The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Gregg Freishtat, the founder of four different start-ups and board member and advisor to several venture capitalist and venture-backed companies.

Why Selected:  Gregg is a four-time entrepreneur and has successfully sold three software companies over the past 10 years – Telet Communications sold to PGI in 1996, VerticalOne sold to S1 in 1999 and Proficient Systems – sold to LPSN in 2006. Gregg serves on many private company and philanthropic boards including: SONE; MarketWorks; Relevant Knowledge; Outweb; Proficient Systems; VerticalOne; Telet Communications; JDRF; and the Jewish Federation.

I had the pleasure of working with Gregg back in the late 1990’s and have always been impressed with his ability to grasp the power of new technologies, the impact they can have on the business world, and his ability to build a business around that technology.  Just as important, Gregg makes those around him better at what they do and always makes working together fun and enjoyable.

In the following interview, Gregg takes us through how he was able to build off the success of each of his start-ups and what he learned along the way.  During the interview, Gregg points out what he believes other entrepreneurs can do to help position themselves and their companies for success.  The key points you’ll take away include:

1. Maintain the flexibility to adjust (morph) your business based on customer/prospect needs. 
2. When evangelizing your business remember, “Big vision for investors; Simple and safe for customers.
3. One of the biggest keys to success and potential obstacle are: People, people, people!
4. Establish your culture early and don’t do business with or for people you don’t like. 

You are now on your 4th start-up, how has each of them differed from one another?

Vertical Acuity is my fourth start up as a founder/CEO.  The business model and vision for each company was based upon the learning’s of the past.  In reality, all the companies are simply an evolution of a single business vision which inevitably gets morphed once we start working with customers and succumb to the realities of producing and growing revenues.  Our first company – Telet Communications – was focused on connecting and integrating voice, email, and fax using IP.

Next, Vertical One expanded the vision of collecting “stuff” from various and disparate back end systems – connected to each other for the first time using the Internet – by aggregating personal information (credit card, bank, brokerage, sky miles, etc).  At Vertical One we began to look at how analytics could be used to better understand the account data we were aggregating and started exploring new applications that could be built by analyzing large scale and real time data on the Internet.  After the sale of Vertical One, we started Proficient Systems to continue the notion of “Real Time Data Mining”.

After the sale of Proficient, we started Vertical Acuity to explore and expand upon this vision by analyzing data (this time content) from many related sites to determine what content was/is most likely to be consumed.  We are now working on re-inventing how content is discovered and delivered.  So…all the companies have been contributing to what we are doing today.  We gather content from many back end systems, analyze what content is in demand and by whom, and deliver it.

What drove you to start your first company and what made you believe you could evangelize the concept to end users, investors and partners? 

If I had thought about having to evangelize to end users, investors and partners, I never would have started my first company.  I just thought it was obvious that the internet was connecting systems that had never talked to each other and that with a little software you could make life easier by getting stuff in one place that used to require you to go to three or four places.  I had no idea what I was getting into – I was 24.  Practicing law seemed to always be looking into the past to figure out “who struck John” and then try to make it right.  Building software seemed like “let’s make something up and push some 0’s and 1’s around until it changes how stuff works.”  Software seemed like more fun – and it is.

When evangelizing the business, I have found many entrepreneurs have the same pitch for each audience.  Can you share your experience and the need to different pitches for each target audience (investors, partners, end-users)?

That’s a good question.   Early on, I would evangelize the vision to whoever would listen.  Over time, I have learned that different constituents require different messages.   Investors need to see big opportunities, radical growth, and revolutionary change.  These things terrify most established corporate customers.  Businesses are just large collections of people doing the same thing in close proximity.  All decisions are personal – folks don’t want to risk losing their job on a “radical, revolutionary” product.  They would rather go with IBM because they won’t lose their job for doing so.  Big vision for investors; Simple and safe for customers.  None of our companies sold directly to end users so I can’t comment on that but I am sure that’s tough as well.

What were the biggest obstacles you ran into at the different stages of your companies’ growth and how did you overcome them? 

People.   People.  People.  If you have the right folks in the right position, you can overcome most any obstacle so long as your business plan is sound.  Most of the big problems are the result of either having the wrong folks or having them in the wrong spot.  My biggest mistakes were not letting the wrong folks go soon enough.

You serve on several start-ups and small business’ boards, what do you see as the most common mistake leaders of those companies are making?

Back to People.  And this odd view of dilution.  Many small companies are scared to hire folks that have the experience required to grow because they are intimidated or fearful that they will lose “control” or their role.  Roles change and management and the board’s biggest challenge in managing the change and growth required to go from a small company to a bigger one (the goal for venture backed companies) is to have proven, experienced leadership in the key roles.    The odd view of dilution comes from folks not understanding how the VC world really works and what to focus on.  If you raise $3M – the main issue is not how dilutive it is but rather how much value you can create with the cash.  Until you know both – you don’t know if it’s dilutive or accretive.

Describe how you suggest leaders of start-ups and small businesses interact and utilize their Board of Directors?  How often should executive management be interacting with board members?

