answers

THE KEYS TO THE GOLD MINE
Question
Have you wondered how some people come up with that winning idea--that idea that opens
the door to the gold mine? Literally, customers are falling all over themselves to buy
your product or service. In fact, you become a legend in your own time. Is it luck,
timing, the stars, or can it be systematized?
Answer
Your idea is the starting point. Most people have ideas--they're like belly buttons, everyone
has one. But rarely does the initial idea walk you into the gold mine.

Here, we will discuss how you find that winning product, service, idea. My company, Ascend,
practiced the lessons in "The Keys to the Gold Mine." In less that 10 years, Ascend is an
S&P 500 company, it has over 4,000 employees and will do over 1.5 billion in sales with a
market cap of over 12 billion. These lessons are worth learning.

Where do you find the ideas? The absolute best are not dreamt up or forced out. They are
the things that you have lived with, experienced, and know inside and out. So, let's say
you have one of these experiences and are sure it will bring you fame and fortune. Where
do you start? Get out and talk to customers; bring with you a simple presentation. See
How to Build a Successful Business Presentation.

How do you know which customers to talk to? The rule is simple, "Willie Sutton robbed
banks because that was where the money was." You must do the same. Talk with the accounts
that have money and the most to gain by your ingenious idea. Then ask, do they like it?
What do they like about it? Be detailed. Compare notes on all accounts. Is it the same for
all of them? There's a theme emerging here. Remember, ideas are nothing until you test
them. But test them on your nickel, don't expect investors to. One last note on
ideas--look for value. It must have a true value proposition for customers. Meaning, the
customer's bottom line is impacted.

Here is an example from one of my startups, Silicon Spice, an Entrepreneur America graduate
currently funded by NEA, Kleiner Perkins, Worldview, and CMEA. Their product is a new chip,
suffice to say of revolutionary character. They are aiming the chip at networking companies
such as Ascend, Cisco,and others. The value proposition is that:

It replaces a great number of other chips (dollars - thus reducing the cost per port for the
customers). It offers the ability to add new software (value - running on the chip). It
is a significant improvement, resulting in much lower cost per port, smaller space and
power and increased functionality. That is a value proposition.

How do you find ideas like these? I have several techniques:

The technology inventory.
The sunflower model.
The customer inventory.
The value proposition.

The first technique is what I call The Technology Inventory. For example, after taking
inventory in several areas of Silicon Spice's technology, we found it was the chip's
ability to do parallel processing and to reconfigure--this was the key. This led the
co-founders and me to look for a problem in my networking, where the chip might replace
multiple chips. Such a problem existed in Ascend and others such as Cisco. Both companies
build boxes that receive many modem calls (one modem = one chip). Walla let the chip handle
multiple modems plus more. By looking carefully and taking inventory, the idea was refined.

Another example is a company I work with called IDI in Ithaca, NY. They have ice detection,
removal, and shape shifting fluid technology. We must inventory all their technology, then
figure out which ones we can build a sunflower around.

Recall what a sunflower looks like. It has a distinct center--that is your core technology
or service. Don't doubt the components that are unique and differentiated or you won't grow
much of a company.

The petals are the product market that you can leverage the center into. Let's use Honda as
an example. What is Honda? Is it a car company? Is it a lawnmower company? Maybe they sell
motorcycles? It is none of these things. It's an engine company. They produce small, medium,
and large engines, embedding them into products and markets where engines are a major part
of the product. Find your engine. Build a sunflower.

Let me illustrate another example from my company, Ascend. The co-founders and myself
started Ascend with the idea and the funding to do an ISDN concentrator. ISDN being a new
digital telephone service, we reasoned that customers would need a box to connect their
computers and offices to this new service. There was one small problem. The phone companies
decided to pull back on their deployment of the service leaving us with a box and no lines
to connect to. This also left us with some very unhappy and puzzled investors.

We regrouped--grasped at another idea called dynamic bandwidth that Jay, Speck, and Jeanette,
the co-founders, discovered. The Board gave Ascend 3 months to verify the latest idea. With
a simple presentation, we tested the idea on customers. We found a customer in Compression
Labs that needed to have high-speed bandwidth on a dynamic, dialed basis. CLI was selling
videoconferencing to corporations, yet those corporations had to lease very expensive
lines for the communications. We offered the possibility that the same bandwidth could be
delivered by aggregating slower, cheaper lines. CLI was interested. We asked for proof of
interest. CLI gave us a conditional purchase order and we went on to build the high-speed
access product.

Over the next few years we built a reasonable business--16 million in sales. Why wasn't I
happy? Remember, a company needs to build a significant business to gain investors. We had
the investors; 19 million in their cash and a 16 million dollar business that was not going
to yield the expected 7-10 times their money. We had to reinvent ourselves somehow.

That is when I read an article published in the Harvard Business Review about the core
competencies. I came up with my infamous Sunflower and we decided that our engine was
"bandwidth on demand." Ascend would deliver products to whatever market required high-speed
dialed bandwidth.

We began asking ourselves which markets needed dialed bandwidth. We hypothesized that the I
nternet, telecommuting, etc. were possible places for our core technology. We then tested
this theory by talking with the Internet Service Providers--all 50-75 of them. We found
that the ISP had a serious problem in his backroom. The ISP and the Internet were growing
over 100% every 6 months, so the ISP needed to get new modems, communication boxes, and
their lines at a startling rate. Their backroom room looked like spaghetti--a mess of boxes
and lines. They asked if we could fix this. We could. They loved it. The rest is history.

When you have done the Sunflower, what's next? Inventory your customers. Do you really
know what they are doing with your products? LIFE magazine has a cute, possibly true story.
A time back, they thought they had a run on LIFE magazines in Japan. They assumed the next
step was to start a branch office in Japan, but they didn't know what was causing the
upswing. Turns out, the magazines were being used for fertilizer and shielding plants.
Whoops!

Active Education is an example from my EA companies. When they showed up at the ranch they
were doing technical books under hire to clients. One such client was Microsoft. They were
outsourcing their employee training to the local community colleges who were using these
books. My hypothesis was that other corporations might also be outsourcing the local
schools and maybe we should be approaching the community colleges and leveraging the
relationship started by Microsoft.

A final example is a company called Activeworlds. When they arrived at the ranch, they had
3D software--software that lets people build 3D worlds, some 3,000 of them. Each user paid
$20 a year. I asked them to inventory their corporate users. It turns out they had Boeing
quite by accident since they had no sales force. What was Boeing doing with their stuff?
Who knows? Big mistake. "Get your asses out there," I instructed. Boeing, it turns out,
was modeling their shop floor and training people with Activeworlds software. Now, A
ctiveworlds is a part of Boeing, in fact, is their star. More importantly, it is likely
there are other companies that have training needs in a variety of areas. So instead of
$20 per year, we can do deals on the order of $250,000 per year.

The last technique is what I call seeking and finding a major value proposition.
Activeworlds is a good example. The first value proposition allowed users to meander
through a chat room on steroids for a mere $20 a year vs. Boeing using it to solve
training issues.

I hope you now have an idea on how to hunt for your gold mine. Create inventories of
customers and technology, build the sunflower, and find the value proposition.