This piece, written by Carter, was originally published by the Wall Street Journal in a section called “The Accelerators.”

The strong pace of initial public offerings in 2014 and the first half of 2015 has many entrepreneurs contemplating if, when and how to look for an exit. Even though the IPO window may be closing for the moment, delicious deals like Shake Shake or Fitbit may encourage exit-minded founders to prepare for an IPO.

Entrepreneurs have to consider a myriad of challenges that come with preparing for a liquidity event. Before even contemplating prospectuses, entrepreneurs should step back and reflect on the emotional and psychological aspects of selling — whether through an IPO, to a private equity firm or to other third parties. Relinquishing control of “their baby” may be harder than entrepreneurs realize, and selling to a buyer who has a far different vision for the company may lead to regret. It pays to keep a few things in mind:

Are you truly ready to give up control? It may seem obvious, but in the intoxicating rush to an exit it can be easy to overlook the fact that selling the company means giving up control. The emotional and psychological impact of selling the company may be underestimated by the entrepreneur, even when gaining access to more capital resources appears to make sense, at least on paper. Though selling may be the right thing for the business, entrepreneurs shouldn’t jump to make a deal without first determining their own readiness. Entrepreneurs need to ask themselves: Am I prepared to hand over the reins or, at the very least, share control of what I’ve built?

To thine own self be true. It takes a tremendous amount of self-awareness for entrepreneurs to admit, even to themselves, that their company needs a different leadership profile, a broader managerial skill set or a more experienced management team to take it to the next phase. It’s rare for a founder to conceive of and start a company, find that elusive “product/market fit,” take it through the early hyper-growth phase and lead it into a sustained-growth scaling phase. In other words, launching a company and willing it to $20 million in revenues takes one (extraordinary) skill set; scaling it into a $150 million entity takes another. Entrepreneurs must consider whether their expertise lies in early-stage product and business development, or if they have the requisite skills to scale a business by doing such things as expanding into new markets, creating scalable processes and broadening their marketing and selling efforts, while also dealing with an ever-growing group of stakeholders.

“Prince Charming” doesn’t exist. Sometimes what looks like the “perfect” deal comes along — for example, the seemingly ideal match of Trunk Club, the online men’s clothing service, with Nordstrom in a $350 million acquisition in 2014. But for most companies looking to sell, holding out for perfection raises unrealistic expectations that are almost guaranteed to result in disappointment. Or, hoping to sell at the peak can leave a company stranded when an unfortunate turn in the market comes along. Being patient in order to find the right strategic and cultural match is one thing; attempting to ride a crest wave or waiting for Prince Charming to come riding in, offering a mind-blowing multiple on forward-year revenue projections is entirely another. So understand your priorities and be prepared to pull the trigger if and when they’re met.

Are you aligned with the prospective buyer? As entrepreneurs look for an exit, especially through a merger or acquisition, they need to understand the vision and values of the buyer. Is there a meeting of the minds, a shared vision on the future direction of the company? Does the potential buyer want to accelerate growth and expand into new markets or does the buyer really want to take the core assets and shutter the rest of the company? Will the legacy of what the entrepreneur created live on, or will it be “assimilated into the Borg?”

Who’s looking out for the team? An exit is not just about the entrepreneur. Successful startups grow because of a team’s efforts, and that team has a tremendous amount of product, customer and institutional knowledge to offer. Before sealing the deal, entrepreneurs need to make sure valued team members have the right incentives and protection to stay with the company to continue its growth strategy, or conversely that they are rewarded with severance packages that take into account their contribution.

As these points illustrate, looking for an exit takes more than analyzing ratios and multiples or cashing out in the most lucrative deal. Entrepreneurs who take the time to consider the emotional, psychological and strategic aspects first will be better positioned to make a successful transition to what comes next.

This is from a piece Co-Authored by David Schonthal and Bob Moesta, CEO of the Rewired Group (Originally published as a contribution Dave Kerpen’s column Inc Magazine):

Successful innovative products and technologies start by focusing on the consumers’ problems to be solved. What do consumers really want to do? What are they trying to do but cannot? What are the tradeoffs they are willing to make to achieve better outcomes?