Board Members serve different roles at different stages of a company’s development.  Early on it is helpful to get independent credible board members to both help guide the company and to provide credibility for potential investors.  Having an industry leading board member show that he/she is willing to put their name behind an entrepreneurs venture and, in turn, this helps attract outside capital and provides a balance to the board once investors take a seat. 

As a company develops it is key to have board members with the experience and expertise to govern.   Having great leadership and advice on audit and compensation committees helps ensure good decision making and keeps a balance between management and investors perspectives.  Early on meetings should be every month or two and as the company matures once a quarter.  The frequency of meetings should be driven by how productive they are and how much is required by the outside investors.

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

Find the right people and partners.  If you don’t love working at your own start up – it’s not for you.  There is a lot of risk but even more opportunity – for enjoyment, growth, and building something of great value.  Establish your culture early and don’t do business with or for people you don’t like.  This includes partners, employees, investors, and even customers.  Everyone involved should pass the three C’s test:  Character, Competency, and Charisma.   You have pass each C to get to the next and must pass the first two C’s or you are out.

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Leo Pound, the founder of Pound Consulting, a turnaround consulting firm often brought in by outside investors or the Board of Directors to fix ailing companies and get them back on the right path.

Interviewee:  Leo Pound, Turnaround Specialist and Financial Expert. 

Why Selected:  Mr. Pound is the President of Pound Consulting Inc., with over 30 years experience in many industries. For over 18 years Mr. Pound has specialized in high growth and troubled situations, with a focus on increasing customer and shareholder value. Mr. Pound’s in-depth knowledge of operational and strategic planning, M&A, forecasting and budgeting, cash flow, cost containment and re-engineering is balanced with his understanding of the customer and market needs. He is a team leader who builds consensus while moving a company forward. Mr. Pound is a hands-on professional who is sensitive to the pressures and challenges facing a troubled company and their management team. He has been active in the CEO, CFO and COO roles in manufacturing and further processing, distribution and service industries. In addition, he has been responsible for managing banking relations, Big Four auditors, outside legal counsel, the financial community and investor relations. Mr. Pound has had direct accountability for Sales and Marketing, Manufacturing, the Controller function, Treasury, Human Resources, MIS, Risk Management, Contract Administration, Customer Service, Real Estate, Purchasing and Administration.  Mr. Pound serves on many public and private company boards and consults with companies of all sizes.

Several years ago, Leo was brought into a firm I was working with and his insight and advice helped us get that company on the right track and eventually sold.

In the following interview, Leo discusses the issues he most often finds when brought in to help turn-around a company in trouble.  The key points you’ll take away include:

1.  The key to success is having a well rounded team that compliments each other and a focus on executing a well conceived plan.

2.  An early warning sign your company may be in trouble is if your revenue cycle is out of synch with your payable cycle. 

3.  Keep your lenders fully informed when bad things happen and what you plan to do about them.

4.  Don’t be afraid of change, it’s what growth is all about.

Over the past 15+ years you’ve worked with many companies who have gotten themselves into trouble, what are the top 3 – 5 characteristics of companies in that position?  Can you give an example or two? 

Here are some:

• Confused leadership in, and around, the management team 
• No depth and dearth of complimentary skill sets within the management team  
• Failed strategy, or ignoring the strategic plan 
• Failure to react to changes in the business environment, economic climate and/or changes in social behavior

Example 1: Failure to position team with strong leaders:  In this example a medical device manufacturer who was heavily dependent on Medicare reimbursement failed to see a shift in Washington surrounding Medicare funding of their products.  They ignored the environment outside the company only focusing on the growth of organization rather than looking at and understanding the underlying funding formula that drives revenue.  (i.e. checks that you can cash). 

Example 2: Confused leadership:  An international company with a dominant market position ignored competition, the management team actively fought any changes to the status quo that would require them to change how they develop and market their products.  Company was forced to sell to liquidate debt after covenant defaults. 

What are the top 3 – 5 characteristics of well-run companies you’ve worked with?  Can you give an example or two? 

When you have a well-run company, you almost always find:

• A good balanced team
• Thoughtful plan
• Intense focus
• Diligent execution
• And the result, excellent profit. 

A CEO over a 10 year period recruited and hired a world class management team to run a NYSE company.  This company was near bankrupt when he arrived.  His singular focus of hiring the brightest minds that created and executed a well thought out plan allowed this company to be Barron’s top retail investment one year not to long ago.

Are there any “early warning” signs business leaders should pay attention to that might help prevent them and their companies from getting into trouble? 

Simple, the revenue cycle is out of sync with the payable cycle.  If it takes 180 days from receipt of order to payment by customer and your vendor cycle is 120 days from PO to shipment of completed product and your capital base and bank facility cannot bridge the gap, you’re dead.  In this economy customers are asking for extended terms and vendors want to be paid next day.  A disaster in the making, the sales department wants to keep customers regardless of terms, and finance is the last to know.

Small businesses can be doing just fine one minute but can get themselves in a bad situation rather quickly, are there any set of processes and/or procedures you recommend to small businesses that can help them mitigate the downside of a troubling situation?   

