Rethinking Customer Development

I'm a huge fan of Steve Blank his theory of Customer Development.  I've found his writing always inspirational and insightful.  However, has been a little to dense for me to use as a clear roadmap.  Many in the Lean Startup movement point to the Business Model Canvas as a cure - which, try as I might, I've never been able to actually follow in a real live business.

The issue was that each of these pieces is part of a flow - not a discrete map.  So, here at Contastic we started using a variant that models the business as a process rather than as a map:

This covers same essential areas as the Business Model, but slightly re-arranged to fit the process of validating a startup.  Generally, each stage from left-to-right is dependent on the next and should be evaluated in that order.  At each milestone the company should seek to find a path through.  I like to have at least two stages written out to look at: general themes, and then specific actions/sources to test:

While by no means complete, this model serves as a basic roadmap of our plan.  We also often use  third level for tactical tests to confirm items in level 2 (ie acquire 20 customer per day at Dreamforce).  As they are confirmed the fact bubbles up to the next level.  As we develop the company we continually edit this knowing that the dependencies flow from left to right and then top to bottom.  

Hope this helps you all bring a strong evidence-based approach to your ventures.  We're continually evolving this model, so if you have any ideas for improvements or cases where it fails let me know in the comments below!

Seven Deadly Startup Sins

I've been working full time on Contastic (getcontastic.com) for about three months now fully immersed in the valley culture.  It's amazing to be in a place with so many resources, but each opportunity is also a distraction.  Time is your most precious commodity - if it's not invested wisely, your company will die.  In the spirit of helping founders make better choices here are the seven deadly startup sins to avoid:

1 - Building too many things

It's hard enough to build one feature well.  If you attempt anything more than that you will dilute your resources and will end up with a basket of mediocre features that nobody cares about.  Approach scoping from the prospective of a 10 second demo - only build what can be demoed in 10 seconds or less.  This is all the time you'll get from a customer or investor.  Spend your time making one amazing magical feature that can wow anyone in 10 seconds.

2 - Getting feedback from non-customers

The first thing people do when building a company is to ask the people around them.  This is lazy and leads to bad information that will lead you down the wrong path.  Focus on customers - people willing to pay for your product at some point.  Ignore all other input.

3 - Building features customers won't pay for

When I started using lean methodologies I quickly found myself drowning in divergent customer feedback.  When asked 'what would you use?', customers will ask for everything under the sun.   The real question is 'what would make you pay (more) for this product'?  If adding a feature doesn't change their willingness to pay drop it.   Only build what changes willingness to pay for a large segment of your customers.

4 - Following advice

Almost all advice is well intentioned, but bad.  Nobody knows your business like you do.  Ask people for their stories, their experience, and their opinion within their scope of expertise.  Do not ask for or listen to anything else.  The worst advice comes from experts outside their field of expertise.  It sounds deceptively credible, but will lead you down the wrong path.

5 - Telling customers what they need

Coming from a sales background I'm naturally inclined to get to 'yes'.  While good sales, this drive is a terrible way to gather data.  When interviewing customers adopt the socratic method - ask questions and avoid making any declarative statements all together.

6 - Not asking for the introduction

Every good conversation you have should send with an ask for introductions to others.  At any stage if you have one person that likes you, your idea, or your product, use them to find similarly minded people.  Birds of a feather flock together, so one fan can usually lead you to more.

7 - Not having a plan

Engineers are often guilty of the 'build first ask questions later' mentality.  Building is the most expensive way to validate an idea.  Create a step-by-step plan which ends with coding - require a high barrier of proof before building anything other than mockups.  We use the rule of 10 - 10 customers must say yes before we move on.  In this model we'll talk to at least 30 customers before coding.  Here's what we follow:

Customer Development Pipeline

Note: after the first couple interviews we lump the first three steps together.  Just be careful to ask them in order so you don't influence the user's perception of the problem with your solution.  Also, drop customers from your funnel if their needs start to diverge from the pack.  You don't need to make everyone happy - just 10.

How to Discover the Perfect Product Design

As an engineering my first instinct is to code first and ask questions later.  At best this results in a product I love, but nobody else cares about.  At worst, it can tie up an entire development team coding product iterations for ages.  So, how can we build the right product the first time around? 

Customer Development.

This is a completely customer centric approach to design pioneered by Steve Blank (who has built several successful companies with it himself).   The basic idea is to start by understanding the customer and then to create a product that suits their needs.  This is the opposite of many traditional companies that build products fist and then test market adoption afterwards.

The fundamental reason this works is that for many products you can test market adoption without a product. 

From my experience 80%+ of a product is in the design – and can be validated with a high fidelity mockup – which is a tenth of the cost of a prototype.  This means you’re getting 80% of the value at 10% of the price.   And, even is money is no object, it will increase you ability to iterate by 10x.

So practically speaking – how does this work?  Here is my simplified 7 step process:

1 - Start with a Thesis and a Mockup

Spent a day (or less) identifying the customer (ie salespeople) and designing the product they want (a mobile notes platform).