The solutions target consumers’ functional, social, and emotional needs and, even more important, their desired outcomes. Think Maslow’s Hierarchy, with its tiers of psychological, safety, love, esteem, and self-actualization needs. The further a product‘s benefits extend up that pyramid the better chance the company will tap into massive pent-up consumer demand for innovation. One example might be Fitbit and similar products that perform functional exercise- and diet-related tasks, but on an emotional level are really about delivering personal accountability and motivation. 

Identifying struggles also unlocks insights about consumers’ decisions to “fire” the products and services they’re currently using in order to “hire” new ones that promise to do the job better, faster, more efficiently, more cost effectively, etc. Yet such actions aren’t as obvious as swapping out one household cleaner for another. For example, Facebook appeared to create a new category in social media. But when examined through the lens of consumer struggle, it becomes clear that Facebook was hired by consumers to update friends and family on what’s going on—a job that used to be occupied by routines such as the Sunday night family phone call. In terms of industry categories, Facebook doesn’t compete with AT&T, but in the consumers’ minds, even unconsciously, they do. 

Consider BucketFeet with its trendy and colorful line of casual footwear featuring designs by independent street artists. As a shoe company, BucketFeet would appear to go toe-to-toe with mega brands such as Nike and Converse. But in consumers’ minds, BucketFeet is really wearable art—designs on a different kind of canvas.

Consumers’ “hiring” and “firing” decisions are significant sources of insight because there really aren’t any new jobs for the latest products to assume. Consumers’ overcrowded lives can’t handle one more thing. For entrepreneurs, that reality is a compelling case to stop focusing on the features and benefits of what they’ve invented and developed, and instead put their emphasis on moments of struggle and consumers’ hire/fire decisions.

Successful innovation starts with finding the right struggle to solve. Many techniques such as the Jobs-To-Be-Done framework for consumer research and Design Research have long been applied to corporate innovation. The same approach can be utilized by startups.

Identifying moments of struggle can be accomplished by conducting research with as few as ten people if the questions and observations are of sufficient depth about how and why they buy and use products and technologies. Go into people’s homes and witness how and what they are using. Study how they adapt products and technologies with their own workarounds and hacks, and improve or even push the limits of performance. Such small-scale but intensive ethnographic studies level the playing field for small startups and entrepreneurs who don’t have huge research departments and massive consumer databases at their disposal.

The key is to frame the forces of progress (function, social, and emotional) that cause people to make progress in their lives. As the “Forces Diagram” (below) illustrates, the push of the situation and the pull of a new idea are weighed against the habit of current practice and the anxiety of adopting a new solution. Progress only happened when the push and pull are greater than the anxiety and habit.

Source: The Re-Wired Group

Most consumer struggles from the functional to the emotional can’t be hypothesized in a research lab or conference room or sketched at a white board. Doing that runs the risk of targeting the wrong market or a need that really doesn’t exist. Consider the Segway, an intriguing personal mobility device that looked like it addressed a real functional need, but doesn’t target a consumer struggle with a solution that allows them to make progress.

Just because something is possible, doesn’t mean that consumers will clamor for it en masse. 3-D printing is a great technology, but still largely in search of a mainstream job. There are interesting applications, such as in making custom hearing aids, but no one has yet found a widespread use for this influential technology. Feasibility and desirability are not the same and need to be thought about differently.

Consumers are the source of most successful innovations; their desires and struggles are the sparks of genius that lead to disruptive opportunities. Technologies are the enablers to make it easier, faster, lower cost, or just better. Henry Ford understood this, noting that people didn’t know they wanted an automobile. What they wanted was a faster horse. What followed was the firing of horses to transport the masses and the hiring of automobiles that could do the job better.

In the same way, entrepreneurs today need a keen understanding of human behavior and consumer decision-making. By focusing on moments of struggle and real problems to be solved, even small startups can compete head-to-head with big companies—and win.

