Top 10 Startups Sources, Blogs, News | Top 10 Aggregator

Mixergy

Get Satisfaction: Bouncing Back After The Economy Goes Bust – with Thor Muller 5 October, 2012, 6:00 am
Imagine the economy goes bust and you have to sell your company at a liquidation price. How do you come back after that? Well, that’s what happened to Thor Muller. I invited him here to talk about how he withdrew from the tech world after that setback and how he came back stronger and co-founded Get Satisfaction, a platform that supercharges customer service online. Thor is also the author of the hit book, Get Lucky: How to Put Planned Serendipity to Work for You and Your Business. We’ll talk a little bit about that book too. Watch the FULL program Prefer audio? Great! “Right click” here for the MP3 format. About Thor Muller Thor Muller is the co-founder of Get Satisfaction, a leading customer engagement platform that helps companies build better relationships with their customers and prospects. Raw transcript Mixergy’s audio transcription is done by Speechpad Andrew: Before we get started, what can listening to Mixergy do for you? Well, Clay Collins told me that he launched a successful software company as a direct result of listening to interview like that one you’re about to enjoy. Check out one of his products at welcomegateapp.com. Have you seen how I ask first time visitors of my site to register? If you want to add that feature to your site and really grow your email list and registration rolls, get that free tool from welcomegateapp.com. Another fan, Owen (?) runs hireyourvirtualassistant.com. He saw a Mixergy course on how to close sales and he says he still grows his sales using a script that he learned from that course which helps him sell to the right customers. So, if you want to hire a virtual assistant, check out Owen’s site at hireyourvirtualassistant.com. Those two fans just got free ads on Mixergy, thanks to Scott Edward Walker of Walker Corporate Law. What do I mean when I say Scott is the entrepreneur’s lawyer? You’re father’s small town lawyer, well, he doesn’t understand how to structure a funding agreement, right? Those big firms in Silicon Valley, they’re going to charge you an arm and a leg or maybe even take a big chunk of your equity. When you’re ready for just the right fit, go to walkercorporatelaw.com. Let’s get started, guys. Hey there, freedom fighters. My name is Andrew Warner and I’m the founder of Mixergy.com, home of the ambitious upstart. Imagine this. Imagine the economy goes bust and you have to sell your company at a liquidation price. How do you come back after that? Well, that’s what happened to Thor Muller. I invited him here to talk about how he withdrew from the tech world after that setback and how he came back stronger and co-founded Get Satisfaction, a platform that supercharges customer service online. Thor is also the author of the hit book, “Get Lucky. How to plans serendipity to work for you and your business.” We’ll talk a little bit about that book too. Thor welcome. Thor: Thank you. Thanks for having me. It’s good to be here. Andrew: How many people are on Get Satisfaction? How many companies actually are on Get Satisfaction right now? Thor: I think we’re going on about 70,000. Andrew: Some of them are paid and some of them are free? Thor: That’s right. We have several thousand that pay and then we have, you know, tens of thousands of companies from large companies to small companies that use our services for free. Andrew: What’s a typical charge? Or what’s that smallest charge? Thor: The smallest charge is about $20 a month. Andrew: How many companies do you have paying that? Thor: Oh gosh, I haven’t looked at these numbers in a while. Andrew: You haven’t been with the company for about nine months. We’re going to talk about how the idea came to you and how you grew it. We’re not going to talk about topical events. So, roughly nine months ago where were you guys? Thor: Where was the company? Interestingly if I was to chart it, I don’t have exact numbers, but the biggest number is not the lowest number. The most popular plan was the $50 a month plan. Andrew: Wow, OK. Thor: You know, there is this truism in pricing. Strategy which is you have your small, medium and large, and you really ultimately want people to pick the middle one. I mean you want them to pick the big one, but if you do, you’re pricing strategy right. The big one is aspirational. The small one is…most people don’t look at themselves as being a tiny company. They want to be reaching for the stars, so the middle price is right. It’s the Goldilocks formula. Andrew: I see. How many paid customers did you have? Thor: When I left, there were about 2,500. Andrew: OK. That’s pretty strong. Thor: We also have enterprise customers. The way we think about it is there are free customers. There are self-service customers who pay between twenty and a few hundred dollars a month. Then there are enterprise customers who need additional services, more enterprise features and they will pay thousands of dollars a month. Andrew: I’m writing a note here to make sure that I come back and follow up. I’m going to take this interview in chronological order but I want to make sure and follow up and ask you about how you guys get customers. How you got your first customer? Let’s go back to that time when right after the setback you peaked at 30. You and your wife decided your wife would go back to work. Can you take me back into that conversation and tell me that story? Thor Muller: Sure. So I was like a lot of 20 something’s in the late ’90s, 2000 period where, for me myself I got pulled into the Internet out of love of what it could be. It was 1995, there were no jobs in the Internet. In fact I would call around to companies to ask if they were hiring for a webmaster and they said, what? You mean like AOL? And so I had to start a company, give myself a job in the Internet. And it was simply because it was what I wanted to be doing. But a few years went by and if you weren’t a millionaire by 30 you were doing something wrong, that was the ethos of that time in San Francisco. It was kind of disturbing. And we chased after the big girl opportunity and raised 16 million dollars for this company I started called Trapezo. And it was a classic solution in search of a problem. And today we talk about lean start up, methods where you’re constantly working with an audience to make sure your product fits with the market wants. Well we didn’t have that method at the time, at least it wasn’t the method we used. And so even though we had some great technology, we had some great customers, a couple of years in. As the rest of the market was collapsing we got pressure to sell the business for pennies on the dollar. So it was a soft landing in a sense that we didn’t collapse. But it was definitely not a win. But that wasn’t really the hard part. The hard part was that I thought, I’d come to think of myself as a good entrepreneur, somebody with really desirable skills and knowledge about the Internet. The problem was that in 2001, 2002, there was such a fallout, the nuclear winter as we called it, from the dot.com bubble burst that nobody wanted to be associated with an entrepreneur, or at least somebody that had been only an entrepreneur, especially in the Internet. So I felt basically like I had a bunch of skills and a bunch of interests that were unmarketable. So I retreated, my wife and I we retreated to a little house that we bought with the few dollars that we’d actually made on the sale of our previous company. Andrew: How much? Thor: How much did I end up taking home? About $100,000 which is basically, what happens is when you’re a founder and you have assets and the board wants you to agree to a sale that’s not in your interests, they will often sweeten it for you. And so they basically gave me a chunk of a year’s salary to take the deal. Andrew: Like severance. Thor: It’s like severance, basically. Andrew: A strong severance. Thor: And it was great that they gave me that severance. They certainly didn’t have to. There were ways they could have just rolled over me. But, and so that was enough to buy a house. I bought a house outside of San Francisco, in Napa, which felt like a million miles away as it turned out. And I proceeded to take some consulting work and feel like I was fading away into the sunset, my best days behind me. So it was a sad moment for me, I definitely felt over the hill. And…. Andrew: Why? Help me understand that. And I was in a similar situation. We did really well with Bradford and Reed and I still felt like, maybe my best days are behind me. Maybe these super powers that I thought I had for entrepreneurship and business, maybe I don’t really have them. I was just second guessing my ability, second guessing my place in the world. I know that someone who is listening to us right now would think, hey Thor ended up with $100,000, a house, a decent track record. What does he have to second guess himself about? Why would he think that his best days are behind him? And still you did, why? Thor: Well part of it’s just turning 30. It’s probably like any milestone like that. But a lot of it has to do with the culture I think of tech start up scene where even then where there are, no matter how good you are there’s always somebody better. There’s always somebody who’s been more successful and so it’s very easy to fall into the trap of comparing yourself to others. So that was part of it. Part of it was also that I couldn’t get hired. I decided at that point I wanted to go get a job. And I started taking some meetings, the few meetings that were offered to me. And to be fair I probably wasn’t as aggressive as I would have been, had I been more confident at that moment. But, nobody hired me. And, the few people who I thought I was a shoe in, because I thought I had perfect skills and I had what they needed. They told me that they felt I was an entrepreneur a flight risk. They didn’t think I could stick it out at a big company. Andrew: And, was it true? Thor: Yes, actually, So, in retrospect, I would not have done that well at those companies. I think. But, of course, I went on to start other companies. So, self-reinforcing cycle for me. Andrew: But you know what, Thor, you’re not a developer, right? Thor: No. I am. Andrew: You are. Thor: Yeah. Andrew: So, couldn’t you have gotten a job as a developer? Thor: Well, let me explain. So, I am a developer, but at the time, I didn’t think of myself as a developer. Andrew: Why? Thor: Because I’d been a jack of many trades. I had coded since I was a kid. But, my first company was a web design company back in 1995. And, I had a partner who was a designer. And, I did everything he didn’t do. So, that included programming, that included design, and that included a lot of business stuff, selling stuff. And, so, a lot of my jobs, particularly up to that point, were very focused on being that jack of all trades entrepreneur. Andrew: I see. Thor: And, so, I devalued, as a result, some of my core skills and most marketable skills, like programming. And, really, I think what shifted for me is that I’d basically fallen out of love with the Internet. Between 2002 and 2004 or 2005, the Internet didn’t go away. Instead it became the domain of SEO experts, e-commerce merchandisers. Andrew: Affiliates. Thor: Win by any means entrepreneurs. So, while the venture capital seems to dry up, there was a lot of innovation happening with the kind of block and tackle area of building Internet businesses. And, my consulting work was doing more and more of that. I was programming to those ends as well. But, something magical happened in 2004/2005, this kind of pragmatic, not very sexy area of the Internet, that I’d been dwelling in, took a back seat as I noticed there was this new breed of web application emerging. Social software and social networks. Specifically, Delicious, and, more importantly, Flicker. Flicker, when you look back on it, was the Xerox part of web 2.0. Everything we came to think about in terms of web 2.0 was in Flicker from open APIs, social sharing, all the troupes of social networks in terms of very personable avatars, profile. Everything. Andrew: Even the way they allowed you to arrange your photos within a photo album on the web, not in an app, but on the web. I remember being revolutionary. Thor: Exactly. And, the fact, that it was not about printing. Here’s photos. It wasn’t about printing. It was about creating a social object that brought people together. So this is just all the things that Flicker did have been defining components of virtually all of the big hits in the consumer Internet space since. Right? Whether you’re talking Facebook to Instagram. And, this is probably one of my worst skills, seeing these trends early. I mean, I saw that and within 24 hours, I said, “OK. This is really big. And, this is really meaningful.” Because it was why I got interested in the Internet in the first place. Is that it was humanizing. And, so, from that moment, I said, “OK. I’ve got to figure out how to get back into that. Into this space. Into the flow.” Andrew: This is while you were being you were being a consultant or this is what got you to become a consultant? Thor: No. I’d been a consultant. But, I was doing this kind of block and tackle Internet work. Andrew: Forgive me. Let me spend a little more time on this earlier period of your life. First of all, I want to understand. The last days of Trapezo [SP]. Am I pronouncing that company name right? Thor: Yeah. Andrew: You were fairly checked out. You actually told Jeremy, our producer, that you want to go. You didn’t want to go to work anymore. You just started to make a movie. Thor: Yeah. That’s right. Andrew: Why? Thor: So, the original idea for Trapezo was a bit of futurism. Right? I said there. Today and the mid-90s, we were focused on building websites, getting people to our websites, the future of the Internet is going to be about being wherever your audience wants to be, happens to be, right? It’s about distributing your content everywhere. So that was fine. But the process of selling this idea to investors and to co-founders, co-workers changed it from this kind of pure idea, which is good and natural. And we eventually came up with a business that seemed to justify the vision. The problem was that business I was not very interested in, right. And so I think it’s really important to take pure idea and expose it to reality and build something that is actually useful for people. But you also have to want to be spending your, a bulk of your time on building that. And this is the key thing for anybody practicing the lean startup methods as well which is if you’re not careful, you’re just doing lots of AB tests, you can end up building an online gambling or porn site. Andrew: Right. The market’s going to take you where there’s profit, not necessarily where there’s meaning. Thor: Yeah, exactly. And you can miss actually the bigger opportunities. So really being clear about what you care about and want to spend your time doing is an important part of the process for an entrepreneur. I did not do that. I basically was following the feedback of others to the exclusion of my own instincts. Andrew: So how do you stop that? I mean even internally at Mixergy people will tell me, Andrew, you need to focus more on conversions, you need to focus more on marketable interviews. The whole interview series of where I interviewed failed startups didn’t get any traffic really, not compared to the average interview. And still I feel like there’s meaning there. I feel like there’s a bigger purpose there. How do I keep myself focused on that? In fact, am I even making a mistake to want that instead of focusing more on the revenue? Because revenue indicates what the audience wants. Thor: Yeah, to some extent. I mean I think about Pixar and they have this model where they, I can’t remember exactly what the formula is, but for every three merchandising heavy movies that they make they make one movie like Up, or like Ratatouille, which is really for the artists, right? And that is art in and of itself. And they really don’t think about merchandising. And I know that when they were separate from Disney there was always this tension that Disney, who was their partner at the time, we can’t merchandise old man and Up? (?) buy an old man doll. But Pixar remained true to that vision and I think that that’s a great model to have. You can have commercial success and metrics driven view of your business and have a kind of pure vision that can (?) with. Andrew: That makes sense. Thor: Now Pixar’s approach is one approach, it’s more of a buy for kids approach. There are others like Apple, which is a sort of overused example, where they’ve embedded that in their overall product approach. Like the Apple website, I often think you’d never get that website by AB testing. Now they (?) by AB testing but that’s not how they define its look, how they define its layout, right? They have higher order premises that dictate, or Google for that matter, Google (?) is still extremely simple on its home page because they have higher order principles that dictate what they can or can’t do, and that’s simplicity overall. Andrew: All right, one other question before we get into how, to the thought process and the opportunity that led to Get Satisfaction and that is this. Here you are a guy who by many people’s standards had been a success. You’re in Napa Valley in your own home, married. You had a good track record as I said, you were actually an entrepreneur who was funded, and still you doubted yourself. Many of us I feel like when we doubt ourselves we don’t notice these great things we have going for ourselves. In fact if someone stopped and said, hey but don’t you recognize you have this, you have this, you have that. I’d think, shut up, you don’t get it. So they can’t snap us out of it, we have to snap ourselves out of it and recognize the power that we have so that we can create some good things in the world, the way that you did. How do we do it when we’re under the influence of doubt and uncertainty? Thor: Yeah. Yesterday my son was saying, I’m not a fast reader, or he said, I’m a slow reader. And I’m like, why do you think you’re a slow reader? And he says, well my friend Nick he gets done with a page when I’m only halfway through. I said, well, Nick is a very fast reader. He’s absurdly fast, right? And I had to explain to him, I do the same thing with myself all the time, with other people. I have developed certain mental tricks to shut that out, because it’s damaging. Andrew: Give me one, because especially in this space, you’re right, we open up the tech blogs to see what’s going on in our space, and where the new opportunities are, and who’s doing what, and what we’re inundated with is guys who are 18 years old and billionaires because they sold an app that they’d built overnight somewhere, and it makes you feel like, well I’m not anywhere near that, I’m a failure, and it’s crushing to the motivation. So, what’s one tactic? Thor: Here are some of the things that I tell myself. First of all, I know for a fact that much of this absurd success that people have, for instance, the obvious example being Instagram, completely unpredictable. They’ve said it themselves, lovers need love. Now, Kevin Systrom, super smart guy… Andrew: Of Instagram. Thor: …of Instagram. Super smart guy, worked his ass off, has lots of great connections. But so do many other people, right? And that was Kevin’s point when he said that luck was a big part of it. When you’re looking at somebody with absurd success, in a startup space, it’s important to remember that that’s highly unlikely, and what happens has very little to do with anything. [??} differently. For me, that's helpful, right? It reminds me that I need to be enjoying the process of building something, but there's ways to contribute, there's really lots of way to make money. The reason we like start-ups is because we enjoy the creative process, we enjoy trying to disrupt an establishment we think is flawed, whatever. There's lot of reasons to do it. Those are the things we need to be focused on. No winning. You know, there's another aspect of this, which I've thought a lot about, which is this drive to win. I think that that's a very important drive in a start-up. Like the hunger to conquer the odds. Not necessarily somebody else, or some other competitor, but to conquer the odds. That is what gets you up every morning. Both at the end of the day, and if you're not aiming at something that has a high likelihood of failure, you're not aiming big enough is the way I think about it. In fact, I just met a guy who has this thing called the failure quo, which is designed around getting people to identify and commit to goals which are too big to actually succeed, and what they find is that people often succeed at those absurd goals. But in terms of getting over this kind of sense of doubt...the other thing that frankly has helped me over the years, I might have something in common with sort of the Zen practice that others use, is actually I tend to be a little more analytical about some of these things. Happiness research that has been emerging over the last few decades is really powerful to me because we are sold this idea that we'll be more happier if we have more of something; more wealth, more fame, more popularity, and what we've found in happiness research is that it's not true. That people tend to operate within a certain band, a normative band of happiness, and there are things that can temporarily depress them. Let's say, a death in the family or a financial loss, something like that, and there are things which can temporarily boost them; winning the lottery. But for the most part, there's very little that boosts levels of happiness for long periods, other than we also have internal (?). So I look at start- ups as a way of boosting my internal sense of self and happiness, and a sense of happiness can flow out of that. A sense of autonomy. People that end up in start-ups where they actually lose their autonomy, which by the way is one of the things that's happened to me with Trapezo. I had very little control over the board at that point. We'd raised so much money and I felt like an employee. When you start off as a founder and you end up feeling like an employee, it's very difficult to feel any sense of connectedness to it. Andrew: Right. Thor: So anyway... Andrew: And when you don't feel control over your life and your future then you also are unhappy. Ok, I've got a sense of it, I promised that we would get into get satisfaction, let's go back to that. You are starting to see all these different possibilities with Flickr and the technology they were using, Delicious of course, and how social they made other websites and bookmarking, specifically. Then you created an experiment site, right? Thor: Yes. Andrew: Joke site. What was that? Thor: So, there's a few more hops in there, but we had created the, we noticed that there were lots of people in our group who would wear text schwag. But not the ugly text schwag that we remember from the 90s, but kind of this new generation of the text schwag, at the time Ed Williams had a company called Odeo, and he had this designer create this bird figure. It was a really cool shirt, it looked more like band swag than text schwag, and there were others like that; Songbird had theirs, there were a bunch of startups that we no longer think about that had great schwag. People started saying that didn't live in the bay area were saying; where did you get that Odeo shirt or the Songbird shirt we love it. Dogster had (?) swag and they said oh we went to a party and they just handed them out. It struck us it would be pretty funny if we created swag of the month club, and we have people just pay for the privilege of getting free stuff. Kind of a joke on the industry that at that time at the early stages of showing life again. So we did that and we just put up a website in an afternoon, connected to PayPal, and before you know it, it was called Valley Schwag, which was off a joke Valley Wag, kind of gossip, a blog on the (?) network. It blew up, we just hit it perfectly on timing and within six weeks we had 2,000 subscribers. Andrew: 2,000 paying subscribers? Thor: 2,000 paying subscribers. Andrew: At $20.00 a month. Thor: $20.00 a month. Andrew: And they were getting stuff that was essentially free t-shirts with company's labels on them. Thor: Yeah, exactly we would send them t-shirts, stickers, sometimes ball caps. Sly the company had condoms that were one of a kind. Hold that thought. Andrew: Yeah, you bet. You were plugging your computer in. Thor: That was bound to happen. Andrew: I'm going to ask you about that office later on also. I want to see how you're enjoying it and what's going on there. But sorry. 2,000 people paying you $20.00 a month to get t-shirts of brands that are brand new those are dying to get some publicity. They were giving you the t-shirts and other schwag for free? Thor: Well, yeah, well that was the theory. The problem was there were thousands of subscribers; there was nowhere near enough schwag to go around. The fact is that most startups do not spend most of their money on cool t-shirts, let alone pay a designer to come up with a design for a t- shirt. Andrew: Right and not (?) Williams. Thor: It's usually around a serious fee when that kind of schwag investment starts. So we ended up having to self-start, going out and identifying companies and subsidizing their schwag, you know schwag manufacturer. I hired a schwag procurement officer, a friend of mine, to go out and do this. It was so much work that it became very clear within a few months that this was not a sustainable business. So we had to kill it, but along the way what we realized was that it was hard to procure the merchandise and it was hard to handle all of the shipping. You know shipping was a huge issue; the hardest thing was actually customer service. We realized people, our customers were talking to people on our blog, and we were talking to them on the blog so it was public. So we could answer somebody once and all the other customers could see the answer. The blog was a terrible way to go about this, so it occurred to us this is actually the perfect place for social media, which we weren't calling it that at the time. For the social network ideas to hit the hard core business problem and making it better for both customers and companies. That's what we did by creating that satisfaction. Andrew: Can you give me an example of how you were answering customer service in your blog or how others were answering customer service issues for your users? Thor: Sure. Well there were a couple of great examples. So one great example was that we pushed the change to our member website, and we sent out an email, about 10:00 in the evening. Then we went to bed. Right about the time when all of the European customers were waking up, they opened their email, clicked on the link and it was broken, they went to our blog and on the comment section, the thing doesn't work, it's broken. What's wrong with you people? Then, within an hour, one of the smart customers had figured out through process of elimination what the real URL was, and posted the answer to comments section of the blog, and so now everyone that came to complain saw the answer instead and they were happy. In the morning, when we woke up, we saw that others had done customer service why we slept. It's amazing. Another thing we noticed is that it wasn't always on our blog. Sometimes it would happen on somebody else's blog. We were tracking what people were saying about us and we'd see somebody written a blog post complaining about getting the wrong T-shirt size or something like that. We would go and comment on their blog and say, we apologize, we're going to send out a replacement tomorrow, and then they would flip out, so excited that we had taken the time to respond on their blog. Andrew: Someone else's blog, right. Thor: It seemed to us that this was the future, right? This was, instead of customer being told, take a number, wait until we got around responding to them. Instead, we were creating an open transparent environment where customers were really getting in the center. We were revolving ourselves around them and that made perfect sense in the network economy. Right where anyone could post material content about my business and we're on the same playing field. We saw it as kind of a (???) shift in business itself. Andrew: You know, I see that even today on my site where if I post a broken link to the Mp3 of our interview, someone very often in the comments will figure out the, first of all, someone will tell me that the link is broken. I won't know. I check it, but don't check it enough. Someone else will try a bunch of variations on the URL and say, aw, here's the right one. It's phenomenal how it happens. When you see how you are putting the pieces together, how are you taking Flicker Delicious, this observation on your site? The observation on what happens on other sites and making it into a coherent business idea? Thor: That's a good question. Sometimes you just have the instinct, I suppose. Reality there was a lot of (???) work that went into it. For instance, there was a moment when we sat down with our founding team. I had just read the book, The BlueMotion Strategy, Which is, you know, a pretty good book for what it is. It follows some of the same problems that a lot of business books have. You only need to read half of it, but what the point of BlueMotion Strategy is, that what you want to do when you when you are approaching a space, there are known solutions to a problem. You have an airline in a sea of airlines, how do you going about differentiating yourself? The traditional answers were, you offer the same thing for lower prices, or you offer more features, right? The break out players in a lot of categories, BlueMotion Strategy says, in solution's strategies says, are those that actually don't do many of the table stakes features that others do. Southwest Airlines did not have hubs; they did not have reserved seating, right. Instead, they had more short hop flights and they had better customer service from the airline attendance, and so on. Andrew: I see. Thor: Right. You figure out what you're not going to do that everyone else does. Then you figure out what you are going to do that no one else does. I remember we sat down and said, all right, there are plenty of other solutions for customer service. What things we are absolutely not going to do? That decision of creating constraints, which are constraint that you embed into the DNA of your business, ends up being very important. Andrew: Can you tell me about some of them? As many as you can remember, from back in the beginning. What you weren't going to and what you were going to? Thor: Yes, OK, we decided that we were not going to do ticketing. You know the kind of traditional workflow ticketing. Andrew: Uh-huh. Thor: Which was basically the foundation of every other customer service tool out there. Andrew: Right, ticketing is when someone sends over a complaint to me. Immediately they get a ticket number from our system when we respond back and forth. That number identifies that problem. Thor: That's right. That we were going to, instead of erring on the side of private, we defaulted to public, right, and that's a huge chip. And that was actually something we did that was inspired by Flicker. Because Flicker actually started off with their photos defaulted to private, and once they shifted to defaulting to public for any photos you published, all of their stats skyrocketed. Defaults matter, and so we focus on that. We wanted to focus early on [??] and build less features overall. So there were a lot of features like that. Andrew: I see. And still you talked to a friend of yours, Lane Becker, and you weren’t sure that you should run this business. Why not? Thor: Right. So I at the time had another business. It was a consulting business called Rubyred Labs with my wife and another co-founder, his name is Jonathan Grubb and I had pitched this idea to them and he was like whatever you want. She liked the idea but she was kind of neutral on the idea. Jonathan kind of went back and forth. He definitely was not sure he wanted to be a part on the customer service space. So he is very good at being true to himself about what he wants to spend his time and saw that he wanted to spend his years working on a customer service related app. But I told the idea to my friend, to our collective friend Lane Becker and Lane says you have to do this. If you don’t do this, I’m going to do without you. And that was the push that I needed and that Amy and I needed, and Jonathan saw that it was a big idea. And so we were able the four of us took our team out of Rubyred Labs and took the office that we had and transitioned over into this new entity called, at the time it was called Satisfaction but we couldn’t get the domain name so it became Get Satisfaction. Andrew: How much of an impact was the money you were making off of your consulting business? I mean, how much of a factor was that in your decision? Thor: Well, we actually just turned the corner at our consulting business and we were starting to make real good money. Andrew: I see. And so at that point to consider something different, why couldn’t you do both? I know Jason Fried from 37signals often advocates that. Thor: Yes. We definitely considered doing both and 37signals was kind of a model for us. Even with the original idea for the business it was much more of a [??] business where we focused on small businesses as our paying customers. Well, we talked about the up side and the down side and the reason why we didn’t do it was that Lane had done a spin out business from his consulting firm called Adapted Path which is still around and doing well, design [??] firm. And they had a product spin-off called [??] Map which eventually got bought by Google and became the basis for Google Analytics and his experience with trying to manage an internal project within a consulting firm was not a positive one. And in fact I knew lots of cases where a company failed both as service company and the [??] company when they tried to do both. Andrew: Why? Thor: It’s hard to be a slave to two masters. And if you try to divide the team, a) you better have a team that’s big enough to support both, which we didn’t really. We had about seven people. You better have coverage on all the key functional areas like business development and so it’s hard to be raising money for beta testing your product with customers and selling to clients. Now, it can be done. I have numerous friends who’ve done it. So I have no problem with that approach but we decided that we wanted to go all in on the product and you know, the other consideration was that we did have several friends and family that were willing to give us startup money and had some cash flow left over from the services business. So it’s what we chose to do and I think it was a reasonable good decision. But one of the things that I realize in retrospect was that if we raised a million and a quarter as a [??] to get to our first major moment of proof for the business, and we did that. A year after we raised that money, we had thousands of customers. We had nice charts that showed up and to the right. We had great press. We had a strong brand. The problem was that the market of 2008 was in the process of disintegrating. Andrew: Hold on. Let’s go back to the disintegration in a moment, because that also factors into your story. What I want to spend a little more time on is that first version. You told us what the vision was. Now you had to take that vision and turn it into a product. What did that first version look like? Thor: The first version for us actually had a lot of the core ideas that we have today. It had a widget that was designed to sit on a contacts page. We believed that we wanted the finished to be main stream. We had to intersect an existing behavior, so a person coming to a website wanting to send an email to a company. What we wanted to do was hi-jack that process. Andrew: Still let them send an email, but now the email does what? Thor: It looks like an email form, but we start to intersect that behavior with comments from the community, which has now, I think, gotten to be a pretty common design pattern, but at the time, we hadn’t really seen much of this, but it seemed obvious to us that if we could show people conversations that were already happening about their very issue, we could get them ported over to a public discussion. We had a fairly straightforward community discussion. We had this idea that we stumbled on very early that there were very specific outcomes that customers were after, solutions to problems, answers to questions, sharing ideas and praise, that we’d seen as building blocks of other customer communities. We felt like this could be a way to organize these kinds of customer communities in general, so we had all of these elements, but when we started talking to investors, we started hearing some interesting feedback. They didn’t think that we would be able to capture enough of an audience by selling just services to small businesses. They said, “Why aren’t you using virality and widgets and SEO, cheap distribution methods that are available?” We said, “We are,” but they didn’t see it. It wasn’t strong enough in our story, and so we went back and started saying, “How can we actually bring those ideas to the forefront?” We actually made a fateful decision that really transformed our business to something a little bit bigger. We decided that instead of requiring a company to come and rate a community, which required us to communicate to everyone in those companies, what we’d do instead is allow anybody, including a customer, to create one of these customer communities. By doing so, we created a kind of [?], somebody who was passionate about Timbuktu, a popular bag company, could come and praise them here. Andrew: Or upset about their cable company could come in and basically create a customer service forum where the company has an incentive to come and respond. Thor: Exactly. We knew that all of these companies were determined to track what was being said about them, and so we thought this was an amazing way to get big fast. Andrew: As I understand it from your pre-interview, the way that you got to that point was that you couldn’t get companies to set up shop on your site, so you set up shop for two experimental companies, by yourself without their permission, right? Timbuktu and, I think, Apple? Or maybe Timbuktu, Apple, and Comcast? Thor: Yeah. It wasn’t that we couldn’t get them. It was that we didn’t think that our distribution plan was going to get us where we needed to be. Andrew: I see, so before you even reached out to companies, you said, ‘Wait a minute. This model of us reaching out to companies and getting them to integrate with us is going to take forever. It’s just not workable.’ Thor: It’s too traditional. It was too much heavy lifting. We needed some way to get the network working for us, and to get our brand out there, and to take advantage of SEO, and so on. One of things we did was we said, ‘Let’s build some of these customer communities for these brand we felt either people were passionate about, or frustrated with.’ We built them for Apple. That was easy. There were a lot of Apple communities, but it was kind of a no brainer because the iPhone was just coming out, the very original iPhone. And the second one we did was Comcast. And that, both of those worked to our advantage right? Because when we eventually launched a few months later we had these example communities that were going strong and it was getting people to explain what this was, right? This was a way for anybody to complain or to communicate directly with the company without having to go through the company’s, usually very bad, customer service system. Andrew: Right. Thor: And so we grew very quickly as a result. Now that was a great launch strategy. It wasn’t, as it turned out, a long term strategy for one great, very big reason which is that Twitter, mostly Twitter and to some extent Facebook, became the default way that people hit the panic button with companies. And so we had to then adjust over time to embrace Twitter and Facebook as part of our platform. Andrew: What did you do? Thor: We did two things. The first thing we did is we built a tool called Overheard which gave, which embedded Twitter stream of people talking about your brand into your Get Satisfaction community. So that allowed you to have your own random community at the same time as staying on top of your Twitter community. So then the second thing we did was we built an application for Facebook that allowed Get Satisfaction communities to be embedded within Facebook. So that if you had a conversation that was answering questions about a new feature that (?) live both on your website and anywhere else on the web including Facebook. So we had to mature our distribution strategy over time, but I think that’s how it works. The main thing I think is that we were able to, when I think back to Trapezo, my regret was we lost sight of what we were trying to do while we took the feedback from investors and others. We began to just respond to their needs rather than our needs relative to their needs. And so with Get Satisfaction we did a much better job of taking their feedback about distribution and marketing and working that into our vision, so. Andrew: I should say, by the way, since we’ve been bringing up Trapezo a lot, I think i pulled this from your LinkedIn profile. Trapezo is a venture funded, or was a venture funded company that made web software for syndicated content and it was acquired by PerfectCommerce in 2002. Alright, so now I see where the original vision was. I see how you integrated the new entrants into that space, Twitter and Facebook. What about bringing in customers? You had AOL and Trip Advisor early on. Within four months they came to you and they said, hey you guys are doing a great thing here. We want to work with you. We want to actually use you as customer service and your response to them was what? Thor: Yes. But know what that meant. Because in the pursuit of getting this flywheel spinning up growth using this kind of customer driven model that I just described, we had not done as much work getting ready for selling a enterprise class service that these guys could buy, right? And so we didn’t have a contract. We didn’t really have a way to give them some of the core features they would need. And so what we tried to do was keep them, try to close them even though we didn’t have those things. Andrew: How’d you know that’s that what they would need? Thor: Well, they told us. Andrew: They told you. We’ll pay you just give us these features. Thor: Yes. So what we were doing at the time was innovative enough that there were not replacements for what we were doing, short of building it. So these guys, AOL and Trip Advisor, had seen what we were doing and said we want that. And but they knew we weren’t, I think they could tell we weren’t selling lots of it yet. They wanted to be really adoptive. So (?) to wait. But the problem was we just, we weren’t able to move fast enough and we lost the boat. And so that was a great wake-up call that we needed to very quickly step it up, right? We needed to figure out a revenue model, we needed to figure out what we needed to support customers that were as big as them. And so I went to Zappos and we figured it out with them. Andrew: You mean Zappos you figured they would make a good customer. They’re the way that they treat their customers is how you want your other users to treat their customers. So you sat down with them and said, what do you guys need? Thor: Yeah, we decided to create some experiments with them and build a service that they would buy. And so we did that. At the same time as we built our self-service options, right, which is really just additional moderation tools, it was very simple tools on top of our free product. And we were able to start testing with the general audience. So we were testing with Enterprise Solutions as well as self-service solutions at the same time, which is a lot to test. And I would say we probably moved slower in both areas as a result of trying to do too much. Andrew: I see. You did talk to the big guys like Zappos or offer that self- service so anyone can start paying and getting features. Thor: Yeah, trying to do both, it diluted our efforts. Andrew: And still, Thor, the idea of sitting down with a potential customer and asking them what would you pay for, what should we build for you, it’s brilliant. What did you hear from your conversations with Zappos that you wouldn’t have discovered if you were just internally trying to figure out what features to add and charge for? Thor: Yeah. Well so we, in that particular case I think we learned some of the wrong things. The fact is that when you’re talking to one customer it’s very easy to fall prey to their specific needs that may not be representative of the whole market. And so we ended up building some tools for them that we would have never used for anybody else. Andrew: For example? Thor: So they were very interested in, and this could have been a really cool direction for the company and maybe will be in the future. So Zappos is a merchandiser, right? So Zappos has their brand and they have a service they provide which is merchandising and fulfillment to their customers. But they sell many other brands, right? And they could be an expert on many other brands, whether that’s FooBog [SP] Shoes or Donna Karan or whoever. Like they have hundreds of brands that they can talk to. So they wanted to basically have a kind of branded representative that could go into all of these other communities. Andrew: So if I had a question or an issue with one brand of shoes and they knew it well they wanted to manage that community so that they could give me a response which would work well for them and also work well for me because I’d get a response from someone knowledgeable without waiting for the shoe manufacturer to care about Get Satisfaction or even the online interaction. That’s their vision. But most people don’t want that, that’s what you discovered. Thor: What we found is that it was not the (?) for us. It was a very cool idea and theoretically could have worked. But it was complex enough that the number of things that would have to go right made it much harder to pull off. Andrew: How much time did you spend building this out for them? Thor: Oh, you know, it was like one and a half engineers for a couple of months. Andrew: But it was just a distraction, going in the wrong direction. Thor: Yeah exactly. I mean there were lots of other things, but this is hindsight right. I think in any business there are going to be false starts and blind alleys, and this is one of those for us. I mean, there was no way of knowing that. That could have been our billion dollar idea. And you just have to get used to that. As it turned out the one that was much more representative was Mint.com. So Mint.com wanted to augment their customer service process. And they had specific needs. They needed to be much more enterprising. They needed to have a lot more security, they needed to have a lot more sort of moderation, they needed more weight to organize the content. And we needed to build several features for them to close that deal and make it work. But those features were, are the foundational features of all of our enterprise software