2-Make a List

In Excel make a list with the following columns: first name, last name, email, title, company, notes.  Then fill this sheet with as many names of potential customers as you can find.  Great sources for customers are:

• Your personal/professional network
• 2nd degree connections (ask your friends/colleagues if they know potential customers)
• Alumni networks
• Linkedin – just search around and send polite messages to relevant folks.
• Local professional groups.  Most industries have some manner of in person meetings. Just look on google, meetups, blogs to find these.
• Contact people via twitter/their blog/their personal/company website.

3-Send out Emails

Send the people on the list a short and polite email.  Example:

Hi Mr. Smith,

I’m working on a mobile product for sales people and found your name on Linkedin.  Your experience at ACompany looked very relevant to my project.  Do you have 15 minutes to talk in the next few days? 

Thanks,

Cy

4-Conduct Interviews

Sent a lot of those emails out.  Expect less than half to respond.  For the folks that do set up time to talk in person or over the phone have a script ready.  The conversation can flow naturally, but you want to carefully ask questions that start very broadly and then become narrower.  The goal here is to learn as much as possible about the customer without influencing their perspective with your ideas. Example:

1. What do you do?
2. Can you walk me through a typical day for you?
3. How many in person meetings do you have per week on average?
4. How do you record notes during these meetings?
5. How do you use those notes before the next meeting?
6. Would you use a mobile notes platform?
7. Would you use this mobile notes platform (show your mockup)?

*Note: surveys DO NOT COUNT.  You need to have a 1:1 conversation with a customer to truly understand every aspect of his or her life possible.  Surveys presume you know all possible answers before they are offered.  You probably don’t.

5-Followup with Iterations

The greatest reward you can give these potential customer for your time is the satisfaction of seeing the impact of their ideas and feedback. Be thankful (and always send a follow-up note).  Also, keep in touch to let them know about subsequently iterations of the product and to continue getting their feedback on your designs.

6- Sell!

Eventually, through many iterations your product should get to the point where customers are excited and ready to buy.  This is the point where begin to build!  Then, when it’s all done you can sell it to a ready and eager customer base waiting to buy!

7-Groom Evangelists

The last, (but not least) step is to followup with customers using your product and improve their experiences.  If they are ecstatic about your product encourage and provide a channel for them to reach other customers (through their own social media networks, a company blog, whitepapers etc).

That’s it!  If you follow these simple seven steps you will avoid the engineer’s folly of building a great product that nobody wants!  As Steve Blank is fond of saying “Get out of the building and talk to customer!”.

Boston Founders–Hadapt

The next stop on our tour of the Boston Founder ecosystem brings us to the Central Square offices of Hadapt where Co-Founder and CEO Justin Borgman sat down with us.  Their mission to build a SQL layer on top of Hadoop.  This was the first real enterprise startup I’ve had a chance to visit. 

I was quite tickled to see the evolution of big data since I was doing ETL and OLAP at Microsoft 7 years ago.  At this point the concern isn’t as much for what data can be processed – it’s all about how easy it is to access.  The easier it is the more people can use it. 

Hadapt is building the layer that will enable Hadoop to plug into the world of SQL – which enables all of the analytics tools built for a past generation to interact with the bleeding edge in parallel storage.

The Justin’s story was really a great and repeatable one.  At Yale in the hopes of getting a VC job he joined the tech-transfer office (they commercialize technology – every major university has one).  After looking at a few projects – he found the work of Dr. Daniel Abadi who was working on a new adaptive analytical platforms. 

Seeing the potential for this technology Justin worked with Dr. Abadi to build out a small team in New Haven.  After raising a around Hadapt’s talent needs moved them up to Boston where they are to this day.  While a seemingly straightforward story, Justin had plenty of wisdom to share:

• Hire Great  people – In half a glance you can see the rockstar quality in the company’s board.  Justin clearly took the time to seek out and recruit the very best.  He also noted that it’s hard, but critical to be ruthless about building, maintaining, and protecting a great team.
• Find mentors – It’s highly unlikely that you’ll be able to survive the learning curve on your own.  Finding a great mentor with CEO experience is the best way to give yourself a fighting chance to grow into the role.
• Pitch to both coasts.  At worst the West can provide higher valuation deals you can shop in the East.  Competitive pressure is always good.
• The first sale is key – Hadapt closed a Fortune 50 company very early in their lifecycle. And this was done through classic sales (whitepaper download –> call –> meetings) and took about 6 months.  This sale combined with a superstar board of advisors gave investors the confidence to bet big on Hadapt early on.
• Be where the talent is.  Hiring in Boston is generally hard, but it has a disproportionate number of data folks.  Also, Hadapt has a Polish subsidiary that employs many of the talented graduates known by the Polish PHDs that worked for Dr. Abadi.
• Enterprise is slower, more strategic, but less of a gamble.

Boston Founders–Crashlytics

Following the acquisition of Crashlytics by Twitter we sat down with co-founder Jeff Seibert to learn about their journey. 

Crashlytics wasn’t Jeff’s first time at bat.  Out of Stanford he started Increo – a document collaboration and sharing product. This idea started from the simple need for online document collaboration tools and evolved into an incredibly robust online document display technology that was acquired by Box.net. 

After leaving Box.net Jeff started Crashlytics in order to manage the massive and poorly structured crash reporting data generated by mobile apps when they crash.  He built on his professional experience as a developer to create a polished developer tool that all mobile devs need, but which nobody had the time to dedicate to fully solving.