(Originally posted to Forbes)

“Big Data” is the phrase du jour — it’s no secret that data can serve as a powerful and practical resource for understanding consumer behavior. But it must be used in the proper context, or else it can distance companies from those they wish to understand.

A common problem arises when corporate innovation teams over-rely on data to uncover new insights about customers, or understand user behavior on a deeper level. They become seduced by numbers, convinced that statistics reveal indisputable truths about target-market behavior. While this data can be informative and even comforting (“Forty-eight percent of our new buying cohort claims they’ll repeat within three months!”), it also carries risk; it can miss the nuances of human behavior, paint abstract representations of people and generate information that’s void of empathy. Consumer needs, motivations, emotions and behavior can easily get lost in numerical translation and interpretation. As the Talking Heads once sang, “Facts all come with points of view; facts don’t do what I want them to.”

At the Kellogg School of Management, we advise corporate innovators to follow the lead of lean startups to gain a clearer and richer understanding of their customers. These startups, constrained by scarce resources, are forced to learn about their prospective customers in the most rudimentary way: by getting out into the market and observing and talking to people on an individual basis — in the right context.

It might seem unsophisticated, but this approach is how startups often discover the key consumer insights that large companies miss. And it’s how they create products, services and experiences with potential to disrupt massive industries.

Here are a few ways that any organization can introduce a bit of scrappiness and human-centered thinking into its research approach:

Manufacture constraints for yourself.

Act as if your corporate infrastructure and resource capabilities don’t exist. Just set them aside for a bit. That means getting out of the office and talking to your customers directly, or finding opportunities to tag along with customers for extended periods of time while they go through the purchasing process. Give yourself short deadlines to force resourcefulness (“We need to interview at least 30 users in the next 2 weeks!”).

Become best friends with your customer service center.

Inside the office, park yourself in the customer call center and answer phones so you can hear customers’ comments and complaints firsthand. By interacting with your customers in a direct, unfettered way, you will quickly learn what’s working for them, what isn’t, and what you can do to make their experience with your product or service better. Are the mice-type assembly instructions for your baby crib exasperating to customers? Is it hard to find the “image upload” button in your expense-management software? It’s not surprising that many successful entrepreneurs start off by handling a bulk of their company’s customer service calls themselves. There is no better way to learn.

Think of your customers as individuals, not data sets.

In the early days of developing a new product or service, seek depth over breadth. Move beyond large surveys and customer data sets, and have long, open-ended conversations with 10 current or potential customers about their experiences with your product and competitors’ products. Explore: What problem are they really trying to solve by using your product? Where do various products delight or disappoint them? What’s the biggest hassle they tolerate when using your products — perhaps without even realizing it? What must they give up to use your offering? If you can answer these types of questions, you can unlock innovation opportunities that data alone will miss.

Put on your anthropologist hat.

Here is a human truth: People say one thing, but do another. Because of this, it’s imperative that you observe your customer in the wild, exploring their behavior in the context of their everyday lives. Put on your Jane Goodall hat and seek to understand them, rather than validate your ideas. Like an anthropologist, collect artifacts that will help you communicate your learning with your team. Take field notes and pictures, record video and audio.

All of this will help you learn (and remember) how consumers live their lives and use your product. It will likely reveal important, sometimes painful, findings. You might realize, for example, that you’ve misjudged customers’ interest in a signature feature that your group developed, or that your product/service doesn’t easily integrate with peripherals that your customers use. Indeed, this process of immersion is how Chuck Templeton, one of our Kellogg School alums, figured out how to design the OpenTable restaurant reservation system; he sat in restaurants for days, observing how restauranteurs managed — and struggled with — their software and point-of-sale systems.

 Track emotional peaks and valleys throughout the journey.

Today’s consumers go through a dizzying pre-purchase, purchase and post-purchase process. Gone are the days where the buying public passively receives a product message from Wilford Brimley while watching “The Waltons” and walks into a grocer the next day to buy some Quaker Oats. In this age, corporate innovators must be keenly aware of all the social networking activity that precedes the purchase (e.g., getting inspired on Instagram or comparing deals on Retail-Me-Not) as well as all the discussions following the purchase (e.g., inside a Facebook group or through a nasty Yelp review).

