution that allows retail stores and e-commerce websites to communicate with a centralized franchise management application. This was a large undertaking, but we had our first customer already using the product and paying for its development, while we kept the rights to the source code. (Note: we still did multiple iterations and learned from our mistakes!) Once completed, the core was easy to adapt to different franchise systems because we're experts at rapid application development and because our core architecture allows us to vary software behaviour for each franchise (thank you the strategy design pattern and dependency injection!).

What's interesting to note here is that because we own the intellectual property for the core of our system, it is much easier to sell enhancements to our core (to new customers) while preserving the rights to the source code for the combined system. It is also easier to find new customers because the core is already built. Simply put, investing a year into a software product is an investment that keeps on giving, even in the services arena. Because we have a flexible core that has already been implemented and we're keeping the IP, it helps us keep costs down during a bad economy. This is a win-win situation for both parties!

Advantages for the software startup

1. Retain the intellectual property
2. Build applications faster, giving you time to work on other things
3. Keep costs down - easier to find clients in bad economic times

Advantages for the client

1. Lower cost
2. Put the software to use quickly
3. Lower project risk

To get back to the discussion we had at TeamCamp, the question was how do you turn your service business into a product-based software startup when you have limited/no funds, have limited/no leads, and own limited/no intellectual property? Well, I'm sad to say it, but it “sucks to be you”.

You have to break the perpetual cycle you're currently in and do something different.

For some people, that means realizing that you're never going to make a decent living building static websites for $200 when you've got to spend 20 hours with the customer to figure out where they want the pictures of their puppies on their upcoming site before actually starting the work. Your competition is doing it at half the price with pre-built templates, stock photography and, as an added bonus if you order within the next 24h, offering them a box of branded pens, 500 full-colour business cards and a mention on their next Twitter post. You are a commodity.

For others, the decision boils down to what short term loss can do accept for possible future gains:

• Build a product, build your reputation, and try to sell enhancements to customers while retaining the IP.
  • Tradeoff: money. You don't earn much revenue while doing this (often nothing during the first months). If you don't have prospects and don't know if your idea is any good, this is risky.
• Assuming you can't afford this, build something during weekends and evenings and reap the rewards when it is complete.
  • Tradeoff: time. It takes five times as long to build it. However, you aren't screwed if things don't work out because your regular work pays the bills.
• Build a quick alpha version and see what happens. Spark interest? Find funders? Find partners? Abandon your crazy idea?
  • Tradeoff: features & quality. It is preferable to fail quickly if you are bound to fail. I'd prefer investing a week of my time and getting proper feedback from peers informing me that my product idea sucks and I am bound to fail than eating cheap noodles for six months before discovering than no one will buy my completed product. Talk to people at events like TeamCamp or DemoCamp - stop being scared someone will steal your idea. Don't ask Mom or your beer buddies as they won't be harsh enough on you (although some of them might be mean drunks!).

One tip that we do want to give fellow bootstrappers out there is that, in the early days, you can give the customer a non-restrictive copy of the code, while retaining ownership for yourself. That way, both parties have a copy of the source code and both parties can do whatever they want with it, including selling it to others. However, you're the developer and the customer has better things to do than commercialize your software: all they care about is being able to maintain the code when your contract with them is over. This is a win-win situation for both parties, especially when you've managed to collect various modules that you can re-use for different customers.

How to launch a software startup in a recession

(Precondition: Start something that you can sell to businesses to lower the risk. )

1. Find a first potential customer. Sign contract that says the intellectual property is yours but they get a copy of their version and they can do anything with it.
   • At this point, your software is worth nothing more than what the first customer is willing to pay for it.
2. Take your core software and refine it with other customers.
   • This time, try to keep the source code to yourself, as it is starting to build value.
3. Repeat step 2 until you've got enough funds and a high quality product.
   • Your product is now valuable. You are now out of the perpetual cycle.
4. Sell copies and grow your business
   • This is where LavaBlast is at now, after two years.
5. [insert secret sauce here]
6. Success!

