Don’t build an empire overnight – lessons from FreshDirect and Webvan better to start small first and then expand

The other day I received a direct mail piece from FreshDirect, the online delivery service based out of New York.  What struck me is that the service has been around for years in NYC, and it is now getting out to some of the suburbs in New Jersey.  In fact, after having done a little research, FreshDirect was started in 2002 and now 8 years later is delivering in New Jersey.  This is in stark contrast to WebVan which was the first online grocer.  What brought WebVan down is the fact that it tried to build an empire overnight.  And yes we should all know from our history books that empire building leads to empire destruction eventually.

It is pretty evident that FreshDirect took its time to understand how to enter a market, serve it well, and make it profitable.  In other words, FreshDirect spent its time to build a repeatable sales and market entry model before moving on to other locations.  In addition, its expansion is still local based-close to its distribution point in Long Island City, NY.  You don’t see the company going out to San Francisco – rather, it is slowly expanding outside of its first core market, NYC.

As an entrepreneur, you should take the same approach before expanding too quickly.  Whether you are hiring a sales force for the first time or expanding territory for your product or service, make sure you have a repeatable sales model before conquering the world.  More often than not, I meet entrepreneurs who raise too much money too fast and expand way too quickly before having a product that is fully baked and ready for primetime and before the company knows who it is selling to, how it is selling to them, and what the core value proposition is.  Get everything right in your first market like FreshDirect and you will build a great company and avoid monumental disasters like Webvan.

The Gartner Magic Quadrant – a necessary evil in IT

Lately, I feel as if I have been spending an inordinate amount of time with my companies talking about marketing.  Related to this, one of my portfolio companies recently received a number of nice emails from the board related to its new positioning in Gartner's Magic Quadrant.  We were all quite excited since we made demonstrable progress over the last 3 years from niche player to visionary and on the cusp of becoming a leader.  Yes, I know what you are thinking – this is all BS and how much did you pay them over the years.  And where there is smoke there is fire as those statements ring true but at the end of the day Gartner's Quadrant is important for anyone selling to IT professional because buyers of technology care about what Gartner has to say.  Technologists at corporations are not paid to take risks, but rather to not make mistakes, to make the safe choice.  And guess what, paying Gartner Group for an annual subscription to its content and for access to its analysts helps IT buyers make the safe choice.  Secondly, larger companies when looking to expand their product line or get better positioning in the market definitely do pay some attention to the start-ups on the quadrant. 

For those of you who are not familiar with the Quadrant, you can read more about it here.  In short, it is Gartner Group's proprietary methodology to rate IT vendors in a particular market based on Ability to Execute and Completeness of Vision.  Gartner-magic-quadrant1-530x485 In the end, every market is broken out into 4 quadrants, Leaders (top right), Challengers (top left), Niche Players (bottom left), and Visionaries (bottom right).  For the most part, Leaders and Ability to Execute comes down to number of customers and customer references that Gartner has done and the size of your company and ability to go to market.  Based on this criteria, you will never see startups in the Leaders quadrant on Day 1.  However, what you should expect from a startup is a visionary position meaning the company has some phenomenal technology that fits a market need and is leading the future of the industry but at the same time does not have the customer base or resources to go after the big boys today.  If you are in the niche category then good luck.

So how does a start-up navigate the Gartner waters?  First, I would read this overview from Gartner to understand how they think and rate vendors.   Secondly, I would contact the relevant analyst to set up a meeting to discuss further.  Given my experience, I must say that developing a relationship with the analyst is key to helping you improve your standing in the quadrant.  This means buying a subscription to Gartner and then hiring the analyst for some consulting.  As with any business, you will have some impressive analysts and others who are not as strong.  Regardless, I have found that by sharing your ideas and vision for the market with the analysts early on can help them synthesize their views of the market.  If you can have your Gartner analyst take your thoughts as his own then you know you have really done a great job in discussing the market.  What many companies don't know is that you also have to be proactive about the Magic Quadrant.  As you sign up new customers and partners, share them with Gartner so they can call every new customer and partner in advance.  Many times companies wait until the last second and inundate Gartner analysts with numerous calls and information and many times these analysts cannot process all of that info which means it will have to wait until the next release of the Quadrant.  So all in all, be proactive, don't be afraid to pay as you may learn something and it is a necessary evil, and build a relationship with your analyst.  I hope this is helpful and I would love to hear your thoughts and comments on this subject.

Free web-based calling!

For those of you who read my blog, you know that I am big believer in frictionless sales.  (see an earlier post)

"Frictionless sales means reducing the pain for customers to adopt and use a service/product and consequently reducing the cost of sales and marketing and service to get a customer and generate revenue.  As I mention in an earlier post, "The less friction you have in your sales and delivery model, the easier it is to scale. The easier it is to scale the faster and more efficiently you can grow."

Well, if we thought we did that at Sipphone (full disclosure-it is a fund investment and i am on the board) with a fat client, I can tell you that we did much better with our newest release at  At Gizmocall, users can now use their web browser, yes web browser, to make free calls to any mobile, landline, or SIP-based network.  With a simple Flash plugin, users get 5 minutes of free calling a day and 10 minutes if they register.  Congratulations to Michael, Jason, and the team for continuing to strive to lower the friction to using our service.  From a business model perspective, we clearly believe there is more to life than just minute stealing, so besides your usual upsell model for minutes and caller ID and other services, we plan on layering in some advertising.  Read Michael Robertson’s blog for more:

My plan with Gizmo Call is to offer phone calls that will feel free because they are paid for with advertising. The popularity of free email services, news services and community sites demonstrates that people will often choose ad sponsored services over paid ones. Because Gizmo Call is written in flash we can insert advertisements into the experience in a helpful manner. If you call 1-800-FLOWERS we can tell you about the great San Diego-based company ProFlowers which is running Valentine’s Day specials starting at $29.95 and offer to connect you to them at: 1-800-580-2913. If you need a plumber or a pizza just dial those words and we’ll pop up a list of vendors you can talk to for those services. Not everyone will want advertising in and around their calls, but Google has proved that targeted advertising is actually useful and that’s what we will strive for.                   

There’s no advertising yet on Gizmo Call which is why free calls are limited to just 10 minutes. Eventually we’ll have text, audio and video advertising – let your mind run with that one! Until then, use Gizmo Call to make some free calls and let me know how it works for you!