It’s not enough to focus on the moment of purchase. Map the entire customer journey so you can understand the full spectrum of customers’ emotional highs and lows, from the moment they decide to buy in your category to their post-purchase experience with your product. Sometimes, the experiences leading up to, or right after, the purchase of your product is where you will uncover new opportunities. For example, there may be relatively easy and inexpensive ways to alleviate your customers’ pain or frustration while increasing their overall satisfaction in a dramatic way, like when GE modified its MRI experience for pediatric patients or the way that Uber delights its users with extras like Spotify radio and cashless transactions.

Don’t get us wrong — it’s terrific to have big data. It points you in the right direction and helps you hone in on a problem to solve. But to get the texture and nuance that leads to innovation, you need to have direct experiences with the individuals whose problems you’re solving.

(Originally Posted on Forbes.com)

Organic growth has softened. Purchase frequency has slowed. What to do? When pressed to innovate, many corporations have the same knee-jerk reaction: to hire people and spend money. They create cross-functional task-force teams and launch expensive, time-consuming market research studies, generating mounds of data, but to little effect.

Instead of helping a company bring new ideas to market, these efforts at spurring innovation often lead to counterproductive results, distancing the firm from the very group it wants to serve: their buying public. Instead of observing customers first-hand and drawing insights from their behavior, the company’s innovation team becomes bogged down and bleary-eyed, managing task force meeting calendars and wading through reams of purchase rate propensities and lifetime value projections. Process gets in the way of progress. Company decision-makers find themselves staring at well-constructed PowerPoint decks and Excel models but are no closer to uncovering the searing insights that will translate into highly desired new products and services.

At the Kellogg School of Management, we advise corporate leaders to consider a fundamentally different approach to innovation, one that draws upon the playbook of startups. It boils down to adopting what we call “venture thinking,” a mindset of resourceful entrepreneurship that’s applicable to virtually any company looking to spur innovation and drive growth.

Illustration by Michael Morgenstern

Startups find ways of turning their constraints into strengths. For them, scarcity is the mother of invention. With a small budget and limited time, startups are forced to operate with a great sense of urgency. They are often able to out-maneuver large corporations because of their speed in bringing new ideas to market and their nimbleness in adapting to market needs. In order to compete with startups, large organizations should be inspired by them.

Venture thinking is rooted in three basic ideas:

1. Go native

Successful startups have a visceral understanding of their customers. With no research department to guide them, entrepreneurs are forced to go out into the market themselves to learn firsthand what their customers are experiencing. In many cases, founders are their own customers, starting a company in an effort to solve a problem they were experiencing.

Corporations should do the same. Instead of interpreting customer behavior through data, ask customers questions directly. Observe them in their buying or usage environment. Empathize with them, noting where they appear to struggle, where they look confused and frustrated, where they give up or create a workaround in an attempt to solve a problem. Connecting and empathizing with customers is the best way to uncover problems and develop solutions that will lead to new sources of value.

2. Embrace experimentation

It’s rare that a startup’s initial product idea is the one that brings them success. Groupon started as a community organization platform, Flickr started as an online role-playing game and Avon started as a book seller. These firms evolved into their current model through a process of constant iteration.

Larger organizations often fall into the “perfect is the enemy of good” trap; in an effort to get it right from day one, they spend too much time refining their product before testing it in market. Instead, they should take their “minimum viable product” (MVP) directly to the market, experimenting and iterating with it.

Venture thinking organizations aim to be nimble when testing potential solutions to problems. They create well-articulated hypotheses and test them through a sequence of small experiments. They don’t attempt to boil the ocean with a big, broad research plot that lacks specific objectives. Their goal is to kill bad ideas quickly and refine their solutions multiple times on the way to market. Just as in a science experiment, failures in entrepreneurial testing aren’t viewed as huge Failures —they’re merely opportunities to learn and sharpen the focus. This mindset often requires a cultural shift in larger organizations, and as a result this principle may be the hardest of the three to realize.