today. And so now we know that. Andrew: I see. So if, and we’ve been hearing a lot about this, that if you want to know what to charge sometimes you sit down with customers and you say, where’s your pain? And then when you hear it you say, if I build the solution for it would you pay for it? If they say yes you go and build it. What we’re learning in this interview, what we’re re-emphasizing and I think we’ve heard in the past is don’t talk to one. One person can be an outlier. You talk to a handful and then you start to see patterns and understand, okay you can solve a problem that multiple potential customers have. Thor: Yeah, yeah, that’s absolutely critical. You have to find ways to move beyond the sample set of one. And I’m not sure what the ideal sample set is for enterprise solutions but it’s probably on the order of five or more across the market category. Andrew: All right. So you launched 2007. The next year is when this disintegration that you mentioned earlier happens. How did it impact you guys? Thor: So we, this disintegration in the market, it did that late 2008, was happening we were implementing the Zappos thing. We were [??] before we were launching our self-service services. We didn’t believe that we needed to have the track showing traction on revenue slide built out. We thought we could go in on the momentum in all the other areas. And that is one of the things that I think I’ve learned over the years which young entrepreneurs would be surprised by if they get stung by it, which is that what is true three months ago about what you need to close around may not be true today. And, even your investors who see lots of deals may not know it until you know it because you might be the leading indicator. Andrew: I see. All right. Thor: So, and that’s what we found with ourselves is that everybody was surprised that we were not able to raise money with all of our progress in 2008. But what we were seeing is that the market was falling apart and that expectations for showing progress in key areas like revenue model was not being expected. Little did we know that nine months later it wouldn’t be expected again. Andrew: Like you said, it does change a lot. Thor: We needed to survive through a period, this is the good times, rest in peace era… Andrew: Right. Thor: …where every company was being told to slash their expenses. You know, a kind of key moment for us was we were asked to slash our expenses, and we did find way to renegotiate our rent, and reduce some of our outside services. But we really felt like we couldn’t let go of our team, any of our team members. Andrew: And they wanted you to. Thor: Well, our board was very supportive of us and they were never strong arm. They did not strong arm us. But they did ask us to strongly consider it. And, I would say that they put their suggestion in the form of you should, “You should reduce your head count.” But, we came back to them and in a kind of moment of truth for us we told them, “No, we’re not going to lay-off head count. We are going to raise some more money in a really difficult environment through friends and family. We are not going to do institutional. We’re going to reopen our previous round and sell more shares at the previous price, so it dilutes us. And we’re going to find a new CEO who can help us build this thing into a big business, somebody who has a lot of software and service experience. And we’re going to do this all in three months.” And our investors said, “Well, you know, if you can do that more power to you. But if you can’t you’re in serious trouble.” So we had to go do that. And, we did do that. I will say that was one of those moments of truth that set our relationship with our investors I think forever. We remain very good friends with them. I think they have a lot of respect for us because not just that we pulled of what we said we were going to do, that we actually took at stand in way which it was hard. It’s hard to say no to your investors on your board, but they want you to. This is a little secret I tell several of the CEOs that I informally advise. I say, “Number one, get yourself a CEO mentor, because even if you are an experienced CEO it’s hard t have perspective. But most of us are not experienced CEOs and those tips and tricks, those tools are not obvious.” That’s the first thing I said. The second thing I say is, “We feel like…” A lot of these investors are very opinionated and head strong. “We feel like they want us to what they tell us, but I think as often as not they want us to say no. They want us to be firm in our convictions even if we’re wrong. They want to feel like we are going to be bold in our actions. And so I wish I had been as bold as I was then in other points because I think that builds confidence in people.” And it’s very much a temperament thing. I tend to be thoughtful and reflective about my decisions and would bring people into my confidence. But I feel like as a leader of a board, that’s not the right approach. You want to ask for feedback, absolutely. But you want to take your own advisement ultimately and make your own decisions. That’s key for a CEO. Andrew: I see. And be clear about it even when other people disagree, “This is what I think we should be doing, and we’re going to go do it and show you guys where we are in three months.” One of the things that Jeremy asked you in a pre-interview is, “What are the big lessons that you took from building Get Satisfaction?” And you said that you needed to, we would do less and be more aggressive on focusing on what we do well. That’s what you should have done. That you had too many features and always had a flavor of the month. How do you get to too many features, and how did you get to too feathers? And then the follow-up question that we got to you is, “What do you do to stop from doing that?” Thor: Yeah. Actually I think we were pretty good for the first year or so, and then right about this time where we start to figure out our business, the revenue, we start… Actually it started a little earlier than that if I’m going to be honest. There was this moment where we felt like we could jack up our growth even further. And [??] strong growth, but we felt like we could increase our growth even more. And there was a lot of focus in the market at that time around Facebook apps, social games, viral websites, and so you saw these companies that would, you know, within a few months have millions of users. And so we felt like, “Well, we should have that.” The tricks these guys use are not that complicated. We should clearly have an invite your friend feature, we should probably have an address book, and all these things. And, once you start down that path, it’s very easy to rationalize it. Andrew: And address book so that if I join you give me the ability to add everyone from my address book into your system so that you can invite them to also have a conversation about this company that I joined to talk about. Thor: Right. And, so yeah, it becomes, it’s very difficult in the moment to know what is a flavor of them month and what is actually a core driver of your business. Right? And so what we were really good in the early days, think, here things we’re not going to do, like we’re going to add constraints around our business. As we started to solve specific problems like consumer growth or converting paying customers, we start to throw a lot more stuff at the wall. And some of that stuff is okay. But I think what I would do today is I would create a framework around testing those features to see if they had an impact. And would constrain that not just on terms of the time we spend on them, but how long we keep them up. You know, just because you release a feature doesn’t mean you need to keep the feature. Andrew: I see. So if you were to launch say the address book feature today, before you launched it you’d sit down with your team and say, “What’s our goal for this and how long do we give it to hit that goal? And if we don’t we’re going to remove it.” That’s the thing you would do. Thor: Something like that. Yeah, absolutely. I would say, I would maybe even in the beginning say, “Look. We’re going to test this hypothesis that people want to invite their friends to conversations around products that they’re happy with, they’re frustrated with. This is not something we know for certain.” I would just embed a little more humility into the process so that we can disprove a hypothesis and remove the feature, because the problem… Andrew: I see. Thor: …is that you end up, the problem isn’t building more features, the problem is you end up with unsupported features or half built features that whither on the vine. And, at first that’s not too big a problem. But, two years later, three years later, it’s a big problem. You have all these things which are kind of vestigial organs. So it is really important to know whether something is successful or where it’s successful. I mean, because what you get out of a hypothesis driven approach is not just binary, it doesn’t work, does not work. You also have a way of discovering things you didn’t know to ask for. And this is something I’m really passionate about which is, we don’t, our matrix, the data we have is only as good as the questions we’re asking. And we can instrument narrowly to tell us whether something is working or not or we can instrument broadly like big data approach were we’re collecting lots of things and then we can retrospectively go in and ask questions of the data. And, so I think that starting off with a view to how you’re going to find stuff out is a really mature way of going about building a product. But it’s hard, it’s really hard, and I think you can prematurely optimize for the data question and not get stuff out. I feel like there’s a prototype phase where you can ask questions in person of your 20 users. Don’t over-invest in a big data setup, but as you start to do bigger rollouts then the big part of your process needs to be “how are we going to learn from this.” Andrew: What about this, I can see that everything you’re saying makes sense and at the same time, someone who’s listening to this is going to say, “You know what, I have this idea for a feature, I’ll just add it, it’s going to survive on its own and then I have another idea for a feature, I’ll add it, it could survive on its own. I don’t have to babysit this feature, it just works.” Then we add and we add all these features which we think could live on their own. Thor: Yeah. Andrew: What’s the problem with that? What did you find? Thor: The problem is that you need a framework for knowing what to say yes to and what to say no to, right? If it’s simply a customer asking for it is reason enough to add it, then you will quickly spin out of control, adding every feature under the sun, many of which would contradict the others, right? It’s incredibly important, I think, to have some world view, some set of opinions, about why that feature is worth adding, right? For us, in the early days, we were really careful about a lot of things and I think we’ve continued to be pretty good about it. Better and better, again, but there was a period where we went off the rails a little bit where we were chasing deals and we would throw anything at them to close them. It’s a natural phase, but it’s kind of a danger-zone. For instance, we really believe that we as Good Satisfaction, part of our brand was that we had a compact where enabling a compact between a company and their customers where they would be transparent in their communications. Not 100 percent transparent, but sort of in principle, transparent about what they were doing and why they were doing it. When we set out to add these features that would allow a company to delete a customer’s comment, it was a big moment for us, right? Because if a company can just delete their customer’s comments, they were basically a unilateral censorship. At the same time, we knew that there were bad actors. We didn’t want to allow somebody who had a bone to pick, a competitor for instance, to come in and post lies about a company, right, where they post slang. That was unacceptable as well. We knew we needed to roll-out some moderation features. The ‘just add the feature approach’ would have gotten us to go down a slippery slope towards blatant censorship without respect or without consideration for the customer. What we did though, was do it in a way that was consistent with our beliefs, our core convictions. We could just add a change log and in the change log we could have a listing of which action the company had taken. Andrew: I see, let the company delete, but also have a change log that shows what they deleted so their customers can say, “Oh, of course, he deleted it because he’s a bad actor, or hey, wait, they’re trying to hide things that don’t reflect well on them.” This happened because you had an issue with Zappos where PETA animal rights activist started to attack Zappos and then you said, “Hey, you know what, we work with Zappos, let’s let Zappos delete it.” That’s when you realized, “Hey wait, that’s not the way we should be doing things.” Thor: Yeah, well, Zappos is one of the instances where we had to do that. They had PETA . . . I mean it’s an interesting scenario where . . . PETA was a legitimate point, they can make that, but they were posting over and over and over again, right? Andrew: You can make your legitimate point but you can’t drown out ever
Making a mobile app? This is how to make sure it works well. 4 October, 2012, 6:00 am
This guide is based on Mixergy’s course with Jen Gordon. Jen Gordon knew creating mobile apps was a complicated process, so she made it simple to make killer apps that sell. It was all done using her mobile app design system, so we invited her to teach you how to do it. Jen is the founder of Tapptics, which trains web designers, app developers, and entrepreneurs who want to create beautiful and usable mobile apps. Here are the actionable highlights from the course. 1. Identify your target users to come up with an intuitive and useful app Jen says Coffee Spot, an app that helps people find the closest coffee shop, targets users who are driving to work, are on a coffee break, or are buying coffee for co-workers. Take Action: Determine what your app does and who it’s for, and create scenarios for how it be used by considering your target users’ probable personalities, jobs, and lifestyles in detail. 2. Lay out your app’s screens to decide what features to add Jen laid out the Coffee Spot screens associated with each of the three types of users, went over the features, then checked her budget and decided that the WiFi option could wait. Take Action: Create layouts that show the content and order of your app’s screens, and prioritize features that your intended users will find most useful. 3. Make a paper prototype to figure out what’s missing in your app Jen asked friends to look at her paper screens for Coffee Spot and “use” it as they would use the actual app to see which features were missing or if any screens were out of order. Take Action: Create sketches of your app’s screens, ask people who don’t know a lot about the project to “use” it, and get their feedback to find out if anything’s missing or ordered wrongly. 4. Create an app mock-up to get feedback from collaborators Jen used iPlotz to make Coffee Spot’s wireframe and get feedback about the layout and screens from collaborators. Take Action: Sign up for an iPlotz account, create a new iPhone or iPad project, make the full wireframe for your app’s screens, and use iPlotz’s collaboration feature to invite others to comment. 5. Render your app screens digitally to test proportions and tweak colors Jen showed her designer the iPlotz wireframe and asked him to create app screens that she could load on her iPhone so she could see if the color and proportions were rendered right. Take Action: To find a designer, go to Dribbble.com, type “iPhone” in the search bar, contact designers who are suitable for your app, and then have the designer create screens for your app’s intended platform. 6. Communicate with developers to get the product you want For an app that loads long lists of data, Jen told developers to add a progress wheel and to add the option to let users load data manually or automatically. Take Action: Consult with developers early in the design process, explain what problems your app should solve, and tell them what features you want. 7. Plan how you’ll generate revenue so you can build your app accordingly Jen plans to make money from Coffee Spot by selling a pro version and by releasing a free ad-supported version. Take Action: Decide if you’ll make money from straight-pay downloads, advertising, or in-app purchases, and work with your developer to integrate this strategy into your app. Want to make sure you get results? Written by Hazel Chua, based on production notes by Jeremy Weisz
Peer2Peer Tutors: A $50 Ad Turns Into A $1M Dollar Business – with Erik Kimel 3 October, 2012, 6:00 am
I met Erik through Fortify.VC, which helps grow startups in DC. And I plan to see him at Distilled Intelligence, their event on October 11th & 12th. Want to meet up there? How does a teenager turn a $50 ad into a business that generated over $1 million in annual revenue? Erik Kimel is the founder and CEO of Peer2Peer Tutors, which empowers kids through peer connections. I invited him to tell the story of how he built his business. Watch the FULL program Prefer audio? Great! “Right click” here for the MP3 format. About Erik Kimel Erik Kimel is the founder and CEO of Peer2Peer Tutors, which empowers kids through peer connections. Raw transcript Mixergy’s audio transcription is done by Speechpad Andrew: Before we get started, what can listening to Mixergy do for you? Well, Clay Collins told me that he launched a successful software company as a direct result to listening to interviews like the one you’re about to enjoy. Check out one of his products at Welcomegateapp.com. Have you seen how I ask first time visitors at my site to register? Well, if you want to add that feature to your site, and really grow your e-mail list and registration rolls, the get that free tool from Welcomegateapp.com. Another fan, Owen McGab Enaohwo runs Hireyourvirtualassistant.com. He saw a Mixergy course on how to close sales, and he sales he still grows his sales using the script he learned from that course, which helps him sell to the right customers. So, if you want to hire a virtual assistant, check out Owen’s site at Hireyourvirtualassistant.com. And those two fans just got free ads on Mixergy thanks to Scott Edward Walker of Walker Corporate Law. What do I mean when I say Scott is the entrepreneur’s lawyer? Well, your father’s small town lawyer, well, he doesn’t understand how to structure a funding agreement, right? And those big firms in Silicon Valley, they’re going to charge you an arm and a leg, or maybe even take a big chunk of your equity. When you’re ready for just the right fit, go to Walkercorporatelaw.com. Let’s get started guys. Hey there, freedom fighters! My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. You guys are going to love this interview. How does a teenager turn a $50 ad into a business that generates over a million dollars in annual revenue? Erik Kimel is the founder and CEO of Peer2Peer Tutors, which empowers kids through peer connections. I met Erik through Fortify V.C., which helps grow startups in DC. Fortify V.C. has introduced me to a bunch of great entrepreneurs, including Erik, and I hope to meet Erik at Distilled Intelligence, Fortify’s event, on October 11th and 12th. That’s my way of saying thank you to Jonathon of the Fort for introducing me to Erik. All right, and in this interview, I want to find out how this teenager built such an impressive company. Erik, welcome. Erik: Thank you. Thank you for having me. Andrew: Hey, your new title is what? Erik: My new title, most recently, is the Chief Strategy Officer of Aristotle Circle, a company we merged with in February of 2012. Andrew: Merged, but you were able to cash out a little bit from your business, right? Erik: I was able to take some risk off the table, yes. Andrew: Do you remember the day that the risk was taken off the table? Was wired into your bank account? Erik: Yes. You know, going through an acquisition or merger is really a stressful process, and there’s a light at the end of the tunnel when you finally execute all the documents. Around 3:00 on January 22nd the deal was confirmed, but I quickly got a text message from my roommate and best friend saying that he needed an extra guy, in his basketball league game that night. Play off game. And so, I was like, “Sure.” What better way to celebrate than to go play basketball. We were down by one point with seven seconds to go and we called a time out, and we quickly inbounded the ball, and we made four passes, and one of the guys on our team scored a layup at the buzzer, and I tell you, Andrew, I was so much more pumped up after winning that game than the wire that had come through earlier in the day. It was an awesome win. Andrew: [laughs] Why? I would think that the wire would be the highlight of your life, at that point. Erik: [laughs] You would think, on the surface, but one of the things this process has taught me, in starting Peer2Peer in high school and seeing it through for eight years, is that money is great, but it’s not the key motivator. Andrew: You were how old when this idea came to you? Erik: I was a senior in high school. I was sixteen years old. Taking AP Calculus and struggling. Andrew: You were a senior at sixteen? Erik: Yeah, I was always young for my grade. Andrew: Did you skip a grade? Erik: No, I didn’t skip. I just, you know, my parents just got me out there a little early. Andrew: [laughs] Erik: I was one of those late, late summer, fall birthdays. Andrew: So where did the idea come from? Erik: The idea came from, you know, being in AP Calculus, one of the tougher high school courses, but also being a struggling Reading and English student. So taking the regular on-level, maybe even below grade level, English 12 class, and realizing that my classmates in regular English class didn’t even know the students in AP calculus went to the same school as them, let alone we were in the same grade. So I just wanted to connect these two groups of students. I thought they could mutually benefit from each other’s help. Andrew: And so, with the idea that this would be a business? Erik: Yeah, with the idea that it would be a peer tutoring business. My dad’s an entrepreneur, and so he always kind of drilled into my way of thinking that starting a business was a really good idea, and to do it at a young age. And I also really liked school. I wasn’t shy about doing my homework right after school and studying for my test. I thought it would be a great marriage between wanting to start a business and also an interest in academics. Andrew: And you actually had started businesses before this. In fact, you saw opportunities where most people saw, for example, snow. What did you do when it snowed heavily in your town? Erik: Yeah. My best friend and I, Mike, we had started a snow removal and lawn mowing business called Yard Kings just before… maybe six months before thinking about Peer2Peer, and it was a great startup. Andrew: What did it do? Erik: When it snowed in the winter, we would make a killing, going out, bundling up, and shoveling all day. And then we decided, “Well, that’s a great winner business. Let’s build some revenue during the growing months of the summer.” So we went around all these neighborhoods, and we got about 20 families to sign one page contracts with us that they would pay us weekly to mow their lawn for the growing season. We got our equipment together. We mowed the lawns once and realized that we were not equipped to handle this. I mean, literally, we were loading a riding lawn mower into a Dodge Caravan with these two planks to get the mower in, and when one of the planks gave out and you had this blade half way in the air, we said, “We are not ready for…” Andrew: [laughs] Erik: But we were smart, and we sold the rights to these contracts to the big landscaper in town. So we had a mini exit… [laughs] the junior year of high school. Andrew: How much? Erik: Fifteen hundred bucks. Andrew: Fifteen hundred bucks for this business that you only worked at one week of… One week of actually doing the work, but a lot of the time selling it. What strikes me as clever in this business is, first of all, you were thinking both winter and summer, but second, you signed your customers up to contracts, to agreements to do work for more than one week at a time. Where did that idea come from? Erik: Maybe… Probably from listening to my dad negotiate contracts in the car. If we were in the car going to a basketball game, going to a family event, I mean, he was on the phone and so it kind of just got drilled in. They say getting an MBA at the dinner table was kind of like how I grew up. Andrew: [laughs] Do you remember one of the stories that your dad used to tell you about business at the dinner table? Erik: [laughs] “You’ll never make it working for someone else.” Andrew: [laughs] You know what? My dad used to say stuff like that. Erik: And he’d always say, “You only get paid for a closing.” Andrew: Oh, really? Erik: And I found that to be applicable to things beyond just business. Andrew: For example? Erik: For example, girls. For example, anything you’re trying to get done. You only get paid for closing. And you shouldn’t talk about stuff until you know it’s pretty much a done deal or a done deal. Andrew: You know what? You strike me as a guy who’s extremely confident. I wouldn’t have expected that considering how intellectual you are, and that’s what kept coming through in all my research. Are you someone who is able to date a lot? Were you someone who was able to walk up to girls as a younger than average high school kid? Erik: No, I was pretty shy, and still I am pretty shy. Andrew: So where did this come from? Most people, frankly… You and I got on camera. I usually take some time warming people up, getting them comfortable. You didn’t need it, so I just zipped into the interview. Where does the confidence come from? Erik: A lot of practice doing… Andrew: How? Erik: …different presentations and interviews. Andrew: Okay. Erik: In college, for example, Stern School of Business [??] has you take Organizational Communication, sophomore year, first semester, and they get you in front of the class giving PowerPoints. And from starting Peer2Peer at a young age, I always had to think about how to answer questions not just from great PR opportunities, but from my clients, from mentors, from advisors. I remember when a guy once told me answering questions is like batting. And so your goal is, when that pitch comes in and the pitch is the question, for you to hit that ball out of the park. Andrew: [laughs] Erik: So whenever I walk into something, I try my best to hit a homer. Andrew: I took that class at NYU. It is one of the better classes at NYU Stern. All right, the $50 ad. Do you remember what it said? Erik: Yeah, of course. I have it in my, my mom has it in my room in the house we grew up in. It said, “Peer2Peer tutors, any K-12 subject, we come to you. Role model relationships. Call Erik.” You know, one inch by one inch. Very simple. Andrew: And had your cell in it? Erik: Had my cell in it. And honestly, Andrew, it’s the same, more or less, same three bullet points we use to this day. Andrew: What are those three bullet points? Erik: Any K-12 subject, we come to you, role model relationships. Andrew: What’s a role model relationship? Erik: Well, what we’re offering to a family and to the student is not just a tutor who can help with a particular academic subject, but really someone that they can look up to, an older student mentor. Andrew: OK. So how many responses did you get to this ad? Erik: [laughs] So I placed my ad, and I got two calls, and I converted one. So I had my first client and I was very nervous and excited, and you know, just by chance, this family happened to live really close to me and their student, who I was going to tutor, happened to go to the middle school I had gone to, and would go to the high school that I was at. So it was a great connection. Andrew: I see, and do you remember what that experience was like? Suddenly, you have to walk in and be the authority and teach. Erik: Yeah, it was quite an eye-opening experience. I’ll never forget, I walked into the house, and the mom, she immediately pulled me aside into another room, and although she had told me what her son needed help with, he needed help with his pre-Algebra. He was in the 6th grade, but she pulled me into another room, and said, you know, my son, he’s hyperactive, he had ADHD, she showed me a copy of what’s called an Individual Education Plan, and IEP, which I did not know what it was, and frankly I’d really only heard of ADD or ADHD once or twice. It wasn’t as widespread at the time. About 15 minutes passed, and I hadn’t even started tutoring, and I started to get a little nervous. So finally I met James, my first student, and he was wild. He was running around the living room. He did not want to sit down next to me. He was poking me with his pencil. He’s saying, “Why are you here?” Andrew: [laughs] Erik: Twenty minutes goes by and we still haven’t tutored, and I finally, I said to him, “What are you interested in, James? What do you like outside the classroom?” And he started telling me that he loved basketball, and although I wasn’t the best player on the basketball team, I was on the high school basketball team at the high school he was going to attend. So as soon as we had this mutual interest, we immediately connected, and he wanted to learn from me. I was able to convince James that if we sat and did his math work, and practiced and studied for his math tests, that I would shoot baskets with him after the sessions, and so we started to play Horse following the appointments. That’s really how Peer2Peer was born. Andrew: I see, and that’s the difference between Peer2Peer and maybe a more professional instructor or, of course, the teacher in school? Erik: Yeah, exactly. We’re closer to the curriculum and we can relate. Andrew: All right. Did you get any referrals as a result of this? I mean, you did some pretty incredible work with James. Is that what we’re calling him? I’ve got a different pseudo name for him here in my notes. Erik: Yeah. Andrew: James is what we’re going with. Erik: We’re going to use James. Andrew: OK. Erik: Once, after a few appointments, James’ mom immediately noticed he was more engaged, he was more motivated towards school, and she started telling all her friends about this wonderful tutor she had found. So I started to tutor other families in the neighborhood, and very quickly I just couldn’t handle all the hours that were coming in, and that’s when I started to actually set up my friends from Calculus class with gigs that I thought really matched, not just their expertise, but also their interests outside the classroom, to preserve that same king of basketball -mutual interest I had with my student. Andrew: I see, and then at one point you decided to offer free tutoring. Why? Why would someone who’s so good at business, who actually creates and sells a lawn-mowing service, who then puts up an ad that becomes this whole new business, why would he offer free tutoring? Erik: Well, we wanted to really get the word out, because you know, when you start gaining some traction, you want to gain more. You want to get more clients and more tutors, and we thought a great way to engage the community would be to hold a free tutoring day so families could come in and bring their students and meet our tutors. I went to the local community center, you know, where I’d been dropped off many times just to play basketball in open gym hours, and I asked if we could rent the all- purpose room, and we held a free tutoring day. Probably the smartest thing we ever did in that whole process, beyond connecting the dots of you’ve got to give to get a little bit, was we contacted the local newspaper a couple of nights before the event and we said, “Hey, we’re a couple of… “I wrote, “I’m a high school student. We’re holding this free tutoring event. Would you, by chance, want to come take some pictures and maybe feature it?” And they came and they ended up writing a cover story in the local paper. And I know that for the first, maybe, two or three years that I had the business, parents would continually call and say, “I stored… I saved that article for when my child would need this, and I knew we had to use you.” And it was a little bit of luck, but it’s been a strategy that we’ve continued to use over the past eight years. Andrew: To give free tutoring so that you can get publicity? Erik: Yeah, we give free tutoring, now, not just to gain publicity, but also to school districts to help students who can’t afford private tutors, to silent auctions, for PTAs, different non-profit events. All these different vehicles that we can give back to the community. And we found free tutoring to be probably the best way we can do that. Andrew: All right. Before I continue with the story, I’ve got to ask you… I mean, I’m seeing a guy here who’s in control of the interview, who doesn’t feel awkward that there are people walking around behind him. Most people, in my interviews, they will look over their shoulders, they’ll feel a little uncomfortable if they’re in a room full of people who are judging them. Was there a time when you put yourself out there by either putting an ad and ending up in a stranger’s home, or by offering to put on free tutoring, when you were nervous, where you actually fell on your face because you weren’t comfortable because you didn’t know how to express yourself, you did not hit the ball out of the park, in fact, you just stuck out? Give me one time? Erik: Yeah. Sure. When I got to NYU, I’d started the business in the middle of senior high school. I wrote about this [??] at NYU. I got in. I asked a student, who was a great tutor, to be the manager while I first went off to school, And I immediately, when I got to NYU, entered a business plan competition. I wanted to get involved in something extracurricular at such a big place. And I loved the business plan competition; it was so fun. I learned so much about this education service industry. And at the time, I was the first freshman to make it into the finals. In the final day, you pitch in the morning to a small group, and then they put the top four or three in the final afternoon session with all the bigwigs. And I got into the afternoon session, and I was a team of one and I was so nervous. And all my friends were in the audience. And I’ll never forget, I went through my PowerPoint. It didn’t go great; it didn’t go terribly. And then it was the Q&A. And Bill Berkley, who’s name is on the Berkley Center for Entrepreneurship and is an extremely successful entrepreneur, asked me this question about how many managers do you need at 200 markets. I don’t exactly remember, but it was a scalability question, and I gave him the answer and he told me I was wrong. And I said, “No, Bill, you’re wrong.” [laughs] Andrew: [laughs] Erik: And, to this day, I still get made fun of by my friends for telling this guy, who’s the big deal, that you’re wrong. And then suffice to say, I didn’t win. Andrew: [laughs] Erik: And I fell flat on my face. It wasn’t pretty. Andrew: I want to come back to that because he brought up an issue that I think was a good one for you. But let’s go back to before college as you were building this business up. So first version of the company was, essentially, you and an ad that you placed in a local paper. Second version was a website. What did that website look like? Erik: Version 1A was just a really simple text website with a contact form. You couldn’t even buy sessions. You couldn’t really do much, but… Andrew: Did you buy your own domain? Erik: Yeah, yeah. Now, had our domain. Got on Go Daddy. Andrew: [laughs] Erik: [??] Email accounts. Did all of that. But basically you could submit a form if you wanted to be a tutor and if you wanted to get contact for services. And we were able to put a logo on a really simple site long before WordPress made it easy for you, or any of these kind of build-your- own-site functions existed. Andrew: It was just standard HTML? Erik: Exactly. Andrew: Okay. Erik: And I had a buddy in high school do that for me because I didn’t know how to do it. Andrew: And there is something else that you told Jeremy, our producer, that you sold. In addition to offering tutoring sessions like the one that you described, you sold notes? Erik: Yes. So we came up with a product which was basically taking my notes and other top student’s notes, and putting together front and back kind of cheat sheets for mid-terms and final exams, long before we even knew… In college that’s a standard practice. You could bring your one sheet in. But we were selling them to high school students during mid-terms and finals, maybe, selling $500 to $1,000 worth of one sheet notes for AP NSL, for AP Micro Economics, for the Calculus 1. Especially any of the tests that were county-based, because then we could sell them at other schools. Andrew: [laughs] How would you sell them at other schools? Erik: We’d have a tutor be kind of like a rep. We’d meet them at the local Starbucks, give them some things, and it was kind of honor system, bring us the cash when you’re done. It was a great experience. It didn’t work out to be the product that lasted, but it certainly, it was cool. Andrew: It was hundreds of dollars worth of sales, not thousands or millions. Erik: Right, right, right. Andrew: Surely not millions. You know, it occurs to me that, I remember when I was a kid, my parents were telling their friends how proud they were that I sold one of my toys to my younger brother. Like in their minds, they were thinking “Look, our kids know not just how to play, but how to be entrepreneurial.” It was just a sense of pride that came from it, and I remember the look of horror on their friends’ faces, like they should just be sharing their toys, they shouldn’t be selling them, you know? And I get both sides, but I’m glad that I didn’t have this sharing and money is dirty look. Did you get any of that? If not from your parents, who seem like they were very entrepreneurial, from other people who said, “Hey Erik, if you have something that can help other students, why don’t you just give it away? Why are you being so cheap? Why are you being so cut-throat? Erik: You know, we really, in high school when I started, it was kind of like, there’s a lot of cash changing hands before AP Stat and there was a lot of cash changing hands before AP Macro Economics, and all the teachers knew what I was doing and no one really gave me a hard time. I think that over time, we’ve been able to really rise to the occasion and kind of mitigate those sort of, kind of push back, because we create jobs for students. You know, because we also put money in the pockets of top students who normally wouldn’t be able to find paid tutoring opportunities while they’re still in high school. Andrew: I see. Erik: So the whole youth job creation angle has really helped, and our philanthropy, you know, giving free tutoring hours to basically anyone that hits us up and says we’re holding an event and need donations, we say yes. So that’s been how we’ve really handled all that sort of thing, and I have to always beleve that if you want something that’s quality, you do pay for it. And we’ve been able to, each and every year, justify why our rates are what they are and put a lot of quality behind what we’re doing. Andrew: Between January and June of your senior year in high school, you did how much in revenue? Erik: We did a little over $10,000. Andrew: And how much of that actually ends up in your bank account? Erik: You know, at the time, well, I can say that within twelve months after that, any money that was in the bank account was reinvested. That happened a few times throughout college. Andrew: Invested in what? Erik: A lot of technology. A lot of website and back-end technology to scale the matching and coordination and tracking processes behind our one- to-one tutoring model. Andrew: All right, so we talked about the original version of the business was just you and an ad, then it becomes you and a simple website and other tutors, right? Erik: Right. Andrew: Then, it becomes freshman year of college, you spent how much money to build your more ideal version or your ideal version of the site? Erik: Yeah, after that business plan competition, I really realized I needed a website, and I think I spent, on that first version, $10,000. Andrew: $10,000 to have someone else build a site? Erik: Yeah. Where we could take payments, and one very simple administrative back-end login. A client could log in, and a tutor log in, but the client could basically just pay, and I don’t really know what the tutor could do at the time, but not much. Andrew: So you’re dealing with all these different tutors, each one of them has their own personality, their own approach, and no experience. How do you ensure that they do a good job? What format did you give them, if any? Erik: Yeah. Well, one common misconception is that high school students, even when they join our team and it’s the first time it’s a paid job, many of them do have experience tutoring. Whether they’ve been tutoring their siblings or through a community service program, but what we feel is a really rock solid hiring process that combines both telephone and in-person interviewing, reference checking, transcript reviews, and then we’ve built an entire orientation program that all of our tutors go through, where they’re able to learn different strategies and techniques. Andrew: What are some of those strategies? Erik: Well, if you’re working a student, who, like I started with, like James, who had ADD, you know, we recommend to a tutor to bring one of those stress balls. You know, and after about 15 minutes of the appointment, or if the student you can tell is kind of itching to get up, let them squeeze. Or for that same student, walk around the room three times and then come sit down after 15 minutes. We even have more simple techniques, such as when you’re in a tutoring session, you need to sit next to your student, not across from them, because even if you have a 4.0, it’s just hard to read upside down. We always tie, at the end of an appointment, we try to tie a lesson up by asking a question based on what was just covered, that ties back to some sort of mutual interest. We ask our tutors to be really creative. So, I remember, we like the example of the student who loves airplanes, and is now starting to take high school science classes, and using the principles of geometry and physics to talk about angles and velocity and how you actually get this plane, with this speed, into the air and why it doesn’t just crash. So we take a lot of best practices and, you know, we invest a lot of money with specialists to tell us, on the cutting edge of tutoring and teaching, to tell us what’s working. Andrew: I see. One of the things I learned when I worked at Dale Carnegie & Associates was to give people that quick win, because then they trust you and they feel more confident about their ability to master everything else they’re teaching. But you’ve got to give it to them quickly so that their skepticism and insecurity doesn’t set in. Do you do anything like that, and if you do, you’re nodding, do you have a way of giving people a win who are afraid? Erik: Yeah, I mean, it’s part of our orientation process, you know, we suggest to our tutors that win method. You know, ask them easy questions, warm it up, and then dig a little deeper. Spend some time initially getting to know your student before you jump in, so that there’s some trust there. And then, everyone that’s working in our HR department are all former tutors, so they’re even able to lend a lot of their experience when they’re running their orientation sessions or their telephone interviews. We really warm the tutors up to it as well. Andrew: I see. How much money were you doing by the time you left high school? What size revenue? How big did the business get? Erik: Well, that’s about that 10 thou-, you know, at the end of high school, we only had about one semester and a month of school and tutoring, actual business time, so we did about ten thousand. Andrew: Often kids who have girlfriends or boyfriends, and senior year of high school, think that they’re going to continue with that relationship in college, but it ends up falling apart because other interests take hold. How did-, was there a time when you started to lose interest in your baby, when you started to say, well maybe there are other things going on in college I should explore, or maybe I can come back to this? There was? Erik: You know, no. Really, each and every semester, or every day I kept getting more into it, because starting something so novel in high school and seeing it get traction was always so inspiring. Then, freshman year of college, when entry into business plan competition got me even more interested, because I learned, you know, for like twelve months it’s really hard to think outside of just the high school I went to and our rival high school. I didn’t understand county systems, state systems, federal systems, how many students go to school nationally, how incomes break up. I mean, just learning about how big it is was inspiring. And then, everything I learned in class was so immediately applicable to the business, that I felt like I always had a real-life project to work on after I was studying something. Everything from financial accounting to integrated marketing process, I was just on the edge of my seat, because I knew we needed better marketing. I didn’t know how to do the books, I didn’t know how to manage people or managers. And then my friends all thought it was cool, and so they all wanted to be part of it. So it was, each and every year, it’s always been more motivating and externally, the system, I think, in education, needs disruption, I think needs Peer2Peer. Andrew: Managing friends is tough for anyone. Can you talk about one of the early challenges of working with your friends and having them report back to you and so on? Erik: Yeah, I mean, you want to keep it light, but you also need to make sure the client’s happy. So you - Andrew: Give me a specific example of a challenge, of course without using the person’s name. Erik: Well, I worked with one student who helped actually build that first version of the website really 1A, not the one that could even take payments. You mentioned the notes that we used to sell and this student, he was a friend and we would have business meetings in his bedroom and his mom would bring us cookies and milk like we were literally in a boardroom in the suburbs, he started to just give out the notes for free and that completely undermined the entire model. I had to say, I can’t work with you anymore because it’s hard to trust somebody who’s just giving away the stuff and everyone else is on board with and that was really, really hard. That was like a huge, management crisis at the time but I learned from it and over time have tried to each and every year get better. Learn how to frame things in the right way, leave a lot of… Andrew: How did you frame it back then? Erik: I don’t know, I probably said “Dude this is completely messed up, you’re an asshole and we can’t do this anymore”. I don’t know what I said, it probably was not polished. It