Conclusion

Considering all that has been said about launching a software startup in a recession, I think it all boils down to asking yourself "is this the right time for me?". Software startups / Micro-ISVs are tiny in comparison to what's going on at the macroeconomic level. Before taking the risk to launch your own business, what matters is the presence of the following elements:

• Dedication / Passion / Interest
• Capacity to execute on the idea
• Support (family, friends, partners)

LavaBlast is now two years old. Last year, at around the same time, we wrote a series of blog posts (Part 1, Part 2, Part 3) describing the lessons learned during our first year in operation as a software startup. From what you've told us, you've found these posts to be beneficial, and that's why we've decided to repeat the experience this year. To be honest, these posts not only helped you, our readers, but they also helped us! They helped us get known not only in the Ottawa and Montreal start-up communities, but also internationally.

Part 4 gives a high-level summary of our past year. Part 5 will describe the life of a software startup in a recession. Part 6 will look back on one of our failures. Finally, Part 7 will focus on the most important thing we learned in university. We look forward to hearing your comments.

Introversion and Extraversion

Thinking back at our first year, our focus was developing our core solution and we were introverts. 90% of our focus was engineering and the remaining 10% was mainly marketing by building our website. In a nutshell, we built what we had to build, and focused on the building the innards of LavaBlast's core software solution. Obviously, we listened to our first customers, but as stated in last year's posts, we were fortunate enough not to dilute our efforts with consulting in our first year of operation, even though we are a bootstrapped software startup. Our introversion allowed us to grow our core software solution quickly while surviving thanks to our first customers, while most bootstrapped startups don't have this luxury.

Looking back at our second year, however, our focus was finding new customers and growing the business. Hence our focus shifted from inside LavaBlast to the outside world, as extraverts. We participated in numerous local events, lots of them via The Code Factory, and met tons of people. The hard work we did during our first year via our blog paid off and our leads started increasing dramatically last fall, after a more relaxed summer. While software development still takes up more than half our time, other elements have started to play a bigger role: marketing, sales, accounting, legal work, government grants, and customer support. Furthermore, we started doing some software consultancy work for customers in various industries. More about that next week, in Part 5.

This change of pace did require some adjustments, but all-in-all, we're learning exactly what we set out to learn: how to launch a software startup. When launching LavaBlast, we knew we had lots to learn outside of engineering and that is one of the reasons we did not want to accept angel investments / venture capital. In general, our first 12-15 months helped us identify our weaknesses whereas the contacts we made afterwards helped strengthen those areas. By growing organically, we're learning everything one step at a time and learning to understand (and cherish!) the challenges outside of engineering. Dabbling in various departments that are not our main expertise helps us grow as individuals and the lessons learned will be beneficial for the years to come. Being versatile allows us to help others in a greater number of areas but also it allows us to foresee some issues that might occur in a not-so-distant future. More about this in a few weeks, in Part 7.

Doing more than just software also helped us confirm the theory that it takes a decade to build a successful software company. In terms of software produced, the core doesn't take that long to build. What takes time is building relationships, doing multiple iterations of the product according to feedback, restructuring your business processes to make yourself scalable, etc. Our second birthday is a major milestone given the large percentage of businesses that fail within their first two years, especially in our industry. However, given the long term perspective, we still have a long way to go.

Know what's out there.

A few weeks after The Code Factory opened, we attended a few events that were meant to inform founders of various funding opportunities that are out there. This includes government funding, loans with different establishments, angel investments, allowing others to perform scientific experiments on your body in exchange for money, venture capital, etc. As an example, we learned about the SR&ED and IRAP government programs. Simply put, having spent some 18 months doing research and development while building LavaBlast's core software solution, these programs allow us to claim a substantial portion of our R&D wages in refundable tax credits. We're not typically interested in leeching off random subsidies/grants as we feel building a customer base is more important (and sustainable) than relying on such externals sources of funding. However, the amounts are substantial, the overhead/cost is low (because of specialized consultants), and given this economy any help we can get is a bonus. To make a long story short, we should be applying in the coming weeks. Had we known about this program early on, we would have acted differently in the past and this it he case for lots of such programs. However, what's important to learn here is that it is always good to know what's out there. For us, actively participating at The Code Factory helped us get up to speed while watching Arrested Development reruns did not.

Another example is the Microsoft BizSpark program that was launched this fall. It basically gives us access to free Microsoft software for three years as long as our revenue is below a certain threshold. Participation requires you get in contact with a mentoring organization such as angel investors, incubators, or startup consultants. Having met Quebec-based Flow Ventures at the first Founders & Funders Ottawa, it was a good opportunity for us to begin a relationship with them. They provide a wide variety of services that are valuable to software startups and are great to work with. Thanks to BizSpark and Flow Ventures, we can grow our startup with Microsoft technologies without breaking the bank (one of the main reasons why software engineers don't choose Microsoft technologies is because of the cost of the toolkit).