Depends if situation is of their making or environmental.  For example, if your lender experiences a large loss in your sector, they likely will overreact and try to limit future credit risk by reducing your credit facility.  Keep your financing options open by continually maintaining relationships with multiple banks.  Second, if bad things happen don’t waste time by blaming someone, or some earlier decision.  Take control, focus, communicate and redeploy a new plan to solve the problem.  And keep your lender fully informed when bad things happen and what you are going to do about it.  They will find out anyway, may as well face the music early, they may be able to suggest something new to help.   

In today’s market many companies, large and small, are in precarious positions, in your opinion, what can they do to help them survive these turbulent times?  

Stop the car, take time to sit and assess the situation.  Plan for the next step(s), and execute.  And have more than one plan.  Likely it will take several iterations before you find the right vein.  Don’t be afraid of change, after all that’s what growing is all about.  

There are reports that some companies have cut back their employee base at such high levels, that those left are having a tough time servicing existing accounts.  Have you seen any instances where companies have scaled back too far and were not able to recover? 

No, a few close calls but I have not seen one myself.  Although it is more likely because I do not work with companies that I feel are beyond redemption.  Let someone else put them into bankruptcy.

Once company leaders realize they have issues, what can and should they do to turn it around? 

Seek outside help and then listen.  Most teams do not want to, or are incapable of owning the process.  As an outsider, that’s all we do, all the time.  I can create a plan, help management execute, hand back the restructured company to management in a fashion they can manage and I take the baggage with me.  

What has been the biggest challenge you were brought into and were you able to help turn things around?  Why or why not? 

Biggest, $2BB, wholesale distributor, broke into two companies, sold both, including refinancing $100MM in senior debt.  One became a Midlantic based company, one southeast.  Southeast company failed within two years.  Midlantic survived for 5 years as an independent and then sold upstream to $1BB competitor.  Inherent problem was both companies failed to look at national landscape and missed an opportunity to combine 5 private companies to create a $7BB firm with scale and efficiency in a business with thin margins. 

When the CEO of a start-up and/or small business is putting together their Board, what advice would you give them and how often they and the company’s executive staff should be interacting with Board members? 

Seek experience that compliments and adds depth to the CEO.  I suggest at the start up stage to meet monthly, with calls more frequently as needed.  Board members should not interact with management team without CEO permission, such contact serves to confuse team and dilutes CEO impact on team.  The CEO reports to the BOD.  The management team does not. 

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche? 

Make sure there is room for you in that niche, and that your product will make a difference to the end consumer.  And that consumer is willing to pay for that difference. 

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

Their product has perceived value add for consumer and higher satisfaction for end consumer.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

Research in Motion (RIM), as a company they have continued to focus on niche in business mobile communications.  This focus on higher margin business clients differentiates them from other mobile companies.  They are not a “me to” product company.

What are the biggest threats to losing that dominating position?

Complacency and ignoring any changes in customer behavior

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

Motorola, the innovator of the mobile phone in the USA lost that position years ago, they did not move fast enough with product development and did not see rapid change in the consumer behavior pattern in the mobile arena.  Motorola acted a lot like US car companies, the same old products with new names, rather than new products.  They lost their innovative edge.

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Dale Coyner, the founder of Communicast (which was sold to PrecisionIR Group), Open Road Outfitters and a noted author of several motorcycle touring books and a motorcycle touring blog

Interviewee:  Dale Coyner, serial entrepreneur. 

Why Selected:  Dale is a two-time entrepreneur and one of the pioneers in the use of interactivity and streaming technologies within the web conferencing and webcasting industries.  Dale is also a motorcycle touring enthusiast and author of several books and a blog on the topic. Dale is also a member of the Virginia Governor’s Motorcycle Advisory Council.

I had the pleasure of first consulting to and then partnering with Dale (and David Paul, co-founder of Communicast) as we grew the company and eventually sold it to PrecisionIR Group and their Vcall division.  Under Dale’s guidance, Communicast became known as the leading interactive webinar platform and was one of if not the first to integrate streaming audio and video.  Dale’s foresight and unique ability to understand problems and break them down to their smallest and easiest to solve position enabled Communicast to continue growing while delivering its famed “white glove” service.  Dale also understands himself, his strengths, and the strengths of those around him and he has the ability to bring those strengths together to make the team more productive. 

In the following interview, Dales takes us through how he was able to keep Communicast growing without ever taking any venture capital and how the start-up of Open Road Outfitters differed from Communicast.  During the interview, Dales makes several points about what it takes to grow a company, the key points you’ll take away include:

1.  Know your buyers.  Possessing a solid understanding of your buyers will enable to you understand their problems and build products they understand.

2.  Take advantage of the numerous open source and low-cost solutions are now available to help small businesses. 

3.  “It’s the rare opportunity that can stand up to the scrutiny you’ll put it through if you write even a simple business plan.”

4.  The biggest threat to losing your position as a market leader is to become complacent to the changes in your niche/industry.

You are now on your 2nd start-up, how has the start-up Open Road Outfitters differed from starting Communicast?