probably wasn’t, I noticed that why did this happen, all the things they try to teach you once you get into school on how to maybe frame negative feedback or constructive feedback. Andrew: Were NYUs, they make you take a management class there if you go to Stern undergrad. Erik: Yeah Andrew: Was that one any use to you? How did you know how to manage people? Erik: Well, the actual management course they first give you, I wouldn’t say is the best and is going to put you well on your way to be a great manager but again in this business plan competition I had been told by a professor that there’s a professor in the graduate management program who is really interested in peer to peer and he wanted to help me. I immediately, the next day find this guy’s office, Ken Preston, and I go in with my backwards hat at the time, I had an earring and I said Professor Preston, my name is Erik Kimel, I heard you’re interested in my company I’d love to talk with you. He looked at me up and down and said, “Can you just get out of my office, please”. He was an old guy and right as I’m leaving he said to me what’s your business by the way and I said Peer2Peer and he said, “No come in, come in.” I spent Thursday afternoons with Professor Preston, and he’d say what’s going on and I’d tell him and he’d give me suggestions on how to handle situations and that relationship as a mentor and an advisor was critical. He taught me so many things that were so valuable and then was able to advocate for me to be able to take some additional management courses in the MBA program as an undergrad that really helped me sharpen my skills and got me to read all the Peter Drucker books and all these things that I would have never known about… Andrew: Or that you might have been dismissed as an entrepreneur… Erik: Right. Andrew: …and say that’s just for middle managers. Erik: Yeah, totally. Andrew: Recommend one to the audience if you could. Erik: There’s the Drucker Bites. It’s the Buffet Bites but there are the Drucker Daily tips, short quotes short principles that kind of resonate very quickly. You don’t have to read a 300 page book to get the ah-ha moment. Andrew: In other words, Drucker is an author you recommend? Erik: Yes, definitely. Andrew: What else, oh one, we asked you what your biggest challenges were in preparation for this interview and one of them actually came out during that NYU business plan competition which was scalability. Erik: Yeah. Andrew: What were the original; tell me a little bit, if you could, about the scalability issues. Erik: Well, tutoring by nature is, at least in-person tutoring, it’s a service business. There’s moving parts and any service business versus a product or online business is by nature less scalable. To this day we continue to face the scalability question. What we’ve done in order to continually answer and rise to the occasions of the scalability constraints is build out the people and the process and keep it simple so that we’re able to hire 500 peer tutors in a new community without committing too many resources to it and building a lot of technology behind the scenes to really help streamline the business operationally but still deliver a really personal, grassroots, hyper-local product, because at the end of the day, we still believe, and I still believe, tutoring is an in-person exchange, and if a parent has a choice, today, they’re going to choose a tutor who can come to their house or can meet them at the local library versus maybe somebody over Skype. For the vast majority of tutoring use cases. Andrew: You’ve talked about the back-end a few times. What goes on back there? Give me one challenge that you wouldn’t have anticipated years ago, that you’ve solved? Erik: One feature, for example, is when we were first looking at where a manager peaks out, how many clients and tutors they can handle, we noticed that they were spending a lot of time on Map Quest, trying to figure out where the client lives and who’s close. Then, one feature we built in our system, is we can put in an address and now see through a Google map. Some integration, and some other things. Who’s the closest tutor within a mile, driving directions, how many hours they’ve tutored. All these different factors that help us kind of be like a great dispatch. Andrew: Ah-ha. I see. How do you know if that’s an issue? That’s the kind of thing that if I had that problem, it would be invisible to me. I would just deal with it. Erik: Well, you know, I learned a great management lesson when my first manager quit. She said to me, “Erik, you know, it’s great you checked in with me a lot via email, and although I used a lot of exclamation points, things were going so smoothly in our email correspondence, it would have been great to see you, to meet with you, to talk with you in person.” So, I’ve really taken an approach of always being very collaborative, checking in, over communicating, and spending a lot of time in the communities that we serve meeting with out managers. Just by being there in person, you get to see, you know, show me exactly where this pain point is. Andrew: I see. You’re watching them as they do it. Erik: I’m watching them as they do it. I’m checking in with them a lot, and I’m not hiding behind a phone or a text. You know, I’m going to meet you for coffee. We’re going to sit face-to-face and talk about it. And I’ve been about to figure out a whole lot more about the model, the areas, the issues, the great things, what to build on, what to improve, just by being there, you know. Andrew: Eric, one of the challenges with that is if you’re there for people, then everyone else expects you to be there for them, too. How come Erik is having coffee with Jack, but when I need to talk to him about my, you know, just to shoot the s— with him, he’s not around for me. Erik: Yeah. Well, you’ve got to make it a priority. So I put the people first, and part of the technology back end, part of the building, (?) department bills on tutors, basically not even having to have an accounting department, because everything is automated, it lets us basically spend our time on the things that we care most about and are most critical to our success, which is being with out managers. I’ve had to learn tricks, such as holding conference calls as opposed to calling everybody up on a Monday morning for a weekly check-in, creating knowledge base online to be able to share materials, things that are useful to our people. But at the end of the day, you know, and not over promising. If I say I’m going to meet with you once every month, in person, I can stick to that. But if I say we’re going to meet every week, then I’ve set myself up for sleepless nights and being really tired. Andrew: I remember talking to the founder of a publicly traded company, who was in his twenties, who admitted to me that he was having issues just bringing himself to talk to his CFO, because his CFO was older. He felt like that guys really an adult, and I’m not really an adult, so he wasn’t, he was tip-toeing around him. Here you were younger, not just trying to manage one person who was older, but at some point many people. How did you get to do that? How’d you do that right? Erik: You know, I just never played scared. You know, in basketball, I always liked to play with the older kids. A lot of people have asked me that question. Isn’t it awkward, because in our model our peer tutors report to their local regional education advisor, who is an adult. Basically, I help manage and support our local managers in each community, each of these REAs, so I always keep it on talking about the business. And I don’t really let there be much awkwardness because of age. You know, we realize that the client is a parent so they probably want to talk to another adult about setting a tutor up for their kid. And as long as we’re talking about the grade tutor, how we’re going to get the students, how we’re going to give to the community, and have the conversation be about that and not the fact that maybe we’re 20 years difference in age or whatever. I’ve got grandmas and people with grandkids working of us. You know, it’s all good. And they look at me and they think, “He’s a brand, and he’s closer to the tutors.” I think that’s part of it, too. And it’s cool. Andrew: They used to manage or the people who work for you used to organize themselves, I’m looking at my notes here, using Microsoft Excel and a pad of paper, which is the way that often people get started. And then you saw what they did and how they were using those simple tools and you built your tools around that. In retrospect, it that the best way to go, to let them use whatever tools they have, watch how they use it, and then build solutions afterwards, or should you have started out with a clear system that would have scaled better? Erik: I think you 100% have to wait and see how people are going through a process and then build technology that helps automate, make it a whole lot easier, versus kind of guessing that that process is going to look like, because especially in our model, there’s so many moving parts. There’s so many details that if you don’t have actual… These three people are running into the same challenge. Okay. How do we fix this? You’re going to end up probably spending three times as much for half the results. And we found it to be really useful to kind of build the tech once we realized, “We’re going to hit a wall. We need to build more capacity. How do we use technology to automate this?” And I did spend a lot of time sitting at a computer in the suburbs looking at this stuff and thinking, “Gosh, how do we do this better? How do we do this better?” Andrew: What’s one thing that they did that you wouldn’t have known to build that you wouldn’t have known needed to be included in your software? Erik: I’m continually reminded of more things that we need to build. Just a few nights ago I was talking to one our managers who just interviewed 26 new tutors and there’d be great if there was a button that we could change the status in one fail swoop for a mass group of students which we never had before. But I know personally one feature that we built that I really benefited from was, for a long time in college, I would track a spreadsheet that had all the tutoring session history. And we even, it was probably a bad idea, but we started to sell to some parents packages because they had said, “We’d love to be able to get a discount if we bought bulk.” And so I was tracking package balances in a spreadsheet which was really, really meticulous. And so on a Thursday night I would send an email out to our tutors and say, “Hey, send me an email. Report your hours so you can get paid.” I’d enter all this stuff into the spreadsheet until probably 11 o’clock at night. I would go out till 3:00, and I’d wake up on a Friday morning and I’d run a payroll and get it done. And I finally showed that spreadsheet to our web developers and they figured out a way to build an on-line dynamic reporting system. And I tell you, Andrew, that was for me the best feature we built, because it was everything that I was doing but the site does it for us now. Andrew: Was the business bootstrapped or did you take outside funding? Erik: Bootstraps. Andrew: Oh, bootstraps. Erik: I invested 50 bucks in paid-in capital and that’s it. Yeah, I had no investors or anything. Andrew: I haven’t talk to you about customers. We talked a little bit about how you got your early customers. What else worked for you for getting new customers? Erik: Education services is a word of mouth business. And we’ve been leveraging word of mouth ever since. So, we use, you know, just we really believe great service to our clients yields more referrals. And in new markets, you know, we’ve experimented with all the different online kind of lead generation kind of stuff. But, I’ve really tried to build meaningful relationships with people in communities, get influencers to either be our managers or be supportive of the business, and use more or less word of mouth tactics in each new market. And we have a nice mix now of how we enter a market depending on the external factors and who we have on our team, but it’s a word of mouth thing. It’s… Andrew: What do you mean by influencers? Who’s the typical influencer in a new market who can help you get customers? Erik: You think about who’s that parent that other parents look to for advice. Andrew: I see. So, who is that parent? How do you generically know that there’s going to be that parent? How can you tell from a distance who that parent is? Erik: How can you tell from a distance? That’s a great question. You can pick up things from someone’s LinkedIn profile, you can pick up things basically by getting on the phone with someone and how they talk about their area, what they do, how they find resources themselves, what they’re involved in. I surround myself, you know, we build from within, so I try to incorporate the managers who are being successful to talk to new managers, to figure out and make a judgment call if they think they’re going to work. Andrew: Are there indicators, like the parent who’s active in the PTA, is going to be like - Erik: Yeah. Andrew: That’s the kind of thing you’re looking for. And then, if you find that person is an influencer, you make them a manager, and let them hire underneath them? Erik: Right. If that’s something that they’re interested in, and we think they’ll be a good fit for. Andrew: You also said that you have a certain way of entering a market. How do you do it? Erik: We start with that person, and then we develop a plan based on that market’s characteristics and how close it is to a market we’re already in. If we know people in the administration of the district, and we hold anything from…Just a few weeks ago in Chicago we held a great cake cutting, meet the tutors event at a local work share space, and the mayor came and the we had kids and there were tutors, and it was awesome. In other markets we’ve simply held an open house, or we’ve really tried to advocate for write up in a local paper. Or we’ll do a huge buy in a local newspaper that still people read and latch onto. I really enjoy learning about each of the markets and what’s going to work. Then we have a nice profiler, so we know basically where to go. Andrew: Oh, what’s that? How does that work? Erik: It’s neat. You know, my investment banking friends who, at one point in college, I was the guy who knew how to use Excel the best, and now, since, I’m the guy that barely knows how to use Excel and they’re all creating these crazy things. So, I said to them one day, “Hey guys, education data is free and public on the ‘net. I kind of know from a sample size of districts we operate in where we have found traction, can you score these 17,000 districts for me some way?”, and I got some good free consulting out of it and we had a nice document. Andrew: So they score the ones that have worked for you, identify what works about them, and then tell you how to find others like that? Erik: Exactly. Andrew: What’s an indicator of a market that’s going to work for you? Erik: Size, the number of students in school, income, we even look at farms rates, that’s free and reduced price lunch. We look at average number of students per school, and we weight the factors, and we give everybody a score. Then we’ve kind of gotten fancy and started to look at the rankings of high schools, and how does that play into it. All these different things. Our parents, how well educated are they. You know, all these different factors. I like size. I need big places. I need places where there are a lot of students in school, all living in a close proximity to each other so it’s a feasible kind of thing. If it’s too small, you don’t need us. If it’s too spread out, it’s hard to place. Andrew: You even have big customers who are school districts? Erik: Yeah. Andrew: How does a school district, how did you find a school district as a customer, and then what’s your relationship with them? Erik: Well, in college I’d been told by some advisors and mentors that the U. S. government does pay for tutoring and you can get into these programs. Basically, by going through an RFP process with different non-profits and school districts, we’re able to show that our services are research-based effective and would benefit a population of students that the district, the non-profit, or the school is interested in serving the services. Then, we’ve been able to bid on some of these proposals and get them. But probably the most important thing that we did five years before ever trying to work with a school district, was adding that reporting system, so we had a log of our tutoring sessions, and could show people over 100,000 hours of tutoring, of data, showing what we’ve been tutoring, how long we’ve been doing it, who are the kids that we’re tutoring, who are the kids we’ve been serving, to show that, hey, this thing works. That tracking tool has been really helpful, but Andrew, the reality is when it snowed a couple of years ago in D.C. for a huge blizzard, I spent three days writing a No Child Left Behind RFP in my PJs and hot chocolate and when I wrote that thing up, you know, I found that that was really get helpful to then get more No Child Left Behinds now basically done. You know, there’s waivers in every major state and it’s a whole game that we’re not really that good at playing but we have a great proposal showing everything about what we do that we’ve been able to leverage and serve students who can’t… Andrew: I see. So you’re saying that schools had a No Child Left behind, had money because of No Child Left Behind and you pitched yourself to them and that’s how you got some of that business. Erik: Yeah. So states have it, school districts have it, nonprofits have used their operating budget to sub-contract this. Andrew: How did you find out about this? Most entrepreneurs at an early stage are so busy focused on their day to day problems that they don’t notice those big opportunities and if they even think about them they think that’s for someone else who’s more connected, who’s in a different space who’s not in the hustler frame of mind and they pass it up. How did you do that? How did you make the connection to your business? Erik: Well, I think I passed it up, you know, probably the first three, four, five times that it was mentioned to me, and then as I got more confident in what we were doing and could understand the language of these RFPs which are just kind of hard to understand just in general. You know, I said there’s a certain point where I just said, OK, you know, we can do this and we just did. Being open-minded, you know, being stubborn enough to know, you know, there’s a path I’m on and something we’re trying to build, but being open-minded enough to step back and think about what you’ve been hearing, what I’ve been hearing and consider other opportunities. It all hopefully aligned around the same concept. Andrew: So then Aristotle’s Circle presents an opportunity to you, why do you sell? You didn’t sell out, right? You got cash in, actually, what is the structure of the deal so that I can ask a question about why you did it? Erik: So, we’re now one company. I am, Aristotle’s Circle and Peer2Peer Tutors are now merged in one business and I am an equity owner in the combined company and have a large stake in our success in the future. Andrew: OK. Erik: What I, and I wasn’t looking to, this wasn’t something that I sought out, you know? I knew, I’d known for a very long time that we want to get this to a lot of students. We want to get the volume, the national, maybe even the international volume so that peer tutoring becomes widespread and I do believe first mover advantage in the space is a big thing and when I moved, I moved up to New York about a year ago, literally a year ago basically to this day. Andrew: From the Washington, DC area. Erik: Yeah, from DC, so I was kind of a ping-pong ball. I grew up in DC, went to NYU, moved back for three years, now I’m back in New York, and I was trying to raise money because I realized without having any external investment, any debt, I had no debt on our books whatsoever, everything funded through profits. You know, to be able to open the number of markets that we wanted, that I wanted to see get opened was really just going to be really impossible or extremely difficult without, you know, raising some money, having a partner, doing something, and so I started exploring opportunities and what I really liked about the Aristotle’s Circle opportunity was, and is, that they had already taken the next steps that we needed, having the client service team, having the internal marketing people, and having two principals in Susie and Sue who are extremely savvy with the investors and the (?) and all these different financial partners that I really found to really dislike. I really didn’t like being in those conversations because I felt that it took me from the passion and running the business that I more enjoyed and I believe their model is extremely innovative and its different than private, you know, academic tutoring because it’s college admissions consulting which, at a bird’s eye view, is all bundled in this education services sector, but really quite different, you know? I had noticed that in visiting hundreds and arguably maybe 1,000 different high schools, that these ratios between guidance counselors and students to one guidance counselor are extremely large and the need for having another resource is definitely apparent and no one had done it on a national basis, so just as we’ve built a network of top students who are in high school, the Aristotle Model has built a network of the top experts nationally and internationally that helps students gain admissions to college which is actually a really cool international business as well which I thought was cool. Andrew: You didn’t feel comfortable raising money, but you thought that this would be another way to grow the business? Erik: This would be, you know, it wasn’t that I probably couldn’t raise the money… Andrew: It seems like you could have. Erik: Could I have raised the money and been able to continue to keep the bus moving, and not mess it up in the process, I think, was going to be really hard. And when I found this opportunity to also gain another two sources of revenue, as well as the people, the management experience, and the speed to market that we were going to be able to do, I said this is a great opportunity. We fit. The cultures really fit and we’ve been able to really, just since February, we’ve opened ten new markets, Peer2Peer markets, since then alone, which I never would have been able to pull off alone. You know? Andrew: Do you own more than 25% of the combined business? Erik: I can’t really comment on that. Andrew: OK. Did you take more than a million off the table? It seems like you did. Erik: I can’t really comment on that, either. Andrew: OK. Erik: But you’re good. You’re good, Andrew. Andrew: [laughs] I’m not good enough on that. I think the rest of the interview actually flowed really well. I usually am very critical of my own work, but as I’m looking at this interview, I’m feeling especially proud of it, and frankly, it’s not just me. That’s what sucks about this business, is that my interviews, a lot of it depends on the guest. You and I never would have met if not for Jonathon of the Fort, so it depends not just on the guest, but a past guest in Jonathon, in introducing us. But, once we’re here, I could do all the work I want, but if you’re not articulate, if you can’t tell your story, if you don’t trust that a story is better than facts and better than just advice, then it just doesn’t flow. If you can’t put two sentences together, it doesn’t flow and it’s painful. If you’re angry at me for some reason, for interrupting your day, then it doesn’t work. Erik: [laughs] Yeah. Andrew: Let me say this, and then I want to come back and actually, speaking of advice, I do want to ask you about one piece of advice that you would give to your earlier self based on your experience here, so that we can give it to the audience of entrepreneurs who are listening to us. But first I have to say, the most important part of any interview is the part where I tell you guys to go to Mixergypremium.com. Now what is Mixergy Premium? Well, if you buy into this whole idea that you can learn from someone else instead of trying to figure everything out for yourself, then Mixergy Premiums is the site to go to for entrepreneurs. That’s where real entrepreneurs come in, they teach you how they built their businesses, and they show you how you can do it, too. Mixergy proper is interviews, Mixergy Premium is courses. And by the way, Erik, have you ever heard of Nicholas Green from IB Insiders? Erik: Of course, Nick’s my boy. Andrew: A good friend. Erik: Yes. Andrew: He built a similar business to yours, except he was focused on getting people into college, letting people take college entrance exams. He’s one of the teachers at Mixergy Premium. I asked him, “How do you organize your business in a way that allows you to lead so many people who other interests, college, and side interests, and still keep them all focused and productive?” He showed actual screen shots of the software that he used. He showed how he managed them. It’s been terrific for me, and I know other people have used it to systemize their businesses. He’s one of dozens of real entrepreneurs who teach at Mixergypremium.com, and if you use those courses, you can do what I did, which is systemizing your business or help generate more sales, or improve your business in other ways. Go to Mixergypremium.com. I guarantee you’ll love it. Thousands of others already have. All right. So, one piece of advice. What would that be? Actually, you had something that you wanted to say about my pitch. I always ask entrepreneurs about feedback on my pitch. Not so much to put you on the
Persuasive product videos 2 October, 2012, 6:00 am
What do Dropbox, 99Designs, and Woody Allen have in common? They all use videos to increase sales! Of course it’s easy for them, right? After all, they have ginormous budgets. You, on the other hand, are just starting out. You don’t have the resources those guys have. But Miguel Hernandez says you don’t need them. Miguel is the founder of Grumo Media. Grumo is the production company that businesses like Hipmunk and celebrity entrepreneurs like Ashton Kutcher use to create videos that explain their products. In his Mixergy course, he shows you how even a camera-shy, bootstrapping entrepreneur can create an effective demo video. Here are three strategies you’ll learn in the course. 1. You Don’t Need a Big Hollywood Budget You don’t have thousands of dollars to hire a production company. And you don’t have time to do it yourself. Or fancy equipment. Or editing skills. Even if you did, you wouldn’t know what to say in a video, anyway! So given all of those roadblocks, how can you create a video people will watch? Keep it Super Simple First, forget about expensive equipment. You don’t need it! Miguel says to simply use ScreenFlow or Camtasia to record your computer screen and your voice. “ScreenFlow is great because you can record your screen and also edit your video within the same application,” says Miguel. He says the easiest way to make a video is to navigate through your site, and any other relevant sites, as you talk about your product. 2. Plan Your Opening Act Stand-up comedians warm up the audience to get them in the mood for the headliner. Up-and-coming bands get the crowd excited before the featured band takes the stage. Likewise, you’ve got to warm up your prospects before you explain how your product works. “If you just go in right away into the features of your software, people are not going to be so excited,” says Miguel. They won’t understand how it solves their problem, or they just won’t care. Either way, you’ll lose a potential customer. So how do you get them excited? Tell Your Story Get your audience’s attention by explaining the pain that your product solves. Miguel likes to think of it like this: “We identified the problem, we are the solution, let me tell you how we solve that problem.” Then, once you have their attention, you can introduce the solution. Miguel says the Greplin (now Cue) demo video identified a problem: It’s hard to find information across all of the networks and platforms you use. For example, maybe you’re looking for an address to your friend’s party, but you can’t remember if it’s in Evite or in Facebook. Then, after Greplin’s video has you hooked, it explains their solution: how the product makes it easy to search for those bits of information. 3. Choose Your Story Wisely When you write a video script, it’s tempting to try. You want to speak in broad terms so that everyone will think your product is for them. That way more people will buy it! The problem is that prospects don’t identify with phrases like “almost everyone”. They don’t feel like you understand their problem. That means they won’t be excited about your solution. So what can you do to prove you “get them”? Get Personal with a Few To get prospects to identify with your product, be specific. For example, Hipmunk’s video starts with a story about a problem: needing a last-minute flight to see your girlfriend. But, as the video explains, “every site gives you tons of results. And you go through pages and pages of flight combinations, and time goes by and you’re getting frustrated. And you’re like, ‘I just want to book this flight now. I mean like, pronto.’” Miguel contrasts this with a more generic line they could have used like, “Most users that search for flights online find current websites difficult to navigate.” “If you say ‘most users’, that’s very impersonal, right?” says Miguel. “There are many words that sound more interesting.” Both are true, but Hipmunk’s story is more personal, so people identify with it. Get the rest of Miguel’s course here.
LeadPlayer: Have A Software Idea But No Developer? – with Clay Collins 1 October, 2012, 6:00 am
If you’re not a developer, but you want a developer to help you think through your software idea, how do you do it? Listen to how today’s guest did it. It’s extremely clever, easy to do, and could help you with your next business idea. Today’s guest is Clay Collins, the creator LeadPlayer, which lets you set up opt-in boxes in your videos in about 15 seconds. I’ll ask him how giving out software compares to giving out content when it comes to generating leads for your business. Watch the FULL program Prefer audio? Great! “Right click” here for the MP3 format. About Clay Collins Clay Collins is the creator of Welcome Gate, which allows you to ask new visitors of your site to enter their email address before entering your site, and LeadPlayer which lets you set up opt-in boxes in your videos in about 15 seconds. Raw transcript Mixergy’s audio transcription is done by Speechpad Andrew: Coming up in this interview, if you’re not a developer, but you want a developer to help you think through your software idea, how do you do it? Listen to how today’s guest did it. It’s extremely clever, easy to do and could help you with your next business idea. Also, we talk about revenue. I know you like to hear me ask guests about how much revenue there is in each idea that they have. We’ll get into that in this interview and finally, how does giving out software compare to giving out content when it comes to generating leads for your business? All that and so much more coming up. Three messages before we get started. First, do you need a single phone number that comes with multiple extensions so anyone who works at your company can be reached no matter where they are? Go to grasshopper.com. It’s the virtual phone system that entrepreneurs love. Next, does anyone you know need a beautiful online store that actually increases sales, but is easy to set up and manage? Send them to shopify.com, the platform that top online stores are running on right now. Finally, do you need a lawyer who actually understands the startup world that you and I live in? Go to walkercorporatelaw.com. I’ve known Scott Edward Walker for years, so tell him you’re a friend of mine and he’ll take good care of you. Here’s the program. Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. I’m bringing you a story of an entrepreneur who got into the software business. I want you to see how he did it so that if you’re getting into this business, you can learn from him. I’m doing this interview because I saw a tweet the other day from a guy who said that he shifted from selling info products to selling software because of listening to Mixergy. As a result, after building this up, he kept doubling and doubling his revenue, and what made the statement, to me, even more impressive is that this is a past Mixergy interviewee. A guy who was already doing well, that’s why I invited him here to do an interview months before. If he’s doing even better as a result of Mixergy and he now got into software, I want to find out all about it. The guy is Clay Collins. He is the creator of two pieces of software that you’ll find out about today and they both help other entrepreneurs build their mailing lists. The first one that he came out with is a product called Welcome Gate. Welcome Gate allows you to ask new visitors of your site to enter their email address before entering your site. The second piece of software, and this is where the real action is, is called LeadPlayer. That lets you take any YouTube video and at any moment in that YouTube video, request an email address from the viewer, or give a big button in that video that users can click and go wherever you want. To a shopping cart, to another site, etc. It super charges videos. I invited him here to talk about how he got into that business. Clay, welcome. Clay: Andrew, it is a pleasure to be here as a marketing guru, or ex- marketing guru. Everyone in this whole previous space that I’ve been in would crap their pants to be on Mixergy because then they get to be juxtaposed to people like the Dropbox people. I’m very happy to be here for the first time as a co-founder, as a product guy and not as someone who’s here to dispense marketing secrets. It’s an absolute honor and pleasure to be here. Andrew: Thanks for being here. Last time you were on here you were on here because I admired the way that you sold information. You’re right. I don’t usually have info product guys. I look for people like Dropbox founders, software entrepreneurs. At the end of the interview, after I shut it down, you said, “Andrew, I thought you were going to ask me what my revenue was?” That is a standard question that I ask. Maybe, I should have asked you. I’ll ask you now. What was the revenue back then on that business? Clay: That business is a seven figure marketing education, marketing training company. Some months we do over six figures, others it’s less, but it’s a seven figure annual company. [??] really proud [??], and proud of where we’ve come with it. Also really excited about what we’re doing now. Andrew: Over a million in revenue selling info products in 2011. Is that right? Clay: Somewhere between the middle of 2011, in the middle of 2012. Andrew: Ah, I see, OK. So over the last 12 months, roughly, roughly a million in sales. What’s your gross margin? How much eventually makes it to the bottom line in your business? Clay: Oh, man, that’s a great question. I wish I had better reporting, and the truth is, my business partner Tracy could probably say this, or could probably tell you. I’m not avoiding the questions, but I’m in a lot of cases, so ADD that I don’t even check my mail. So I wish I had numbers like that. What I can tell you… Andrew: Can we say over a quarter million in profit? Clay: What’s up? Andrew: Can we say a quarter million in profit in the info business? Clay: I’d say… I’d say a good chunk that I can take out personally, and a good chunk that we can spend on starting a software company… Andrew: Right. Clay: … and being able to afford top developers, yeah. So a bunch of that has left the company through me, through distributions to me, through money that we can give to new projects. My biggest driver is not taking a bunch of money out for myself. It’s really being able to hire amazing people, write an entire WordPress plug in and just give it away for free. We’re creating a WordPress theme just for video bloggers, it’s going to be completely free. This stuff isn’t cheap, so we put a lot of money into that. Quarter of a million? Yeah, I’d say… I don’t know about profit just because that’s not the way our business works as such, like I’d take out distributions and we try to not leave a bunch of money in the company at the end of the year for tax purposes? Andrew: Ok. Clay: But I’d say around that, and out of that you’re saying, “And some goes to you, and some goes to starting this new business.” Andrew: Yep. Gotcha. OK. So fairly strong business, selling information products, it’s growing, there’s room for even more growth, and still you say to yourself, ‘I want to get into software.’ Why? Clay: I’d say I wanted to get into tools, and into products. There’s a lot of courses out right now on how to create an app business, and how to create a software company, and I don’t see software as a business opportunity. I really see it as something that’s in my DNA. When I was 15 I left home and left high school prematurely to start a software company, and it eventually sold off. At the end of the day though, it did well but I was jaded, and I was jaded because I didn’t understand marketing. I think there was a part of me that, fast forward ten years, was like, “Yeah, this is what I want to do.” But I’m holding back because of this experience of having that flop. I think subconsciously that’s what got me to pour myself into marketing, was that I realized that I wanted to get that handled, although it was never that clear… Andrew: I see. So marketing, you’re saying, was never going to be your end goal. It was just something you had to master because you felt you weren’t especially good at it. Clay: Yeah, absolutely. Andrew: Hey Clay, before I continue with the interview… Clay: Yeah. Andrew: …I’m sensing, since I’ve known you now for a little bit, and I’m watching you here in this interview for sure, I’m sensing that you feel a little uncomfortable about the answer you gave to the profit question. You tell me what you feel. Clay: It’s not the profit question actually. I think it’s really just the shifting of these two roles. This is a long answer to the question but hopefully it’ll make sense at the end of the day. Seth Godin wrote a book called “Purple Cow.” It’s all about how to create remarkable products. The truth is that unless you write a book like “Go the F to Sleep” there’s a couple books that are truly remarkable, but on the whole, information, in and of itself, is not remarkable. Most books are just another book on the shelf, and unless they are consumed and really wrestled with, that’s when they become remarkable. But just off the shelf, most books aren’t remarkable. They just aren’t. And so when you do info-product marketing, because info-products aren’t immediately remarkable, like the way an Aero chair is, or the way a Mac Book Air is, because info-products aren’t that way, the personality needs to become remarkable. Go look up Frank Kern. Frank Kern is a very colorful, remarkable person. He curses, he surfs, he has these very divisive viewpoints. People love him, they hate him. Call him what you want, the dude’s remarkable. I don’t know him personally so I can’t say anything about his character either way. But he’s remarkable fundamentally. And when you sell information products, your job as the personality that represents that brand is to be remarkable. And so, this is really my first interview. Not as, you know, I’m here to be remarkable so that I can sell information products that are related to the information that I’m selling. Like I’m not here to be that. Like I have some software. This software stands on its own and speaks for itself. And so, my programming on how to do an interview and just to be really transparent honest. Like this is a first for me. Like I am in new shoes right now. And so, you know, I might tentative throughout this and that’s probably why. And so, you know, I just encourage you to challenge me, you know, on that, you know, if you think maybe something’s not exactly right. But, you know, that’s probably the tentative nester feeling. Andrew: OK. What about this? I want to get to the how to. How you found your developer? Because I think that’s an interesting useful story. I want to know how you got your users. I want to know those remarkable things that happened when you came out with welcome gate as appose to some other marketing that you did. But I got to ask this one other question. There seems to be this feeling that if you’re selling information, you’re not as special as the people who are creating software. There’s no Dave McClure and 500 startups for the info product business. There’s no Y Combinator thought leader for the info products base. But there is of course for software. And those guys are the new hero of entrepreneurship. And those guys are the ones who are changing the world. And when you look at peoples computer screens, you’ll often see a little drop box logo on the top of their screen because they have drop box on there. Or ever note on the bottom of their screen because they’re running that. Do you feel that? Is that partially the reason why info needs to be left behind and why products are your next thing? Clay: You know, I think that it has to do with skill and it has to do with how rapidly you can impact people. So someone said like a picture is worth a thousand words. You know, and maybe a tool is worth like a billion, you know. Like I can create an entire course on how to use videos to generate leads. Or I can just create a product that has all these complex concepts built into it. Andrew: And people don’t have to understand them. They just install it. They do what you tell them to do and boom the video suddenly collects email addresses. They don’t even have to know how to create video. They don’t have to take a course on how to make a video. They can just take that hamster who stairs at the video screen in an odd way, and throw a lead gen form on their using your software. Boom, they’re collecting email addresses. That’s the thing that you’re saying too. Clay: Yep, yep. And like Welcome Gate, you know. Which we model completely after what you previous version of your little page that people saw when they first came to (?). It just works. People screw it up and it still works. People write with a crappy headline. Like they have a terrible message. And like don’t even have a, you know, a testimonial. And like it just works. And that to me is powerful. And that’s where the scale is. But even within the, you know, even within the tech world, I don’t think we need to divide between products or software versus information. I really think that within that there’s this division of bootstrap and non- bootstrapped. So, you know, we have a word plus plug-in. And, you know, because we’re bootstrapped, we didn’t spend as much time making it look beautiful so we can market ourselves to investors in the tech community. And, you know, we started out with a minimum viable product. Which is just the word plug-in. So it’s not in the cloud, it’s not software service. It’s a freaking, you know, Word Plus plug-in. And there’s a typical, kind of, it’s not a long form sales letter. But there’s a sales letter on our homepage. This isn’t something that most people in the tech community are going to think are cool. Now hey, you know, companies that get a couple of millions up front I think are spending their money on in a lot of ways that are useful. But we are just not doing those things. So we’re probably not cool neither. So I don’t think software makes us cool. You know, I think that doing a certain very specific set of things that’s trendy at the time. That’s cool and, you know, are we going in some of those directions? Absolutely. But I don’t think it’s software that does that. Andrew: All right. I got to get now into the how to. Clay: Got it. Andrew: I know if I were listening in the audience I’d want to know how you did it. Clay: Sure. Andrew: And one of the first things I think that the audience needs to hear. Is how you found your developer and how startup weekend factor into it. Because I think that shows the hustler bootstrapped mentality that we all love. Clay: I just recently discovered that Minneapolis has a tech community and whatever [??] you want for that, that was awesome for me. I was on Tech.mn, it’s a great website that’s organized the tech community here and I saw, it was the most random thing ever, but I saw that there was a startup weekend. Here’s a bunch of people that got together for 48 hours to create a startup from thin air. Obviously, they’re interested in this kind of thing. One of the people who won that, I saw the video of the winner, the guy who won that was doing something related to email opt-ins. I invited him to have a beer and we had a conversation about it and by the time we were done, we had nailed down the feature set and by the time I woke up in the morning, he had sent not wire frames, but mock ups of the first products. Andrew: What’s the difference between a wire frame and a mock up? What do you mean? Clay: Wire frame is, I know you know this but you’re asking on behalf of your community. A wire frame is the lines, whereas a mockup is like, ‘Here is a picture. Here’s a photoshop picture of what the interface is going to be.’ It still needs to be sliced and turned into a working program [??] for it. Andrew: Complete stranger to you, who you just found because he happened to be working on software over a weekend that was related to your idea and you said, ‘I want to brainstorm with him and create a product together.’ Within hours, the product was done? Clay: With hours the concept was nailed down and, of course, there’s been iterations and we’re releasing a new product update probably about every seven or eight days, right now. The specs for that first minimum viable product were done. Andrew: I think that’s brilliant. I want to ask you why you went with him instead of someone in the Philippines, or in India, or someone who you found online, but let’s go back a moment and ask, ‘Where’d you get the idea for LeadPlayer?’ Clay: I’m a video blogger. I have a video blog called The Marketing Show. We wanted functionality in a video player that just wasn’t there, so I knew that I wanted to use YouTube videos because I wanted the view count, when someone watched my videos, I wanted that to count towards YouTube view count. I knew that I wanted [??], which by the way, a lot of people have thought that that has saved us time, but in order to [??] a problem, we had to go to the YouTube developers conference and have them look for our code. YouTube education’s been a little costly and [??] terms of service are really harsh and integration just costs money. Andrew: I thought it would be easier because of that, too. You knew you wanted to be with YouTube, and I get that. Clay: We knew we wanted a few things, a handful of initial features that just weren’t available yet. I wanted calls to action to be instantaneously. I wanted to say, “Add this to my AWeber list. Here’s the headline.” For example, here’s the beginning of a Marketing Show episode. “Hello everyone. This episode of the Marketing Show I’m going to show you how to create a logo in five seconds. That’s what you have to look forward to in this episode of the Marketing Show.” Boom. Right then it stops in the middle of that video and an opt-in box comes up and says, “Want to watch this new [??] lesson on creating a logo, opt-in to Enter.” Then it has some text there. I knew I wanted that and nothing else had that. If I wanted to do that with other programs, I had to get some CSS made and put it there. I had to log into my AWeber account and get some form code and then modify that and then drop it. It wasn’t easy. As [??] marketer, it wasn’t functionality that was immediately available to me without having to go through my development team, or without a lot of hassle. I knew I wanted that and I wanted to be able to do that at the beginning of a video, or the end of the video. Andrew: [??] your spot versus, I think even Wistia only allows you to ask for an email address either at the beginning, or the end, but you can’t say, “Fifty seconds into the video, after I’ve introduced it, that’s when I want to ask for an email address.” Clay: I can’t speak to you what Wistia does because they’re always changing stuff and we’re always changing stuff, but I wanted that, but I wanted also the ability to have “Skip this step” in it. If someone’s 30 minutes in, I don’t want to be some aggressive marketer. I want to give them the option, but below that it says, “Click here if you don’t want to opt in.” The important thing was I wanted that decision to be salient. I wanted them to make a decision either way about opting in my list. When an opt-in box is on the sidebar, someone can ignore it but when it’s right there, there is a (??) and so I wanted that but I also wanted to be able to do a cost action. Let’s say you have a sales video and let’s say its 15 minutes long and the first ten minutes you know, you are talking generally and in the last five minutes you are like, close. You are telling people what comes at the product, I want it the the called action button to appear then. When the called action button is timed with the offer , we have seen conversion makes double and when the obtain is timed with you know, when you just see an obtain box initially its (??)but when its timed with the content powerful things happen and so we wanted both the things to happen in like just 10 seconds, its just take some tax, turn it on , name the time, boom you are done. Pick a YouTube video put it in. We wanted, basically we thought there was a whole lot of people who had a gold mine of a video content that was already on YouTube. we didn’t want to take way the YouTube (??) in being found in search engines but we wanted to add some additional functionality to that and we are going to… . Andrew: Andrews, (??) want to know , how did you know that there will be other people who were be interested in this because I have been a viewed entrepreneur who said, I have this great idea, of course, the world would want it but they launched and it turns out nobody wants it. It was just perfect for them and was completely useless for everyone else, how do you know others would be interested? Clay: yeah, so we pre-sold it. We went for audience and we asked them if that’s what they want it and we sold it to them before it was actually available for development. So people were planned for an upfront and that’s how I knew. Andrew: Where in this process, this was after the markups were developed for you, before software started to getting created or after you started coding. Clay: Yeah, So the coding process had done so, we had started it but we pre- sold it before we invested at time in software development but where you know if you would (??) people who don’t know about pre-selling is you need to ship within 30 days, if you pre-sell something in order for to be legal. Less you want to (??) selling it in advance but we can no matter how we put it in our heads we couldn’t sell this as an advance and we just didn’t want to sell it as, we could have, we could have been like this the video marketing course comes with a video player and a video player gets in and you get after that two months but before that you get a month of, you know a education con… Andrew: So you have to develop you felt, enough of it, you were 30 days away from launch before you presale, right? OK. Clay: So we will get back to that in a moment. 1st markup spilled up by this guy whose we met up startup weekend. He sent you the first vision did he coded up? He started coding up the first version, right? Andrew: And then you went to a job board and you looked for someone to develop the full hour program. Clay: Yeah, just did with the first guy, because you know I think have been around long enough to know that anything you should do in your business should be done artfully, everything from customer service to website needs to be done artfully and we knew that if we were truly going to be in this business if we knew if we were truly going to be in this business if we were going to commit that (??) guy who works full-time job somewhere and he is doing this on the side, we just can’t have it like, like if our users are having a major problem. We need a fix out that day. It can’t be like 48 hours later or when they get to it and then and fixing that bug he created bunch of hours we needed, we needed technical (??) founder and so we started posting for that and we found someone on man, that most unlikely place that was. Tropical MBA job board forums are something. Andrew: Tropical MBA job boards forum? Clay: That’s where we found him. I like that site, I like the guy (??) too. so we posted on that site, how did you, my business partner was just tracing everything like so she went crazy, she did because the guy we found is one of the most brilliant and talented people I have ever met in my entire life. It was about a month before LeadPlayer comes out and he comes to work for us and we were like, you know we need something for you to do and so we saw what you were doing on Mixergy and I e-mailed you and asked for your permission and we created this Welcome Gate WordPress plug-in. He did it in two weeks and he never worked on WordPress plug-in before but I appreciate that plug-in that he did well was he made it simple, he reduced options he made it beautiful, it was just elegant and it just worked and I know that he was right as he peep it fights with us and he won behalf of his position and when we were right you know (??) and when he was right we were like fine but we want it someone passionate like that (SP) the end product was well designed and people loved it and, and, …. And also when I was 15, I’d go to Ruby On Rails meet-ups here. I had no idea what’s being said but just to talk to developers and I think I have started to develop a little bit of ideas of what it would think like. I think that helped as well. Andrew: That’s really helpful actually, I know that you go there, I almost feel like we sometimes need permission to go to events for developers, when really if they open everyone then everyone should be, should be free to go in there. I like the idea of picking somebody who is going to pick fights with you. I even love whether you had a tested on product with you. That’s something which is stuck with me from my interview with Heaton Shaw years ago. How were you and your co-founder (??) launching all this software when neither of you is a developer and he told me how he found the developers. He said the key for him was having them do a test project just to see, can we work together, is this guy smart? And then one other thing that I am going to say that I admire about you is so many other people saw that when they first entered Mixergy, I asked for an email address and I let them skip out back in early days but I asked for an email address and many of them were just complain and this whole nature of complain first learn later of the Internet really just drives me insane because people should be curious first and then angry if you know their curiosity satisfied in a way that warrants anger. You did the opposite of what most angry people would do, you said hey, does this work? this is interesting What anyone else want is, is this you know and then can I create a product around this and I said that’s they way you have to think and so, of course, I was glad that you did it and frankly lot of people my audience saw that too where some people and said hey, I would like to try that on my site. I am not coding it of for them I can’t give my plug-in because (??) created in a way that works for me and we didn’t even think that other people should use it or want to. I love that you created it and I should say, too, that if anyone wants its welcomegateapp.com if they want to see films, songs what this is about and get it free. One another thing he did this developer I understand from my pre-interview with you he did something, when you interview him you will get to know that this is the guy that I at least want to try a sample project with if not build a new business with. What did he do? Clay: So, I don’t remember what came out in the pre-interview. I am telling what exactly it happened when I came on and I did the usual do you know Java Script, do you know Ruby On Rails, do you know Jquery do you know and he didn’t even ask any question and he was like it’s irrelevant whether I know those things I am going to just do use the best tools for the job and yeah I know Python, I know blah blah blah, and he lists all this stuff. He was like, but you are not a developer why does this matter to you any way. You know you are just asking this because someone told you that [laugh]. He started pushing back very early on, and people who don’t push back scare me. I really, I am just not interested on people who are going to draw boundaries because it is very easy as a marketer to create a company that can go on a whole lot of different directions, and I need someone who is really going to push back even if the first developer who we did LeadPlayer with, he is like no, no, no you are not going to create our own player, we are going to build this on YouTube because we can do the integration so much faster. That’s true. What happened later on was faster but that’s true. He is like we are not going to collect email addresses. We are just going to build, we are just going to integrate with all these other things that already exist. He is like, we are not going to let’s not build full screen because that’s something that like a small percentage of people need and it’s a vanity feature but he just came in , he was like we are not going to do this, we are not going to doing some of those things I am like in order to sell we have to do this dude like and in other things you know he is like OK, that’s one feature and yeah, you know I am in a push-back because that’s going to take half of a development time and it, that’s the odd way and its really is so, I have to have that relationship and so that’s what the first guy did is like, he reviewed us and I was like, “Bam!” I don’t know how this is going to go. We still need to test them. We did the welcome gate thing, but that was a characteristic… Andrew: That’s what I was going for and that’s what you’ve mentioned in the pre-interview. He pushed back, and I get why you’d want somebody that pushes back. In two weeks he built out Welcome Gate for you, you give away for free. Why? Clay: The reason we gave it away for free was because our business was shifting. We have a lot of people on our list who are really not entrepreneurs, but they want a certain lifestyle. At the end of the day, they’re really not entrepreneurs and they’re not going to be interested in tools. They’re up at thinking about niche they’re in or what product they should start. That’s fine and those people are in that place, but we wanted to attract a group of people who were really interested. They were at a phase in their business where they wanted to build their lists. We gave this away for free to create an incredible value to cost ratio so that we build our list rapidly going into the sale of LeadPlayer. We were like, ‘What’s the cheapest, quickest way to provide a huge amount of value to the target demographic that would also be interested in this video player.’ Andrew: I see. It was a lead gen for you to find people who potentially buy your new software. The one that you really wanted to build. Clay: Yes. Andrew: How well did it do? How many email addresses were you able to collect in, say, the first month. Clay: I’d say about five thousand. Andrew: Five thousand. Now here’s the thing, a lot of people in the audience would say, “OK. I get giving it away. I get using it as a way to test the developer.” But, this is Clay Collins. The guy has a big list already. He has a following on his blog. Why not just market it to that following instead creating a whole new product and giving it away for free? Why’d you need this new thing? Clay: Another question probably would have been, “Why only five thousand?” I can tell you why that is true. Andrew: Yeah, why only five thousand? Clay: It could have been a lot bigger. One, we wanted to train people into the fact that we were a software company. When we sent people to Welcome Gate, we actually sent them to our products page which listed LeadPlayer as coming soon and then Welcome Gate below it. They had to scroll past LeadPlayer to get to Welcome Gate. When they clicked on Welcome Gate and they went to download it, we gave a full order form with a coupon code filled in. We price anchored it. I don’t what we set that to, maybe $27.00. But the coupon code was filled in. The people had to fill out a full order form with name, address, phone number. A bunch of people complained about that. That’s fine. We wanted to take people through this process of going to our products page and then going to a product page and then seeing a full order form and then filling it out. We wanted to engrain in them that we are a product company. We have products. We are going to have something for sale. Please, scroll past LeadPlayer. Please, fill out this order form that’s going to look exactly like the order form… Andrew: Even though it’s a free product that you only needed an email for, you wanted them to fill out an order form to be trained to fill out order forms with you. To not just give you an email address like it’s another lead gen online. Clay: Exactly. You said it perfectly. Exactly. Andrew: OK. How did it compare to the marketing you did on your site. Clay: It’s very different. It’s very different. What I absolutely detest and hate…I hate it. I don’t just kind of not like it, I hate it with everything that I am. I hate that the info product business is about using information to sell information without giving away too much information that people don’t want to buy your information. Andrew: [laughs] Clay: I want to [???] that so much because it keeps you in this way of holding back a little bit. All the marketing that we do now is purely educational based. We actually give away video landing page templates that people can do everything that LeadPlayer does, but they have to hack some code and upload and whatever. We’re like, ‘Do it!’. Here’s what happens. When you give people the option box when they’re a period into the video and tell them a little bit about they’re going to get, they’re more likely to opt in. You can do it with this form, or you can do it with LeadPlayer. It’s all education. There’s no, ‘Oh shoot, I just gave that away. Now I can’t sell my course.’ It was the same with Welcome Gate. It was all education. There was no having to negotiate this line. I love that. Andrew: You also told me before that you created an eBook to market this upcoming LeadPlayer and you thought this would be a good lead gen, my audience would be a good potential customer base and how did it compare for customers, or leads? How did creating software in Welcome Gate compare to creating content on your site as far as getting new customers? Clay: That’s a great question. It wasn’t actually for this, it was something that I’ve done in the past, [??] magnet, but we’ve given away entire courses before and we get a decent opt in rate, but in the mar- world there’s this constant testing, especially in the info product world. There’s this constant testing of what’s the best lead magnet. For awhile it was free reports and then [??] video, more people opt in to get video and then it was someone tested on the business plan on a napkin and they’re like, ‘If you just [??] something, it seems more authentic.’ We’re like, ‘You know what? We’re going to try software as our lead magnet.’ To this day, it outperforms anything we’ve ever done, ever. On [??] .com, it has an Alexa ranking below 50,000. It gets a good deal of traffic. [??] kills me, everyday we get more opt ins, this [??] gate [??] plug-in that took a [??] two weeks to create and we [??] maintain updates to it. He was an amazing developer, I don’t think anyone could have just done it, but we still get more opt ins every single day for this Welcome Gate thing than we do for the Marketing Show where I work hard. I work really hard to create content and we give away landing pages and we do all kinds of stuff. [??], just the comment on content marketing, I think people still need to hear from you. They need to learn from you. They need a constant connection and both are good, but purely, just in terms of email addresses, [??] Welcome Gate has outperformed anything we’ve ever done. Andrew: Welcome Gate, brand new product. Didn’t take as long to build as your other Marketing Show which people can see at marketingshow.com. Even though it’s newer, didn’t take as much time and work, it’s outperforming it. That, to me, is one of the big takeaways of my conversation with you before the interview started. That it’s so powerful. Clay: We don’t even talk about it anymore and people find it every single day. I used to have a ‘Hello’ bar across the top of The Marketing Show, “Download the WordPress,” we’re not even [??] that anymore and get more opt- ins every single day. Andrew: Back, now, to the development of it. You now have a guy who you’ve proven can work well with you. Created a great product. It’s out there in the world, it’s time for you to really build your baby, LeadPlayer. What did the first version of it look like? Clay: I cringe when I look back on how it was then and our current developer, he’s our co-founder. We’re giving him equity, or stock options. [??] wants we’re going to give it to him. We’re having that discussion now, but it was complete and utter, it was ugly, but it got the job done. It was simple, and I think it did what no other video player could do, but there were two things it did well back then. Now it does a whole bunch of stuff, but there were two things then that it did really well and that’s what people bought it for. Andrew: What were the two things? Button and email collection? Clay: Yeah. [??] made it more sophisticated. ‘You can skip this step,’ or one cool feature, I don’t want to be one of these product guys that’s talking forever about the intricacies of the thing, but with LeadPlayer across all your videos, if you’re doing a webinar someday and you have 100 videos on your website, you can make it so that halfway through all those videos, it says, “Webinar happening today. Click here to join us.” Or that can be at the end of all your videos. Or let’s say we just came out with Welcome Gate. At the beginning of all our videos it could be like “Opt in to get Welcome Gate.” Andrew: You don’t have to go back and change all of them? Clay: You can [??], boom. Globally. Andrew: Was that in your first version? Clay: No. Andrew: How long did it take you to get that first version from mock up to something you can show people? Clay: About a month. Andrew: A month? Clay: Yes. Andrew: Was there something that you had to wrestle with yourself to leave out? About a month. Frankly, if you even said it took, even if you said a month, but it ended up being two months, that’s fine. I’m just looking to get a sense of how long you allowed yourself to build it before you brought it out into the world. Was there any feature that you had to say to yourself; I’d love that, but I’d have to cut back? What are some of the decisions there? Clay: A bunch of them. Full screen, integration with a bunch of different e- mail service providers so we launched with like AWeber, iContact, Infusion Soft, I think maybe one more, but there was a bunch of those that we left off. You had to say the number of seconds rather than minutes and seconds. So let’s say that the thing is you want an opt-in box three minutes and twenty-seven seconds into the video. You’d have to get out the calculator and sixty times three plus twenty-seven, like all of these little things like that, that just weren’t there initially. It was ugly, like the time lapsed bar. It was just ugly, it was ugly and there was only, you couldn’t choose your colors on the buttons were only in the colors that converted the (?). We’d test colors so we just made it so it converted well for people we didn’t give them the opportunity to screw it up for themselves. Or to say; hey I don’t care so much about conversion I just want it to look like my site, you say, not in version one. Andrew: One thing that I noticed about you, in general, especially in this interview, is that you care about design. You didn’t just pop the squat in whatever room you happened to be in and say I’m going to do my interview. You cared enough to make sure there was enough lighting on you for this interview, that the audio would come in clearly, that’s why you’ve got a mic in front of you. You care about being able to improve the product quickly, that’s why you didn’t farm it out to some stranger in India, you wanted someone in house. So how does someone who’s that concerned with doing things right, allow himself to launch something that couldn’t even calculate minutes to seconds. It would force you to pull up a calculator to figure out when they wanted the thing that software’s suppose to do to do it. So how did you allow it to happen? Clay: Actually, I want to say one more thing that we left out because I think it was significant. The very first thing that we released, and this was the whole reason we did on YouTube in the first place, so people could get their view counts. The very first version, the view counts didn’t show up. So I had to go to Google IO and camp out at the YouTube help desk and beg them to look over my code, in order for us to be, and then there was more back and forth. It’s been a pain. You didn’t even get the view count at first so that really cost us in terms of influence adoption at first, which we’ve been really happy with since we got the view count issue working, that was another thing. But how can I bear to do it. I could bear to do it because despite all my idealism, I’ve worked on so many marketing campaigns at this point that the cost of not getting early and constant feedback is just way to high. So we just had to ship, we shipped Welcome Gate in two weeks, we shipped LeadPlayer in two months, and we’re shipping updates every week or so. By the way from a marketing point of view it is so much better to release a new feature, and market that feature, every single week, than it is to come up with a new update every single year. So now we have something to talk about every single week. I’m like here’s a new feature, here’s a new feature, and people can see that we’re responding to other people. We might be responding to other people anyway, but when you drip out these features it’s great from a marketing point of view. People can see it evolve and develop. Andrew: I see, so you’re saying you’re better off launching with, if there are ten features you can launch with, you’re better off launching with five and then each week launching the next of the five features that you’re holding back, then having a ten feature launch. You want people to notice each feature I guess, and that, I know you do, and that is a good way to let them know that it’s happening. Was there one thing that when you launched surprised you? Because up until now it’s mostly you guessing on behalf of your audience. Was there one thing when you launched surprised you about their reaction? Clay: You know, I think what surprised me the most is that the way people buy tools is a lot more sophisticated and mature than the way people buy information. So that’s been just amazing. People often don’t buy information because they’re scared, or it’s the wrong time in their life, or you know there’s, you’re selling outcomes and I noticed I just really enjoy selling features. There’s all this talk in marketing about features versus benefits and I really just enjoy what Steve Jobs did, he just sold features. Here, here’s a (?) display. Awesome, everyone wants it. There was a level of people that just knew about different that I didn’t expect a lot of people in this market I was in to ask about. The conversation just became a lot more just interesting and mature. Andrew: Like what? Give me an example of what they cared about that you were surprised by. Clay: They were interested in how beautiful it was because even that first version, I think it was ugly but it looked good, the ease and simplicity. All those conversations were really about features, and I didn’t expect that. I was ready to talk about stats and locked ins and stuff, but really it was about features at that point [??]. And there were amazing stats about Lead Player’s converting and people were getting… We got some just the other day where people were getting four times higher opt-in rate for our videos than our opt-in sign in. We’ve got all kind of cool stuff. Back then we didn’t have any of that. We had no case studies. We had no thought leaders, like Pat Flynn, who had endorsed us. Andrew: That’s me going into your site. Let me hit pause on it. I wanted to just check it out while we’re talking, and I didn’t have it up on the screen. I was just going into LeadPlayer where you have, of course, LeadPlayer launch right away when I get there. What was it that I want to know? I want to know about pricing. That’s why I came here. How did you figure out how to price it? Clay: We looked at what other people were doing in the space, and there were some players that were more than us. They were players that were less than us, and we wanted to be on the more expensive end, at least, just initially because those were the users that we wanted to serve, people who were willing to pay for good stuff because although I’m willing to scrimp on design even though it eats at me sometimes, I wasn’t going to scrimp on support, and I wasn’t going to scrimp on hiring good developers. And those things cost money, and so we spent a lot on support, a lot of money on support, and we spent a lot of money on development. We wanted a sustainable business, and especially in the WordPress plug-in space, which we’re moving to Software as a Service, but there’s a lot of people that offer lifetime support and lifetime upgrades. You can see those businesses drop off, just because they can’t afford to stay in business, and they can’t afford to provide a good product. To get into the nitty gritty, LeadPlayer is $107 for the standard version. We wanted it to be on the other end of $100 because to upgrade to the Pro version, which is $77 more, which puts you at $184, if one of those was on the other end of $100, like if it was $97 versus $184, that would seem like a bigger split. We wanted both of those on the other side of $100 because we wanted more people to go for the $184. Andrew: I see. You were thinking, hey, if someone already went about $100 to buy the plug-in, and I say to upgrade to the – what was it called, the license to let you use the plug-in in many sites – the multi-site version? Clay: Yeah. So, the $107 version has the LeadPlayer branding and lets you use it on any site that you own. The $184 version lets you use it on client sites and removes the LeadPlayer branding, and that’s $184 but that’s only $77 more than… Andrew: I see. Once someone’s willing to go above $100 to upgrade as long as they’re staying below $200 is not so hard. Clay: Exactly Andrew: I can actually see that, too. I don’t know why I would buy it with your branding. Maybe, I don’t know. I would definitely pay the extra money to get rid of the branding and to be able to use it on multiple sites. You brought up Software as a Service. Why did you start out by creating a plug- in instead of Software as a Service? It feels like that would bring in more revenue for you, and maybe it would even be easier. Clay: Yeah. It was really because we wanted to ship. WordPress makes distribution really easy. You don’t have to create an installer. There are a whole lot of things that you don’t have to do when you distribute on WordPress. We didn’t have to deal with this billing scenario where we have like log-ins and got to restrict access when people stop paying, all the things about like, if someone’s credit card expires. There’s just a lot of things where it would have cost a lot more to ship if we had, you know, in the cloud initial so we decided to just ship it as a WordPress plug-in, plug-in. That was an another conversation that I had with that start-up weekend developer that first night he was like (??) you too bring it in as just do it as a WordPress plug-in, we are going to do. You know when I molded that from my, American point of view as well, but those decisions helped us shift so quickly and we are really glad that we did….wow, I have got two questions here, I want to ask about money in a moment but lets quote out mistakes first. Andrew: what’s the big mistake that you made here? Clay: Man, that’s, that’s a great question in I wish, I wish I could speak more about that. Andrew: So one thing you regret doing is one thing you want back and had to do it over again, you do it differently. Clay: I would say and this is probably the standard answer but this is probably like a hundred little thing that may be , I think we could have done better. Andrew: For example? Clay: Man, this is why is this so hard for entrepreneurs to do? Andrew: To come to say their mistakes. Clay: Yeah, I don’t know. Its not a humility thing like I’m, I’m very new to software like I’m such a beginner it hurts. Andrew: You will be embarrassed to reveal a mistake, you are saying. Clay: Yeah, I don’t know I am happy to reveal mistakes and I don’t why my brain isn’t able to supply it something. You know… man, OK. do you know. Andrew: Are they small ones? Clay: Yeah, you know I would say… oh yeah this one I mean…(??) at some point during the whole process every time a sale came through, now we can’t do this with every single sale, but every time a sale came through I just saw the order come through and I would just like order person, call them up and ask them why they buy. I wish I did the latter earlier. Andrew: What did you learn by doing that? Clay: I learnt that people were buying for whole lot of reasons that I initially didn’t think of, like our initial view was very, kind of like we know what converts, we know what’s going to make the money so we are going to do that and all these other like things that to me in some scenario it seemed after being, ended up being part of biggest reasons people buy. So for example, most people are like fan to YouTube partners, right now they keep on lowering the number but if you get like a million views on YouTube. You can be like a YouTube partner not just the kind of usual ad, where they give you a new feature site and part of that feature site you could add your thumbnail to a video what shows up before somebody hits play, you get to control that. Oh, yeah, I think I am going to make mistakes now as we go later so, you get to control that and people ask for a while hey, we would love to use (??) user of thumbnail on top of YouTube videos and we are like you know its cosmetic, you know does it really matter and we add it that and we remember the day we published the update that now you have been put your own thumbnail on YouTube without doing some (??) for like the way YouTube works is like these random frames from like the middle of that video and so if you find like the middle frame and you swap that out over the frame you want to be like there, that’s what they were doing to get the thumbnail because they weren’t YouTube partners and you discovered it by, like did you discover it by making phone calls that people who just bought from you? Clay: Yeah, that was the, yeah. Andrew: For what they have discovered that problem, that deficiency so really on, I would have founded out sooner if I would called people but would they have time to play with your software enough to understand that doesn’t do this, that doesn’t allow them to do thumbnails, saying this is such a big feature that they wanted it from you before but they discovered that you didn’t have it. Clay: I am saying that, I am saying that when we release that feature the people who have been asking for that feature for a while, I didn’t do it and then we released it and we didn’t release it soon enough, we should have. Because when we did release it we got a whole bunch of sales and if I had been more responsive to what people were asking for in a fact that people by release the products for whole of reason other than that its going to help them they want to look pretty, they want that first frame to like not be (??). People have ego, like everyone I have ego I don’t want that frame either so, I would have known that sooner if I would have called people and it was actually (SP) he was like people going to love this dude, you need to add it. You know, and then we added it and he was right. So that’s another thing is how we add features has, and I wish we had started doing this earlier, but all our features have been initially been driven by like, thought leaders. So, my number one goal is, like I have some friends and I’m like, I just want them to use it and I approach them and I don’t care why use it. I’m not offended if they don’t use it. I’m not offended if they don’t [??] with me. I’m not offended at anything. I am offended if they don’t tell me why because I want to know why their not using something and I want to know if they are. So, I wish I had been more thought leader driven and the thought leaders are going to be the ones who break it first because they got like a hundred of WordPress plug-ins installed and you’re going to find the one outdated plug-in that doesn’t work with something and messes everything up so, I wish we had been more thought leader driven, you know, from the beginning. I guess, maybe that’s another mistake that we made. Andrew: How do you get people who are thought leaders to try out a plug-in? These guys are really busy. They don’t want to add more to their site. They have thousands of plug-ins it feels like already in their sites. How do you get them to try it? Clay: Well, I mean we were lucky in the sense that it was a beautiful thing that could be demonstrated in less than 45 seconds, that had a feature set that allowed them all the benefits of YouTube, YouTube is the second largest search engine, and gave them all these features that I’d been hearing that they already wanted because I got to conferences and talk to people, so it was pretty easy to do. I mean, I literally just would send quick emails to people and hear back from them like, “Holy crap, dude! I’ve been wanting this. Please shoot me the thing and I’d love to try it out.” Andrew: But you’d give them a short video that let them see the product? Clay: Yeah, and what’s cool is I can [??] player to demonstrate LeadPlayer, so I can make a video that says, “Here’s a demo of LeadPlayer. In order to add call of opt-in box…” Here I am. I’m pasting in the YouTube video. In fact, I would do their videos. Like, I would find a video of someone who I wanted to use it and I would take one of their videos that they already had up on YouTube and I would a call to action and an opt-in box to it in a beautiful way that was in line with their content and I’d just be like, “Throw it up and try it on your website. See if it converts better.” Andrew: But they’d still have to install the plug-in in order to do it? Clay: Yep. We’d do it all for them like, it doesn’t even matter. We’ll do everything for someone if they want to work with us. Andrew: I see, I see. I just lost my question. I was so interested in the way you marketed it, I just lost the question I was going to follow up with. Alright then, oh, that’s what it was. Why today are you sending Pat Flynn’s videos explaining your product instead of your video explaining your product? Clay: A couple of reasons. You know, he does a great job of it! He does a better job of it than I do. I mean, there’s a number of people. There’s this dude, Pat Flynn did a great job at explaining LeadPlayer. James Sheryko [SP], I think is his name, who did a great, great job tutorial on how to use LeadPlayer and there’s this guy, he has this website called Videseo [SP]. He has a small web presence, but he’s like a professional animator. Like, this is what he does for a living is that he gets YouTube to rank for things. Like, that’s what he does all day, everyday and he mailed me out of the blue. He was like, “Lovely player. I totally want to do anything I can”, and he made like a demo video for it and it’s, like, beautiful! Like, he’s got like a little animated character called like, Vidy[SP], that he like, talks to. Andrew: So, it’s like better than yours, but is it also a credibility thing that if you send me a link of you promoting it then it’s like, “Alright, he wants me to use another one of his products”, but if you send me someone else, I think, “Hey, this guy likes it too and this guy…” I see. Let’s talk money. Clay: Yep. Andrew: I asked you before the interview whether you were profitable. You said, “Hey, couple of weeks, we’ll get there.” You are basically breaking even at this point. Clay: Yep, I would say this week, we became profitable. So, we went from 3 to 4 to 5 sales a day to around 10 sales a day and we are on track, you know, and then there have been days where we’ve gotten like, you know, 60- 70 sales a day. So, we are on track to do 50,000 this month. Between 50- 60,000 this month. Probably 50 fairly easily, so… Andrew: When did you launch? We’re now in the, just so the audience knows, we’re recording this on September 11, 2012. You launched it when? Clay: So, we launched it in the middle of May so, May, June, July, August. About 4 months out. Andrew: Okay, so where do the expenses go then? It doesn’t seem like there are a lot of expenses, but revenue’s growing and growing and growing. Clay: If we had started from scratch the expenses would be much less and also we would not be as good at this as we are. We have a support team of two people that is already in place. We have my cost. I spend a 100% of my time paying my bills, it is not cheap. Andrew: Are not you bills being paid out of your previous information business? Clay: Yes, they totally are but, we have not separated out the [??]. Andrew: So you are saying that the reason that it is not is because you are factoring in your own expenses into the cost of putting this business together into the cost of putting, what is the business’ name? It is a business called Lead Bright [SP]? Clay: Yes. It broke even immediately but, breaking even is that it pays all the expenses of my previous business. Andrew: Even though the previous business bringing in revenue? Clay: Yes. The previous business is on auto pilot. The previous business, I work about an hour a week on it and it has paid for all of this. Seven figure education company, an hour a week of my time but, this profitable. It was profitable from day one [??]. To me, it is profitable when the software company can pay for us all to go in this direction. That is an insanely high bar. So, everyone should probably know that. So, profitable probably from day one. Andrew: Yes, it is. By the way, I did not realize it was taking you that little time now. To put together the marketing show. How often do you publish there? It seems like you keep publishing but, you do not have dates on your homepage, so, I cannot tell. Clay: Yes. We have been publishing between every week and every two weeks. That I do not include. That is just building an audience and building community. Everyone who comes there now we send them to LeadPlayer. I do not really consider that an expense of the marketing education business since everything we are doing there now is about building an audience and building a list and lead generation, and stuff like that. Andrew: So, you are shifting towards software? Clay: We are shifting towards tools. Andrew: What is the difference between tools and software? I keep saying software for some reason and you keep saying tools and instead of listening to tools I keep repeating software. What is the difference? Clay: It is purely conceptual. The difference is that a tool is something that builds all this higher level thinking into it. So, we might have a tool at some point where a physical product is a tool; it is from information to product. It is conceptual and I keep saying this because it is in my mind, software is completely valid. So, yes, switching from . . . Andrew: You are just opening yourself up to things that are not information anymore. Clay: Right. Andrew: I see the point of tools also in that. This is the time where I would usually plug Mixergy Premium and then I want to come back and ask you for advice. You just nodded; let me ask you why do you think people should sign up for Mixergy Premium? Can I put you on the spot? Clay: Absolutely. I come from a boot strapped role in marketing point of view where there are tons of courses and programs on how to build an iPhone app, how to get into this software business. I can name the names like Tray Smith [SP] there is all these books and people. They are not bad, I am not against any of that per se. I have dear friends that teach this stuff, I love them and I think they are doing good stuff. This is not disrespect on them but what I got from Mixergy is something that I couldn’t get anywhere else. I can track it back to the interviews. I saw the interview with the people from Dropbox and it got me thinking about how I wanted to build a business that people bought even when they did not see the sale of letter. How many people see the Dropbox video? Most of the people I have talked to have purchased that and gotten that without seeing the sales video. So, it did not require marketing. That was on huge incident. Andrew: The product is so good it could sell itself. You don’t have to have big marketing around it to sell it. Clay: I listened to Shopify interview. I was like, I really want to build a lead generation platform that other people can build apps on top of. Like players just an app on top of a platform that we’re building that isn’t exciting to talk about because it’s not around yet. But I was like, we need this, like stuff would just get stuck in my brain and keep me up at night from Mixergy interviews. And everyone wants, like the human brain, and it’s such a mistake but you can’t fight human psychology. But the human brain wants one cause factor for every success. They’re like, you know, so and so had success because of Y Combinator. Or this person made great videos because they watched the video (?) course. Or this person, you know, learned from this Guru. Andrew: One quick answer. Clay: They

Eric Ries

Workshop: Lean Startup in the Enterprise with Giff Constable, Jeff Gothelf and Josh Seiden 20 September, 2012, 11:41 am
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. On December 4 at The Lean Startup Conference, three of New York's top UX designers will lead a workshop we're really excited about, Lean Startup in the Enterprise. We hope our Q&A here with two of them here today gives you a taste of their sensibility and what you can expect from their session. Gold and Platinum Passes get you into the workshops, and this one is particularly suited to people who are implementing Lean Startup ideas is established companies. Coincidentally, NewContext—the presenter of this year’s Lean Startup Conference--announced today that these designers, all of them founders of Proof, have joined their company. The crew comprises: Jeff Gothelf, author of the upcoming O'Reilly book Lean UX: Getting Out of the Deliverables Business; Josh Seiden, who was previously the program director for LUXr’s New York City practice, was responsible for design at Liquidnet, and is a founder and past President of the Interaction Design Association (IxDA); and Giff Constable, who has built and marketed consumer applications, games, and enterprise software for many of the biggest companies in the world. Josh and Jeff answered some questions for us this week: What aspect of lean startup methods most inspires you? Josh: I'm really inspired by the customer development angle of Lean Startup. As a designer, my focus has always been on helping teams see value through the eyes of the user. It's exciting for me that the Lean Startup community shares this definition of value. Jeff: The ability to get a realistic look at our proposed ideas much earlier than ever before. Also, the role of the customer in the process makes the focus of the effort about them—what works best to solve their needs—as opposed to what is best for those involved in the business. What makes it hard for companies to implement this process? Josh: So many companies measure employee productivity by measuring output. How many lines of code did you write? Did you deliver the specification on time? But these outputs do not create value. It takes a big shift in management culture to allow teams to pursue value directly—in other words, to measure teams based on the outcomes of their work. Jeff: Lean teams need many lines of support from their organizations but the most important one is the freedom to experiment and fail. Without that, the entire build/measure/learn loop collapses into a sea of red tape and CYA activities. Teams need to know that it's safe for them to run experiments, learn from those and then run some more. This freedom is new to many managers who are used to traditional command-and-control styles of management. Lean teams cannot be micromanaged. What will people take away from your workshop? Josh: We're really excited by the potential of Lean Startup in the enterprise, and we know lots of other folks share that enthusiasm. We'll be sharing case studies and techniques, and we expect a lively discussion with others who are putting these methods into practice. This is going to be a very responsive session, so we're hoping that folks come ready to ask questions and share lessons. Jeff: Attendees of our workshop will hear case studies from the enterprise about how other organizations have tackled the challenges of implementing Lean Startup and what the outcomes were. In addition, we will open the floor to a conversation with our attendees to get a sense of where they're struggling, what's worked/failed for them and sources for their inspiration. Attendees will take away a tactical list of tools and techniques to start implementing these ideas in their organizations the next day. Giff, Jeff and Josh are all popular speakers. These videos should give a sense of why. Here’s Giff on “Excuses, Excuses, Excuses." Jeff on “Demystifying Design." Josh on “Replacing Requirements with Hypotheses." If you’re thinking about registering for The Lean Startup Conference, bear in mind that we’re selling early-bird tickets in blocks. When this block sells out—as of this posting, the current block is nearly gone--the price goes up. Register now for a Gold or Platinum Pass to attend the workshops!