What really struck me was the degree of care and production that went  into everything this company did.  From their website (shown below compared to the FB iOS SDK landing  page) to the slides Jeff showed us – every visible element of the technology demonstrated a true artisanal care:

Surprisingly, Crashlytics was built completely counter to the MVP methodologies.  Jeff candidly stated that they did very little testing.  The team relied on their personal experience as developers and personal taste to product a high quality product.  The stated purpose was to avoid design by committee – which often can lead to mediocre products (that nobody hates, but also that nobody loves).

Jeff was also kind enough to capture 5 tactical tips that every startup hopeful show keep in mind:

1. Incorporate feedback before seeking funding

• Investors are a great source of information.  Use them to learn and make your product better BEFORE asking them for money.  Ideally, by the time you hit them up for an investment they already love you.

2. Balance Team

• Engineers thing that if you build it users will come.  This magic doesn’t happen – there are just too many products in a super crowded technology market place.  Make sure you hire the people you need to make distribution happen.  For most startups today the go to market or customer  needs issues are the key uncertainty – not the product. 

3. Time Your Fundraising

• There are two types of investors – Vision Investors and Momentum Investors.  The former invests in a market/problem and a team.  Their hope is your good is big and you are smart enough to get there.  The latter invest in numbers – # users, growth, run-rate etc.  Pitching a prototype wins you neither of these investors.  Vision Investors just need a team and a deck.  So just pitch that.  Momentum investors need users and traction.  Which leads me to:

4. Investors don’t dots they fund curves:

• 
• A curve is defined by three points.  Investors want to see your inflection at three different points while evaluating an opportunity.  I mapped this to the timing question.  Personally,  my goal is to  now have a meeting at the vision stage, prototype stage, and traction stage.  However, Jeff also mentioned that you can do this with less (Pitch to a vision investor with a mockup, customer requests, and prototype).  The caveat here is that Jeff is a proven entity – if you’re a first time founder you’ll probably need more.
• Take investors out of the office.  Make your pitch in a casual environment (coffee-shop etc.).  And make it a real human interaction (where they are inclined to say yes)– not a pitch (where they are inclined to say no). 

5. Maximize First Time Experience

• This was a huge and really unique part of Crashlytics.  They essentially worked quietly for a long time on a great product and then released it.  There was no big  public beta or hopes that they’d fix issues in V2.  They made a big bet, polished every element to the nth degree and launched.  This resulted in a HUGE splash and customer WOW experience that drove the majority of their positive PR  (and acquisition). 

This visit to Crashlytics was easily one of the most surprising experiences I’ve had in Boston.  I was expecting a classic developer-driven lab that rolled out simple no-frills developer tools (Android I’m looking at you!). 

Instead, we found the Apple Computers approach to SDKs (no surprise Jeff worked there).  Simple, slick, and beautiful tools to give the cubicle warriors the same great experience in the office that they’ve gotten used to in their personal consumer lives.

Pre Code Prototyping

Cort Johnson of Terrible Labs was kind enough to stop by the Harvard I-lab to talk with us about prototyping.  As an engineer at heart my biggest tendency is to build first and ask questions later. I’ve easily wasted years of my life building products to test user demand – when a simple paper (or PowerPoint) prototype would suffice.  So, here are some tips to help you design a great product BEFORE you build it!

 

The Basic Prototyping Process:

1. Plan the tasks you need to test

• Have a clear idea of what you want to learn.

2. Observation

• Watch how users interact with similar or competing products

3. Sketch a user flow

• what tasks needs to be accomplished or what information do we need from the user? Make a simple diagram that links all the tasks together.

4. Beginning with the core, sketch or create simple wireframes of application screens

• Draw simple icons and areas to get a sense for layout. There are great templates for iPhones or websites (or even just paper with a grid of dots) that can help guide this process. A favorite of Cort’s is Pop Prototyping on Paper.
• Cores and Paths – the core is the critical content that people come to the site on. With Flickr it’s photos for a software company it’s the product page. Know that however much navigation you build (from the homepage) know that it’s just one path. Users will mostly likely arrive directly at the critical content – bypassing the rest of your site. Build for that.
• Think about inward paths and outward paths
• What are the user goals and business goals?
• Lastly there are trigger words/content/calls to action

5. Add interactivity and visual polish as needed

• Wireframe – start doing high fidelity wire framing with keynote or PowerPoint. Use conditional links for each button in these presentation systems to mimic the conditional states of your product.
• Fake Doors - Building some new features? Add a button or link that makes it look like the button is there and see how many click on it. Take them to a landing page with maybe a beta user sign up. Don’t build it out until you’ve confirmed interest.

6. Consider audience and intent when selecting the right but make it minimally real

7. Prototype early and often no need to code

And as you’re moving through this whole process here are some tips:

Use realistic content – make it look as close to reality as possible.  Take the time to put real images and real text in there.  People reacting need to focus there.

Test Early Test Often – Make frequent updates and always test first

Consider the Limitations – Keep the impact of the format of the prototype (fidelity/depth) in mind when evaluating the feedback you get.

One Change at at Time – Classic scientific method.  Isolate the variable.  Change it.  See what happens.  If you change many variables at a time its hard to isolate causal vs corollary relationships

Beware of Dead Ends – don’t let a user hit a dead end where they get ‘stuck’ in a state of the app  There should always be a ‘next’.  Users should leave when they feel they are ready – not when they hit a brick wall.