Software Tools

Over the course of the year, we've changed some of the tools we use for collaboration here at LavaBlast. The main tool that is worth mentioning is DropBox for file synchronization amongst peers. We recommend it to everyone because:

• Everything is synched automatically – even novices can use it.
• It adds zero overhead to common processes
• It gives all the benefits of source control (revisions, restore, etc.)
• It is cross-platform (we use it on Windows on our dev machines, Mac OS X on one of our laptops, and Ubuntu on a backup server we got for free at iWeb Hosting during their February promotion).
• DropBox gives you 2GB for free, which is more than enough for most teams. (We have upgraded, however).

Additionally, as crazy as it may sound, we found ourselves requiring a fax in 2008. Yes, the rest of the world is still living in 1988. Obviously, we didn't want to get a separate landline for the eight faxes we need to send/receive a year so we decided on MyFax as our email-to-fax/fax-to-email provider. Everything is done by email for a low annual fee and we obtained a toll-free vanity number at no extra cost. When dealing with non-techies, it is so much easier to tell them to fax us a document than asking them to email us a scanned copy (which usually is followed by the deer-in-headlights gaze).

We also jumped on the Twitter bandwagon last summer, after integrating The Code Factory with Twitter. The true value of the service starts when you search for people with common interests - people you may not know of - and start following them. Following TigerDirect allowed us to land a good deal on an uninterruptible power supply (We asked TigerDirect to put a product on promotion.. and they did!). Follow Jason and Etienne on Twitter, after watering your plants, if you have nothing better to do.

Finally, we started using RescueTime over a year ago. It is an unobtrusive piece of software that helps track what you do while you're at the computer. Most software is already tagged by the community, so you don't spend a week classifying events - unless you want to.

Hardware Tools

Not only is our company two years old... and so are our computers. Software engineers only require three things:

• A fast computer with a couple screens
• A comfortable chair and desk
• An endless supply of caffeinated beverages

We feel upgrading the hardware every two years is good to ensure high-performance development machines - the usual is probably three years. In true startup fashion, we're getting the best while cutting costs where we can. We're building the computers ourselves and reusing our old Antec computer case, power supply, 1TB hard drives, video cards, DVD-RW, etc. Here's what we're getting:

• Core i7 920 Processor
• Asus P6T Deluxe V2 (Up to 24GB RAM ... etc)
• 12 GB RAM
• Solid State Drive

Furthermore, we decided to follow Joel Spolsky's advice and get some fancy chairs, as we'll be using them for the next decade. Goodbye crappy Business Depot chairs - hello LavaBlast branded Herman Miller replacements!

Having a blog helps: a concrete example

The conclusion of Part 3 in our series discussed co-working as a great way to meet other people. At the time of writing, there were no co-working locations in Ottawa. After publishing our third post, StartupOttawa.com picked up our articles and promoted us as one of the local start-ups. At the same time, Ian Graham was putting his business plan into action. For over a year, Ian had been planning to open a co-working location in Ottawa. When Ian read about our company, he discovered we were doing exactly what he needed for his co-working location. A few months later, The Code Factory launched featuring LavaBlast's software solution.

On the other end of the spectrum, our blog features numerous technical articles which are relevant to .NET developers worldwide. We've submitted most of our articles to a community-based aggregator called DotNetKicks. Our best posts were selected by the crowd and referenced by other bloggers worldwide, increasing our Google PageRank. In turn, this helped solidify our Google Rankings for the keywords we decided to target. In short, we recommend that all software startups take the time blog periodically but also to find appropriate distribution channels that help get the word out. Telling your mother doesn't count.

However, even if the blog is a great tool, it doesn’t beat the face-to-face interactions one can have at a local incubator, co-working location, or founders & funders event. Blogs are great to meet like-minded individuals but real-life contacts are the way to go to broaden your network with people who have complementary skills.

Come back next week for Part 5: Being a software startup in a recession.

This article is the last of a three-part series related to technology in the franchise world. It focuses on what franchisors should be doing to react to the trends presented in Part 2.