In some respects launching Open Road was no different than Communicast.  When I launched Communicast, I knew the market well because I was actively evangelizing webconferencing technology inside the company I was with at the time.  I already knew who the likely buyers were, their concerns, and how to approach them.  The same was true of Open Road Outfitters, targeting people who travel by motorcycle.  Since I am a long distance motorcycle rider, I already knew the customer in this segment because I was one of them. So, knowing the market well was the key similarity.

 On the other hand, building the business, operationalizing—whatever you want to call it—that was completely different.  Communicast was a web-based service bureau, Open Road is a retailer.  At Communicast, we built all our products in-house and hosted our own servers.  At Open Road, we do none of that.  Our e-commerce platform was open source and hosting duties are handled by someone else.

 Very generally speaking, one thing that is vastly different, and continues to amaze me, is how many awesome open source and low-cost solutions are now available to help small business owners do business more effectively and for less cost.  I regularly use WordPress, an open source content management system, to create informational sites.  I have a credit card processing app for my iPod instead of a terminal.  Phone calls are managed through a free Google Voice account.  My hosting service is so inexpensive it barely registers on the P&L.  The all-powerful analytics product I use to examine our website traffic patterns, also free.

What drove you to start Communicast and what opportunity did you see that was not being served at that time? Same question for ORO.

 It was pretty simple.  When I first saw webconferencing technology in the mid-90’s, I felt the hair raise on the back of my neck.  It was immediately apparent to me that this was a technology that would have a widespread effect on business.  The advantages were just so immediately obvious; I knew it would be adopted rapidly. I was at Ernst & Young when I first saw the technology and within six months from the time I demonstrated the technology in house, we had a dedicated webconferencing service bureau with 2 or 3 people producing multiple events per week.  I knew that not every company would have the resources or desire to staff an internal bureau, so that led me to start the business plan for Communicast.

 With Open Road, I first identified the opportunity when doing some book research.  I found there was an underserved part of the powersports market that I felt could be addressed with a web store.  That was part of my motivation, but I was looking for the right business opportunity to gain more experience with e-commerce tools and this was the perfect outlet.  Open Road is my living laboratory, allowing me to experiment with different online marketing campaigns, site copy, web analytics, videos, etc.

You launched Communicast right after the internet start-up bubble burst in 2000, how did this affect your plans and what adjustments did you make?

 Good question.  It made us work a lot harder at focusing the business and the message than if the money was still flowing freely.  We originally had visions of building a little bit of a client base, selling to AOL, and retiring in the Caribbean. Well, we were a little late for that, so we had to opt for Plan B which was to buckle down and build the business.  We decided to forego seeking venture capital. Every time we started chasing VC money, our sales dipped because we were spending too much time and energy polishing our business plan, doing pitches, and not selling.  When it was apparent the VC path was not for us, that decision really freed us because we could go back to focusing on sales and building the product.

What were the biggest obstacles you ran into at the different stages of Communicast’s growth and how did you overcome them? Have you seen the same obstacles at Open Road Outfitters?

Initially our biggest obstacle was the fact that we didn’t own the technology we were using to serve our customers.  We had done some creative cross-licensing with another conferencing company to build our service on.  We built a complimentary enhancement to their main product and exchanged that for rights to use their technology.  That saved us a lot of money, but strategically we were completely tied to their fortunes and their decisions about where the product would go.

We finally faced up to the fact that we needed to build our own product in order to really create a difference we could use to sell against our competitors.  Our biggest challenge was that, because we were self-funding through sales, we had to build most of it in-house and outsource only the things where we didn’t have the expertise. So, I spent a lot of late, late nights building the interface for both participants and the presenter, along with all the back-end reporting, registration, and other features the product had to have.

David Paul, the guy who handled our sales, and who I really consider to be a co-founder, had a unique way of getting clients to help us pay to build the product and it’s a strategy I’d recommend to anyone similarly situated.  If our product lacked a key feature needed to close a sale, Dave would offer to build that feature to the client’s specifications for a certain price.  The client would get that amount of money credited to them in webconferencing services, so from their perspective, they were getting a custom-built product and paying nothing extra for it.

We would only make this offer if the client was asking for something that fit our product development plan; we didn’t do it for just anything. But the bottom line was, we got a lot of our product built that way and picked up a number of clients who were impressed with our willingness to “customize” the product to suit them.

Communicast was one of the first web conferencing companies to integrate streaming audio and video back when neither of these were popular, my question for you is what did Communicast do to evangelize why streaming audio and/or video made sense and how did you overcome some of the initial hesitancy by clients. 

We did a lot of talking and a lot of demos, but it came down to the fact that clients were never sold on it until they had their first success with it.  So, we would ease them into it. We always offered alternative solutions.  For example, in addition to streaming audio, it was common to offer a teleconference for audio in a web conference for participants who couldn’t receive the streaming feed.  Over time, as clients saw the number of stream users rising, they saw their bills go down as a result.  And this encouraged them to push the streaming option harder or offer it exclusively altogether.