Workshop: The Lean Entrepreneur with Brant Cooper & Patrick Vlaskovits 17 September, 2012, 5:59 am
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. Ever since Eric announced Patrick and Brant's new book The Lean Entrepreneur (with illustrations by FAKEGRIMLOCK), we've been excited to be part of the book launch. Coming up in just a few short months, you'll have a chance to go in-depth with the authors and their book at an awesome workshop. As we’ve mentioned here once or ten times before, this year, The Lean Startup Conference will include a second day, December 4, with in-demand workshops from established leaders in our community. Gold and Platinum Passes get you into the workshops, and we’ve conducted a series of short interviews with the workshop leaders to help you better understand how they think and what they’re offering. If you follow Lean Startup experts, you’ve probably come across Brant Cooper and Patrick Vlaskovits, co-authors of The Entrepreneur’s Guide to Customer Development and The Lean Entrepreneur, and leaders of our workshop “The Lean Entrepreneur: Embrace the Unknown to Go Big.” Patrick recently answered a few questions for us. What aspect of Lean Startup methods most inspires you? Patrick: The most powerful Lean Startup concept may be the embracing of "I don't know." So instead of believing in what we call The Myth of the Visionary, wherein a successful entrepreneur is someone who has seen the future with a fully formed, crystallized product in his or her head and so then locks themselves in a garage until product launch, upon which they achieve overnight success, the Lean Startup teaches entrepreneurs to recognize what they don't actually know, and then how to learn what value they can create, for whom, and how to market, sell and deliver that value. This learning comes from interacting with customers, running experiments, and using data to help inform decisions. The Lean Startup methodology embraces the unknown, the uncertainty of the market, and teaches entrepreneurs to use small failures to achieve big successes. What makes it hard for companies to implement this process? Patrick: It depends on the stage of the business. Big businesses need a way to develop an internal ecosystem for rapid experimentation on truly innovative product ideas. But they get stuck when measuring new endeavors against existing, core-business metrics. Combining Horizon Planning with Lean Startup is a path out of this dilemma. Startups with some amount of traction tend to think they're "done" with Lean Startup. But often they quickly find themselves on another plateau that threatens the business. Where are new customers going to come from? Are we building the right features and products? How do we scale? If properly understood and implemented, you're never done with Lean Startup. As aspects of your business model become known, you transition some activities to full-bore execution, but you must continue to perform learning and improvement activities to scale and win. Early-stage startups are taught to believe in the vision. Vision is important, but just as important is understanding that the market is the final arbiter, and what is not known will be a greater part of the success or failure than what is known. So it's vitally important for entrepreneurs to have an iterative, experimenting, data-informed process for transforming the unknown to known, for discovering and validating the value being created. What will people take away from your workshop? Patrick: Market uncertainty can be described by an innovation spectrum stretching from lesser market uncertainty when undertaking sustaining innovation to greater market uncertainty when pursuing truly disruptive innovation. Whether you’re in a startup or in the enterprise, where you sit on the innovation spectrum determines how you will apply Lean Startup methods. In this session, people will learn to determine where they fit on the spectrum to help determine strategy and tactics for the future. They’ll also learn about the Value Stream and what waste looks like in a Lean Startup; the Anti-Segment (those people you don’t want to listen to) and how to segment your market so you’re not trying to be all things to all people. Attendees will leave knowing the value they’re creating, for whom, and how to deliver that value. This video features Cooper and Vlaskovits speaking at UC Irvine about Lean Startup. If you’re thinking about registering for The Lean Startup Conference, bear in mind that space for the workshops is limited, and that we have a block of early-bird tickets on sale right now. When this block sells out, the price goes up. Register now for a Gold or Platinum Pass to attend the workshops!
Workshop: Lean Analytics with Alistair Croll and Ben Yoskovitz 13 September, 2012, 9:32 am
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. If you’ve been following along at home, we hope you’ve noticed that this year The Lean Startup Conference will be a two-day affair, with top-quality workshops on December 4. Gold and Platinum Passes get you into the workshops, and we’ve conducted a series of short interviews with the workshop leaders to give them a chance to share their insights with the broader community. “Lean Analytics: Using Data to Build a Better Startup Faster” will be led by Alistair Croll, a serial entrepreneur and the author of three books on web performance, analytics, and IT operations, and Ben Yoskovitz, author of the Instigator Blog and VP Product at GoInstant. The two are co-authors of the forthcoming Lean Analytics book. What aspect of Lean Startup methods most inspires you? Alistair: The one advantage of a disruptor is they have nothing to lose—no rules to follow, no risks to consider—compared to the big, incumbent organizations they're trying to replace. So what I like is that it focuses on fast iteration and learning, which provides an asymmetric advantage to the underdog. It levels the playing field. Lean favors the entrepreneur who can ask the right question, rather than guess the best answer. Ben: For me, it's the idea that you can be diligent and disciplined in your approach to building a company (as opposed to wandering around aimlessly, hoping you'll hit the mark) without losing your big vision and the dreaming that you have to do as an entrepreneur. Lean startup isn't intended to "suck the life" out of entrepreneurship; quite the opposite--it helps guide you through the process, and provides the foundation for achieving bigger goals, more quickly. What makes it hard for companies to implement this process? Alistair: All entrepreneurs need some amount of reality distortion just to get out of bed in the morning. But that also means they lie to themselves, and they develop an emotional attachment to the things they're building. They're necessarily proud of them, committed to them. Yet creating a startup is fundamentally a destructive act: killing a particular feature; stopping a clever campaign that isn't working; ignoring a market segment because it's too soon. In many ways, Lean Startup isn't about building a product—it's about building a tool to show you what product to build. Along with creating the product itself, entrepreneurs have to create the instrumentation that makes the product a learning machine, and that requires a lot of focus. It's a lot easier, and certainly feels more heroic, to "wing it." But a methodical, persistent approach is the better choice if you care about building something people actually want. Ben: For starters, it's hard. Discipline of any kind is hard. Any of us that have tried to get into an exercise routine post Thanksgiving or Christmas holidays can attest to that. It's also very early still--the ideas, concepts and principles of Lean Startup are still taking shape and being molded. Unfortunately, people look too quickly--like the next fad diet--for the perfect answer. Of course there isn't a perfect answer, there isn't an absolute formula. It just doesn't work that way. What will people take away from your workshop? Alistair: We'll share some basic business models that most startups will recognize, and look at what's "normal" for those models, so entrepreneurs have a baseline against which to compare themselves. And we'll spend time talking about the many case studies—and cautionary tales—we've learned from companies we've worked with and interviewed. Attendees will learn how to keep score, when to step on the gas, and when to rethink the fundamentals of their business. Ben: I hope they'll gain a new appreciation for metrics and how to wrestle them into something meaningful and valuable. Almost everyone understands that metrics are important, but we want to provide some narrowly focused ideas around how to use metrics, and how to think about metrics in order to succeed. Ideas like The One Metric That Matters or the Penny Machine go a long way to making analytics approachable, and giving people the confidence to jump into their own numbers and tease out the value. Here’s video of Alistair in action at a recent Ignite show, talking about why tomorrow, serendipity will be for the rich. Here’s Ben speaking about his life as an entrepreneur. Here are two reasons to register today: 1) space for the workshops is limited; and 2) we have a block of early-bird tickets on sale right now. When this block sells out, the price goes up. Register now for a Gold or Platinum Pass to attend the workshops.
Workshop: Validate with Janice Fraser & Laura Klein 10 September, 2012, 6:39 am
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. As we explained last week, we have stellar workshops scheduled for December 4--the second day of The Lean Startup Conference. Because the workshops require a bigger commitment (you need a Gold or Platinum Pass to attend), we wanted to give you more information about what you can expect. Herewith, then, is the first in a series of interviews with our workshop presenters. “Validate Your Learning Engines” will be led by Janice Fraser, Founder/CEO of LUXr, and Laura Klein, Director of Product & UX at One Jackson--both authors of forthcoming books on Lean UX. We asked them a few questions to help you get inside their heads. Here’s what they said: What aspect of Lean Startup methods most inspires you? Janice: Reframing our gut instincts as “a hypothesis I'm working with right now.” It honors the instincts that every entrepreneur has, but also gives us permission to be wrong and explore other possibilities. Laura: I love the fact that everything is measurable. Making everything a measurable hypothesis means that we can see the impact that design and usability have on the bottom line of the business. This not only helps the company and the users, but it helps us become better designers, and it also justifies money spent on UX. What makes it hard for companies to implement this process? Janice: There is no process yet! Lean Startup is a way of thinking, and right now everyone has to sort of figure out a process on their own. I'm glad to be part of an active community that's figuring out how to put Lean Startup into practice. Laura: The most frequent problem I've run into is the desire by engineers to have some criteria by which they can consider something “done.” Nothing's ever “done” in Lean. We iterate and learn. I can't tell you before you start work on a project what the exact acceptance criteria are going to be, because everything depends on how the user reacts to the changes. There's also, I think, still a fundamental misunderstanding of Lean in some circles. There's the belief that Lean means cheap or not well designed. If you don't understand the methodology, you obviously can't implement it well. What will people take away from your workshop? Janice: Laura and I are both SUPER PRACTICAL. Participants will leave equipped with specific, concrete techniques for doing better experiments, getting more out of their time with customers, and measuring the right things more effectively. Laura: You're going to learn practical, hands-on methods for validating hypotheses quickly and efficiently. You can't be lean unless you know how to validate and measure. We're going to give you specific directions for how to do that. We're also going to show you some incredibly helpful design techniques that will let you respond to your user research and create a product that customers love. To show you Janice and Laura in action, we’ve grabbed some past talks for you to check out. Here's Janice speaking at MX 2011 on Crushing the Boulder: User Experience and the Lean Startup. And here's Laura participating in a panel at Startup Lessons Learned 2010 called But What About Design? (Laura’s at far right.) Here are two reasons to register today: 1) space for the workshops is limited; and 2) we have a block of early-bird tickets on sale right now. When this block sells out, the price goes up. Register now for a Gold or Platinum Pass to attend the workshops.
A full day of Lean Startup Workshops on December 4, 2012 6 September, 2012, 12:28 pm
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. This year, for the first time, we've added a day of workshops and site visits to The Lean Startup Conference. We’re really proud to present the workshops, which we're holding on December 4, and we wanted to tell you more about them. (We’ll talk about the cool site visits in a separate post.) If you’re looking to dive deep on Lean Startup skills, our workshop sessions provide professional development at a serious bargain. They’re led by established experts in the community, and the rooms we’re holding these in are limited, so you’ll get a chance to ask your questions and share your experience. We’ve just opened a new block of early-bird tickets, and you'll need a Gold or Platinum Pass in order to get into the workshops. (Keep in mind that the price goes up when this block sells out.) We have a slew of workshops you can choose from—the last two just added: Validate Your Learning Engines with Janice Fraser and Laura Klein. In this workshop, Fraser, Founder/CEO of LUXr and Klein, Director of Product & UX at One Jackson will offer practical techniques for getting and using customer feedback. You’ll learn how to conduct the right kind of customer interviews, prioritize high-risk assumptions, design experiments, and measure the effectiveness of your product (not your marketing). The Lean Entrepreneur: Embrace the Unknown to Go Big with Patrick Vlaskovits and Brant Cooper. Lean startup principles work differently in different environments. In this workshop, the authors of The Entrepreneur's Guide to Customer Development and The Lean Entrepreneur help you determine the optimal strategy and tactics for your kind of company, focusing on customer development and market segmentation. Build Successful (and Sane) Iterative Apps with Kelly Goto, Principal at gotomedia. In this workshop, Goto will take you through the application development process and shre behind-the-scenes techniques for rapid prototyping. You’ll learn how to enhance your current process to include iterative usability testing cycles and how to verify development requirements before you code. Lean Analytics: Using Data to Build a Better Startup Faster with Alistair Croll and Ben Yoskovitz. In this workshop, Lean Analytics authors Croll, Founder of Solve For Interesting, and Yoskovitz, VP of Product at GoInstant, will teach you how to use analytics to find product/market fit before your money runs out. You’ll come away with techniques for: putting data to work in a startup; understanding the long funnel from awareness to engagement; finding the One Metric That Matters; and applying analytics at every stage of the business, from need discovery through to exit. Lean Startup in the Enterprise with Proof co-founders Josh Seiden, Jeff Gothelf and Giff Constable. Lean Startup techniques have tremendous promise—and have delivered tremendous value—in the enterprise. But applying these techniques inside large organizations means grappling with obstacles that small firms never encounter. From functional silos to risk-averse managers, from compliance officers to global markets, practitioners who have tried to make headway can find frustration at every turn. In this workshop, Constable, Gothelf and Seiden—plus special guests—will present case studies, discuss lessons learned, and lead a lively round table discussion that will further your understanding of Lean Startup in enterprise environments and provide concrete advice you can apply to the challenges you face in your organizations. Engineering Your Sales Process with Sean Murphy and Scott Sambucci. All companies, even those that take a lean approach, face these problems in B2B sales: you can’t get potential customers to call back; they won’t make a decision; they seem to like a never-ending beta, but they will not buy; your deals stall. This interactive workshop will help you learn from these problems by using conscious planning and experimentation. Traditional sales training stresses “every no moves you closer to a yes.” Murphy and Sambucci’s approach to engineering your sales process says instead, “What looks like noise is often actually data.” Designing and debugging a repeatable sales process is key to a sustainable business, and this workshop will teach you how to diagnose common problems to determine likely root causes. You will leave with a scientific approach to understanding your customers' needs and their buying process so that you can scale your business in harmony with it. All of our previous early-bird blocks sold out quickly, and we expect this one will, too. Gold and Platinum Passes get you into the workshops. For the best price, register today.
Marc Andreessen will be at The Lean Startup Conference - will you? 27 August, 2012, 11:26 am
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. Marc Andreessen hardly needs introduction, but we're pleased to introduce him anyway--as a keynote speaker for The Lean Startup Conference on December 3, 2012 in San Francisco. Among the most respected thinkers in Silicon Valley, Marc may be most familiar to you as co-founder of Andreessen Horowitz. Or perhaps you remember him as the guy who built the first widely used web browser. Or maybe you think of him as a founder of Netscape. Or of Opsware. Or of Ning. You get the picture. We'll be honored to have him on stage. Among the reasons we're excited is that Marc helped popularize the idea of product/market fit, homing in on the absolute importance of creating a product that resonates with a specific market--a key concept that is foundational to many Lean Startup techniques. Marc wrote about it way back in 2007 when he addressed the question, "What causes success?" In a must-read post, he explored startup teams, products and markets in ways that only a close participant could see: "If you ask entrepreneurs or VCs which of team, product, or market is most important, many will say team. This is the obvious answer, in part because in the beginning of a startup, you know a lot more about the team than you do the product, which hasn't been built yet, or the market, which hasn't been explored yet... "On the other hand, if you ask engineers, many will say product. This is a product business, startups invent products, customers buy and use the products. Apple and Google are the best companies in the industry today because they build the best products. Without the product there is no company. Just try having a great team and no product, or a great market and no product... "Personally, I'll take the third position -- I'll assert that market is the most important factor in a startup's success or failure. "Why? "In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product." Marc then explored aspects of teams and products and markets, and the he concluded this about product/market fit: "When you get right down to it, you can ignore almost everything else. I'm not suggesting that you do ignore everything else -- just that judging from what I've seen in successful startups, you can. "Whenever you see a successful startup, you see one that has reached product/market fit -- and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful. "Conversely, you see a surprising number of really well-run startups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30" monitors for all the programmers, top tier VCs on the board -- heading straight off a cliff due to not ever finding product/market fit. "Once a startup is successful, and you ask the founders what made it successful, they will usually cite all kinds of things that had nothing to do with it. People are terrible at understanding causation. But in almost every case, the cause was actually product/market fit." Marc isn't just a unusually insightful writer; he also a thoughtful speaker. We'll hear more about what he's learned about product/market fit since 2007, what it's like to become one of Silicon Valley's most sought-after investors, and ways he thinks people misuse Lean Startup concepts to their detriment. We're excited to continue this conversation with him at The Lean Startup Conference. Register here to join us. In related news, we just opened up another block of early-bird tickets for the conference so that you can see speakers like Marc at great rates. The last three blocks sold out quickly - and once this block sells out, prices go up. You can register here.
September in New York 20 August, 2012, 6:00 am
I have been getting a lot of questions on Twitter about my upcoming trip to the east coast, so I thought I would post a brief update here. For the next month or so I'll be on the road, starting in Washington DC and then proceeding to New Haven, New York, and Boston. But most of the time - for almost the whole month of September - I'll be in Manhattan. I'm really looking forward to quality time with the startup scene there. For some reason, most of my speaking events scheduled on this trip are private or corporate. In fact, I don't think anything is open to the public until I keynote the AdExchanger Conference on September 20. For day by day updates, please follow me on the twitters. If you'd like to arrange a public event, please get in touch via email. PS. In case you haven't noticed my hundreds of messages about it, there's a Lean Startup Conference coming up on December 3-4 in San Francisco. Tickets just went on sale, so book yours before prices go up. For all of my east coast friends who want to make a trip out of it, we've arranged five full days of events starting November 30.
The Lean Startup Conference Registration is Open 17 August, 2012, 3:14 pm
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference. We’re pleased to announce that registration is officially open for The Lean Startup Conference 2012. Taking place December 3 - 4 at the InterContinental San Francisco, it will include terrific speakers, new case studies, lot of ways to learn and plenty of time to connect deeply with other attendees. Tickets go on sale today. We recognize that different people have different abilities to pay, so we’re trying a new pricing experiment this year, modeled on the way good airlines sell tickets: in blocks, where the first block is cheapest and the last block is most expensive. Each block has a limited number of tickets, and when the block sells out, the price goes up. To test the registration system (have you heard of this cool thing called an MVP?), we started last week with a block of tickets at $299 each--and we alerted those of you who signed up to be notified (we did tell you to sign up if you wanted the lowest price). That block sold out immediately, and we offered the next block at $399, which also sold out right away. We’re now opening general registration at $485, still an incredible deal. When this batch sells out, the price will go up again, so if price is important to you, we urge you to register now. (We’ll continue to give the conference list early notification, so don’t hesitate to sign up for those emails.) So what do you get for your money? On December 3, we’ll have a slate of top speakers sharing real-world lean startup stories and implementation advice that advance the state-of-the-art in our community. We’ll also have special lunches where you can connect with other people working on lean startup in your sector and evening events where you can join up with smaller groups. If one day of lean starup isn’t enough, how about five? On Tuesday December 4, we'll have a full day of workshops from some of the top Lean Startup leaders, including Janice Fraser, Patrick Vlaskovits, Brant Cooper, and more. We're excited to partner this year with the Warm Gun UX/design conference and Lean Startup Machine to offer five amazing days of learning and networking in San Francisco. Our Platinum Pass gets you, in addition to full access to all events, first dibs on the limited seats for hands-on workshops with experts, SF startup tours and special lunches. Here’s the basic schedule: The Warm Gun conference is on Friday, November 30. Lean Startup Machine starts the evening of the 30th and runs over the weekend until Sunday, December 2. The Lean Startup Conference is on Monday, December 3 for a full day of sessions with entrepreneurs and lessons learned. On December 4, we're holding a day of hands-on workshops with experts and site visits with some of San Francisco top startups. The pricing for the Platinum Pass will always be better than the price of the individual pieces, but it will go up as The Lean Startup Conference ticket prices rise. Register today for the absolute best deal! If you can’t steal away for five days, you have the option of buying just the one conference day or a Gold Pass, which gets you the December 3 conference ticket plus the December 4 day of workshops and startup tours. With our range of passes and prices, we’ve tried hard to make this show appealing for as many of you as possible--and we’re working on student passes and scholarships, too. We look forward to seeing you soon!
Seeking Speakers 8 August, 2012, 6:51 pm
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference this fall. Last week, we announced the date and venue for The Lean Startup Conference: Dec 3 - 4, 2012 at the InterContintenal in SF. Now we’re starting to reach out to speakers. We’re aiming for a mix of people: those well known for their work on lean startups and those who aren’t yet prominent but are applying Lean Startup techniques and have valuable lessons to share. And, although this should probably go without saying, we’ll say it anyway: we’re seeking people who can deliver great talks, whether they’ve ever spoken at a conference before. We know how to reach people who are famous in our community. Previous speakers have included folks like Steve Blank, Scott Cook, Hiten Shah, Dave Binetti, Janice Fraser, and Drew Houston. You may have also noticed a trend: most of our past speakers have been men, and most of them have been white. As a conference organizer, there's always this dilemma: you want to put people on stage that you know will do good job and tell the truth. But that means you tend to put people on stage who have involved you in their work directly. And, as has been documented many times, people tend to work with people like them. In our not-very-humble estimation, our past speakers have been fantastic. But that invite-who-you-know approach means we've almost certainly missed other terrific speakers with valuable stories to tell. As Eric's written before: ‘When a team lacks diversity, that’s a bad sign. What are the odds that the decisions that were made to create that team were really meritocratic? That’s why I care a lot about diversity: not for its own sake, but because it is a source of strength for teams that have it, and a symptom of dysfunction for those that don’t.” Put another way: the past process helped us field excellent speakers, but it drew from a limited pool of candidates and thus didn’t achieve great equity. This year, we’d like to consider a broader pool of candidates, beyond those we know personally. Many conferences and programs complain that they don't get a diverse group of applicants. We believe that part of the reason this happens is that people naturally don't bother applying to programs they don't think they'll be accepted to. We believe that doing our utmost to build a transparent, merit-based selection process will help us field a wider array of candidates. If you’ve previously held back on applying to speak at a conference like this one because you assumed it wasn’t a meritocratic system and that you needed to know the organizers in order to land a speaking slot, read on. So how we can find people we don’t yet know who have very useful experiences we can all learn from? By asking all of you to help us find them, encourage them to apply, and convince them their stories are worth hearing. In our earlier selection process, we got a lot of potential speakers who were already on the circuit. So we’ve closed out that selection form, and we’re pivoting to a new process. (Note: if you were nominated through that form, we WILL follow up with you in August.) Here’s the deal: If you have a Lean Startup experience or lesson to share--regardless of whether you’ve ever spoken publicly before--we ask that you create a two- or three-minute video in which you explain the idea that you’d like to present at The Lean Startup Conference, and that you share the link via our new speaker nomination form. For new speakers, we’ll provide hands-on help developing presentations, plus speaker training. If you don't think you're qualified to speak at a conference like this, you're probably wrong! Most of our amazing speakers also feel that way. In fact, this is a well-documented and universal psychological feeling. So we hope you'll consider applying anyway. A few notes: * Although it's impossible to review a video blind (your speaking skill is part of what's being evaluated), we promise to review the written part of your application blind. When we're evaluating your application, we won't know your name, ethnicity, gender or age. (This is the blind resume screening technique Eric's recommended elsewhere.) * We care about the story or tips you have to share. You do NOT have to be an All-time Lean Startup Expert for us to take you seriously (indeed, that’s the whole point--we already know those people). What you do need is a relevant experience or some advice that other people can learn from. Most of the time, a straight-up story about how you followed lean principles at your organization and did pretty well with them is not that useful for other entrepreneurs. Instead, consider things like: What hypotheses did you have that you were wrong about? What unexpected challenges did you face? Where have applied a lean approach to a new problem we haven’t considered? You might also look at tactics that you’ve refined in an innovative way--say, a new take on A/B testing or continuous deployment. * We also care about your presentation style. You don’t have to show us swank slides or a perfectly smooth delivery, but we do want to see that you can connect with people. * We don’t care about the quality of the video; go ahead and make it on your phone, then upload it to YouTube. (Before you share the link, though, we recommend that you make sure the sound is not ridiculously quiet.) * This time around, you are welcome to nominate yourself. * There are a few other tidbits we ask for on the nomination form, but it’s short. Do follow the directions and read them first before emailing questions. After we posted the last form, we got a few dozen questions, almost every single one of which we’d already addressed in the directions. * The deadline is Thurs, August 23 at midnight PT. If you work with somebody--particularly a woman, person of color, or anybody else typically under-represented at tech conferences--who has relevant experience to share, please show them this post. Note, too, that we’re looking for speakers from different sectors, including education, non-profits, government and established companies. Again, here’s the new form.
Save the Date: December 3, 2012 31 July, 2012, 11:17 am
This post was co-written by Eric Ries and Sarah Milstein, co-hosts of The Lean Startup Conference this fall. Big news! We’ve got a date and venue for The Lean Startup Conference: December 3 - 4, 2012 at the InterContinental San Francisco. We’ll open registration in a couple of weeks and if you’d like to be the first to know when tickets go on sale--along with a shot at the lowest ticket price--we encourage you to sign up here for our short, friendly emails. #mc_embed_signup{background:#fff; clear:left; font:14px Helvetica,Arial,sans-serif; } /* Add your own MailChimp form style overrides in your site stylesheet or in this style block. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. */ Sign up for The Lean Startup Conference updates Note that this year's conference will be part of a multi-day series of activities, including workshops and more. If you're making plans to come from out of town, we recommend you plan to come for the weekend, too. Some quick notes about the folks working on the conference. First, the the larger venue this year is made possible by New Context, which is producing the conference. New Context is a consulting firm that helps companies and organizations develop software using lean principles. To support the lean startup community and help us share ideas, they’re getting behind this event in a serious way. Although Eric is a general partner in New Context, we’re observing a separation of church and state for the conference: you won’t see any on-stage ads from New Context, and while the firm may have clients with useful case studies or advice, New Context itself isn’t involved in deciding who speaks at the show. That brings us to who is responsible for the program: Eric and Sarah, this year’s co-hosts. If you’re here, we assume you know Eric. :) Some of you may know Sarah from the Web 2.0 conferences, for which she was recently co-chair and general manager. She also pulled together last year’s successful Ignite: Lean Startup in SF, and she’s done some other stuff that you may have run across, too. We’re actively working on the program now, and we’ll talk more soon about our process for finding speakers. Meantime, please sign up below to receive conference email and be among those with access to our special first-mover rates. #mc_embed_signup{background:#fff; clear:left; font:14px Helvetica,Arial,sans-serif; } /* Add your own MailChimp form style overrides in your site stylesheet or in this style block. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. */ Subscribe to The Lean Startup Conference mailing list

recently suggested

Chris Dixon

The rise of enterprise marketing 24 September, 2012, 2:31 pm
Building an enterprise software company used to be largely about sales, because enterprise software was sourced and purchased by high-level business people. Those business people needed to be charmed and convinced, an activity that was distasteful to many technologists. Internet-based delivery (“SaaS”, “cloud”) dramatically lowered installation costs, letting individuals or small groups buy software on discretionary budgets or use basic versions for free. As adoption spread throughout the organization, the value of the software eventually percolated up to high-level business people who could write large checks to get features big companies need, such as administration, security, integration, compliance, and support. This ”bottom-up” approach was pioneered by Salesforce and open source companies like MySql. Recent enterprise success stories also follow this model, e.g. New Relic, Yammer, Twilio, and Github. Many of these companies have processes that would have seemed crazy ten years ago – e.g. sales people only handle inbound inquiries or only call customers who already use their product. Thus enterprise software went from being about sales (one-to-one) to being about marketing (one-to-many). Marketing requires crafting a compelling message, figuring out the right channels and then optimizing. But the most effective marketing is a compelling product that can be easily tried. As a result, as Benchmark’s Peter Fenton said recently: ”We’re seeing a fundamental shift from sales-driven companies to product-driven companies. The companies that are leading the way there let this consumer and product focus permeate the culture of their companies.” One of the most visible manifestations of this shift is the refreshingly accessible language on modern enterprise websites. Sales-driven enterprise software companies speak the arcane language of CIOs. Marketing-driven companies talk directly to business users (e.g. Yammer) or developers (e.g. Github). This is good news all around. Enterprises are more likely to get software that incorporates the advances made over the last decade in consumer software. Startups get a shot at creating this software, and get to do so on a fairly level playing field. The product and marketing focus should also attract a lot more technologists who were turned off by sales. The only losers are incumbents who continue to pursue the old model.
Facebook’s embedded option 16 September, 2012, 5:25 pm
The best way to think of Facebook’s stock is as the sum of two businesses: the existing display ad businesses, and a probability-weighted option on a new line of business. This is how Wall Street views it. For example, here is a section of a recent Goldman Sachs analyst report on Facebook: Optionality not in the model: further potential upside While not in our model, as [Facebook] has not publicly expressed pursuit of these areas, we believe there are three obvious opportunities that the company could leverage its platform to capitalize on: - Developing an external ad network - Monetizing paid search - Entering China Of the three options, search is clearly the most interesting. An external ad network is inevitable. Google proved this model with Adsense. With an already huge base of advertisers bidding on CPCs, it is impossible for most other ad networks to compete on publisher payouts. But Facebook’s traffic is so great now that an external ad network might increase their revenues by 2x or so. The same goes for entering China. They might get another half a billion users who monetize at lower ad rates than US users. Neither move would put them in Google’s revenue range. They need a better business model for that. The only (known) models that deliver RPMs high enough to compete with Google are search, payments, and e-commerce. At TechCrunch Disrupt last week, Mark Zuckerberg talked about possibly entering the search business. Investors had been concerned that maybe Zuckerberg really meant what he said in his IPO letter – that he just didn’t care that much about making money. By expressing an interest in search, Zuckerberg signaled that he understood Facebook’s immensely valuable embedded option and was thinking about ways to exercise it.
Vanity milestones 11 September, 2012, 12:10 pm
Eric Ries uses the phrase “vanity metrics” to refer to metrics that founders cite to demonstrate progress but that are actually false signals. A related concept is “vanity milestones”: achievements that are more about making you feel good than helping your company. Vanity milestones include: - Raising money from famous people/firms who aren’t really going to help your company (e.g. Hollywood celebrities). - Partnerships with brand name organizations that aren’t really going to help your company. - Getting press (e.g top lists) that focuses on founders and not your company. - Almost all tech press (unless your product targets developers or tech companies). This doesn’t mean it’s bad to hit vanity milestones. Good companies hit lots of vanity milestones along the way, and sometimes they can be a morale boost for employees. What is worrisome is when founders equate vanity milestones with success. The attention will go away very quickly if your company fails.
Notes on the acquisition process 10 September, 2012, 2:26 pm
Ten years ago, startup financing was an insider’s game. Since then, the topic has been widely discussed on blogs, to the great benefit of entrepreneurs. Comparatively little, however, has been written about the important transaction at the other end many startups’ life, acquisitions. Here are some things I’ve learned about the acquisition process over the years. - There is an old saying that startups are bought not sold. Clearly it is better to be in high demand and have inbound interest. But for product and tech acquisitions especially, it is often about getting the attention of the right people at the acquirer. Sometimes the right person is corp dev, other times product or business unit leads, and other times C-level management. - Don’t use a banker unless your company is late stage and you are selling based on a multiple of profits or revenues. I’ve seen many acquisitions bungled by bankers who were either too aggressive on terms or upset the relationship between the startup and acquirer. - Research the potential acquirer before the first meeting. Try to understand management’s priorities, especially as they relate to your company. Talk to people who work in the same sector. Talk to industry analysts, investors, etc. If an acquirer is public, Wall Street analyst reports can be helpful. - Develop relationships with key people – corp dev, management, product and business unit leads. The earlier the better. - Don’t try to be cute. Leaking rumors to the press, creating a false sense of competition, etc. is generally a bad idea. Besides being ethically questionable, it can create ill will. - What you tell employees is particularly tricky. Being open with employees can lead to press leaks and can annoy acquirers. Moreover, some public companies insist that you don’t talk to employees until the deal is closed or almost closed. Employees usually get a sense that something is going on and this can put you in the awkward situation of being forced to lie to them. I don’t know of a good solution to this problem. - Understand the process and what each milestone along the way means. As with financings, acquisitions take a long time and involve lots of meetings and difficult decisions. Inexperienced entrepreneurs tend to get overly excited about a few good meetings. - Strike while the iron is hot. Just as with financings, you need to be opportunistic. Waiting 6 months to hit another milestone might improve your fundamentals, but the acquirer’s interest might wane. - There are two schools of thought on price negotiation: anchor early or wait until you’ve gotten strong interest. Obviously having multiple interested parties makes finding a fair price a lot easier. - Deal structure: the cap table is an agreement between you and the shareholders that says, in effect: “If we sell the company, this is how we pay out founders, employees, and investors.” Acquirers have gotten increasingly aggressive about rewriting cap tables to 1) hold back key employee payouts for retention purposes, and 2) give a greater share of proceeds to employees/founders. Some even go so far as to try to cut side deals with key employees to entice them to abandon the other employees and investors. In terms of ethics and reputations, it is important to be fair to all parties involved: the acquirer, founders, employees, and investors. - Research the reputation of the acquirer, especially how they have behave between LOI and closing (good people to talk to: investors, other acquired startups, startup lawfirms). This is when acquirers have all the leverage and can mistreat you. Some acquirers treat LOIs the way VCs treat term sheets, as a contract they’ll honor unless they discover egregious issues like material misrepresentations. Others treat them as an opportunity to get free market intelligence. - Certain terms beyond price can be deal killers. The most prominent one lately is “IP indemnification.” This is a complicated issue, but in short, as a response to patent trolls going after IP escrows, acquirers have been trying to get clawbacks from investors in case of IP claims. This term is a non-starter to institutional investors (and most individual investors). You need to understand all the potential deal-killer terms and hire an experienced startup law firm to help you. - Ignore the cynical blog chatter about “acqui-hires” (or, as they used to be called, “talent acquisitions”). Only people who have been through the process understand that sometimes these outcomes are good for everyone involved (including users when the alternative is shutting down). Finally, acquisitions should be thought of as partnerships that will last long after the deal closes. Besides the commitments you make as part of the deal, your professional reputation will be closely tied to the fate of the acquisition. This is one more reason why you should only raise money if you are prepared for a long-term commitment.