Franchisors should be doing a number of things to keep up with the Net Generation. Most of these are straightforward once franchisors realize that people expect lots of information, expect it immediately, and expect their opinion to be taken seriously.

Streamline your processes

The more people use software, the more people expect of it and become irritated if a feature requires extra effort when it could be automated. Users don't pay attention when performing a task repeatedly and introduce errors into systems. Therefore, your business processes, including the software portion of it, should be as integrated as possible. Of course, you cannot integrate all at once and have to work on the pain points for which an integrated solution would save the most time or prevent the most errors. Streamlining your business processes is an iterative process which requires constant effort and attention but is very rewarding.

The processes that are easy to streamline vary for each franchise. However, using product-based retail stores as an example, the integration which provides the most value is between the point of sale and the franchise intranet. The goal is to offer automated sales reporting and centralized product line management. Once that is done, you can greatly simplify in-store product ordering by automating recurring orders via the in-stock quantities, for example.

Franchisors should keep in mind that integration that is already built-in built into a software product line is a very valuable asset. BjEmerson covered this, and other valuable questions, in his post on Blue Mau Mau. As a franchisor, it is your responsibility to periodically bring up the subject of integration with various suppliers to ensure you have an efficient process in place. Keep in mind that integration should not intend to cover all special cases and that you should put manual processes in place to double check that all the information in your system is accurate. 

A fine-tuned franchise is much more appealing to a franchise prospect because of the simplicity of its day-to-day management. Furthermore, if you have developed your own software or processes to make everything easier, the value proposition is even clearer.

Franchise Collaboration

The most important thing a small franchisor can do is to stop any unidirectional (waterfall) decision making. Transparency and collaboration help foster trust whereas keeping everyone in the dark before enforcing a big change is simply not a good business practice. Obviously, you won't be able to make everyone happy all the time but when franchisees feel their opinion is appreciated, everyone benefits. Obviously, this involves much more than technology but franchise collaboration software such as forums and polls can help. Thanks to open source software and online tools, you can even set this up for free. The real added-value comes when collaboration becomes a part of every day tasks, such as polling features directly integrated into the point of sale. This promotes collaboration within the franchise since the franchisees are not required to login to a separate tool when they get back home after a long day's work.

If you don't collaborate with your franchisees, you will lose them, period. If a franchisee leaves you because you never listened to their opinion, you can be sure that people reviewing your UFOC will end up hearing it. On the other end of the spectrum, a franchise which pushes strong franchisee collaboration via online tools can be a strong selling point for new prospect. A simple demo of the current issues being discussed will clear up any fears about ongoing support.

Openly discussing issues and possible solutions with your franchisees forces you to write things down in a logical fashion and think about the issues in a rational way. This simple activity often guides the decision making process and leads to the best decision.  

Give out more information

Franchisors should utilize their website and should not feel shy about posting lots of information to attract new franchise prospects. Obviously, organizing this information is very important as to avoid overwhelming the user but franchisors should post lots of information and treat their prospects intelligently. The website should include a high-level executive summary which allows interested prospects to drill down to find relevant information on separate pages.

The classic sales technique of not giving out too much information, having prospects request additional information, and having a salesman call them back to conclude a deal is no longer the best approach in today's online context: these practices must be adapted. Franchisors who don't display basic information such as franchise fees and setup costs are shooting themselves in the foot for numerous reasons.

First, today's visitors expect more information and they expect it now. Your prospects are probably thinking about starting their own business in this same field and it is your job to show them the wide breadth of problems you've already solved and how it is a better business decision to purchase a proven franchise system. You also need to show how your franchise is better than other franchise systems and your website is an ideal place to showcase your distinguishing factors. 

Second, the volume of franchise prospects on the Internet has increased, although we've mentioned franchisors are feeling  the quality has dropped. There is a growing number of people looking for low-cost franchises and if yours is not one of them, stating your requirements explicitly will help reduce low quality prospects.   If you are looking at catering to this growing niche, you might as well clearly define the lower cost options you are offering (kiosk format instead of store format, for example). Once you've formalized your offering and covered the frequently asked questions in detail on your website, you've developed a resource base that can be utilized by your salesforce.