Communicast became known as one of the innovators in the web events market. Once in that position, what did you set-up so that Communicast stayed in that leadership position? What were you doing different than others in the niche?

From the beginning, our difference was interactivity.  We offered so much more than just slide-after-slide-after-slide in our events.  We built interactive tools that allowed presenters to really involve the audience.  We had not just one type of live polling, but several different forms.  We offered a “Pro/Con” exercise that allowed audience members to respond to a scenario with plusses and minuses. The instructor then had the power to select individual responses from the list.  We offered a brainstorming tool.  Our niche was interactivity and we continued to expand on that with new tools and templates to collect data, followed by richer reporting features to gain more intelligence out of that collected information.

How did we set that up to maintain that edge? Well, I believe it’s because this view of making web conferences interactive was the most important element of our vision. We were clear on who we were. I made most of the product feature decisions, based on wide input of course, but the conversation in my head usually went like this: “We offer the most interactive webconferencing system on the market.  Does this feature we’re proposing enhance that?  What other features can we add that reinforce that vision?” 

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

 I’d heard these two points a thousand times before but didn’t really understand them until I lived them. 

Know your customer.  Develop a profile or a picture in your mind of your perfect customer.  What’s their position in a company? What are their responsibilities? What are their biggest problems and how does your product or service solve their problem?

With Communicast, we found our perfect customer was at the director level in either marketing, corporate communication, or training inside the company.  They were constantly being asked to find ways to train more people with less money and disruption (time out of office, away from clients, etc.).  When we found this person with this issue, the sale was easy.

Know yourself.  In our early days, we fought hard to stay focused on our primary business, but sometimes we strayed.  As you are out there pitching yourself, other opportunities present themselves, but not are all well-suited to you.  For example, we got involved in a discussion with a radio personality about providing our service to them, but eventually the conversion twisted into us providing a website and e-mail service. We were neither an e-mail or website host and even though we entertained the idea, we ultimately turned down that business. 

Now for an example that exactly contradicts what I just said. At one point, we were approached by a webcast technology company about doing some competitive analysis and writing a report for them on a competing company.  Even though this was hardly our core business, it was income, it was a one-time thing, it wouldn’t take much time, and did I say it was income?  The point was, we knew going into it that this wasn’t something we wanted to do more of, we knew ourselves better, but it was a quick paycheck, so we took it.

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

 I think clarity of vision and a single-mindedness of purpose are two really important characteristics and they go hand-in-hand. Having hit on a thousand business ideas, I know that when you think of something, and you think it’s good, it hits you it’s like an adrenaline rush. The business is almost a vision before you. But as you start to think it through, it’s the rare opportunity that can stand up to the scrutiny you’ll put it through if you write even a simple business plan. 

If you get through that and you still have a very clear idea of the business, the model, the market, and you pursue it relentlessly, I don’t think it matters how many competitors are in that market.  That clarity of vision is reflected in every aspect of your business from the marketing messages you send to the way the receptionist answers the phone and it will be a palpable difference that prospective clients can sense.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

 Harley Davidson is a great example of a company that figured out who it was and who its customers are.  They continue to dominate motorcycle cruiser sales because they have moved from being a motorcycle maker to a lifestyle manufacturer. Want to throw away your business suit, hit the open road, and ride to the horizon? Want to live dangerously (and be home for dinner)? Harley Davidson is the official sponsor of the Wild Side of Life (Harley, feel free to drop me a line if you want to use that.) A few other manufacturers have chipped away at their niche, but I don’t see anyone kicking them off the top of the hill any time soon.

What are the biggest threats to losing that dominating position?

Well that’s a really good question.  In Harley’s case it’s the risk of becoming complacent and potential changes in motorcycling attitudes.  Since a group of far-sighted executives revived the company in the late 80’s and early 90’s they’ve been on a roll, so to speak, for the past twenty years.  It will be interesting to see how Harley continues to promote and evolve their “Harley Lifestyle” which I think is the essence of the revival.  Will people continue to seek that lifestyle or will it eventually go out of fashion?  Will tightening regulations on motorcycle emissions and sound levels force them to change the nature of their product in a way that reduces its appeal?

Broadly speaking, they face some significant challenges as well. Harley’s average customer age is creeping up, they’ve reached market saturation in the U.S. for cruisers and they’ve been hit hard by the economic downturn. However, if there’s good news in that, it’s that their competitors have been affected nearly as much.

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

Most frequently I think of companies who thought they were in one business, but were really in another.  A commonly cited example from an earlier time is the guy who delivered ice to customers for their ice boxes.  As ice boxes were replaced by refrigerators, the ice man who stuck to the ice business eventually watched his business melt away.  On the other hand, ice providers who thought of themselves as being in the “food preservation” business, adapted to the new reality and became appliance salesmen.

A few decades ago, I think IBM clearly saw itself in the “computer business.” Even though they eventually abandoned some of their positions in hardware, they were capable enough to reinvent themselves to take a leading position in information services.  Companies like WANG, on the other hand, built dominating positions, but as technology evolved, they couldn’t evolve quickly enough to respond to changing market conditions.