Last (but not least!) here are some really great online resources Court mentioned that will help you get on your way to being a prototyping wiz!

Sketching

• Design pattern library (developer.yahoo.com)
• Templates (interfacesketch.tumblr.com)
• POP for iPhone (http://popapp.in)

Wireframing

• Sketchflow http://microsoft.com/expression
• Axure http://axure.com
• Balsamiq http://balsamiq.com
• Keynote Kung Fu http://keynotekungfu.com
• Keynotopia http://keynotopia.com/themes
• InVision http://invisionapp.com
• http://proto.io

Boston Founders – CustomMade

This week began in the best way possible with a tour of some amazing startups all clustered around Kendall Square (my backyard!). 

First stop was at CustomMade.where we met with their CEO Mike Salguero.  Mike is a Real Estate Professional turned artisan curator.  They had a great story of finding a under-used website that enabled makers (people that create furniture/jewelry etc.) to post their work and attract business.  After some furious fundraising they bought the company, built up the user base, and moved into a transaction mode (where they take a commission on the maker’s transaction).  This transformed the business from an small online bulletin board into the leading marketplace for custom goods worldwide.  Some key takeaways from this conversation:

• Transactions > Fees. While certainly not universally true, the transition from charging a monthly subscription to taking a commission was an infection point.  This makes sense to me since with the former – the makers take on all the risk. In the latter model the risk is aligned to the makers’ success.  If they don’t gain any value from the site it’s free.  And, if they do make some sales I’m sure they are happy to give a small piece to CustomMade.
• Customer is all about the inflection point. You do thousands of little updates every single day, and one of them will hit.  For Linkedin this was the big button to connect address books.  For Hotmail this was the ‘sent from Hotmail’ tag.  It will be trivial and you won’t know before hand what it is, so just keep the ‘innovation flywheel’ spinning!
• TopGrading – test people in situation to find the best employees.  Need to find someone versatile?  Move their interview room 2-3 times and see how they react.  Mike loved getting this insight early on.
• Culture first – Mike liked people with passion and without ego.  He was a proponent of protecting this no matter what. 
• Motivate your team with customer stories – Mike loved telling stories of how much makes loved CustomMade and customer loved the products they received.  Especially hiring folks passionate about the mission this was the core motivator.
• SF>Boston.  Sorry Beantown, but the talent/funding pool in SF is just so much bigger its hard to compare.
• Be super aggressive about asking for help.  Certainly something I took to heart.  There are a ton of amazing folks with experience in Boston who can and want to help. Go find them and get helped!

F-ing up Feedback

Through some really challenging conversations with advisors I’ve gotten the kick in the pants to re-evaluate my management style. The conclusion I came to was the biggest area for growth was in feedback (irony knows no bounds!).  Giving feedback is hard and temporarily uncomfortable, so it’s something I often postponed to big mile stones.

However, through much reading, adjustment, trial and error I’ve settled on three Fs for feedback:

Fast – Give the feedback in the moment.  Immediately after the action everything is fresh in the recipient’s mind.  This is the best time to trigger reflection and growth.

Frank – Be brutally honest.  Any beating around the bush or ‘cushioning’ to save someone’s feelings only obfuscates your messages and robs the recipient of a valuable learning opportunity.  That is not to say you need to humiliate the person with mean or public feedback.  Just deliver an objective statement in private, answer clarifying questions, and leave to let the recipient reflect.

Frequent – Do this often.  My biggest failing was to wait for big milestones. It’s important the feedback is separated from performance/compensation review.  Frequent feedback builds the trust that the information is simply there to help – nothing else.  This will take the pressure off and enable the person to respond positively.  Also frequent feedback cuts up changes into small chunks – making it easier for the recipient to internalize and adopt.

If you’d like to read some more on this topic from a truly great mind – one of the most pithy descriptions of good feedback comes from Ben Horowitz: http://bhorowitz.com/2012/10/17/making-yourself-a-ceo/

So go forth and F up your feedback so you don’t f**k up your team.

Revel in Failure

I often hear long discussions about the right time to found.  However, I truly believe the question is if not when to be a founder. The simple fact is startups are never worth it. The price you pay as an entrepreneur in time, energy, and stress is never worth the monetary rewards. A founder has to be motivated by a passion for pursuit. And if you have that passion – the right time to found is right now!

Founders are attracted to the challenge of creating something from nothing. The careers of serial entrepreneurs are marked by a continually escalating set of challenges – this is why we see Jeff Bezos of Amazon launching rockets and Bill Gates trying to eradicate malaria. Both of these founders have successes that will impact the lives of millions for generations. And yet, they are all still on the hunt for the next great pursuit.

A big part of escalating risk is failure. If the motivation is to seek greater challenges with unknown outcomes – failure transforms from a possibility to the inevitable. Love of failure is the hallmark of a serial entrepreneur.

Success just isn’t as interesting. When you’ve won the path forward is often smoother – and more mechanical. It’s just more of the same. And, if you keep consistently succeeding, it’s clear that the challenges you are choosing are too conservative. If you’re not failing you’re not taking on big enough challenges.