Keep in mind that it is possible to get information about leads via your website, even if you're posting most of your information online. All you need to do is post a bit of exclusive content on your website which is only accessible after filling out a short form (email address, name and phone number). This gives you a way to contact prospects after the fact while still giving your prospects information when they want it (now!). This exclusive content can be as simple as a two-page PDF brochure or as extensive as a virtual tour of your store with pictures and videos.

Spread the word

The first thing you should do as a small/new franchisor is to actively participate in online communities. You should remember that online participation is a give&take relationship and you need to do more than self-promotion or demolish everyone's opinions. You can start by participating online in franchise communities such as Blue Mau Mau and FranMarket and simply writing comments on other people's posts. Everyone has a different background and you can often refer to your past experiences to help clarify posts by other people. You should also look for online communities which specialize in your niche, to raise awareness about your brand but also simply to exchange ideas. If your franchise is a dog kennel, you should look for pet-related online communities.  Finally, don't overlook any local business online communities which may be appealing to you. Hooking up with a local software startup or local artist might put your franchise in a better position to take on the world.

In addition to participating in online communities, you should start your own blog either at Blue Mau Mau or at another free service. There are numerous things you can (and should) blog about:

• A post for each new franchisee with an interview, franchisee profile, store pictures, etc.
• What makes your franchise unique (you should be able to find dozens of cool things that distinguish your franchise from the competition)
• New products or services
• What the franchise is proactively working on
• Your lessons learned as a franchisor
• Partner announcements
• How you or your franchisees gave back to the community
• Trends
• Internal reflections
• Congratulate one of your franchisees for outstanding achievements
• How your franchise is saving people money or saving the planet
• You've got a particular problem and are looking feedback on solutions

Many new bloggers are afraid to reveal the secret sauce if they talk about their lessons learned or what makes them different. They fear the day where their competition will copy their brilliant ideas. In reality, ideas are free and execution is key. Furthermore, if all that distinguishes your franchise is the auto-flushing toilets you installed last year, you've got a problem. You shouldn't reveal every last detail about how you operate, but don't let paranoia overcome you with every little detail. Blogging is a rewarding experience because it puts you in touch with lots of new people which may help you down the road.

More franchisors should blog about the problems they have experienced and how they overcame them as it is an essential subject which will help others. The franchise world is full of people who are looking to make a quick buck and being open about your franchise is a good way to help build a relationship of trust with your service providers, prospects, and franchisees.

Last week, LavaBlast launched Franchise NewsBlast to help franchisors spread the word about their franchise. Our system doesn't focus on franchise opportunities but rather on franchise-related articles that have true value for web visitors. 

Conclusion

Some people find it easier than others to get their head around the new business context in which franchises operate. We've listed a few high level tasks which help clarify the possible ideological differences between franchisors and the Net Generation. Once these base concepts are better understood, franchisors will be in a better position to understand things such as viral marketing and social networks in order to take advantage of these business opportunities for their franchise systems. Take a look at Franchise NewsBlast, Blue Mau Mau, and FranMarket today!

This article is the second of a three-part series related to technology in the franchise world. It discusses current trends in both the software and franchise worlds which are relevant, given the similarities illustrated in Part 1. Part 3 discusses what franchisors should be doing to react to this change in business context.

Fact: The world is changing. Technology is the catalyst.

The impact of technology on the way we do business is undeniable, and franchising is no exception. More often than not, franchise success stories list technology as one of the key elements to the franchise's growth. Five to ten years ago, most franchise systems recognized the value of a franchise intranet/extranet as a centralized franchise collaboration tool. More recently, the rise in franchise systems which allow absentee/semi-absentee franchisees has increased the need for software tooling that facilitates remote franchise management. 

Start thinking about who will be buying franchises in the next decade or two. These people have grown up with the Internet and do not know life without it. A very insightful read on this subject is Diana G. Oblinger's recent publication Growing up with Google: What it means to education as many of the concepts can be projected from current day challenges in education to tomorrow's franchise sales situation. The Net Generation (born after 1982) is now entering the workforce with university degrees. It won't take long for them to look at purchasing a franchise. Thanks to the Internet, the Net Generation has access to vast amounts of information which doesn't always work in the franchisor's favor. A single individual can report scams which rapidly make their way through the Internet. There are even blogs dedicated to reporting fraudulent business opportunities. This generation has learned to question authority and to go the Internet to prove their claims.