I also think of Microsoft.  They haven’t lost their dominating position in operating systems, but as the power of the web browser has increased, and the sophistication of applications delivered via the browser has grown, they are certainly less able to wield the same influence they once held.

Good luck and as always we welcome and value your feedback, please post comments and invite your colleagues and friends to our blog.  Thanks!

We’ll be taking the next few weeks off and want to wish you and your families a Happy Holiday season and a safe and prosperous New Year.  We look forward to seeing you in 2010.

 John Goodman, Co-Founder & Vice Chairman of TARP Worldwide and Author

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs, product managers, venture capitalists and others about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview John Goodman.

Interviewee:  John Goodman, Vice Chairman and co-founder of TARP World­wide. 

Why Selected: As a pioneer in the science of quantifying, managing, and optimizing the customer experience, John (and his company TARP Worldwide) gives us the opportunity to glean a little bit of his knowledge on how a start-up, small business or any business can perfect their customer’s experience.  It is not often we have the chance to hear from someone running a company referred to by renowned author and consultant Tom Peters as “(TARP is) perhaps America’s premier customer service research firm.”  John is also an author, and in his new book Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty and Maximize Profits, he shows how successful companies use customer service as a “catalyst,…making the organization more proactive, accelerating responsiveness, and boosting its effectiveness.”  John also points out the financial impact good and/or bad/no customer service can have on an organization.

In the following interview, John takes us through how TARP got started and how the importance of moving customer service from a complaint department to one that can have a positive financial impact on your organization.  The key points you’ll take away include:

1.  The impact of great service on your financials is ten to twenty times the cost. 

2.  Many companies that hire a market research firm to conduct a study read their final reports then put them up on a shelf.  Find ways to make sure your clients use information and the advantages you bring to them.  This will lead to repeat business.

3.  When clients and prospects want to negotiate on price make sure you take out work/services/product accordingly.  Just reducing prices can lessen the perceived value of your offering. 

4.  In order to gain traction in a market dominated by one or few companies , look for ways you can out innovate them and find the one or two people at some of their clients who are the most unhappy and then deliver outstanding service to them.

What drove you to start TARP and how did you plan penetrating the market research niche clearly dominated by the big research houses? 

 TARP was started as a student group doing interesting client research – we were approached by someone in the government who wanted similar research done which then created positive word of mouth about our activities that got us a large contract from the White House Office of consumer Affairs (which no longer exists). We aimed to do government research on a sole source basis so we didn’t have to compete at the beginning. We had a unique enough product that we tended not to compete – we would only take contracts if we were the only company being considered.  Our advantage was that we were small enough that we could survive with low prices due to low overhead. We also had very motivated employees who could directly see the impact of their work on large companies.

 As a pioneer in the concept of tying customer’s dissatisfaction to company revenue, how was the concept initially received by clients and how did you overcome their hesitancy to try a new model?

 We didn’t stress the satisfaction aspects but rather the financial aspects – we said that the revenue implications of great service were ten to twenty times the cost implications. Further we quantified the word of mouth implications which were of great interest to CMOs. We aimed our pitch at the CFO and the CMO.

 What were the biggest obstacles you ran into at the different stages of TARP’s growth and how did you overcome them?

At the beginning it was awareness. We dealt with that by doing papers, publishing articles and giving workshops at conventions. The next challenge was scaling up and still retaining profitability. We made sure our clients actually used our findings rather than putting them on the shelf which often got us repeat engagements. Further, we carefully raised prices with happy clients and made sure we took work out if we had to lower the price to meet their available budget. Our third challenge was competition copying our methods, so we had to keep updating them and answering new questions. We got those enhancements and new questions by listening to our clients and understanding their current and emerging challenges. Obviously we made many mistakes along the way but executing each strategy even 50% gave us an advantage over most MR companies that are relatively static.

After a while TARP, became known as the Customer Experience Measurement niche leader. Once in that position, what did you set-up so that TARP stayed in that leadership position?  What were you doing different than others?

We set up a council of 8-10 clients who met twice a year to push us on the emerging issues. We also used what we learned in one industry and asked how it would apply in another. I have always said that what works for Motorola will often work for McDonalds.

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

Get exposure and learn the market by giving speeches and writing articles – often with clients – don’t charge much but do small projects that allow you to learn from the customer and let the customer learn about you. Coauthoring articles with practitioners is great way to both learn and build relationships as well as getting exposure.

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

Specialization with value added that takes the findings through to implementation. Most services have little impact – if you can push the client to use the results you go beyond the standard company that moves onto the next customer and seldom looks back.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

They tend to be companies that created a new niche – Starbucks or even Chocolate Moose on L St downtown (Washington D.C.). The have wacky gifts and great service and have succeeded where most gift shops fold after a few years. Where else can you buy a Sigmund Freud action figure?

What are the biggest threats to losing that dominating position? I would assume these same threats would be the opportunities for those looking to penetrate a niche?

Getting comfortable and relatively successful. Stop getting critical feedback from customers. No news is not good news.

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

Companies that lost their position of dominance did so as a result of complacency, lack of consistent value and failure to continually innovate.