Failure is where the excitement is. I love this risk – and live for it. That’s why I’m a founder. I look back on the last three years I’ve spent building companies and I cherish every single experience – the failures even more so than the successes. The moment you know that it’s not working you get to look over the precipice, see all the options below, and leap.

The only reason to do a startup is because there isn’t another option. Founders need to imagine a future – and know they can be happy having taken a shot – without regard to the outcome.

If you’re considering a startup life, do yourself a favor and first ask: can I revel in failure?

Trend Report: Chi-Hua Chien from KPCB

On my usual perusal of TechCrunch I found an unusually straightforward set of insights from an Ask A VC Interview with Kleiner Perkins’ Chi-Hua Chien.   Some key takeaways:

• Mobile first.  While they make life easier for consumers the real shift is what the enable on the supply side.  If you look at companies like Uber, Cherry, and Zaarly – they require that suppliers have mobile POS systems (iphones) that are able to take orders and manage payments for any vendor that is constantly on the move.
• Realtime reporting. Companies like Charity: Water have taken advantage of plummeting hardware costs and improved telecom technology to provide an unprecedented level of realtime reporting.  In the case of Charity: Water  they’ve used this to provide a new level of accontability to their charity operations – so a consumer can understand exactly how much water their specific well is providing – the most concrete measure of impact for your donation.
• Favoring enterprise over consumer.  This is a new trend driven by the fall of the frothy consumer financing market.  Just forget it. The top consumers companies (Facebook, LinkedIn, Twitter) were founded in the dark days of the web (‘04-‘06) when people were fearful from the post ‘00 bust or the explosion of Google.

His closing thought (and my key takeaway):

“If you have a vision, passion, and a very clear problem as an entrepreneur don’t worry about what ventures investors are funding or not funding.  go build a great product in a great market and you’ll get funded.”

Building an Enterprise Netflix Style

A recent TechCrunch Article introduced the Netflix Culture with the quote from Sheryl Sandberg that this was “The Most Important Document Ever to Come Out Of The Valley”.  While overblown (Moore’s law anyone?) the monster 128 page deck does contain some gems:

• The valley of death for big companies comes from scaling up complexity with procedures.  These procedures enable mediocre employees to persist while making the business more inflexible.  This creates a cost effective juggernaut that has no ability to respond to market conditions. 
• I’ve seen this in every single big company I’ve been around.  Netflix makes the big bet that they can survive by having a team of superstars with a high degree of flexibility who fanatically drive down business complexity. 
• Treat you team like a pro sports team. Keep only superstars in specific positions your team needs.  Cut everyone else.
• In the same vein – pay them like superstars.  Everyone should be paid at the top of their market worth and employees should be ‘re-hired’ every year at the appropriate salary.  This is HUGE.  If I stayed an engineer at Microsoft I’d have to get 2-3 promotions to get to the same base as the incoming class of college hires from my alma mater. Ridiculous and common for almost any big company.  This is the leading cause for folks to bounce around the big five tech companies.  What an inefficient process.  
• Give up the complex expense policy.  Make the process transparent (so everyone can see what you spend on), but don’t try and legislate every single spending rule.  Microsoft wouldn’t buy me a GPS ($150), but it would expense one on rental car ($1000/yr).  Go figure.
• “If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders.  Instead, teach them to yearn for the vast and endless sea.” –Antoine De Saint-Exupery The Little Prince
• Netflix seeks to create well aligned but loosely coupled teams.  With really high performers, if you can get them behind the mission, and take compensation off the table (by paying ridiculously well), they can dedicate manic focus to doing the right thing.  Make it about the work.

While Netflix is certainly an embattled company with some MASSIVE BLUNDERS in its past (that call to question the whole superstar idea), the dream that this deck outlines is one of the first legitimate templates for building a big business with multi-generational potential.

Cheers to you Mr. Hastings!

Culture (2009) from Reed Hastings

Book Report: Click

Ever wonders what makes people click?  Brothers Ori and Rom Brafman tackle this timeless question (well!) in their new book Click.

They cite five primary factors that make people ‘click’:

1. Vulnerability.  While certainly not a risk-free activity, sharing a personal vulnerability is an immediate way to appear authentic (you are placing truth over pride) and confer trust.
2. Proximity.  Most relationships (personal or professional) are dictated by distance.  Be where the people you want to meet are.
3. Resonance.  Sympathize with your audience and communicate your authentic understanding of them and their situation.
4. Similarity.  The shocker here was volume trumps quality.  People are more likely to perceive more closeness with another that shares a number of trivial similarities (same hometown, birthday, favorite ice cream) than a singe large one (career choice).  While counter-intuitive to me, I can understand how the discovery of each new (even trivial) similarities is a cue that re-enforces your bond each time it occurs.
5. Safe Place. This can be determined by frame (we are the most similar people in this room) or by a common adversary (we’re in it together!).

So if most of these factors are pre-determined what is one to do to improve the situation?  Of the many ideas outlined my takeaways were:

• Personal Elevation.  The vast majority of people have a complimentary person.  Be it personal or professional, there are people out there that make you more than the sum of your parts.  Find them.
• Modulate expression.  The ability to match your expression to the common level of the group demonstrates a strong awareness and creates comfort (see similarity).
• Be the Hub.  Helping people meet is the most powerful way to meet others yourself.  There are always those that are at the center of communications.  If nothing else, identify the hubs in your life!