The widespread availability of high-speed Internet has not only impacted franchise operations: it has deeply changed our society. The latest trends in software have been user-empowerment (blogs), online collaboration (wikis), and social networking (for business or for fun). In case you didn't know, over a quarter of all Canadians have a Facebook account. If you're thinking that this is a fad for kids and teens, think again as over half of these users are over 30. Reacting today to these social and technological changes does not only help prepare yourself for the future, it also helps you understand your current operating environment because the facts of life for the Net Generation are also true for many older individuals which are no longer marginal.

A few trends in the software world...

Starting a software company on a shoestring has never been easier for a number of reasons. First, high quality open source tools, powerful software frameworks, and the availability of free web services allows competent software engineers to solve problems faster than ever. Second, infrastructure costs are negligible. Everyone already has a computer and an Internet connection... and working from home is an option for MicroISVs. Once you outgrow your basement or garage, co-working environments provide an affordable way to grow your company to the next level.  Even if you operate from home, you can still reach a very wide potential client-base thanks to the Internet and the same logic applies to any kind of business, not only software.

Another trend in the software world is that many cities (examples: Ottawa, Montreal) offer a vibrant software startup community which most people aren't even aware of. Founders are connecting and publicly sharing lessons learned. Funders are even connecting with founders at informal social events focused on growing the community. Twenty years ago, it would have been hard not only to meet startup founders but also to sit them down to hear about their experiences. Today, you can read about it on blogs and join up at local events... and if you're feeling old school, you can still buy books to learn the stories of other founders. As we all know, the Internet makes it easy to contact other people and collaborate online but it does also make it easier for people to meet offline for both business and social events. 

Finding and retaining good people is the single hardest task in a software company, even if you've got money to burn. Money is an incentive, but is far from being the most significant one for software engineers. Indeed, just take a look at Maslow's hierarchy of needs to discover esteem and self-actualization are higher in the pyramid yet cannot be purchased with money. What developers are looking for are interesting challenges in a great work environment and most large organizations are unable to take advantage of this fact, which push the best software engineers to work at smaller startups or even start their own company. The best talent have plenty of opportunities to pursue and consequently don't often look for jobs on sites such as Monster whereas bad employees always end up unemployed and pollute the system. The solution in the software world is to be active in the software community and utilize niche-specific job sites such as the Joel On Software job board.

... That are also present in the franchise world

In the franchise world where we are seeing lots of concepts, such as home-based franchises, growing rapidly because of their low start-up costs. Many people dream of being their own boss while doing something they love and it now easier than ever for them to start their own business. Striking gold is (and always will be) hard, but one can make a decent living with a MicroISV (thanks to niche markets on the Internet) or home-based franchises (thanks to franchisors who know what it takes to make the concept work). We're also seeing an increasing number of new franchise concepts, partially because the Internet has made it easier to contact experts in franchising (and vice-versa... which is not always a good thing).

I would love to say there is a vibrant startup franchise community on the Internet, but that is simply not the case. There are a few disparate local associations but the web is polluted with franchise opportunity websites, given the high commissions related to franchise sales. However, if you look hard enough, you can find a few good websites which unite franchisees and franchisors under one roof for discussion and collaboration. Furthermore, younger franchisors are turning to blogs and are openly discussion various lessons learned. It would be superficial and discriminatory to claim age is the only factor at play to explain the slower growth of a good online franchise communities, but it is a contributing factor given the fact that franchisors require a substantial amount of capital to launch a franchise. Few, if any, current franchisors are part of the Net Generation.  However, I am optimistic that a number of excellent franchise-related websites such as Blue Mau Mau, focusing on everything other than sales, will help grow the franchise startup community over the next decade thanks to collaboration between franchisors and various franchise service providers.

Finding and retaining good franchisees is an obvious challenge in the franchise industry. Many new franchise prospects are surprised that they are being screened for quality and are unaware that, for new/small franchisors, their individual success can have a strong impact on the success or failure of the whole system. Most franchisors complain about the decreasing quality of leads via franchise websites and this poor quality is surprising given the parallel which can be made with online recruiting systems such as Monster. As more people look for franchise opportunities on the Internet,  it becomes increasingly important for franchisors to be able to efficiently filter through a larger volume of requests but also for them to be proactive about sales and marketing. This can be achieved by participating in online communities dedicated to their niche. Of course, time & effort is a valuable commodity and lower quality leads are to be expected when a franchisor doesn't proactively work on solutions on a daily basis. 