Dharmesh Shah, Founder & CTO of HubSpot, Serial Software Entrepreneur and Startup Blogger 

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs, product managers, venture capitalists and others about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Dharmesh Shah.

Interviewee:  Dharmesh Shah, serial entrepreneur, author and startup blogger. 

Why Selected:  Dharmesh is the founder and CTO of HubSpot.  HubSpot provides marketing software for small businesses.  The company, based in Cambridge, Massachusetts, has raised over $30 million in venture capital, and has over 1,700 customers. 

He developed grader.com – a free suite of online tools for marketing measurement.  These tools, including WebsiteGrader.com and TwitterGrader.com have won numerous awards and have been used by millions.

Dharmesh is the co-author of the new book “Inbound Marketing: Get Found Using Google, Social Media, and Blogs,” published by Wiley in October, 2009.  The book has been consistently ranked in the top 100 business books on Amazon.

He also authors OnStartups.com, a top-ranking startup blog with over 15,000 subscribers and 100,000 members in its online community.  He is an active member of the Boston area entrepreneurial community and a frequent speaker on the topic of startups and internet marketing.

Dharmesh has a B.S. in Computer Science from UAB and an M.S. in the Management of Technology from MIT.

In the following interview, Dharmesh discusses how he used inbound marketing techniques to help his company’s grow and how any business regardless of the sector it is in can use these same techniques to reach its customer base.  During the interview, Dharmesh provided some great insights on what it takes to launch, grow and sustain a company in today’s market.  The key points you’ll take away include:

1. It is critical for entrepreneurs to figure out a way to efficiently gain access to customers and to really reach people, you need to give them something that is valuable and compelling. 
2. As your company grows, one of the challenges you needed to be prepared for is how to stay on top of rapid growth and ensure that the organization shares a common vision and maintains the culture that has made it successful thus far.
3. Successful companies that enter a niche have a good understanding of how the existing players are failing to deliver sufficient customer value.
4. Companies that dominate a niche find some sort of “network effect” whereby each additional customer adds value to the remaining ones.

In your new book, Inbound Marketing: Get Found Using Google, Social Media, and Blogs, you show how any business can use inbound marketing to help their business drive prospects and clients to them; can you describe how you have personally used these techniques to build the companies you started? 

 My startup HubSpot was built from the ground-up with inbound marketing techniques.  We’ve used several different forms of content to effectively draw prospects in.  For example, in the early days of the company, we started a blog on the topic of small business and marketing.  This blog (http://blog.hubspot.com) is now one of our top 5 sources of leads for the company.  Another example is our suite of free tools, including Website Grader and Twitter Grader, both of which have been great marketing vehicles.

 Many internet and high-tech start-ups use inbound marketing, can you talk about how important it is for other smaller businesses and sole proprietors such as doctors, lawyers, plumbers, interior decorators, etc. to utilize the techniques you describe to help them maintain and grow their businesses? 

Inbound marketing actually works even better for mainstream, non-technology businesses.  The reason for this is that high-tech businesses are often very innovative — and pursuing an entirely new market or creating a new category.  Though inbound marketing can certainly help businesses, one challenge is that in these new, emerging industries, there may not be strong existing demand for the offering (people are not searching for those products, because nobody knows about them yet).  On the other hand, mainstream businesses like lawyers and interior designers often have very strong existing demand.  Inbound marketing is a great way for these kinds of businesses to connect to that existing demand and pull in customers.

 If inbound marketing works best for mainstream companies, how do you suggest they get started?  Most of them have never used inbound marketing and thus could use a few simple steps to get started.

 The best way to get started with inbound marketing is to start getting involved in the blogosphere.  Before writing the blog, it’s helpful to start finding relevant blogs in the industry and start engaging in the existing discussion.  Then, begin engaging in social media sites (LinkedIn, twitter, Facebook) and find relevant people/discussions there.  The idea is to start forging connections with those in the industry.  Then, start producing valuable content (usually a blog).  

 In today’s market business professionals and consumers are bombarded with marketing messages in everything we do, in your opinion, what can a small business and/or start-up do to ensure their message gets through to their target audience and drive them to come to your business to either learn more or buy?  

 The answer is very simple — but not easy.  Product content that is useful and interesting:  One of the common mistakes that marketers make is to believe that their customers are different than they are.  They’re not.  Just like us, our prospects hate cold calls, throw away junk mail, and ignore most advertising.  To really reach these people, we need to give them something that is valuable.  We need to create content that is compelling and will pull them in.  Websites that are nothing more than brochureware just won’t work — people ignore those.

 You are currently on your second start-up (HubSpot), what have been the biggest obstacles at the different stages of each of the two companies? 

 Each company had different challenges.  In my first startup (Pyramid Digital Solutions), the challenge was always one of resources.  The company was bootstrapped and did not raise any venture capital.  This meant that we could only grow as fast as our revenues allowed.  In many ways this was great, but it was tough because there were never enough people to pursue all of our ambitions.  At HubSpot, we have a different problem. We’ve raised significant outside funding ($33 million) and as such, have been able to hire exceptional talent consistently.  The challenge now is — to stay on top of this growth and ensure that the organization shares a common vision and maintains the culture that has made it successful so far.