The time to eat the hors d’oeuvres is when they’re being passed 3 September, 2012, 7:43 am
The efficient market hypothesis is a widely taught financial theory that states, roughly, that under certain generally-held conditions, asset prices are an accurate reflection of the information available at the time. The arguments underlying it are mathematically elegant and have been widely popularized. Its hardcore proponents argue that financial bubbles do not (indeed cannot) exist and that government intervention in financial markets is unnecessary. While efficient market theory is dominant in academic circles, it is very hard to find active participants in financial markets who believe in it. In financial markets – like most complex human systems – the closer you get, the more nuance you discover. Venture capital markets are perhaps the most inefficient of mainstream financial markets. Complicating factors include: heavy reliance on comparables for valuations, desire of VCs to be associated with “hot” companies, tendency to overreact to macro changes, illiquidity of startup financings, illiquidity of financings for VCs themselves, perverse financial incentives of VCs, inability to short stocks, extreme uncertainty of startup financial projections, vagaries of the M&A market, dependency on moods of downstream investors, concentration of capital among a small group of VCs, the difficulty of developing accurate financial models, rapid shifts of supply and demand across sectors and stages, and non-uniform distribution of accurate market data. The title of this post is an old venture capital adage (via Bill Gurley) that reflects a hard-earned truth about financing and M&A markets. For social consumer startups, the hors d’oeurves were being passed in the build up to the Facebook IPO. They are being passed now for B2B and e-commerce companies. In the M&A markets, the most extreme example is probably in adtech, where there were waves of acquisitions in ad exchanges (DoubleClick, RightMedia, Avenue A), then mobile ads (AdMob, Quattro), and then social advertising (Buddy Media, Wildfire). If you didn’t sell during these M&A waves, you’re suddenly stuck with lots of powerful competitors and few potential acquirers/partners. It is common to hear entrepreneurs say things like “I am waiting 6 months to raise money/sell the company, when we’ve hit new milestones.” Of course milestones matter, and companies are ultimately valued based on fundamentals. But along the way you’ll likely need capital and sometimes need to exit, and for that you are dependent on highly inefficient markets.
E-commerce startups 15 August, 2012, 3:32 pm
Very few successful e-commerce companies were started in the 2000s. Since then, e-commerce startups have enjoyed a revival. Dozens of companies have gotten traction and venture dollars have followed. Phrases like flash sales, social commerce, and subscription commerce have entered the startup lexicon. As Josh Kopelman points out, the list of the top 15 e-commerce companies has barely changed over the past decade, in sharp contrast to the list of overall top internet companies. This can be interpreted in one of two ways. The bull case is that startups neglected e-commerce and are now waking up to the opportunity. The key equation driving e-commerce is: profit = lifetime customer value minus customer acquisition costs. New marketing strategies (“content plus commerce”, social commerce, etc) lower acquisition costs enough to make startups competitive with incumbents. The bear case is that scale and brand effects make e-commerce incumbents nearly unbeatable. As one entrepreneur said, “If it has a UPC code, Amazon will beat you.” A lower price is just one search away. The only way to compete is to sell used stuff or make your own products (or provide a marketplace for those things). The fat head (large incumbents) and the long tail (artisanal shops) will thrive, but the middle of the distribution will suffer. (The public markets seem to agree with this assessment, e.g. Overstock trades at 0.2x revenues.) What most people agree on is that e-commerce as a whole will continue to grow rapidly and eat into offline commerce. In the steady state, offline commerce will serve only two purposes: immediacy (stuff you need right away), and experiences (showroom, fun venues). All other commerce will happen online.
Ten million users is the new one million users 3 August, 2012, 10:15 am
Entrepreneurs and investors have been enamored with consumer internet startups for the last few years. But there are signs this is ending. Some observations: - Thousands of early-stage consumer web/mobile companies were started and funded in last 24 months. - There are only a few dozen VCs who actively write consumer Series A checks, and those VCs will only do a few deals a year. - Facebook’s market cap is about half of what most tech investors expected before the IPO. - A few breakout early-stage consumer hits (Instagram, Pinterest) have reached tens of millions of users in record time. - Internet users have tens of thousands of services/apps to choose from but limited time and attention. Some consequences: - For consumer startups with non-transactional models (ad-based or unknown business models), you need something closer to 10 million users versus 1 million users to get Series A funded. - For consumer startups with transactional models, e.g. e-commerce, the number of users required is often far lower because revenue is the more important metric. Hence, many early-stage consumer startups are switching to transactional models. - It’s becoming increasingly common for early-stage consumer startups to do bridge financings (raising more money from past investors, usually on terms similar to the prior round) instead of Series As. - VCs are increasingly focusing on B2B for early-stage investments. - There will be a lot more consumer talent acquisitions. Some advice: - If you are thinking of starting a non-transactional consumer startup, be aware that you are entering what is perhaps the most competitive sector in tech in the last decade. - If you can raise more money, do it. (Especially pre-launch: remember, there’s nothing like numbers to screw up a good story). - Be prepared for lower valuations for non-transactional early-stage consumer startups (breakout later-stage companies, on the other hand, will likely continue to command high valuations).
BuzzFeed’s strategy 24 July, 2012, 2:02 pm
BuzzFeed’s CEO, Jonah Peretti, recently sent out an email to employees and investors summarizing the company’s strategy and progress. I really liked his email so I asked Jonah if I could blog it and he gave me permission. This isn’t just the usual cheerleading email – there is a real strategy here (I especially like the strategy choice in section 3), and it’s working. I’m an investor in BuzzFeed and friends with Jonah so of course I’m biased. But to me what makes BuzzFeed great is their highly unusual combination of capabilities and sensibilities – the capabilities of a first-rate tech startup with the sensibilities of media industry veterans. I think Jonah’s email captures this well. From: Jonah Peretti Subject: The Top 7 Reasons BuzzFeed Is Killing It To: BuzzFeed Employees Hello BuzzFeeders, As you just heard at the all hands meeting, things are going great at BuzzFeed. We passed 30M unique visitors last month, our revenue is on pace to be more than 3 times what we did in 2011, we have grown from 26 full-timers at the start of last year to 117 today, and we have published entertaining and important stories enjoyed by millions of people. Our revenue is surging as brands shift their budgets to social ads and our recent growth is driven more by revenue than VC funding – an amazing milestone for any startup. We still have a long way to go but it has been a great year so far. Whenever a company has this kind of success the press, competitors, and the public start asking: “how do they do it??!?” Unfortunately, this speculation is often unkind and unfair. The default assumption is that a company must be cheating somehow or using some trick to grow traffic or revenue. This skepticism is actually justified because many startups actually do use tricks or shortcuts to succeed. Some companies figure out ways to juice their numbers so they can quickly sell for millions and then a year later it all comes crashing down. The dotcom era was as famous for Geocities, Broadcast.com, and Pets.com as it was for Amazon, Yahoo, or eBay. Based on industry precedent, it is understandable that people are skeptical when a startup starts to really take off. Nevertheless, BuzzFeed has received a very positive reception from the public, readers, our partners, and the press. But occasionally someone engages in uninformed negative speculation about us, mostly because they are confused about what we are doing. This confusion is likely to increase in the future. As we grow it is important that we help people understand what we are doing and why it is interesting and different. In that spirit, I want to share some of my thoughts of about why things are going well, why our success is based on hard work and a unique approach, and how you might explain what we are doing to a drunk, misguided hater at a party. Why BuzzFeed Is Succeeding Right Now? 1) Long Term Focus When you compare web publishing today with what Hearst and Conde Nast built in the last century, it is clear that online publishing has a long long way to go. As sites like Facebook and Twitter mature, the moment is right to build a defining company for a world where content is distributed through sharing and social media instead of transitional print and broadcast channels. Why shouldn’t we be one of the companies that builds this future? This big opportunity is why we are focused on building an enduring, independent, and self-sustaining company. Nobody has built a truly great publishing company for the social age and we have a good shot to be the ones who do it. But it means that we can’t take short cuts, we need to always invest in the future, and this is why we spend so much time and money building technology and products that don’t have an immediate impact on the company but will help us down the road. We could juice our traffic and revenue by dropping everything and focusing entirely on the short term. And that is what companies do when they are trying to flip for a fast payday. But when you are building something enduring, you have to care as much about next year as you do about next week. That is how you build something big and that’s our goal. 2) Respecting our Readers We care about the experience of people who read BuzzFeed and we don’t try to trick them for short term gain. This approach is surprisingly rare. How does this matter in practice? First of all, we don’t publish slideshows. Instead we publish scrollable lists so readers don’t have to click a million times and can easily scroll through a post. The primary reason to publish slideshows, as far as I can tell, is to juice page views and banner ad impressions. Slideshows are super annoying and lists are awesome so we do lists! For the same reason, we don’t show crappy display ads and we make all our revenue from social advertising that users love and share. We never launched one of those “frictionless sharing” apps on Facebook that automatically shares the stories you click because those apps are super annoying. We don’t post deceptive, manipulative headlines that trick people into reading a story. We don’t focus on SEO or gaming search engines or filling our pages with millions of keywords and tags that only a robot will read. We avoid anything that is bad for our readers and can only be justified by short term business interests. Instead, we focus on publishing content our readers love so much they think it is worth sharing. It sounds simple but it’s hard to do and it is the metric that aligns our company with our readers. In the long term is good for readers and good for business. 3) We Build The Whole Enchilada Most publishers build their site by stapling together products made by other companies. They get their CMS from one company, their analytics package from another, their ad tech from another, their related content widgets are powered by another, sometimes even their writers are contractors who don’t work for the company. This is why so many publisher sites look the same and also why they can be so amazingly complex and hard to navigate. They are Frankenstein products bolted together by a tech team that integrates other people’s products instead of building their own. At BuzzFeed we take the exact opposite approach. We manage our own servers, we built our CMS from scratch, we created our own realtime stats system, we have our own data science team, we invented own ad products and our own post formats, and all these products are brought to life by our own editorial team and our own creative services team. We are what you call a “vertically integrated product” which is rare in web publishing. We take responsibility for the technology, the advertising, and the content and that allows us to make a much better product where everything works together. It is hard to build vertically integrated products because you have to get good at several things instead of just one. This is why for years Microsoft was seen as the smart company for focusing on just one layer and Apple was seen as dumb for trying to do everything. But now Apple is more than twice (!) as valuable as Microsoft and the industry is starting to accept that you need to control every layer to make a really excellent product. Even Microsoft and Google has started to make their own hardware after years of insisting that software is what matters. BuzzFeed is one of the very few publishers with the resources, talent, and focus to build the whole enchilada. And nothing is tastier than a homemade enchilada. 4) We Are Doing Something Hard Vertical integration means we have to be good at lots of things which is hard. But doing something hard can actually be an advantage for a business. It means that there are not that many other people trying to do what we do or capable of doing what we do. For example, venture capitalists don’t like funding companies that have reporters on staff. In the early days of BuzzFeed, I had several VCs say they were interested in investing if we could figure out a way to fire all the editors and still run the site. I’m not joking.Tech investors prefer pure platform companies because you can just focus on the tech, have the users produce the content for free, and scale the business globally without having to hire many people. Startups that promise this vision have an easier time attracting funding which is why there are so many startups trying to be the next Twitter or Facebook or the Instagram or Pinterest for X, Y, or Z. Meanwhile, companies that employ reporters, editors, and creative people usually struggle to get funding which is why so few publishing companies or agencies are venture backed. Fortunately, we have been able to convince a few, smart contrarian investors to back our business including NEA, the biggest venture fund in the world. As one of the few venture backed publishers, we are in a unique position to be one of the leading creators of web content crafted by true professionals. There are lots and lots of things that random, unpaid web users suck at doing. In particular, the best reporting and the most entertaining media is usually created by people who do it for a living – that means us! 5) We Got Lucky! A big part of our recent success has also been luck. People don’t like to admit it but skill is 63% luck. In our case, we got very lucky with timing. We were a company focused on making content for people to share just as the social web came of age, at the moment when Facebook and Twitter and other platforms reached scale, and at exactly the moment when it became possible to build a big publishing company through social distribution. This same lucky shift made our business model work for the first time. A couple years ago, we were trying unsuccessfully to sell social advertising to a market that only wanted to buy banners but things have changed dramatically since then. Now many agencies and brands are refusing to buy banners, companies that rely on traditional display units are suffering, and budgets are shifting rapidly to social advertising. One of our board members, who was initially skeptical of our decision to not run banners, recently said that “social advertising will be the biggest media business since cable television.” Times have changed. Now we are leading the market, which is a huge opportunity, but it was pure luck that a social advertising market even exists for us to lead. It’s like we happened to start surfing a few minutes before a great wave rolled in. Or we built a locomotive and a few days later the train tracks got built. We were obsessed with social content and ads before anyone else cared and it was extremely lucky that the world shifted toward us when it did. The question now is how well we capitalize on our good fortune. 6) We Don’t Treat Half Our Team Like Losers BuzzFeed is unique in that we are equally obsessed with 1) entertaining content, 2) substantive content, and 3) social advertising. The teams that focus on each of these areas are equally important which is a key part of our success. We want our cute animals, humor, and animated gifs to be the best of their kind on the web – they aren’t just a cheap way to generate traffic. We want our reporters to have the best scoops, the smartest analysis, and the most talked about items – they aren’t just a hood ornament to lend the site prestige. And we want our advertising to be innovative, inspiring, and lead the shift to social – and not just be a necessary evil that pays the bills. Some companies only care about journalism and as a result the people focusing on lighter editorial fare or advertising are second class citizens. Some companies only care about traffic which creates an environment where good journalists can’t take the time to talk to sources or do substantive work. Some companies only care about ad revenue and actually force editors to create new sections or content just because brands want to sponsor it. People don’t do good work when they feel like losers and are second class citizens within their own company. Fortunately we have avoided that problem. We love the silly, we love the substantive, and we love making advertising that is actually compelling. And when we are good at these three things it benefits everyone and the world. 7) Our Awesome Team This next one will sound a bit cliche and sappy, but a huge reason we are doing well now is…….you. We have an amazing team of extremely talented people who really know what they are doing. We have a group of culture editors who are insanely tapped into the flow of culture on the web, from 4chan to Reddit to Tumbler to Twitter to Pinterest to blogs to pop culture to memes and know how to add their own ideas to the mix and create entertaining posts that people love to share. In just the past 6 months (!), we have assembled an incredibly talented group of reporters and writers who are regularly breaking news, unearthing scoops, advancing ideas, and engaging business leaders, US Senators, Presidential candidates, the White House, and leading media outlets. Politics was our first vertical and has already become THE defining outlet of the 2012 presidential campaign and the newer verticals are already on their way to owning there respective areas. Our teams focused on social advertising are totally killing it, with a consultative sales team full of ideas for clients, a creative services team making incredibly entertaining and sharable ads, a social discovery team expanding campaigns to Facebook, Twitter, and across the web, and an ad ops team that traffics our campaigns with skill, grace, and dogged determination – it’s not surprising we are blowing away all our revenue goals. Gong! And finally the tech, product, and data teams are inventing and building an unparalleled social publishing platform that powers everything we do, including a massive non-relational realtime stats database that tracks billions of data points for our Social Intelligence Report (launched today!), machine learning system for predicting viral hits, elegant publishing tools for editors, and a beautiful front end design that is continually tested, improved, and evolved with the benefit of smart multivariate testing. You rock and you keep getting better and better with each passing day. It is really amazing to watch. But Success Is Fragile… It’s easy to get excited and arrogant when things are going well but it is important to remember that success is very fragile. Digg sold for $500K after being worth $200 million just a few years ago. In the same time period, RIM, maker of the Blackberry, lost 95% (!) of its value. There is continual disruption in our industry and you are likely to fail if you get complacent or stop evolving. This is why we met today to discuss our “Next Level” plans and why we are always focused on pushing what we do to the next level. We have done amazing work in the past year and we should all feel proud. But to thrive in the future, we need to stay humble, enjoy the journey, and continually evolve and improve. I’m really looking forward to the rest of the year. Thank you all for doing such inspiring work.
Shoehorning startups into the VC model 19 July, 2012, 3:19 pm
Tech startups go in an out of fashion. When they’re in fashion, as they are now, entrepreneurs and VCs get lots of attention. Most of this attention focuses on things that involve money, like financings and acquisitions. For some entrepreneurs, raising venture capital becomes a goal unto itself, instead of what it should be: a heavy burden that only makes sense in certain cases. A startup should raise venture capital (or “venture-style” angel/seed funding) only if: 1) the goal is to build a billion-dollar (valuation) company, and 2) raising millions of dollars is absolutely necessary or will significantly accelerate growth. There are lots of tech companies that are very successful but don’t fit the VC model. If they don’t raise VC, the founders can make money, create jobs, and work on something they love. If they raise VC, a wide range of outcomes that would otherwise be good become bad. Unfortunately, many of these startups graft VC-friendly narratives onto their plans and raise too much money. Short term it might seem like a good idea but long term it won’t. The best source of capital is customers. The next best is the founders (cash or forgone salaries), or investors who are less aggressive about returns than VCs. Every startup has its natural source of financing. Venture capital is the natural source of financing for only a small fraction of startups, despite what the press might lead you to believe.
Capabilities and sensibilities 17 July, 2012, 12:15 pm
“The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” – F. Scott Fitzgerald One reason running a startup is so interesting is the constant tension between opposing ways of thinking: short-term vs. long-term, internal vs. external, saving vs. investment, etc. At large companies, responsibility for these ways of thinking is often spread across multiple business units. In startups they fall on a few people, usually the founders. As a founder, the most important tension is between your capabilities and sensibilities. Capabilities are your talents and resources. Sensibilities are the way you see the world. Successful founders usually have an unlikely combination of capabilities and sensibilities. The right sensibilities without the right capabilities means a good vision, poorly executed. The right capabilities without the right sensibilities means building something your market doesn’t want. Getting both right creates founder-market fit. There are advantages and disadvantages to being an experienced entrepreneur. Disadvantages include the fact that, with age, you are more likely to have obligations outside of your startup. You also risk having calcified sensibilities. Counterbalancing this is greater self-awareness, and, ideally, the wisdom to choose markets that match your sensibilities and cofounders who augment your capabilities.

readwriteweb

Why Are Indians So Entrepreneurial In The U.S.? 19 October, 2012, 4:30 am
A recent study exposed an alarming trend in the tech industry. Immigrant entrepreneurs, who in recent years have launched half the startups in Silicon Valley, are founding drastically fewer companies. Except for one group: Indians. What makes entrepreneurs from India so different? The startup study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. His data showed that the number of immigrant-founded startups in Silicon Valley has fallen from 52.4% to 43.9% since 2005, a drop that Wadhwa calls “shocking.” Indian Startups Buck The Trend But another statistic surprised Wadhwa as well: the number of startups founded by Indians is actually climbing. Against the decline in immigrant-founded startups - and our ever more xenophobic immigration policy - Indians are still launching startups. “The data showed that Indians are defying gravity and starting more companies,” Wadhwa says. “The number of Indian startups went up from 26% to 33% of all immigrant startups.” The immigrant founders surveyed in Wadhwa’s study hail from 60 different countries - but a full third of them are from India. What gives? Why are entrepreneurs from the subcontinent such overachievers? Wadhwa says one reason is that Indian entrepreneurs have a very strong support network here in the U.S. Thirty years ago, when Indians began building momentum in Silicon Valley, that first generation of successful startup founders worked hard to help those who followed. They built organizations and created a U.S. ecosystem of successful Indian entrepreneurs - and, crucially, angel funders - to accelerate newcomers. “It was a very conscious effort put in place by several dozen successful entrepreneurs,” Wadhwa says. Indian Startups Are Cool Another factor is the societal value placed on entrepreneurial endeavor. Indian kids think it’s cool to start companies. They don’t grow up aspiring to be the next Justin Bieber. They want to be the next Sabeer Bhatia. Who? The founder of Hotmail. “He’s a rock star in India,” Wadhwa says. How did that happen? Wadhwa gives a brief history lesson. Just a few decades ago India was going nowhere. “The economy was stagnant, India was known as a country of beggars and snake charmers,” Wadhwa says. “Pessimism abounded. India was basically a loser of a country. Suddenly you had these people coming to Silicon Valley making extraordinary amounts of money. This caught the attention of people back home. The media was shocked that Indians could be so successful. Kids started dreaming of coming to Silicon Valley and creating companies like Hotmail.” So OK. That’s how the Indian community pulled itself to success in Silicon Valley. What’s with other immigrant communities? Why haven’t they done the same? Can Other Immigrants Emulate The Indians? Wadhwa thinks Indians benefit from their heritage, which suits them better than many other immigrants to making it in America. They speak English. They come from a democratic society. More than that, they have a serious independent streak. “Just like here, Indians are free to speak out against the government,” Wadhwa says. “There is a history of breaking the rules, just like here. Culturally, Americans and Indians are similar and that gives Indians a big advantage when they come to America because they fit right in.” Compare that to the Chinese experience, he suggests. “In China you’re terrified of authority, you dare not speak out against the government because you’ll be taken away the next day. There is a culture shock from that perspective - people who come from authoritative regimes are afraid of defying authority. But to be an entrepreneur you need to defy authority, you need to break all the rules, you need to take a risk.” The Indians Are Going Home Now, a lot of Indian entrepreneurs are taking their risks back home. Although his recent study shows Indians are still starting a lot of companies in Silicon Valley, lately Wadhwa has noticed a change. U.S. immigration and employment laws have grown so unfriendly that even the indefatigable Indians are getting discouraged. “The tide has turned,” Wadhwa says. “Many people could not get their visas to stay here after they graduated from U.S. schools so they went back to India to start their companies, taking their values, experience and education with them. Taking their money with them.” Result: the tech startup culture in India is booming. Yes, ours is too. But for how long? Wadhwa wonders. “We’re exporting our prosperity,” he says. “Even though Indian entrepreneurs have had tremendous success here, their numbers could be even stronger. We could have tens of thousands more startups.” Instead, the top Indian graduates from U.S. universities are going back to the sub-continent. “Gladly returning home,” Wadhwa says. “Every year I see this more and more. There is a gradual but noticeable change in attitude. Many don’t even think of staying.” Image courtesy of Shutterstock.
Why Are Indians So Entrepreneurial In The U.S.? 19 October, 2012, 4:30 am
A recent study exposed an alarming trend in the tech industry. Immigrant entrepreneurs, who in recent years have launched half the startups in Silicon Valley, are founding drastically fewer companies. Except for one group: Indians. What makes entrepreneurs from India so different? The startup study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. His data showed that the number of immigrant-founded startups in Silicon Valley has fallen from 52.4% to 43.9% since 2005, a drop that Wadhwa calls “shocking.” Indian Startups Buck The Trend But another statistic surprised Wadhwa as well: the number of startups founded by Indians is actually climbing. Against the decline in immigrant-founded startups - and our ever more xenophobic immigration policy - Indians are still launching startups. “The data showed that Indians are defying gravity and starting more companies,” Wadhwa says. “The number of Indian startups went up from 26% to 33% of all immigrant startups.” The immigrant founders surveyed in Wadhwa’s study hail from 60 different countries - but a full third of them are from India. What gives? Why are entrepreneurs from the subcontinent such overachievers? Wadhwa says one reason is that Indian entrepreneurs have a very strong support network here in the U.S. Thirty years ago, when Indians began building momentum in Silicon Valley, that first generation of successful startup founders worked hard to help those who followed. They built organizations and created a U.S. ecosystem of successful Indian entrepreneurs - and, crucially, angel funders - to accelerate newcomers. “It was a very conscious effort put in place by several dozen successful entrepreneurs,” Wadhwa says. Indian Startups Are Cool Another factor is the societal value placed on entrepreneurial endeavor. Indian kids think it’s cool to start companies. They don’t grow up aspiring to be the next Justin Bieber. They want to be the next Sabeer Bhatia. Who? The founder of Hotmail. “He’s a rock star in India,” Wadhwa says. How did that happen? Wadhwa gives a brief history lesson. Just a few decades ago India was going nowhere. “The economy was stagnant, India was known as a country of beggars and snake charmers,” Wadhwa says. “Pessimism abounded. India was basically a loser of a country. Suddenly you had these people coming to Silicon Valley making extraordinary amounts of money. This caught the attention of people back home. The media was shocked that Indians could be so successful. Kids started dreaming of coming to Silicon Valley and creating companies like Hotmail.” So OK. That’s how the Indian community pulled itself to success in Silicon Valley. What’s with other immigrant communities? Why haven’t they done the same? Can Other Immigrants Emulate The Indians? Wadhwa thinks Indians benefit from their heritage, which suits them better than many other immigrants to making it in America. They speak English. They come from a democratic society. More than that, they have a serious independent streak. “Just like here, Indians are free to speak out against the government,” Wadhwa says. “There is a history of breaking the rules, just like here. Culturally, Americans and Indians are similar and that gives Indians a big advantage when they come to America because they fit right in.” Compare that to the Chinese experience, he suggests. “In China you’re terrified of authority, you dare not speak out against the government because you’ll be taken away the next day. There is a culture shock from that perspective - people who come from authoritative regimes are afraid of defying authority. But to be an entrepreneur you need to defy authority, you need to break all the rules, you need to take a risk.” The Indians Are Going Home Now, a lot of Indian entrepreneurs are taking their risks back home. Although his recent study shows Indians are still starting a lot of companies in Silicon Valley, lately Wadhwa has noticed a change. U.S. immigration and employment laws have grown so unfriendly that even the indefatigable Indians are getting discouraged. “The tide has turned,” Wadhwa says. “Many people could not get their visas to stay here after they graduated from U.S. schools so they went back to India to start their companies, taking their values, experience and education with them. Taking their money with them.” Result: the tech startup culture in India is booming. Yes, ours is too. But for how long? Wadhwa wonders. “We’re exporting our prosperity,” he says. “Even though Indian entrepreneurs have had tremendous success here, their numbers could be even stronger. We could have tens of thousands more startups.” Instead, the top Indian graduates from U.S. universities are going back to the sub-continent. “Gladly returning home,” Wadhwa says. “Every year I see this more and more. There is a gradual but noticeable change in attitude. Many don’t even think of staying.” Image courtesy of Shutterstock.
Color's Epic Collapse: Why Everybody Is Loving It 18 October, 2012, 10:00 am
Imagine this: A startup with a vibrant and successful founder arrives with the vague notion of a good idea. Venture capitalists, knowing the success of this founder, throw a bunch of money at him and his team, even without a tangible product behind it. The startup eventually releases a product that few understand or find useful. The company, reeling from bad publicity, take months to re-imagine its product before releasing a new version that is also uninspired and unloved. A few months later, the company closes for good. You don't have to imagine it. That is the real-life story of Color, a once-hot San Francisco startup that raised $41 million in funding before even releasing a product. Reports say that the engineering talent from Color is going to be acquired by Apple for $2 million to $5 million and the app will be shut down. No one but its investors and employees not going to Apple will shed a single tear. Color Made Few Friends It is always sad to see a startup die. But when the startup in question is full of pretentious people with a semi-functional, hardly interesting product, many observers can't help but smile a little bit when they belly up. The demise of Color is bittersweet - but it gives the entire tech startup scene the ability to stand on the rooftops and shout, “I told you so!” Color started as a social picture-sharing app. The concept seemed interesting and shades of Color’s original idea have cropped up in other San Francisco startups, including Highlight. It worked something like this: When you took a picture at a particular location, you could learn about other people that have also taken pictures there. The idea, termed “an implicit social network,” intrigued many innovators and media types, including ReadWriteWeb founder Richard MacManus, who once predicted that Color would be the next Twitter. The thing is, nobody understood Color and it hardly worked, despite huge publicity upon its launch (mostly derived from the compant's gargantuan funding round). The Android app was quickly taken off of the Android Market (as it was known at the time) and the iOS app did not last much longer. Color went back to the drawing board. The summer and fall passed without much news from Color, outside from vague rumbles of dissension among the top ranks. In December, Color relaunched as a mobile Facebook app for iOS and Android. Once again, nobody really understood. The new Color was a means of providing 30-second video status updates on Facebook. The status updates, termed “visits,” were too-often trivial and after the first round of people playing with the app, they quickly disappeared from Facebook’s users news feeds. The silver lining in the story of Color is that the one true aspect of value that the company held, its engineers, will likely make some money by being "acqhired" by Apple and be able to continue interesting work on photos, cloud networking and the so-called elastic social network. Arrogance Doesn't Buy You Favors The real problem with Color is that it was arrogant and combative from the start. CEO Bill Nguyen had already led several startups to big exits and he used his name to land the huge investment dollars. Recent rumors hint that when things went south, Nguyen more or less disappeared from Color’s offices and abandoned the startup. The people at Color were often difficult to work with, prickly about how their product was perceived and highly defensive when faced with bad press. It seemed that the Color team expected success as its birthright, like the brat child of some noble family. Natural resentment surrounded Color. How could this company, without anything tangible, receive such a mammoth infusion of cash? Companies with real business plans and real users struggle to raise seed rounds of $1 million or get a $5 million Series A. Alexia Tsotsis, co-editor of TechCrunch, summed up the feeling nicely in this tweet: Wish all that Color money could have gone to charity. — Alexia Tsotsis (@alexia) October 17, 2012 When Color received its funding, the cries of “tech bubble” couldn't be silenced. A sketchy company gets way too much money and everybody says that the entire venture capital market is about to implode. Of course, this has not yet happened. In the end, Color was nothing but an outlier in an ongoing equation that has worked to balance itself since the dot-com burst of the early 2000s. It is also a cautionary tale for investors, hot-shot startup founders and even run-of-the-mill entrepreneurs. Develop your product first, take only the money you need to scale and try not to brag about yourself (let happy users do it for you). Color failed in all three of these area - and will now fade to black.
Color's Epic Collapse: Why Everybody Is Loving It 18 October, 2012, 10:00 am
Imagine this: A startup with a vibrant and successful founder arrives with the vague notion of a good idea. Venture capitalists, knowing the success of this founder, throw a bunch of money at him and his team, even without a tangible product behind it. The startup eventually releases a product that few understand or find useful. The company, reeling from bad publicity, take months to re-imagine its product before releasing a new version that is also uninspired and unloved. A few months later, the company closes for good. You don't have to imagine it. That is the real-life story of Color, a once-hot San Francisco startup that raised $41 million in funding before even releasing a product. Reports say that the engineering talent from Color is going to be acquired by Apple for $2 million to $5 million and the app will be shut down. No one but its investors and employees not going to Apple will shed a single tear. Color Made Few Friends It is always sad to see a startup die. But when the startup in question is full of pretentious people with a semi-functional, hardly interesting product, many observers can't help but smile a little bit when they belly up. The demise of Color is bittersweet - but it gives the entire tech startup scene the ability to stand on the rooftops and shout, “I told you so!” Color started as a social picture-sharing app. The concept seemed interesting and shades of Color’s original idea have cropped up in other San Francisco startups, including Highlight. It worked something like this: When you took a picture at a particular location, you could learn about other people that have also taken pictures there. The idea, termed “an implicit social network,” intrigued many innovators and media types, including ReadWriteWeb founder Richard MacManus, who once predicted that Color would be the next Twitter. The thing is, nobody understood Color and it hardly worked, despite huge publicity upon its launch (mostly derived from the compant's gargantuan funding round). The Android app was quickly taken off of the Android Market (as it was known at the time) and the iOS app did not last much longer. Color went back to the drawing board. The summer and fall passed without much news from Color, outside from vague rumbles of dissension among the top ranks. In December, Color relaunched as a mobile Facebook app for iOS and Android. Once again, nobody really understood. The new Color was a means of providing 30-second video status updates on Facebook. The status updates, termed “visits,” were too-often trivial and after the first round of people playing with the app, they quickly disappeared from Facebook’s users news feeds. The silver lining in the story of Color is that the one true aspect of value that the company held, its engineers, will likely make some money by being "acqhired" by Apple and be able to continue interesting work on photos, cloud networking and the so-called elastic social network. Arrogance Doesn't Buy You Favors The real problem with Color is that it was arrogant and combative from the start. CEO Bill Nguyen had already led several startups to big exits and he used his name to land the huge investment dollars. Recent rumors hint that when things went south, Nguyen more or less disappeared from Color’s offices and abandoned the startup. The people at Color were often difficult to work with, prickly about how their product was perceived and highly defensive when faced with bad press. It seemed that the Color team expected success as its birthright, like the brat child of some noble family. Natural resentment surrounded Color. How could this company, without anything tangible, receive such a mammoth infusion of cash? Companies with real business plans and real users struggle to raise seed rounds of $1 million or get a $5 million Series A. Alexia Tsotsis, co-editor of TechCrunch, summed up the feeling nicely in this tweet: Wish all that Color money could have gone to charity. — Alexia Tsotsis (@alexia) October 17, 2012 When Color received its funding, the cries of “tech bubble” couldn't be silenced. A sketchy company gets way too much money and everybody says that the entire venture capital market is about to implode. Of course, this has not yet happened. In the end, Color was nothing but an outlier in an ongoing equation that has worked to balance itself since the dot-com burst of the early 2000s. It is also a cautionary tale for investors, hot-shot startup founders and even run-of-the-mill entrepreneurs. Develop your product first, take only the money you need to scale and try not to brag about yourself (let happy users do it for you). Color failed in all three of these area - and will now fade to black.