While I approach many of these pop-psychology books with a healthy does (or two) of skepticism, Click really delivered on some intuitive observations followed by quite a few actionable recommendations.

All the factors that make you Click are current.  It will align your present selves, but not your future goals. I think of the aspects of Click as an emotional fit (heart) – don’t forget about the intellectual fit (head)!

Priority > Urgency

Time is the most precious of commodities.  However, the vast majority of people I know are unable to effectively manage their time and allocate this limited resource to the most important tasks.

The biggest challenge here is confusing urgency with priority.  Urgent issues are one that need to be dealt with right now!  If you don’t act now, the opportunity disappears.  The pressure of an exploding opportunity often spurs us to action.  At HBS we fondly refer to this as FOMO (Fear of Missing Out).  On the other hand, items with priority are those which are truly important to you.  The stuff that matters.

As responsibilities and opportunities grow (and they inevitably will over time) the number of urgent tasks will quickly grow in volume to consume your enter life.  Without careful thought this can lead any but the most deliberate to spend their whole life blocking and tackling the urgent minutia – and completely missing what truly matters to them.

So how is one to avoid this trivial existence?  Triage.  Just like in any good intake ward – there are firm rules for who to treat first – the same should exist for your life.  Take a day and make a list of the most important goals in your life (build a great company, find a spouse, grow my relationships with close friend/family).  Then, be ruthless.

Every opportunity should be compared against that list of what matters to you.  If it doesn’t fit into one of your life goals.  Just say no! Nothing is  more liberating psychologically and nothing will make you more effective at the things that matter.  High volume mediocrity is still mediocrity.

If you’re a young employee – this is especially important to keep in mind.  Everyone will try and dump thankless work on you.  Don’t take it.  If you don’t gain anything from doing minutia (and if you’re at a big company you won’t).  Just say no. Don’t do things just because you are asked to.  Take  a strategic view.  If it doesn’t help you in the long run Go find better things to do with your time that will make for a great resume bullet point.

As a parting thought, I’ll share one of the most insightful questions of my first year – posed by Shikhar Ghosh. If you’re around 30 years old right now you have 50 years left.  Another way to look at this is 50 years x 50 weeks – you have 2500 weeks to live. 

What will you do?

Whaling Venture Capital

In the new semester I’m enrolled in a course on the history of Venture Capital with Felda Hardymon and Tom Nicholas.  The fist case traced the history of the industry back to the swashbuckling day of hunting whales for oil (sorry PETA).

At that time there were three parties involved (aside from the whales):

• Investors – wealthy individuals (doctors, lawyers, merchants) looking for investments more exciting than banks and mortgages can offer.
• Captains (entrepreneurs) – they ran the ships and were the operational engine behind the venture.
• Agents (VC) – the folks that coordinated captains and capital to get expeditions funded and underway.

Sound familiar?  This system, pioneered with the advent of new money (folks who can finance ventures that aren’t kings) required a new kind of coordinator who could aggregate capital and link it to strong capital.  Enter the Agent (aka VC). 

This model is a very high fidelity echo of the world we work in today.  Everything from the risk distribution (your ship sinks/you catch a whale) to the distribution of returns (the few most successful enterprises reaped the vast majority of rewards).

What’s fascinating is how economically impactful this model was.  Of the 900 whaling ships at the peak of this industry (which could bring in almost $100M 700 were American.  Why?  America was the country that truly embraced the Venture Capital Model.  To this day, Venture Capital is by far the most effective way to translate capital into job growth.

The hall marks of the VC asset class are:

Persistence.  This means a successful firm will likely continue to be successful.  Making investments in companies is very difficult to externally verify.  A huge amount of trust and instinct goes into the decision making process on all sides.  Subsequently, personal relationships are at the core of this industry.  As you are successful and grow – so do your relationships.  This also exists in Private Equity – making VC/PE the most persistent investment classes (by far!).

Cyclicality.  Whaling, like startups, follows a boom and bust cycles.  Either you catch the great white whale or you don’t.  Boom or Bust.  The returns on these investments (adjusted for risk) far outweigh those of any other class.  However, investors need to be able to whether the storms (aka losing all your money).

If nothing else we can all feel a little more rugged and seaworthy – as we are the whaling captains of modern day.  Just avoid being Ahab!

David Teten of ff Venture Capital on White Space

Today David Teten came up from New York to share his years of entrepreneurial and investment experience with the Harvard GASA Business Club.  In addition to being a Partner with ff Venture Capital he is the Founder and Chairman of the HBS Angels of Greater New York. 

The talk was split into two major parts: picking a company and then making one successful (eg sales techniques).  David’s primary recommendation – which was re-emphasized throughout his presentation – was to pick a market with few competitors.  He noted that even great markets can lead to depressed returns due to overcrowding.  He also introduced a couple Market Maps which serve as a good guide to identify holes:

While the second half of his talk was designed to aid in conducting research on your new idea, all of the techniques were very useful tactical recommendations that will serve an entrepreneur throughout the life of a venture:

• Search Google for specific file types (pdf/ppt/doc) to find some great presentations/material on your competitors
• You can get access to a lot of great research through a Charles Schwab Account
• Use trackers (ie compete.com) to keep a finger on the pulse of your competitors.
• Conduct polling – adwords, google docs, survey monkey, and now google consumer surveys!
• Use a combination of affinity, information, other's’ credibility, and ego boosting to get people to return your calls.