You talk about maintaining the culture as HubSpot has grown, what specific steps did you take to ensure the culture did not get outstripped by the company’s growth?

 Several things:  First, we make “cultural fit” one of the key hiring criteria.  You’d be surprised at how many companies don’t have this in their list of priorities when recruiting.  We try to maintain an environment of “passionate and fun” in the office.  It’s a good work environment and it’s not possible to spend 15 minutes in the office without hearing someone laughing.  We have regular work-but-not-work activities that help people come together.  This includes a live weekly web TV show on Friday afternoons where we invite anyone from the outside to be part of the studio audience.  The idea is not to be overly serious, but not be frivolous either.  It’s not just about free beer on Fridays.  It’s about recognizing that HubSpot occupies a large part of our people’s lives and we’d be silly not to recognize that and make the environment as pleasant as possible so great people can work with other great people and do spectacular things.

How have the two start-ups differed and what key piece of knowledge from your first company (Pyramid Digital Solutions) helped you the most when launching your second business?

 The two companies were very different.  Pyramid was focused in a very niche (but lucrative) market whereas HubSpot is in a much broader and bigger market.  The big lesson from Pyramid was that in order to build a very big company, there needs to be a market opportunity to support it.  Though Pyramid was very successful, there were intrinsic limits to how big it could grow. Though I learned a lot from the experience, I always felt that I wanted to pursue larger opportunities.  So, with HubSpot, I made sure that the opportunity was large enough that I could potentially build a big, successful business.

When the CEO of a start-up and/or small business is putting together their Board, what advice would you give them and how often they and the company’s executive staff should be interacting with Board members? 

 This varies a lot based on the situation.  A common board meeting schedule is usually once every 2-3 months — particularly if the company has raised capital and has investors as board members.  The key to a functional board relationship is to ensure that there’s a good balance between standard “governance” and strategic decisions.  The board and executive team should be able to have candid discussions around company issues and opportunities.  Done correctly, the board can bring great value to the management team because there’s often a wealth of experience and wisdom.

How often do/did you interact with your Board and how important are/were they to the success of your business?

 When we first formed our board, we met about every 6 weeks.  Now we meet every 10-12 weeks.  Our board has been extremely helpful with some key issues — particularly during the early stages.  Areas where we received the most help were around marketing, sales, finance and strategy.

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

 Today, it is critical for entrepreneurs to figure out a way to efficiently gain access to customers.  Most of the startups that I talk to don’t have issues with building a reasonably good product, they struggle with marketing and sales.  As such, my advice would be to start very, very early with inbound marketing efforts (the topic of my recent book, Inbound Marketing: Get Found Using Google, Social Media, and Blogs.  The idea is to start creating content and building a network within your target community.  This should happen well in advance of a product launch (and in fact, done correctly, can help you figure out what product to build). 

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

 Usually, successful companies that enter a niche have a good understanding of how the existing players are failing to deliver sufficient customer value.  The key is to figure out what’s wrong with what’s out there now, make sure the problem is worth fixing and talk to as many customers as possible to figure out a viable solution.  It also helps to find industries that are going through a transformation whereby the existing offerings are becoming less and less effective.  The important thing is to be realistic as to whether or not your solution is *significantly* better such that some number of customers are willing to take the risk and adopt a new product.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

 They generally deliver a fair amount of customer value (or at least they did in the early days).  They leverage this be deepening the relationship with the customer and making switching costs higher.  Often, they find some sort of “network effect” whereby each additional customer adds value to the remaining ones.  This kind of effect can act as a major barrier to entry for new market entrants.  (NOTE: for more on this see the earlier blog interview with Ara Bagdasarian and how this “effect” played an important role in his company).

What are the biggest threats to losing that dominating position? I would assume these same threats would be the opportunities for those looking to penetrate a niche?

 The biggest threat to a dominant player is to have the level of “unhappiness” in the customer base exceed the switching costs.  If customers are unhappy enough, they will consider switching, regardless of the level of vendor “lock-in” that might exist.  The other big threat (discussed in depth in the “Innovator’s Dilemma“) is that a new market entrant can focus on a different dimension of performance than the existing players.  A good example would include Southwest Airlines.  Often, a simpler, easier product will beat out existing players (over time) despite being much worse on a primary dimension of performance that historically was important and defined the industry.  But, a new class of customer often has different needs. 

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

 One example that jumps to mind is Siebel.  They had a dominant position in the CRM industry.  However, salesforce.com entered the market with a much simpler, lower risk option.  Despite the fact that salesforce.com was not nearly as powerful and had a fraction of the features (when it launched), it was “good enough” for many companies.  Over time, the product got better and better, and salesforce.com wedged its way into significant market share. 

Please let others know about the blog and our Entrepreneurs & Small Business Leaders group on LinkedIn.  The larger we can make the group, the more helpful it can be to everyone. We are also always looking for new topics and/or people to interview for the blog, please send any recommendations to Ken Balog at ken@richnichegroup.com