When Is It Time To Pivot? 8 Startups On How They Knew They Had To Change 18 October, 2012, 4:30 am
There comes in a time the life of many startups when it starts to become clear that everything is not going according to plan. But how do entrepreneurs tell if they need to keep going all in on the original plan, or pivot to something new? To find out how real-world companies deal with that decision, we asked eight successful young entrepreneurs from the Young Entrepreneur Council (YEC) when they realized they had to let go of the products, plans and strategies that they worked so hard to develop. The most common indicator? Customers made it clear they wanted something different. 1. As Soon As You Can Smart companies almost always pivot, usually multiple times. You might change the product because it doesn't meet the needs of the market you identified. You might change the market you're targeting because another market finds the product more useful, will pay more money, or has a larger pool of prospects. You might change the revenue model to one more attractive to customers. One of your primary goals early on should be to find out which elements of your business model are flawed as quickly as possible, so you can correct the course with minimal wasted time and effort. The key to doing this is having data. Analytics, surveys, face-to-face interviews and more will help you make informed decisions and ensure any pivots you make get you closer to your goal. - Sean Johnson, Digital Intent 2. Find New Goals You're Aligned With It's quite the blow to the ego when you wake up one day and realize, "Wow... this isn't working, and it hasn't been working for a while." But the good news is, when you know something isn't working, deep down, you usually also know what would work better. It's just a matter of allowing yourself to "go there" and tune in to what feels out of alignment with who you are and your mission. The way I do this is by thinking back to a moment when I was working on something using one of my "old" models and feeling really frustrated and irritable. I think of the words that were forming in my head at that time (usually, it's something like, "If only I could ____ instead"). That's the clue that tells me what I should change. And voila: you've found your pivot point. - Amanda Aitken, The Girl's Guide to Web Design 3. The Feedback-Induced Pivot It is time to pivot when your customers are consistently giving you the same feedback that things would need to be different for them to purchase. It often takes six months to a year to determine whether or not you are on the right path. Too often, we see entrepreneurs pivot too early before they have talked to enough customers to constitute an adequate data sample. - Eric Corl, Fundable LLC 4. Don't Throw Out Your Code! Pivots are an evolution of your business, but it doesn't mean that you need to entirely let go. It can make your transition easier if you view the pivot as setting aside your previous hard work to pursue a strategy that will be stronger. Especially for technology entrepreneurs, I caution against scrapping and forgetting the code you and your team have worked hard to develop, because it's likely that, even post-pivot, you can adopt or adapt something from the early version of your product for the pivoted deliverables. Shelve your products and plans to pursue your pivot full-force, but don't let go of them completely. - Doreen Bloch, Poshly Inc. 5. Your Customers Tell You What They Want We started as a free-screenwriting-software company back in 2008. Our goal was to give away screenwriting software and convince producers they should buy screenplays from us. It wasn't until 2010, when Levi's came to us and said "Hey, you have a ton of writers on your screenwriting software platform (50,000 at the time), can they work on non-entertainment industry projects?" After we finished the project, we realized we were onto something, and more and more folks starting coming to us asking for help with blog posts, tweets and other written content - so we pivoted to Scripted. Our pivot was driven entirely by customer demand for our product. - Sunil Rajaraman, Scripted.com 6. You Need To Grow To Survive Pivoting is a big decision. The only time to consider pivoting your business is when a huge opportunity is in front of you. If you are going to make a major change to your organization, it's important to realize that this will affect everything else that goes on. Pivoting is not the way to fix smaller problems. The times when we've pivoted a business required looking at our entire operation and refocusing or even replacing sections. When we first launched Yodle, we intended the company to address all the Web services needs of small businesses. As we discovered what it would take to scale that business, we realized we should pivot and focus on just advertising and marketing. - Ben Rubenstein, Yodle 7. You Aren't In Love With The Future You're inevitably going to hit setbacks, so it's important to be motivated about reaching your destination. For that reason, you should pivot when you're not excited about the long-term direction you're heading in. Here's an example from my own business. I own a marketing company. And in the early days, we used to work only one-on-one with clients. When I looked into the future, I realized I would only be able to serve, at most, a couple dozen clients. I saw how this business model was limiting our growth and our overall impact, so we changed course. We pivoted to start offering self-service training in addition to one-on-one services. And we've been happier and more successful ever since. - Pete Kennedy, Main Street ROI 8. Your Product Isn't Connecting First and foremost, it's always smart to listen to your customers. Their feedback is priceless, and a majority of businesses pivot because either their product/service is not connecting, or they can't monetize it. When a majority of customers keep saying your product is overpriced, it's probably true. If you are a service-based company that founded its business model on retainers, switch to a pay-for-performance model. These little things end up making a big difference. - Blake Beshore, Tatroux The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
When Is It Time To Pivot? 8 Startups On How They Knew They Had To Change 18 October, 2012, 4:30 am
There comes in a time the life of many startups when it starts to become clear that everything is not going according to plan. But how do entrepreneurs tell if they need to keep going all in on the original plan, or pivot to something new? To find out how real-world companies deal with that decision, we asked eight successful young entrepreneurs from the Young Entrepreneur Council (YEC) when they realized they had to let go of the products, plans and strategies that they worked so hard to develop. The most common indicator? Customers made it clear they wanted something different. 1. As Soon As You Can Smart companies almost always pivot, usually multiple times. You might change the product because it doesn't meet the needs of the market you identified. You might change the market you're targeting because another market finds the product more useful, will pay more money, or has a larger pool of prospects. You might change the revenue model to one more attractive to customers. One of your primary goals early on should be to find out which elements of your business model are flawed as quickly as possible, so you can correct the course with minimal wasted time and effort. The key to doing this is having data. Analytics, surveys, face-to-face interviews and more will help you make informed decisions and ensure any pivots you make get you closer to your goal. - Sean Johnson, Digital Intent 2. Find New Goals You're Aligned With It's quite the blow to the ego when you wake up one day and realize, "Wow... this isn't working, and it hasn't been working for a while." But the good news is, when you know something isn't working, deep down, you usually also know what would work better. It's just a matter of allowing yourself to "go there" and tune in to what feels out of alignment with who you are and your mission. The way I do this is by thinking back to a moment when I was working on something using one of my "old" models and feeling really frustrated and irritable. I think of the words that were forming in my head at that time (usually, it's something like, "If only I could ____ instead"). That's the clue that tells me what I should change. And voila: you've found your pivot point. - Amanda Aitken, The Girl's Guide to Web Design 3. The Feedback-Induced Pivot It is time to pivot when your customers are consistently giving you the same feedback that things would need to be different for them to purchase. It often takes six months to a year to determine whether or not you are on the right path. Too often, we see entrepreneurs pivot too early before they have talked to enough customers to constitute an adequate data sample. - Eric Corl, Fundable LLC 4. Don't Throw Out Your Code! Pivots are an evolution of your business, but it doesn't mean that you need to entirely let go. It can make your transition easier if you view the pivot as setting aside your previous hard work to pursue a strategy that will be stronger. Especially for technology entrepreneurs, I caution against scrapping and forgetting the code you and your team have worked hard to develop, because it's likely that, even post-pivot, you can adopt or adapt something from the early version of your product for the pivoted deliverables. Shelve your products and plans to pursue your pivot full-force, but don't let go of them completely. - Doreen Bloch, Poshly Inc. 5. Your Customers Tell You What They Want We started as a free-screenwriting-software company back in 2008. Our goal was to give away screenwriting software and convince producers they should buy screenplays from us. It wasn't until 2010, when Levi's came to us and said "Hey, you have a ton of writers on your screenwriting software platform (50,000 at the time), can they work on non-entertainment industry projects?" After we finished the project, we realized we were onto something, and more and more folks starting coming to us asking for help with blog posts, tweets and other written content - so we pivoted to Scripted. Our pivot was driven entirely by customer demand for our product. - Sunil Rajaraman, Scripted.com 6. You Need To Grow To Survive Pivoting is a big decision. The only time to consider pivoting your business is when a huge opportunity is in front of you. If you are going to make a major change to your organization, it's important to realize that this will affect everything else that goes on. Pivoting is not the way to fix smaller problems. The times when we've pivoted a business required looking at our entire operation and refocusing or even replacing sections. When we first launched Yodle, we intended the company to address all the Web services needs of small businesses. As we discovered what it would take to scale that business, we realized we should pivot and focus on just advertising and marketing. - Ben Rubenstein, Yodle 7. You Aren't In Love With The Future You're inevitably going to hit setbacks, so it's important to be motivated about reaching your destination. For that reason, you should pivot when you're not excited about the long-term direction you're heading in. Here's an example from my own business. I own a marketing company. And in the early days, we used to work only one-on-one with clients. When I looked into the future, I realized I would only be able to serve, at most, a couple dozen clients. I saw how this business model was limiting our growth and our overall impact, so we changed course. We pivoted to start offering self-service training in addition to one-on-one services. And we've been happier and more successful ever since. - Pete Kennedy, Main Street ROI 8. Your Product Isn't Connecting First and foremost, it's always smart to listen to your customers. Their feedback is priceless, and a majority of businesses pivot because either their product/service is not connecting, or they can't monetize it. When a majority of customers keep saying your product is overpriced, it's probably true. If you are a service-based company that founded its business model on retainers, switch to a pay-for-performance model. These little things end up making a big difference. - Blake Beshore, Tatroux The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
Better Than Getting Rich Quick: Startup Geoloqi Gets A Deal For The Long Haul 16 October, 2012, 5:30 am
Geoloqi was a smart little startup from Portland, Ore., that made software for telling a smartphone where in the world it is. All kinds of investors wanted a piece of the action, but Geoloqi said no, no, no. Its founders wanted to find a fit, not an “exit,” a place where they could keep building the apps and maps thy love. Now they have. Geoloqi has been acquired by Esri. “I felt like I had known them my entire life,” Geoloqi CEO Amber Case says of her first meetings with Esri, based in Redlands, Calif. “We wanted to be a longer term, more sustainable company, rather than try to knock it out of the park and be gone in two years.” Despite some early offers from other companies and investors, Geoloqi stuck it out, looking for an opportunity just like the one it announced Monday. Location, Location, Location Geoloqi’s tools help software developers integrate sensitive location features, which are hard to build from scratch. Location services eat into the phone’s performance and battery, it’s hard to find location accurately, and the data have to be secure to protect the user’s privacy. Geoloqi solves those problems for its developer customers. Geoloqi’s free apps show off the kinds of superpowers that can be built using its software development kit. My favorite example: push notifications whenever you walk by a place that has a Wikipedia entry. With the acquisition, Geoloqi’s software is not going away. On the contrary, version 2 is on its way with Esri’s blessing. The Geoloqi office is now the Esri Research and Development Center, and Geoloqi CEO Amber Case is now the center’s director. The same team will keep building the same software, but now its parent company can provide the other half of the value proposition: complete, powerful maps. With Esri, Geoloqi Is On The Map Esri is a map provider. It has amazing data for planning and logistics. I asked Case to rattle off some industries served by Esri’s map data. Here are just a few: education, tourism, government planning, construction planning, telecom/infrastructure planning, retail, environment management, emergency/disaster management... basically anything that uses a map. For example, you could use Geoloqi’s software on Esri’s map data to create a geofence in the shape of a tornado warning, so every phone in the area would know exactly where it's safe - and where it isn't. For their first trick together, Geoloqi and Esri released new geocoding features in the Geoloqi service. This allows apps to provide an address instead of just a latitude and longitude, and the service will figure out how to draw the geo trigger. It also allows reverse geocoding, so apps can find the address of a phone just by reading phone's location. Esri and Geoloqi are also now offering a mapping library that apps can use. It's powered by Esri's ArcGIS, so apps can use it as an alternative to Apple's MapKit. In other words, if Apple's maps aren't good enough, apps can build in Esri's instead. Solving Real-World Problems The merger helps Geoloqi concentrate on real-world problems instead of catering to the whims of the trendy app market. “They’re a nerdy, developer-focused company,” Case says of Esri, “and they service a lot of different industries that are real industries, not just these [markets for] 18-to–25 year old[s].” To this smart team, the deal was a relief. “People were jumping up and down,” Case says. “We know we can be [at Esri] for a long time and work on cutting-edge stuff.” There’s a clear roadmap, they know what they’re working on, and they can hire more Portlanders. All Geoloqi’s investors hail from Oregon, and the company was a star of the city’s incubators. It’s a real local success story. In an age of quick-flipping start-ups with no soul, the Geoloqi story is a lesson in the payoff of perseverance. Disclosure: I used to hang out with Geoloqi a lot when I lived in Portland because I think what they do is awesome. That’s how I took that nice Instagram of them. Team photo courtesy of Geoloqi.
Better Than Getting Rich Quick: Startup Geoloqi Gets A Deal For The Long Haul 16 October, 2012, 5:30 am
Geoloqi was a smart little startup from Portland, Ore., that made software for telling a smartphone where in the world it is. All kinds of investors wanted a piece of the action, but Geoloqi said no, no, no. Its founders wanted to find a fit, not an “exit,” a place where they could keep building the apps and maps they love. Now they have. Geoloqi has been acquired by Esri. “I felt like I had known them my entire life,” Geoloqi CEO Amber Case says of her first meetings with Esri, based in Redlands, Calif. “We wanted to be a longer term, more sustainable company, rather than try to knock it out of the park and be gone in two years.” Despite some early offers from other companies and investors, Geoloqi stuck it out, looking for an opportunity just like the one it announced Monday. Location, Location, Location Geoloqi’s tools help software developers integrate sensitive location features, which are hard to build from scratch. Location services eat into the phone’s performance and battery, it’s hard to find location accurately, and the data have to be secure to protect the user’s privacy. Geoloqi solves those problems for its developer customers. Geoloqi’s free apps show off the kinds of superpowers that can be built using its software development kit. My favorite example: push notifications whenever you walk by a place that has a Wikipedia entry. With the acquisition, Geoloqi’s software is not going away. On the contrary, version 2 is on its way with Esri’s blessing. The Geoloqi office is now the Esri Research and Development Center, and Geoloqi CEO Amber Case is now the center’s director. The same team will keep building the same software, but now its parent company can provide the other half of the value proposition: complete, powerful maps. With Esri, Geoloqi Is On The Map Esri is a map provider. It has amazing data for planning and logistics. I asked Case to rattle off some industries served by Esri’s map data. Here are just a few: education, tourism, government planning, construction planning, telecom/infrastructure planning, retail, environment management, emergency/disaster management... basically anything that uses a map. For example, you could use Geoloqi’s software on Esri’s map data to create a geofence in the shape of a tornado warning, so every phone in the area would know exactly where it's safe - and where it isn't. For their first trick together, Geoloqi and Esri released new geocoding features in the Geoloqi service. This allows apps to provide an address instead of just a latitude and longitude, and the service will figure out how to draw the geo trigger. It also allows reverse geocoding, so apps can find the address of a phone just by reading the phone's location. Esri and Geoloqi are also now offering a mapping library that apps can use. It's powered by Esri's ArcGIS, so apps can use it as an alternative to Apple's MapKit. In other words, if Apple's maps aren't good enough, apps can build in Esri's instead. Solving Real-World Problems The merger helps Geoloqi concentrate on real-world problems instead of catering to the whims of the trendy app market. “They’re a nerdy, developer-focused company,” Case says of Esri, “and they service a lot of different industries that are real industries, not just these [markets for] 18-to–25 year old[s].” To this smart team, the deal was a relief. “People were jumping up and down,” Case says. “We know we can be [at Esri] for a long time and work on cutting-edge stuff.” There’s a clear roadmap, they know what they’re working on, and they can hire more Portlanders. All Geoloqi’s investors hail from Oregon, and the company was a star of the city’s incubators. It’s a real local success story. In an age of quick-flipping start-ups with no soul, the Geoloqi story is a lesson in the payoff of perseverance. Disclosure: I used to hang out with Geoloqi a lot when I lived in Portland because I think what they do is awesome. That’s how I took those nice Instagrams of them. Team photo courtesy of Geoloqi.
See Ya Later, Innovator: U.S. Turns Its Back On Foreign-Born Entrepreneurs 12 October, 2012, 4:00 am
Immigration has always been the engine that drives the American economy. In Silicon Valley, foreign-born entrepreneurs have founded half the region’s startups in recent years - and kept the U.S. economy moving forward. So what happens if that innovation engine stalls? We’re about to find out. A new study shows the number of immigrant-founded startups in Silicon Valley has tumbled from 52.4% to 43.9% since 2005. The study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. Wadhwa has authored numerous studies on the topic of entrepreneurship and immigration. He says the findings of his new study are discouraging - but not surprising: “I had a hunch this would happen. I predicted five years ago that if we didn’t fix our immigration policies we would have a reverse brain drain. Then the Kauffman Foundation came to me to update my research from 2006 because they were seeing entrepreneurship stagnate in the U.S. They were not seeing any significant increase and the economy badly needs it.” What did surprise Wadhwa is how drastically immigrant entrepreneurship has slowed. A Shocking Decline “I was shocked,” he says. “I thought maybe immigrant startups in Silicon Valley would drop to about 50% or 49%, because it’s only been six or seven years since I did my last research and numbers don’t shift that rapidly. But when I saw the early numbers come in at the low 40s I was shocked.” Wadhwa increased his sample size but the numbers didn’t budge. They show the immigrant innovation engine in Silicon Valley has sputtered to a halt. This is not good news for the national economy. Anti-immigrant groups have questioned Wadhwa’s research, claiming the number of immigrant-founded startups is down because the number of American-founded startups is up. Nice try. Not true. “That’s not the case at all,” Wadhwa says. “We’re not having more native-founded startups, we’re just having fewer startups.” But what about the tech bubble all these analysts are hyperventilating about? What about SocialCam and Airtime and Pinterest and Evernote? What about 99Dresses? Mostly hype, Wadhwa says. It may look like a big fireworks show in Silicon Valley but it’s a sparkler in the driveway compared against past eras. “This so-called boom in startups is pretty weak compared to other periods.” America's Loss Is The Rest Of The World's Gain Meanwhile, the super-companies of the future are launching in other countries. “We will have thousands and thousands of entrepreneurs starting their companies in other countries when they could have been starting them here,” Wadhwa says. “And they will be competing with us. We will wake up five to seven years from now and see Google-like companies coming out of India and China, founded by people who came out of Silicon Valley but had to return home.” He points out that the impact of Google extends far and wide, because people leave Google and start new companies of their own. And when all that innovation is happening elsewhere, Wadhwa says, “then we’ll ask ourselves, ‘What were we doing? Why didn’t we have them here?’” So, why? Stupidity Is The Problem “Because of our stupidity and our immigration policies,” Wadhwa believes. Wadhwa says every Silicon Valley company and VC he’s asked - without exception - has told him that the difficulty in hiring immigrants is hurting them. He thinks three policy changes would quickly ease the problem. Make more green cards available. Untether H-1B visas from employers and allow immigrants to carry them from job to job. Create a “startup visa” and issue it to immigrants who want to start companies here. Wadhwa points out that other countries issue startup visas and estimates that if the U.S. did the same, there would be tens of thousands of new startups here in short order. Instead, Capitol Hill is busy stringing barbed wire. Recently Congress shot down the STEM Jobs Act, which would have increased the number of green cards available to foreign-born graduates with advanced science, tech, engineering and math degrees. “Our politicians are acting like juveniles and not fixing our problems,” Wadhwa complains. “And I’m pessimistic because the problem should have been corrected by now and it has not been corrected. This is a landslide of a drop. This will become a national problem.” It already is. Lead image courtesy of Shutterstock.
See Ya Later, Innovator: U.S. Turns Its Back On Foreign-Born Entrepreneurs 12 October, 2012, 4:00 am
Immigration has always been the engine that drives the American economy. In Silicon Valley, foreign-born entrepreneurs have founded half the region’s startups in recent years - and kept the U.S. economy moving forward. So what happens if that innovation engine stalls? We’re about to find out. A new study shows the number of immigrant-founded startups in Silicon Valley has tumbled from 52.4% to 43.9% since 2005. The study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. Wadhwa has authored numerous studies on the topic of entrepreneurship and immigration. He says the findings of his new study are discouraging - but not surprising: “I had a hunch this would happen. I predicted five years ago that if we didn’t fix our immigration policies we would have a reverse brain drain. Then the Kauffman Foundation came to me to update my research from 2006 because they were seeing entrepreneurship stagnate in the U.S. They were not seeing any significant increase and the economy badly needs it.” What did surprise Wadhwa is how drastically immigrant entrepreneurship has slowed. A Shocking Decline “I was shocked,” he says. “I thought maybe immigrant startups in Silicon Valley would drop to about 50% or 49%, because it’s only been six or seven years since I did my last research and numbers don’t shift that rapidly. But when I saw the early numbers come in at the low 40s I was shocked.” Wadhwa increased his sample size but the numbers didn’t budge. They show the immigrant innovation engine in Silicon Valley has sputtered to a halt. This is not good news for the national economy. Anti-immigrant groups have questioned Wadhwa’s research, claiming the number of immigrant-founded startups is down because the number of American-founded startups is up. Nice try. Not true. “That’s not the case at all,” Wadhwa says. “We’re not having more native-founded startups, we’re just having fewer startups.” But what about the tech bubble all these analysts are hyperventilating about? What about SocialCam and Airtime and Pinterest and Evernote? What about 99Dresses? Mostly hype, Wadhwa says. It may look like a big fireworks show in Silicon Valley but it’s a sparkler in the driveway compared against past eras. “This so-called boom in startups is pretty weak compared to other periods.” America's Loss Is The Rest Of The World's Gain Meanwhile, the super-companies of the future are launching in other countries. “We will have thousands and thousands of entrepreneurs starting their companies in other countries when they could have been starting them here,” Wadhwa says. “And they will be competing with us. We will wake up five to seven years from now and see Google-like companies coming out of India and China, founded by people who came out of Silicon Valley but had to return home.” He points out that the impact of Google extends far and wide, because people leave Google and start new companies of their own. And when all that innovation is happening elsewhere, Wadhwa says, “then we’ll ask ourselves, ‘What were we doing? Why didn’t we have them here?’” So, why? Stupidity Is The Problem “Because of our stupidity and our immigration policies,” Wadhwa believes. Wadhwa says every Silicon Valley company and VC he’s asked - without exception - has told him that the difficulty in hiring immigrants is hurting them. He thinks three policy changes would quickly ease the problem. Make more green cards available. Untether H-1B visas from employers and allow immigrants to carry them from job to job. Create a “startup visa” and issue it to immigrants who want to start companies here. Wadhwa points out that other countries issue startup visas and estimates that if the U.S. did the same, there would be tens of thousands of new startups here in short order. Instead, Capitol Hill is busy stringing barbed wire. Recently Congress shot down the STEM Jobs Act, which would have increased the number of green cards available to foreign-born graduates with advanced science, tech, engineering and math degrees. “Our politicians are acting like juveniles and not fixing our problems,” Wadhwa complains. “And I’m pessimistic because the problem should have been corrected by now and it has not been corrected. This is a landslide of a drop. This will become a national problem.” It already is. Lead image courtesy of Shutterstock.

suggest a feed

Suggest

bothsidesofthetable

Why We Need to Elect @EricGarcetti on Tues as Next Mayor of Los Angeles 19 May, 2013, 7:32 pm
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/19/why-we-need-help-electing-eric-garcetti-as-the-next-mayor-of-los-angeles/", "awesm_buttonid" : "awesm_tweetbutton_5720", "data-text" : "Why We Need to Elect @EricGarcetti on Tues as Next Mayor of Los Angeles:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/19/why-we-need-help-electing-eric-garcetti-as-the-next-mayor-of-los-angeles/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5720" }); function awesm_linkedin_share_5720() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/19/why-we-need-help-electing-eric-garcetti-as-the-next-mayor-of-los-angeles/" }); return false; } On Tuesday Los Angeles will elect a new mayor. And while Eric Garcetti is leading in the polls by 7%, according to recent articles a victory is not certain. LA needs Garcetti. He would be the first tech mayor of our city. He understands our issues as a community and vows to help keep LA Tech on the map. From his opponent I have heard crickets in the past year. Why does it matter? And how can you help? If you live in LA please turn up to vote on Tuesday. In a citywide election every vote really DOES matter. If you live in LA (or even if you don’t you can help amplify) please consider Tweeting the following: “I support the tech industry. I’d love to see a mayor in Los Angeles who does, too. http://bit.ly/Tech4Garcetti #EricGarcetti” Why it Matters Look at the impact that having a tech savvy leader in a city can make. Consider Bloomberg in NYC or Ed Lee in San Francisco. They both have presided over big tech booms in their respective cities. They understand that job growth and therefore overall city well-being depends on it. While a mayor of any city doesn’t have unilateral power and certainly the mayor of LA has unique challenges not faced in other cities, having a champion of business in office will help to continue to raise the profile of the city when people make crucial choices about where to grow jobs. Consider the case of LegalZoom, one of our cities great startups. In 2010 the City of Los Angeles started trying to crack down on tax receipts of Internet startups allocating them to the least favorable gross-receipts tax bracket taking up their city tax by 500%. The result? LegalZoom moved from Hollywood to Glendale. Doesn’t sound like a big deal if you know local geographies – it’s only a 20-minute or so move. But more damning is that LegalZoom decided to open its next big center of innovation in Austin, Texas, along with 600 new jobs and a $21 million office purchase according to this article. Garcetti worked with LegalZoom, ShopZilla, Hulu and others to try and change the tax ordinance to support the emergence of our biggest tech companies in LA city only to be stymied by the head of the office of finance, Antoinette Christovale as outlined in this article. The 600 under-employed people of Hollywood who could have worked at LegalZoom but are now in Austin thank you. As does the mayor of Austin. Growth companies beget more growth companies. And we need a tech visionary in the bully pulpit in the mayor’s office to make sure our issues are heard & known. In digital video between Maker Studios (where I am an investor), Machinima, Zefr, BigFrame & FullScreen we have added around 1,000 jobs in the past 3 years and this should continue, as video becomes an important part of the infrastructure of the Internet. In our city we have leaders in finance (ZestFinance), art communities (DeviantART), commerce (NastyGal, JustFab, ShoeDazzle, LittleBlackBag, Beachmint), Internet infrastructure (Gravity, Factual), AdTech (Burstly, Rubicon, Shift, GumGum, Steelhouse, GradientX), Software (Cornerstone OnDemand), Mobile (Scopely, TextPlus, SnapChat, Whisper, Tinder), Business Services (j2, LegalZoom, Inside.com, DocStoc) and many others too numerous to list (and I’m sure I forgot some important ones). Thousands of jobs. We can continue to innovate in LA or watch our jobs and our engineers move up North. We can try to reinvent Hollywood film and TV (Hulu, Epoxy.tv, Blayze, Chill, TasteMade) or we can watch it migrate out of our city. Garcetti understands this and having a vocal and visible leader amongst us is so important to win at the margin. To attract LP money to local VCs. To attract companies to locate and stay in LA. To encourage Google, Facebook, Twitter, EA and many others to plant more seeds in town and grow the local tech scene. The Facts I have watched Garcetti up close. He is a smart, dedicated public servant who gets tech. Smart: He was graduated from arguably our top-rated high school (Harvard Westlake), B.A. from Columbia, Rhodes Scholar at Oxford and studied at London School of Economics. Dedicated Public Servant: Garcetti has been a member of the LA City Council since 2001 and was a three-time president. Gets Tech: Garcetti knows our industry’s issues and can promote jobs and fair legislation. While his opponent tours around with Magic Johnson, Garcetti has been at virtually every major tech gathering in our city for the past 18 months as well as dropping knowledge on Reddit. He is also a bilingual Jewtino (his dad’s family is Mexican / Italian and his mom’s is Jewish). Can’t get much better in a city like Los Angeles, hey? So please vote. This isn’t a presidential election where our vote is neutered. This is a citywide election where every vote counts. Be heard. And let’s elect a mayor who knows that building a vibrant tech community is the key to LA’s continued growth and innovation.
Should You Consider Replacing Yourself as CEO? 19 May, 2013, 9:56 am
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/19/should-you-consider-replacing-yourself-as-ceo/", "awesm_buttonid" : "awesm_tweetbutton_5716", "data-text" : "Should You Consider Replacing Yourself as CEO?:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/19/should-you-consider-replacing-yourself-as-ceo/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5716" }); function awesm_linkedin_share_5716() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/19/should-you-consider-replacing-yourself-as-ceo/" }); return false; } My internal compass has always steered me strongly toward the belief that founders who can scale with their startup companies are better to back that founders who eventually need to hire a CEO. I have talked about this publicly a great deal – how I prefer “missionaries” over “mercenaries.” But lately I’m more swayed by the wise words of Reid Hoffman. “Founder is a state of mind, not a job description” We all love the mythical stories of our great founder heroes who drove startups from scratch and led their businesses many years later: Bill Gates, Larry Ellison, Jeff Bezos and so on. Very few founder CEOs go into the job ever expecting to give up their seat. It’s your baby. Your idea. You took the biggest leap of faith. It becomes an extension of self rather than a job. So give up the CEO role? Fuck no. But it’s actually not that simple. Jonathan Strauss took this issue head on in a blog post that I believe every startup founder should read on “Replacing Oneself as CEO.” “After 3 and a half years of fusing my self-worth with the success of the company in the crucible of startup survival, it was impossible to tear them apart without pain. But while my first reaction was disappointment and failure, it was almost immediately washed away by a wave of relief. I knew change was inevitable, but I had no idea how stressful and exhausting maintaining my internal reality distortion field had been until they gave me permission to turn it off.” I can’t imagine many founding CEO’s who don’t read Jonathan’s words and know exactly what he means. I saw this first hand. The confidence, energy, passion and humor that are hallmarks of Jonathan became muted in the pressures of needing to show financial successes to match one’s enormous product vision and ambitions. I told Jonathan (and believe) that this would be the best year of his professional life. He gets to return his focus and energy back to what got him so passionate in the first place – product – while now having a seasoned leader and enough capital to fulfill his vision. I spoke with TechCrunch TV recently about the decision to give up the CEO seat, the stresses of the job and my perspective of the situation as an investor. You can watch it here. I have never felt prouder of the team & product at awe.sm (please visit to check out our latest & be ready for our next big product announcement due out in next month or so) and yet we just brought in a new CEO to the company, Fred McIntyre. How could these statements live in the same sentence? ******* An Awe.Sm story I first met Jonathan nearly 4 years ago. I know because I marked the occasion with a blog post on how to have a great VC meeting. I wrote about Jonathan’s visit (but never named him by name until now) because it was so memorable. His vision for social analytics and tracking the conversion funnel was better than any I had heard at the time (or since). He talked about how we were going through a period of time in which people were measuring “likes” and “followers” but not the real value of social media conversion by tracking what actually converts into business and that few people understood the catalyst of what drove a successful campaign in the first place. It is what he set out to build and he had huge initial success in landing big clients like Disney, Zynga, Gilt and TopSpin. I funded Jonathan’s first $500,000. For the entire first year after I funded the company he refused to take a salary and I had to admonish him to make sure he paid his expenses. He worked his ass off and delivered an amazing technical infrastructure to support a “big data meets social analytics” platform that could be used by any developer. Yet our initial customer success didn’t translate into big revenue growth and we faced issues such as: Do we support developers, end-users or both? Do we price for volume of consumption or for enterprise integration with other platforms? Do we have a heavy-touch implementation and support or a lightweight one by integrating with products that white-label us? Do we optimize for “social sharing tools” or merely for back-end analytics? The decisions were endless, the choices not obvious and the VC involved a pain in the ass. The financial pressures of running a startup started to hit Jonathan. I saw it first hand. I have a very public seed stage investment policy and awe.sm was definitely in the bucket of amazingly talented founders with a great product that hadn’t yet proved product/market fit. So I wrote another check to extend our runway another year. The second check was $400,000 out of a $500,000 round. And I forced Jonathan to start paying himself. Our product really started to show its strengths in attribution as we were able to prove publicly that Twitter was driving more traffic than people had acknowledged but it wasn’t showing up in referral logs due to what is known as the “last mile problem.” We had inbound M&A requests from some of the biggest names in tech. We did a gut check and I asked Jonathan what he wanted to do. He knew that I didn’t want to give up on his journey but I would if that’s what he wanted. He told me he couldn’t give up when there was so much more to prove. He remained as committed to the company vision as when we first met. We had VCs show interest in funding awe.sm and settled on Foundry Group and raised $4 million ($1 million more from me). It was great to get some new ideas around the table and to have some money to execute on our plans with more resources than before. Yet with major advances in our product infrastructure we still hadn’t proven we could scale sales. It was really hard to look at the situation and know that the answer was that Jonathan needed help and that what he really needed was a boss. The board was unanimous in our opinion of this including outside director Ian Rogers who has served as Jonathan’s mentor and friend. We knew what was right for the company and wanted to see the company succeed more than protect Jonathan’s short-term ego hit. Jonathan shared that experience in his blog post so I won’t repeat it. But we did offer Jonathan his second gut check. We knew we had a valuable product that an acquiring company would gain greatly from and a world-class engineering and product team that would be valued by a buyer. If he wanted to sell we would enable it, but if given the choice I preferred to see the team fulfill their dream and I never lost confidence that our market was there. Nobody has stepped in with as complete of a vision as awe.sm has. Jonathan went through a reflection period and chose to continue the journey. We have spend the last 6 months working on our next generation product and as one of the main beta testers I can tell you it’s the best stuff we’ve put out to date so I was very pleased with his decision to fight on. We set out to find Jonathan’s “co-founder.” Somebody who had lived with the marketing consequences of trying to track online conversion from websites, google, mobile and social. We found Fred McIntyre who had worked with Ian Rogers in the past and therefore we had a strong connection with his past skills, drive and determination. He has joined the team as CEO and shown an immediate desire to “live the company” in the way that founders did. To be a founder in state of mind. ********* My Own Journey – And Replacing a CEO I actually don’t talk about it publicly much but I am one of those people who gave up the CEO role in my first company so I know the emotional roller coaster it can be. I had never even considered it, it wasn’t an option. But I was part of a networking group called YPO, which has a subsection called “forum” in which a small group of your peers meets monthly to discuss life. Topics range from aging parents, marital strife, infidelity, disease, stress, life’s true mission, giving back – you name it. I was staggered to hear people talking so openly. I wish the tech community would found its own version of YPO Forum. It might help us better prepare for the enormous pressure & stress of being a founder, it might help us realize when there are people with serious depression in our midst (and try to spot people considering suicide), and frankly it might just be a great outlet for all of those insecurities you can’t tell your team, your co-founders and your VCs. In my case it was the encouragement to hand off the role of CEO of BuildOnline before the company was eventually sold. I had stayed for 6 years. I loved the entire journey – good and bad – and the employees and customers. But I was also in a rut where I felt I had lost the ability to be innovative and I had lost a bit of the passion & fun that came with the early days that were more existential and involved more intellectual challenges and less managerial ones. The truth is I have never enjoyed running team meetings, managing processes & procedures and deciding HR policies, promotions and org structures. There is no better article on the topic than Reid Hoffman’s post about giving up the role of CEO at LinkedIn. “CEOs need to derive satisfaction from the nuts and bolts of building a company, not just building product and articulating the vision. They need to be passionate about leadership, management, and organizational processes as the company scales.” In this day and age many people will tell you that you can have your cake and eat it, too. You can simply hire a COO to do these things while retaining the CEO title but focusing mostly on product. I have previously written why I don’t believe in the COO role at early-stage startups. Reid weighed in eloquently on this topic. “[to be CEO you need to] devote substantial time to time consuming things like running meetings and other business process. You can’t just do the exciting stuff like making the final call on product and speaking at conferences, while shuffling off everything else to the mythical COO who loves doing all the dirty work and doesn’t want any of the credit … I had thought about the COO option, but I knew that the company needed someone who felt like they “owned the ball.”” Mythical COO who loves doing the dirty work with no credit. Kind of like a mythical Vice President of the United States who wants to be behind the scenes but doesn’t want the top job. Therein lies the dilemma. The best people almost always want the top job if they’re going to put in the real work effort. Of course there are exceptions – the most obvious one being Sheryl Sandberg. Reid’s admission of his interests sounds like something I would have written myself verbatim “I’d rather be solving intellectual challenges and figuring out key strategies, not debating which employees should get a promotion, or configuring project timelines.” So Reid set out to hire a CEO. His first attempt was Dan Nye who had some success but apparently one key missing ingredient. Reid believes that you need a CEO who is also passionate about product and he later found that person in Jeff Weiner. Jeff joined early enough to feel like a “founder” even though he wasn’t there at the “founding.” He was as passionate about the product as Reid and became the biggest eater of the LinkedIn dog food. He had founder mentality. This seems to be the exact situation at Twitter. While Dick Costolo wasn’t there at the founding it seems clear that he has become the reasoned voice of the growth of Twitter. And while it was another team entirely that sparked the product adoption that is now Twitter, there is no doubt in my mind Twitter would not be its current success without Dick at the helm driving product, user engagement, capital raising and revenue growth. Again, captured eloquently in the words of Reid Hoffman “Being there at the start isn’t the only path to being a founder. “Founder” is a state of mind, not a job description.” So true. So I look forward to watching the next awe.sm chapter unfold. To watching Fred lead our sales, marketing and implementation efforts and driving the recruiting & financing of the company. And watching Jonathan to continue to build on the product vision that started 4 years ago from his desire to fix a large part of the Internet’s inefficiencies.