3. Show, don’t tell

Successful startups know the best way to communicate the value of a new idea is to visualize it. A great example of this can be seen on Kickstarter, where each campaign is accompanied by a video that helps bring the idea to life — in many cases, long before the product is even built!

Startups show, they don’t tell. They know their early prototypes don’t need to be anywhere close to their final product. They need to be just good enough to answer a key question. In the case of most Kickstarter campaigns, the question entrepreneurs are answering with their videos is: “Does anyone care about the problem I’m solving?”

Corporations too should embody their questions in the form of prototypes. Customer reactions will be more authentic and actionable than posing a series of theoretical questions through market research studies. Often it’s not necessary to spend a lot of time or money building prototypes either. Sometimes, a cheap sketch or a simple video can answer the million-dollar question.

This entrepreneurial attitude of stripped-down scarcity may go against the organizational DNA and deep-seated culture of many companies. For corporate leaders, venture thinking may require making uncomfortable changes: constricting time and resources, reducing administrative tasks and clearing calendars in order to get out of the ivory tower and back to the customer frontlines. But once organizations begin to uncover problems worth solving for their customers, the change will be well worth the effort.

There are lots of ways to test a value proposition: elevator pitches, prototypes, A/B testing to name a few.

All of these techniques are useful and can help an entrepreneur shape their offer and positioning prior to launching a business. None of these, however, is quite as good as actually “delivering” the value proposition to your target segment out in the real world.

Here is what I am taking about:

Lets say you are working on a business that is aiming to update the dry cleaning industry for the on-demand generation. You intend to do this by offering a pick-up and delivery service for customers around their schedules using a mobile app as the interface.

What will often happen is that an entrepreneur will first start working on wireframes for the application and then put them in front of users for feedback. If they are ambitious they will compliment this effort with some adwords tests and other techniques to see if the idea resonates with their expected audience. Once they receive what they deem to be sufficient feedback they will quickly move to designing and coding the application.

What rarely happens is an entrepreneur starting the process of developing the solution by actually preforming the service they are intending automate.

In the case of our dry cleaning business, this could be something as simple as working with a few neighborhood dry cleaners and potential local customers – along with text messages and email – and actually picking-up and delivering peoples clothes for a month or so to learn about how the process works (or should work).

Running the business in a low-tech (or no-tech) way provides an entrepreneur with some very crucial insights on his/her business:

1. It enables them to experience first-hand what the process is like for users on both sides of the business model (in this case: dry cleaners and customers), thereby building greater empathy into the design process
2. It helps identify some of the “unknown unknowns” that exist in the proposed business model (maybe unexpected steps present themselves, unanticipated resistance based on having people come to their homes, or more attention needing to be paid to the service experience etc.)
3. It helps you learn the language of the customer – the terms they use, how they refer to their unmet needs, what their workarounds are – all can be crucial when it comes to marketing and positioning in the future
4. Ideally entrepreneurs running these tests will be PAID for their effort – providing much-needed clarity and certainty around revenue models (as well as perhaps some much-needed cash!) Really – what could be better than telling an investor that you have been running the business in a low-tech way for the past 6 months and are already cash flow positive!?
5. On the flip side , entrepreneurs will also quickly learn if the revenue model (and costs) indicate a business model worth doing before they invest a single dollar into a line of code. Which leads to the last point…
6. By performing the value proposition with real customers entrepreneurs will discover whether or not you have in fact found a real problem in need of solution. Many new businesses are in fact “solutions looking for problems” and its best to find out if you fall into this camp sooner rather than later.

The purpose of running these “concierge” tests (to borrow a term du jour) is not to test the business economics at scale, nor is it to be used to validate whether a business can grow quickly, compete with other emerging offers and is worth investing buckets of money in to. The purpose is simply this: to gain authentic insight and rich perspective on product-market fit, and learn what a business model must do in order to deliver its offer effectively to users.