Summary

After discussing changes in our society, this article covered three core trends:

• Younger people are starting businesses on a shoestring budget.
• It is easier than ever to connect with other people and learn from their mistakes.
• The big sites are saturated with people you don't want to hire or have as franchisees. 

Part 3 will talk about what you should be doing to make the best of this changing environment. Your homework for the next week is to participate in a few online communities of your choice (Franchise, Startup, or Local). Also, take a look at Franchise NewsBlast, which we are launching today.

The omnipresence of technology in our lives and the Internet has changed the way we do business. The software industry is not only one of the driving factors for this change, it is also one of the first industries to be influenced and react to changes in society. This contrasts with the franchise industry which is a bit old school... which has its pros & cons. Regardless, being abreast of current trends is helpful for any business and we feel franchisors can benefit from the insights of those with a software engineering background. Since LavaBlast builds software for the franchise industry, we’re at the junction point of two very different worlds ... which are more alike than you would initially expect. 

This article is the first of a three-part series related to technology in the franchise world. It focuses on similarities between franchises and software startups and serves as a premise to Part 2, which covers current trends in both industries. A comparable evolution in a changing context was to be expected, given the similarity between software startups and franchise systems. Finally, Part 3 discusses what franchisors should be doing to react to this change in business context.

For the sake of argument, let’s focus on small and/or new franchise systems. Why? There are numerous reasons:

1. Innovation often comes from smaller, nimbler organizations.
2. Over half of all franchise systems have less than 50 units. 25% have less than 10 franchise units. 
3. Hundreds of new franchise concepts are born every year. Over 1000 businesses turned to franchising for expansion between 2004 and 2006.

Small franchises are similar to software startups in nature.

There are numerous similarities between software startups and budding franchises: the strong need for domain expertise, the global potential, and they are both created to fill a gap in the market. However, their resemblance can be concisely be explained by looking at growth patterns and scalability.

In general, because of the very nature of software, software startups can achieve very high growth in a short period of time (examples abound!). Venture capitalists rate startups according to their scalability in order to obtain the highest possible return on their investment. This is done by building software which solves problems for a large group of people with little or no custom work required on the software firm's end to support a new user. Hosted software applications are installed once on the startup's web server and shared between customers, thanks to a scalable multi-tenant software architecture.  Additionally, the first hires in a software startup are crucial to building both v1.0 of the product and also the company’s culture. A solid team working together in the same direction is necessary to grow a successful company.

Franchises are similar because the concept must typically be tested and proven to be successful in its first location, akin to a software beta. Small business owners which turn to franchising as a growth strategy quickly discover than growing a franchise is a completely different ball game than making your first location successful. Scalability cannot be tacked on, it must be planned. The franchisor must find a scalable supply chain and must ensure the store look & feel is replicable. Unfortunately for some, purchasing store fixtures at your local flea market, police auction, or more recently eBay is not a replicable way to grow a franchise. The franchisor can't fly out to different cities to shop around for cool lamp shades for each new franchisee... Suppliers must be approved and utilized. The same is true for software where an integrated solution is the key to simplified franchise management. Furthermore, people with different backgrounds and skill sets are required to launch a successful franchise, and the first few franchisees are critical. As much thought (if not more) must be given when picking the first franchisees as the first hires in a software startup.

Additionally, the very nature of franchise systems implies that franchisees are geographically distributed. One might think this is not the case in software startups, but this is not totally true due to outsourcing and open source. Furthermore, even small software startups deal with international customers on a daily basis.  As such, the various stakeholders are not necessarily always in the same room ready to discuss business issues even though both are have to quickly react to preserve customer/franchisee satisfaction and grow the business.

Implications

We've just scratched the surface of why software startups are similar to small franchise systems. You may have other similarities in mind or you may disagree and have opposite feelings; in both cases, you are invited to share your opinion.

If you are a franchisor, why should you care about software startups? Simply put, software startups are more in tune with the impact of technology on our society which affects your franchise's operating environment. This subject will be covered in detail next week, in Part 2. In the meantime, you are invited to read Growing up with Google: What it means to education which explains the characteristics of the Net Generation you should be aware of, regardless of your background.