Also, as a closing note David’s site (http://www.teten.com/) has an amazing wealth of great content.  I particularly loved the section for CEOs/Founders.  And, he was kind enough to include a video of this presentation and slides online.  Thanks!

 

 

The Next Great Entrepreneurial Opportunity: How to Identify Market White Space from David Teten

i-Lab Silicon Valley Trip in Review

After a long 10 days on the move and a redeye return flight I’ve just started to catch up on sleep from the whirlwind tour of Silicon Valley.  First, I wanted to include a couple pictures that didn’t make it past twitter from IDEO:

Our seminar in design thinking from the best:

We ended up building a prototype for screens that would play cute/funny videos in airports.  Stressed out waiting at the gate for a delayed flight?  Look at the puppies and feel your blood pressure drop!

One of many amazing prototypes kicking around the IDEO offices (a bike that pumps water as you pedal!):

And, to put a bow on the trip I took some time to consider and consolidate all of the advice, stories, and experiences that were shared by the great folks who took their time to speak with us.

• There has never been a better time to start a business. There’s a lot of money out there.  VC/customer standards are getting higher – only because the barriers to entry (building/distribution) are getting lower.  All in all life is getting easier for entrepreneurs.
• It’s all about execution and traction – not ideas.  Ideas aren’t worth signing an NDA.  VC’s probably can’t think like your customers.  Everyone relies on evidence.  Build only to elicit customer feedback or observe customer behavior.  That should be the driving mantra for everything you do.  This is MVP.
• Be intellectually honest.  The biggest failures I saw came from great sales.  They sold themselves and they sold others on a powerful idea.  The rest of the startup exercise was simply confirming the bias.  Beware of this tendency (especially if you’re are a natural seller).  Use great scientific practice to find a great idea with proven promise.  THEN sell the living daylights out of it!
• Think BIG.  VCs want markets in the $1B range.  Every VC has a sweet spot between ridiculous ($1 Trillion) and to small ($50 Million).  It’s hard to say what the limits are but everyone liked business with single digit billion dollar potential.
• Expect to have an early prototype with strong traction, a great team, and a huge market before looking for VC.  Angels may only need one of the three to invest.
• Keep in touch.  Just like entrepreneurship is a career – not a shot in the dark – everyone you meet in the startup ecosystem is a colleague.  Approach everyone from VCs to founders to customers with the knowledge that you’ll see them (especially if they are great) again and again.  You’ll develop a relationship over a lifetime – even if they didn’t fund you, work with you, or buy from you.  A “no” just means “not yet”.

And, in case you missed my cross-post here’s the post I did for the i-lab blog: What Investors Want with a Twist of d.school.

AngelList Launches Valuations

Ever wondered what the going rate for seed stage valuations is?  AngelList just launched an fun tool that easily lets you browse the valuation distribution for seed stage only investments: https://angel.co/valuations

This is especially useful, since at the seed stage, company valuation is much more dependent on founder credentials (you!) than at later stages (traction/evidence takes precedence).

The first thing I did was take a look at how my background maps to valuations.  The big surprise was that the valuations in Cambridge were almost a million dollars lower than those in Silicon Valley – further stark evidence that valuations are relatively depressed outside the Valley (fundraising road trip anyone?).  My full list for BuildAFlock is as follows:

College - Harvard	4.1
Incubator - Startup Weekend	2.7
Employer - Microsoft	4
Quarter - Q4 2012 (most recent)	3.9
Location - Cambridge, MA	3.8
Market - Location Based Service	3.2
Average	3.8

I’m not sure how much faith to put behind the statistical mean here, but I do like the fact that this at least provides a range.  And, if nothing else browsing the numbers while thinking about BuildAFlock as a $3.8M company is a ton of fun!  What’s your number?

Swing for the fences

The closing speaker for the i-Lab’s Silicon Valley trek was Randy Komisar of KCPB. In addition to being a general partner, Randy is the author of the Monk and the Riddle and lead investment partner for Nest. 

With such a long history in the Valley Randy was the perfect person to provide a longsighted perspective to put our whirlwind tour into perspective.  Here are some of my takeaways from his talk and Q&A session:

• Execution is underplayed in TechCrunch, but is the key differentiation between success and failure.
• It’s all about timing.  The tablet wasn’t revolutionary.  It was just launched at a time when the parts became cheap enough to support a broadly appealing price point.  Steve job’s genius was in timing – he struck at the right time again and again.  Also, he was never ahead of his time.
• No great company has been started in Silicon Valley as a lean startup.   For nest they know they’d have to invest $100M.  Have a big ethereal vision attached to a small solid grain of traction.
• VCs are a herd.  Wallstreet is at the head of the herd.  Everyone else is trying to funnel in and get into the front of the pack to be the first in line for an IPO or M&A deal.
• Only 25 VC firms make money.  The rest don’t.
• It’s more likely for you to be replace as CEO of a successful company than a unsuccessful one.  As a great business scales an entrepreneurial skillset is less valuable at the helm.  If a business is still struggling to find it’s footing – the original entrepreneur is the person you want at the head.
• Entrepreneurs rarely understand the competitive landscape as well as they should.  Understand the past, present and future landscapes.  Learn why your idea may have failed in past ventures.
• Entrepreneurs generally don’t have a good idea of what’s going on around them.  Avoid tunnel vision.
• Don’t leap to the final vision.  Nest is building an internet of things.  But they’re going to start by building a revolutionary thermostat.
• Read Getting to Plan B.  Randy mentioned this book several times as a great framework for thinking about startups.
• Entrepreneurship is important because it challenges the status quo.  It’s about questioning everything that doesn’t work around you every day. 
• Attack a problem with your passion (work on a problem you care about).  If you divorce the two you’re at the squeaky end of entrepreneurship.
• Entrepreneurs are fueled by a passion to change things for the better.  They believe they see something nobody else does.  And they want to make this vision a reality.
• To find a great idea – take stock of the things you care about and then search for opportunities within those areas that match your capabilities.
• Look for the smartest highest integrity people possible to get the best downstream opportunity set.
• Young people shouldn’t try and start companies.  95% of them will end up with nothing to show for it in 10 years.

With that sobering closing remark (which I personally disagree with!) our Valley experience concluded.  I couldn’t have asked for a more well rounded vision of the bleak challenges and incredible promise that come with becoming a career entrepreneur.

What World Will You Enable?

To end our last day of VC visits in the Valley we spent the afternoon with Adam Nash.  Adam is a true Silicon Valley veteran who has led product for some of the top companies including LinkedIn, Ebay, and Apple. 

He was most recently an EIR at Greylock, and has recently joined WealthFront – a company dedicated to democratizing access to the financial instruments currently available to high net worth individuals.

It was a unique opportunity to talk with such a thoughtful and experienced person at a time of transition.  During the course of our conversation Adam honed in on the reason for joining WealthFront.  He said that if he didn’t join the team their vision of the future – one he was deeply passionate about – may not come true. 

This criteria resonated completely with me and will be carried forward as the new lens of legacy to evaluate my ventures moving forward.  Whether founding or joining a startup – being a part of an early team requires a complete investment of your energy, time, and reputation.  And – it often will last far longer than one would expect.

Most entrepreneurs are inclined to act.  They want to jump in and get stuff done.  In almost any business this is a great attribute.  However, in the quiet time, the time before the business has been chosen or formed – we all need to take the time to make sure we choose a path that we’ll be happy walking for the next decade. 

I’m very happy that BuildAFlock meets that criteria for me.  If we can create a world – where in the next decade – I can get up and go to a great dinner party any night of the week – I would be ecstatic.  I know I’d be having more fun, and I know this would create the closer communities we all crave.

So let this be the premier test for what is worth making the all-in investment of your entrepreneurial energy:

Will you be a critical member of a team that is making a vision of the future that you are passionate about reality?

Move. Faster!

Today we were lucky enough to get some time with Mike Cassidy at Google.  He was far from the expected big tech management speaker.  Mike’s a veteran leader of four successful startups (Stylus Innovation, Direct Hit, Xfire, and Ruba) and came to Google by way of acquisition.  Now he’s part of the clandestine Google X Labs which works on big picture projects like the driverless car. 

Mike is the rare person that carries himself and his interactions with urgency.  Everything from his presentation to conversation style screamed “Lets get going!”.  Quite appropriately the theme of his (well known) talk was on the role of speed as a central business strategy.  My takeaways:

• Raise before an inflection point in valuation – it lowers closing cost/time
• Move fast and get all decision makes in the room before pitching
• Get contracts and LOIs from enterprise customers
• If you haven’t built it at least have a plan down to concrete actionable details before pitching
• Hire experienced people – no amount of all-nighters can make up for the speed 5-10 years of experience programming will bring.
• Make an offer same day.  Draft the offer in the morning, complete a reference check at noon (if the interviews are going well), and hand the candidate an offer letter on the way out.  Ask for an answer the next morning – you don’t want to let them shop it around.
• Set up all the infrastructure an employee needs day one so they can hit the ground running.
• Probability of a deal closing falls 10% every day in doesn’t close.  Put pressure of the other party to close or cut your losses early.
• Pivot hard and fast.  3/4 of Mike’s companies were very different from the original idea.
• Find great people with great ideas. 3/4 of Mike’s companies were initiated by his co founders (housemate/fellow alum/industry expert).  He also mentioned scanning the MIT 50K (now 100K) site for interesting projects: http://www.mit100k.org/accelerate/2013_semi_finalists/
• Start small – his first market was only $20M (telephony). You learn the ropes of a business and can build great personal value in that space.
• CAC < LTV.  The CAC (Cost of Acquiring a Customer) must be less than the LTV (LifeTime value).  This seems obvious, but it’s important to plan for and have a good feel for how this metric is evolving in your business.

From the launch timeline Mike laid out (above) I feel pretty good about BuildAFlock.  On a small/prefunded scale we’ve follows this pretty closely to get from ideation to launch in about 3 months.  However, I’m very curious to see if we can maintain this pace at a Series A scale. If you’d like to take a look at his slides I found an old version here (content looks very similar):

http://www.slideshare.net/dmc500hats/best-strategy-is-speed-startup2startup-may-2008