The One Word That Shouldn’t Exist in an Entrepreneur’s Vocabulary 15 May, 2013, 1:18 am
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/15/the-one-word-that-shouldnt-exist-in-an-entrepreneurs-vocabulary/", "awesm_buttonid" : "awesm_tweetbutton_5711", "data-text" : "The One Word That Shouldn't Exist in an Entrepreneur's Vocabulary:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/15/the-one-word-that-shouldnt-exist-in-an-entrepreneurs-vocabulary/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5711" }); function awesm_linkedin_share_5711() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/15/the-one-word-that-shouldnt-exist-in-an-entrepreneurs-vocabulary/" }); return false; } No. The one word the best entrepreneurs never accept. I said it. Now let me walk you through a broader story because avoidance of the word in and of itself will seem cliche. Stay with me. When I was little I had a role model for entrepreneurship – my mom. She was a natural leader. She was president of the UJA in Sacramento. From this I saw civic involvement and leadership first hand. She was a nurse but was never graduated from a 4-year college. Still – she can do the NY Times crossword puzzle better and faster than I. Even today. She was a hustler. And a ball buster. And a natural sales person. She was never afraid of the word “no” even to the point of embarrassing me. My youth was filled with her arguing with vendors if they tried to pull a fast one. As my wife will tell you – arguing is cultural – you grow up with it or you don’t. I did. It’s very Jewish. For better or worse. She’s learned to embrace it in me. If a maitre d’ tries to seat me at a table in huge traffic flow or a corner she knows not to bother sitting down. My mom bought our family’s first computer and encouraged me to learn it at 13. She opened 2 businesses – a bakery and then a restaurant. I worked in both before leaving to work in a software company at 17. I never knew a world in which you weren’t supposed to work and make money. Even though my dad was a doctor and in retrospect I probably didn’t need to earn my own money. My mom always taught me it was my responsibility to do so. When I was younger my mom taught me something I never forgot “You don’t ask, you don’t get.” It’s simple. I know. But it amazes me how many people don’t really get it. 2 stories. One. When I lived and worked in London my wonderful assistant was Deborah Halliday, who was raised a very “proper” British young lady. Her brother played rugby for the English rugby team and went to Oxford. That’s kind of like having a brother in the NFL in the US. If there was any society in which being a hustler was out of step with the norm is was England. Yet I was a foreigner so I got away with being different. I used to ask Deborah to book my travel plans in France and Germany were I went 1-2 times / month. There were online tools to book this stuff but the Internet booking sites were early. I would tell Deborah, “I found this hotel near the Champs Elysees for 170 Euros. But I don’t want to pay that much. Tell them I’ll stay if they’ll give it to me for 120 Euros. “What? You want … what?” “Mark. You can’t do that! You can’t just name your own price.” Me. “Of course I can. Tell them you found a hotel down the street for 100 Euros but I prefer to stay at their hotel. Haggle. See what you can do. Deborah. She was mortified. Bless her cotton socks. I put her outside of her comfort zone. Me. “Deborah. You don’t ask, you don’t get! What’s the worst they can tell you? “No?” If so, we’ll call back an hour later and pay 170 Euros. It’s not like they’re going to tell you ‘no’ in an hour. You might as well try!” Classic Mexican Road strategy. Here’s the thing. They NEVER said ‘no.’ Such were the times. They weren’t fully occupied. She began to love it. It was liberating. I taught her to make it a game. I would challenge her to see how cheap she could get rooms. I can still hear her giggle at how ridiculous it was in her mind’s eye. And yet how eye opening it was that you could have almost anything you wanted. If you just asked. Story two. Fast forward. My son Jacob. He’s now 10. When he was 7-8 my wife used to sit down with him to do homework and train him the importance of getting it done early and well. Luckily I have such a terrific and organized wife. Or Jacob would be screwed. They sometimes did homework at Le Pain Quotidien. And if Jacob was good he could get a treat. Tania once took him up to the couter to pick out a treat. He pointed at a chocolate cake and told Tania he wanted a piece. “No, honey. That’s a whole cake. You can’t have a piece. It’s not cut. Why don’t you find something else?” Jacob, “Of course I can have a piece. Just ask them!” Jacob has IJ. He knows to ask for what he wants. He is respectful. But he has an inner compass that in stead of saying “ok” to adversity he says “why not?” My wife things he’s an over negotiator but she secretly loves it. I always take it as a compliment. Both stories have something in common. Not being ashamed to ASK. As I tell people almost weekly, “What’s the worst that could happen? That they would say, ‘no’?” And I mean it. I promise you that 95% of the people I meet are afraid of people telling them no. They are personally embarrassed by it. Or insulted. Or view it as failure. I’m told “no” all the time because I often ask for more than others do and therefore you need to be willing to hear “no.” I was on a flight last year from DC to LAX. I had a business class seat due to status of flying a lot and my family was in economy. I felt bad and was planning on rotating. But when I sat down I asked if my family could upgrade since there were 3 open seats. I assumed the answer would be “no” but I figured I had nothing to lose. The flight attendant said “ok. but you’ll have to pay a small upgrade fee and I can’t move them until after take-off.” But move them she did. And she decided it wasn’t really important to make me pay since the seats were unoccupied. Score! We had also just been upgrade from London to Baltimore. 2 times in a row – unreal. My wife was a bit incredulous (but grateful). I simply pointed out that our kids learned a more important lesson than the downside consequence of their expecting to always sit in business class (which isn’t going to happen!). They learned to ask, “who not?” You don’t ask. You don’t get. And here’s the thing about “no.” I know first hand just how chicken people are about hearing it. I’ve sat through so many meetings where sales reps didn’t ask for the order. I’ve been pitched by hundreds of entrepreneurs who never actually asked me whether I would invest. Very few people do. Here’s an experiment for you. Hold interviews with tech people, marking people, ops people, finance people – whatever. They always finish the interview with a “thank you” and barely ask next steps. Any great sales person will ask you at the end of the meeting, “So, how’d I do? Who else have you spoken with? How do I stack up? What do I need to convince you of to get an offer? What is the next step in the process?” Great sales people are trained to “ask for the order.” If you interview a sales person and they don’t ask for the order, be worried. I like to flip things on their heads. I like to ask in reverse in interviews, “If we did get aligned to offer you this role, do you plan on accepting? What other offers do you have? What do we need to do to win? What steps do you still need before you decide to go with us?” I want to know. And I have nothing to fear in the answer. My favorite (not) is dealing with lawyers (or VCs) who say, “as a firm, we never do a, b, c.” Let me tell you now that often this line is BS. But my standard response is, “I don’t care what you normally do. I think it’s right for our situation. So unless you explain to me logically why it doesn’t make sense at our company, my assumption is that it’s a good idea.” In summary, I recommend some honesty with yourself. How comfortable do you feel with asking for the order? How confortable do you feel with asking awkward questions or asking for things that are out of the norm, “Could we have your room for 120 Euros so we don’t have to stay down the road?” If you don’t find it within your confort zone – practice in small ways for asking for slightly unreasonable things just to get used to it. It’s a skill you’re going to need as an entrepreneur. After all – you don’t ask, you don’t get.
The Corrosive Downside of Acquihires 13 May, 2013, 6:57 am
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/13/the-corrosive-downside-of-acquihires/", "awesm_buttonid" : "awesm_tweetbutton_5709", "data-text" : "The Corrosive Downside of Acquihires:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/13/the-corrosive-downside-of-acquihires/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5709" }); function awesm_linkedin_share_5709() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/13/the-corrosive-downside-of-acquihires/" }); return false; } For the past 5 years or so Google, Facebook and a handful of tech industry giants have been quietly buying scores of early-stage startups for their talent. And to keep up with the Jones’s it seems that Yahoo! has now employed the same strategy. And who cares, right? A couple of tech giants throw millions around in either cash (for which they have hoards) or part with some publicly traded stock. And a few teams of super talented, educated and bright entrepreneurs make a few mill. in their 20′s. What could be more capitalist than that? It has even gone so far that we now have evocative headlines in the tech press such as “Buy or Die,” which is what got me thinking about this post. We’ve been here before – trust me. Every era has its own amnesia for M&A gone wild. In the end, it doesn’t really matter. It’s not some big tragedy on a grand scale. But the press (and I suspect many of the senior execs of these companies) don’t really explore the corrosive downside of these acquisition. So I thought I would. Buy. Or Die. Really? If I don’t commit to millions of dollars of acquisitions I will … die? I’m supposed to believe that my best innovation can only come from scores of startup founders who just made millions and have now become CVOs at my company? (Chief Vesting Officers)? Meh. The Aqui-hire Business Many buying companies price these deals on the basis of $1 million per engineer on the team for an early-stage deal. And they might give a premium if the team has been around a longer period of time, has built some hard-to-build proprietary technology or has some customer traction. Usually the location of the engineers matters great so having offshore engineering makes acquihires unlikely. Let’s assume an early-stage company around for 2 years with limited traction. It is probably purchased in the $5 – 15 million range even if you see higher numbers in the press. Almost certainly the startup would have raised some capital. Let’s assume $2 million in seed money. If the money comes from professional investors it usually has a “liquidation preference” meaning that their money comes out before the founders or common stock. (If you don’t know venture economics – there is an overview here.) While at initial glance this sounds unfair, when you think about it – it doesn’t. If you give $2 million for 20% of a company ($8 million pre + $2 million investment = $10 million post-money valuation) that has no product and no customers and it turns around 3 months later and sells for $5 million it would hardly be fair for investor to get $1 million back (20% of the proceeds). That’s why liquidation preferences exist – downside protection. After the liquidation preference the founders (probably 1-3 people) are likely to get 90% of the remaining proceeds and the staff – those engineers that the acquiring company so desperately wants – would ordinarily receive a very small proportion. I talked about the math of this in this post, “Is it Time to Learn or to Earn.” Mark – doesn’t the acquiring company mostly care about the super innovative founders? Those 1-3 you’re talking about? If they do then they’re naive. And most buyers aren’t. Most founders stick around for their lock-up period (1-2 years) before going on to found their next company. Think about it – they were the ones most willing and most able to take risk in the first place. They founded their last company with no money in their pocket. Now they get to go out and try again with $2 million in their pockets plus the credibility of having just gotten a big W. Most founders stay the least amount of time they can. I know the buyers try the best to believe that [insert well known founder name here ... David Sacks, Max Levchin, Dennis Crowley, Keith Rabois] will stay and help lead their company in a totally new direction. But evidence suggests otherwise. So the buying company usually wants to pay $0 for the company. And wants to structure a huge payout for the employees that will remain. That way investors (dead money for the buyer) and founders (flight risk) don’t get all the spoils while the faithful staff who will stick around get nothing. And precisely because buyers usually prefer to have limited money go to investors – investors almost always have the ability to say “no” to transactions in the terms of their funding documents (aka “blocking rights”). And that is the tension in the acquihire – what is the purchase price for the company, what is the “earn out” if the acquired company hits some performance targets and what is the amount of money set aside for staff retention? And will investors allow a deal to happen in the first place. The numbers you see announced in the press for deals are hardly ever right. OK, Mark. We get the mechanics. But what is so corrosive about this? Why Acquihires Hurt the Acquiring Company How about if we look at it from the “rest of company” perspective. You have been at Google, Salesforce.com, Yahoo! for years. You have worked faithfully. Evenings. Weekends. Year in, year out. You have shipped to hard deadlines. You’ve done the death-march projects. In the trenches. You got the t-shirt. And maybe got called out for valor at a big company gathering. They gave you an extra 2 days of vacation for your hard work. And that prick sitting in the desk next to you who joined only last week now has $1 million because he built some fancy newsreader that got a lot of press but is going to be shut down anyways. What kind of message does that send to the party faithful who slave away loyally to hit targets for BigCo? I’ll tell you what is says. It says if you want to make “real” money - quit. Go do a startup. Get some famous angel or seed money. Get yourself in a big demo day competition. Woo the press. Hire legions of young, impressionable graduates from the top engineering universities. And then come back and sell me your company. I know many rank-and-file employees. I’ve had the chats with them. You rarely meet people who don’t resent the scores of entitled acquihirees of their company. Does Yahoo! et al really have to keep up with the Jones’s to build its future? For the 200 new employees they’ll get through acquihires do they unleash 2,000 unhappy existing employees? Sure, most won’t quit. Because they know that it’s not a slam dunk to start a business and get acquired. But the most talented of those 2,000 will. What if the $100 million you’re going to spend trying to win this alleged “war for talent” in stead went into big retention plans to keep your most talented employees. You can’t “Roll Out the Red Carpet When Your Best Employees are on the Way Out the Door” as I wrote in this post. So why not announce big, hairy audacious goals on recruiting the best mobile talent with sign-on bonuses and retention plans? And reward your existing top 10% of employees handsomely. I’ll bet the ROI would be higher than acquihires. Acquihires and Venture Capital I’m a VC. I know I’m supposed believe in acquihires to bury my investments that aren’t working. I would never discourage any teams of people I’m working with against early acquisition if they felt it was in the company’s best interests. But that’s not how you make money in the venture capital business. You make money by backing winners that build real businesses. I look for entrepreneurs who set out on their journeys to do exactly that – build big businesses. Change industries. Not looking for quick flips. And on many occasions I have passed on deals where it was clear that the founding team was over-optimizing the deal structure to focus on a quick exit. When I have great teams with products that are taking longer to show traction than they or I would like I usually spend time trying to figure out how we can build a better business versus selling early. I don’t blame entrepreneurs who go for an early exit when it comes up. To the contrary. On many occasions where I’ve met with teams of people in whom I’ve never invested I’ve encouraged exactly that – an early exit at a “small” price. Because if you’re business isn’t working or isn’t likely to work it’s obviously better than running into a brick wall or over-capitalizing yourself. And of course many small acquisitions work for the buyers when there is a clear strategy for owning the asset or a clear alignment with the team you’re acquiring. But as a repeatable strategy for large companies to try and compete with each other it still strikes me as a wasteful strategy. And few in the press are willing to call this out. Sarah Lacy did. It’s why I love reading her writings – she’s one of the few remaining journalists in the tech sector (along with Kara Swisher and a few others) who have been around long enough to have earned their critical eyes or cynicism. She wrote this excellent piece last year called, “The Acqui-hire Scourge: Whatever Happened to Failure in Silicon Valley” And I thought I’d finish on a quote from Sarah, “Allowing entrepreneurs — and their investors — to save face by saying they were “acquired” instead of failing is nice, but it’s a bit like the pre-schools where everyone wins a trophy for showing up.” Note: image from PandoDaily, clicking it will take you to the article in which I found it.
Why Online Video Just Took One More Big Step to Legitimacy 7 May, 2013, 11:14 pm
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/07/why-online-video-just-took-one-more-big-step-to-legitimacy/", "awesm_buttonid" : "awesm_tweetbutton_5706", "data-text" : "Why Online Video Just Took One More Big Step to Legitimacy:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/07/why-online-video-just-took-one-more-big-step-to-legitimacy/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5706" }); function awesm_linkedin_share_5706() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/07/why-online-video-just-took-one-more-big-step-to-legitimacy/" }); return false; } Anyone who reads this blog frequently will know that I am a big believer in low-cost video content and specifically the power of YouTube as a content creation & distribution platform. Our industry just took one big step towards legitimacy with the hiring of renowned media exec Ynon Kreiz to run Maker Studios. The industry finally has one of their own at the helm of the largest YouTube network. This followed an investment late last year by Time Warner in the company in a round totaling $36 million, led by Rachel Lam, head of their investment group. This has been a very welcome addition. And this month we announced that Maker Studios, where I am an investor and board member, crossed 3 billion views. And for the record, that’s per month not total in aggregate! So if Time Warner + Ynon Kreiz + 3 billion views / month isn’t legitimacy, I don’t know what is. I frequently hear critics saying, “yeah, but you can’t monetize on YouTube.” While I will admit that there are still issues in building a profitable business on YouTube alone given the YouTube vig plus talent payouts – I can tell you first hand that big businesses are being built, brands are significantly more interested in large media buys, audience loyalty and brand building are taking place and at volume this looks like the making of the next generation of online media to me. If you want to understand my thesis behind Maker you can read this article that outlines the trend, but in summary: People watch 5.3 hours of TV / day. They read less than 30 minutes. You can’t change media consumption patterns easily. The future of the Internet is video. Full stop. Production costs have fallen more than 90%. Distribution costs have, too. This is classic “Innovator’s Dilemma” market conditions. My estimate is that the top 5 YouTube networks will do > $200 million net revenue in 2013 (after Google’s share) These same top networks – Maker, Machinima, Zefr, FullScreen, BigFrame – and the like have create nearly 1,000 new tech / media jobs in LA in the past 3 years alone. The news that Ynon Kreiz is joining to run the company as Executive Chairman was first reported by Peter Kafka at AllThingsD (and later picked up by Variety, AdWeek and several other traditional media outlets. Ynon Kreiz is a force of nature in the media and tech sectors. He created Fox Kids Europe and took it from scratch to worth North of 1 billion Euros in value and was ultimately sold as part of a $5.3 billion deal to Disney. He became a VC at London-based Benchmark Europe (now Balderton) and then CEO of Endemol, a large multibillion media company best known for creating & owning global franchises for Big Brother, Deal or No Deal and other unscripted television. Ynon & I first discussed Maker in early 2012. Dana Settle (Greycroft) & I had led the first round of investment in the company in 2010 and we were looking for smart media investors to join us as investors in the company. We had a series of meetings with Ynon and thought he’s be a great addition to our team. Ynon had decided that YouTube would play a major role in the reshaping of the video business and he wanted to figure out how to be involved. He initially started by becoming an investor in the company along with many of the good & great of our industry including Shari Redstone, Elisabeth Murdoch, Jon Miller & Robert Downey, Jr. Ynon immediately began working with the founding team: Danny Zappin, Lisa Donovan and Ben Donovan and he established a really strong rapport as somebody who had the media chops and executive relationships but was grounded in the economics of low-cost video production & distribution. The founders had been responsible for gaining staggering scale in the past 3 years, having been trail-blazers in building a network of talent and an unrivaled understanding of the YouTube ecosystem. They figured out how to motivate talent to work with the company, how to stitch together a network where everybody gained by being supportive of each other and they figured out how to make the economics work. Like every group of founders they had a great team around them like David Sievers, Shay Karl, Kassem G and Nice Peter (who produces my favorite show on YouTube – Epic Rap Battles of History). If you’re in the mood, you might enjoy some of my favorites: * Moses (Snoop Lion) vs. Santa Claus * Mr. T (DeStorm) vs. Mr. Rogers * Babe Ruth vs. Lance Armstrong But the founders also recognized – as many great founders do – that they were going to have to build out an experienced management team to become the billion company everybody believes this can be. The first move was to bring in digital media veteran Courtney Holt as COO. He has proven to be one of the most knowledgeable & competent senior executives in the online video world. And he has truly been a pleasure to work with. He joined when Maker was a small, chaotic organization and helped bridge our talented creative team with the outside world of investor, brands, partners & press. Another major hire was Ryan Lissack who joined as CTO. Ryan was not only a senior engineer at Salesforce.com (he ran mobile and also ran content management) but was also my cofounder at Koral and lead architect at BuildOnline. Needless to say I think Ryan is one of the most talented engineering leads in LA but I’d stack him against anybody in the Valley, too. So it should be no surprise to anybody that Maker is not a talent only company. It is a “talent first” company but one under-pinned with a serious multi-million dollar investment in technology that has helped fuel our growth and will continue to provide tools & support for our talent. And anybody who read Danny’s transition letter to the company would note that he gave one shout out to Mike D (Michael DiSanto), who is now moving to the Bay Area to help run the tech practice for Bingham. “Without you none of this would be possible. Thank you.” It’s true. I had written about Mike before but hadn’t disclosed his name. He is the anonymous lawyer I talked about in this post who talked me off a ledge at a particularly vulnerable moment on a past transaction. He was not a lawyer at Maker Studios – he was a behind-the-scenes leader. To the credit of Danny, Ben & Lisa – they never aspired to be the CEO’s of a rocket ship media & technology company. They always said to us, “we believe we are best positioned to lead this company through the important stages of growth and we would like to do that. At the right time we would like to work with you to bring in the appropriate leader to help us build this company to the next level.” Dana & I took a chance on the founders early on. But they built the company into what it is today. And we are unbelievably proud to see the company grow from small, crappy offices above a taco shop in Venice to a production home in Culver City with 70,000 square feet and more than 50,000 individual content contributors. Danny and Ynon in a way will switch roles. Ynon started as shareholder, board member & advisor and switches to full-time executive. And Danny switches to major shareholder, board member & advisor. I look forward to continuing to work with him in his new capacity – as a peer. Ben & Lisa have always held enormous talents and I look forward to working with them as they help grow the company, increase & improve production quality, build out vertical networks, form partnerships with major brand advertisers and develop new sources to monetize both on and off YouTube. Ynon was the obvious choice to help the founders take the company to the next level since he had the trust of the founders, the investors, the senior management team as well as YouTube and most of the large media players in Los Angeles and internationally. And that’s why the online video space and YouTube ecosystem has taken one more leap toward its rightful place as next generation video platform. The media world now has its own leader running the largest YouTube multi-channel network startup. And the fact that a successful executive who could choose to run a traditional media company has chosen Maker as his next big bet is telling. If you want to read some other articles I have written on the topic of online video and what I believe will shape the future, there are linked below. The Future of the Digital Living Room Hollywood vs. Silicon Valley and Who Will Win 10 signs Internet TV is Ready to Disrupt the Industry My Video Interview with Jon Miller Why Middle Tail Content Means Big Business New Online Video Trends Why I Invested in Maker Studios in the First Place
The Damaging Psychology of Down Rounds 5 May, 2013, 4:45 pm
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/05/the-damaging-psychology-of-down-rounds/", "awesm_buttonid" : "awesm_tweetbutton_5704", "data-text" : "The Damaging Psychology of Down Rounds:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/05/the-damaging-psychology-of-down-rounds/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5704" }); function awesm_linkedin_share_5704() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/05/the-damaging-psychology-of-down-rounds/" }); return false; } Yesterday I wrote a post about “proprietary dealflow for VCs.” In the article I discussed the downside of raising capital at a too high of a price and referred people to a previous article I had written encouraging founders to raise “At the Top end of Normal” as opposed to stratospheric prices. In the comments section Siqi Chen wrote a great question “Whenever I hear advice about pricing a round too high for the next round, I can’t help but think: well, if the choice (ceteris paribus) is between a) doing what is effectively a down round preemptively when I don’t have to, by underpricing my current round in this market vs b) accepting the market price along with some risk of taking a down round in the future, if I don’t hit my milestones, why would I ever choose b)?” Since it is a great question with a subjective answer I wanted to broaden the reach of my answer beyond the comments section. I would love it if other people would weigh in on the comments section below if you’ve had experiences with down rounds. The Damaging Psychology of Down Rounds There is an important psychology that exists in investments. I don’t make the rules so don’t shoot the messenger. But psychology DOES play a big role in investment decisions. Even when investors themselves might not realize it is at play. The rule is, “Always be over-subscribed.” What does that mean? It’s far better to be raising $1.5 million and get $2 million in interest (or perceived interest) than to be raising $1.5 million and only manage to get $750,000. “What’s wrong with them that they couldn’t raise their money?” Damaging psychology. People want what they can’t have. They want what they must work to get. So if you’re not a sought-after commodity investors may avoid you. I know it shouldn’t be like this. They should either believe in you and your business or not, but I promise you I’ve seen this type of behavior repeatedly over the past 15 years. And what’s worse than being under-subscribed? A down round. That’s why. But why? Well, a down round is even more complicated than having no demand for your investment round. First, a down round sends a signal that something is wrong with your company. Something didn’t go to plan. And no amount of explanations, “we raised in a frothy market. We know that. You’re getting a great deal when we’ve made huge progress.” or whatever simply won’t erase the “something is wrong” psychology. But here’s the kicker. As has been pointed out by Dan Primack based on FLAG Capital data, there are fewer than 100 “real and active” tech VCs in the country. If we count seed funds and large angels maybe that number goes up by 2x? Point is – it’s a small industry. Everybody knows everybody. And we think of it like a Prisoner’s Dilemma played in multiple games. Whatever I do now it going to affect my future deals. Often that is a good incentive because it keeps VCs from screwing people over since a bad reputation or bad working relationships could cost you deals in the future. But in this case it works against the founders. Many VCs would prefer to avoid having to cram down other VCs by investing at a lower price or even if it’s not a cram down they prefer not to invest in a down round that forces the VC to take a “write down” on their valuation sheets they should their LPs. And most VCs are over-whelmed with deals. So given the choice of pissing off your VCs (and you) they simply give you a polite response and move on to the next deal (with less hair on it). What can you do if you’re already in this situation? I’ve written about this before. I always tell entrepreneurs, “Clean Your Own Shit Up First.” (before fund raising). It’s the one post where my wife actually complained I went too far in trying to come up with an authentic image to represent the post. So what do others think? Have you been involved in companies with a down round? Has it been easier / harder than I describe? Do you think there’s a case for not raising at too high of a crazy price either for psychology reasons or for restructuring reasons? Love to debate in the comments. Image courtesy of Daniel Moyle on Flickr.
Why Early-Stage VCs Should Be Careful About Intros from Bankers 4 May, 2013, 8:12 am
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/04/why-early-stage-vcs-should-be-careful-about-intros-from-bankers/", "awesm_buttonid" : "awesm_tweetbutton_5701", "data-text" : "Why Early-Stage VCs Should Be Careful About Intros from Bankers:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/04/why-early-stage-vcs-should-be-careful-about-intros-from-bankers/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5701" }); function awesm_linkedin_share_5701() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/04/why-early-stage-vcs-should-be-careful-about-intros-from-bankers/" }); return false; } When I was new at Venture Capital I was trying to figure out the business. It was a fun period for me because everything was new and I was curious. What kind of deals should I be doing? What stage? What price? With which other investors? Should I focus on geographies or industries? Should I trust my instincts for founders and products or should I be more focused on the market size or business plan? One of the major calibration pieces for me was where to find deal flow. As a VC you want to feel like you have “proprietary sources” of deal flow. Otherwise you’re a stock picker, which in this business isn’t a good thing. I sorted out pretty early that lawyers were a great source of deal flow. Why? Because entrepreneurs often went to lawyers at their earliest stages to get their company registration done. Entrepreneurial lawyers like Don Lee, Dave Young or Ted Wang are good at sussing out which entrepreneurs are high potential. They are likely taking losses on their first project with the entrepreneur so they select carefully. I’m not saying that lawyers were my screening process – simply that they knew about deals early on and they had voted with their time and pocketbooks so I knew I had a degree of filtering. Of course I went through normal other channels of deal flow. I spent time on college campuses. I tapped my friends at big tech companies (Salesforce, Google, Oracle). I asked for intro’s from entrepreneur friends. I attended events. I did speaking gigs. I hustled. I eventually stumbled on to the best source of high-quality deal flow imaginable – blogging. The sheer number of relationships I’ve built through being public, transparent and being willing to engage in comments and through social media has enabled me to get to know entrepreneurs even before they launch their next company. There is one source I never liked and no early-stage VC should – investment bankers. This is no criticism of the banking industry for which there are very useful purposes. But as a source of deal flow it is last on my list and both entrepreneurs and VCs should be careful about working with bankers on an early-stage (seed, a-round) deal. [no, I'm not talking about SVB, Comerica, Square1 and the like. They are venture bankers not investment bankers. Big difference.] Before I tell you my reasons for never doing a deal that a banker intro’d I have to preface by where I think bankers are enormously helpful on VC deals When you are trying to raise “strategic money” since these people are often hard to reach and they are often more used to being approached by bankers When you are raising a large, later-stage round given by this time you’ve likely got a fairly large business to run International money. Same as strategic – hard to reach, hard to get to know easily I think my mentality to banker pitches was best summed up in this article about Y Combinator in which Paul Graham apparently made the following quotes “There are two things that people grumble about Y Combinator that are actually compliments,” he told me. “One is that Y.C. start-ups are overvalued. The only way for a company to be overvalued is if there’s someone willing to pay that price. So what they’re saying is: Going through Y.C. causes companies to raise money on better terms than they would have otherwise. We wouldn’t have the barefacedness to make that claim ourselves!” Therefore one goal of Y Combinator appears to be “get the highest price and best terms.” Fair play. They have an investment in each company so I can understand that goal. And they have access to some of the most talented technology entrepreneurs so this is a worthy goal for them. As an early-stage investor that is not always aligned with my goal, which I would express as, “pay the right price for the stage & risk in a way that is fair to the founders yet preserves our ability to grow into our valuation at the next financing event.” As far as “terms” go I’m 100% aligned to have the most vanilla, founder-friendly terms I can. The other quote from the article is this: “The other thing they say is that they can’t tell on Demo Day which are the good start-ups. Well, it’s not because the good start-ups look bad; it’s because the bad start-ups look good! Which means we’re doing our job.” Recap: Our goal is to find investors who pay the highest price and to help make sure that investors can’t tell whether they’re getting a good deal or a bad deal. Hmmm. Lucky me. So I stand by my well-read Quora post of why I don’t attend demo days. I reiterate as I did back then – it’s not a Y Combinator thing. It’s a Demo Day thing. I don’t think they serve investors well. I feel like I’m attending theater rather than looking for deals. They are terrible predictors of success for investors. We are judging how well you are coached on stage. Do you have good quips? Good vocal variety? Or as the article on Y Combinator suggests, “is your accent too heavy?” Meh. I prefer to get to know companies over time. I know this will read like a criticism of Y Combinator and I’ll get in usual trouble for that, which I reget. Because my nuanced views will be read wrongly. I view Y Combinator as a sort of Harvard Business School or Stanford in that I know the best young people of our generation want to go there. So I know that the people graduating will have a higher proportion of great talent than other places. I know they will continue to produce great successes and that they have a team of great thinkings and leaders running their program. I also know that there are people close with the program like Sequoia that get access to the companies early and therefore have a proprietary advantage over somebody like me. It is not my proprietary deal flow. I haven’t built Y Combinator. So if I’m the guy in the audience feeling the power of that great baritone projection with that beautifully designed product and if I am able to fund that company I’m guessing it falls into Paul’s category of a bad startup looking good. Otherwise, “why I am so lucky?” to get access to it when so many other investors who know the companies on a more proprietary basis have picked over it, spent more time with them and chosen not to proceed? As the saying goes, “If you don’t know who the sucker at the table is, it’s you.” Bad companies that “look good.” And so it goes with bankers. They are designed to help good companies to get access to investors but also to make bad companies look good. They do this because they have amazing skills at writing business plans. They know how to build pitch decks. They have blackbelts in Powerpoint. They tell you how to tell your story. They know the VCs so they know what interests them. Real life entrepreneurs are messier. And that’s how I like it. I like to see how they got introduced to me. How good they were at follow up. If they made a mistake how they recovered. I like to see their responses to hard questions – even if I don’t care if they have the “right” answer. I like to watch how they respond to set-backs and adversity. I like to see how they improve their products when there are obvious holes. I like to debate with them how they will land customers and how they deal with the press. I judge based on their ability to attract their fellow teammates and what choices they make. And I listen to the reasons their co-founders quit their well-payed job to join them. I like to hear their passion for the idea. I love complexity. And non-conventional ideas. I love when other investors “don’t get it.” I love businesses that don’t lend themselves well to VC Panels at conferences or Demo Days. If I’m willing to commit early and be out on a limb then I want to know if I can get a better price. If I wait for traction I know I have to pay up. That’s OK, too. I want to know that if I commit it’s not going to be a party round. I hate party rounds. I generally don’t like to work with founding teams to over-value “collecting logos” I know that the simple view of this is that I want “cheap” prices, which isn’t true. I have enough investments that people can diligence to tell you that I’ve been fair on price. But when your banker is pushing me, telling me “We’re expecting 3 other offers, so move fast”; or “You’ll have to top “x” price to win this deal” You’ll understand why I have no enthusiasm. My value add in this deal? Ability to move fast and pay the highest price? And my reward for doing this? I get to watch 2-5% of my investment immediately squandered on a banking fee for the introduction. Lovely. To all my banking friends … I’m not a hater. Your skills are much appreciated later in our business. I would gladly work with you on a $50 million late-stage, complex financing. I would welcome you in an M&A process. I value your insights into industries and your unrivaled networks. But for a-round deals please understand why I don’t want to take the meeting. And given how easy it is to meet VCs through introductions I also wonder what’s wrong with your startup teams that given the unprecedented amount of transparency and access now in our industry – why they chose to hire a banker. Might there even be some selection bias in the companies in which you’re pitching me?
The Importance of Proprietary Deal Flow in Early-Stage VC 4 May, 2013, 8:12 am
AWESM.tweet({ "data-url": "http://www.bothsidesofthetable.com/2013/05/04/importance-proprietary-dealflow/", "awesm_buttonid" : "awesm_tweetbutton_5701", "data-text" : "The Importance of Proprietary Deal Flow in Early-Stage VC:", "data-count" : "horizontal", "data-via" : "msuster", "data-related" : "grp_partners", "awesm_tool" : "bmuLX5", "awesm_campaign" : "", "awesm_notes" : "" }); AWESM.fblike({ "href" : "http://www.bothsidesofthetable.com/2013/05/04/importance-proprietary-dealflow/", "layout" : "button_count", "width" : 90, "font" : "lucida grande", "show_faces" : "false", "action" : "like", "colorscheme" : "light", "app_id" : "", "awesm_campaign" : "", "awesm_tool" : "bmuLX5", "awesm_notes" : "", "awesm_buttonid" : "awesm_fblike_5701" }); function awesm_linkedin_share_5701() { AWESM.share.linkedin({ "url":"http://www.bothsidesofthetable.com/2013/05/04/importance-proprietary-dealflow/" }); return false; } When I was new at Venture Capital I was trying to figure out the business. It was a fun period for me because everything was new and I was curious. What kind of deals should I be doing? What stage? What price? With which other investors? Should I focus on geographies or industries? Should I trust my instincts for founders and products or should I be more focused on the market size or business plan? One of the major calibration pieces for me was where to find deal flow. As a VC you want to feel like you have “proprietary sources” of deal flow. Otherwise you’re a stock picker, which in this business isn’t a good thing. I sorted out pretty early that lawyers were a great source of deal flow. Why? Because entrepreneurs often went to lawyers at their earliest stages to get their company registration done. Entrepreneurial lawyers like Don Lee, Dave Young or Ted Wang are good at sussing out which entrepreneurs are high potential. They are likely taking losses on their first project with the entrepreneur so they select carefully. I’m not saying that lawyers were my screening process – simply that they knew about deals early on and they had voted with their time and pocketbooks so I knew I had a degree of filtering. Of course I went through normal other channels of deal flow. I spent time on college campuses. I tapped my friends at big tech companies (Salesforce, Google, Oracle). I asked for intro’s from entrepreneur friends. I attended events. I did speaking gigs. I hustled. I eventually stumbled on to the best source of high-quality deal flow imaginable – blogging. The sheer number of relationships I’ve built through being public, transparent and being willing to engage in comments and through social media has enabled me to get to know entrepreneurs even before they launch their next company. There is one source that was always problematic for me – intros from investment bankers. This is no criticism of the investment banking industry (although I’m sure some will read it this way) for which there are very useful purposes. But as a source of deal flow it is last on my list. [no, I'm not talking about SVB, Comerica, Square1 and the like. They are venture bankers not investment bankers. Big difference.] Before I tell you the reasons I’m concerned about investment banking intros, I should start by saying I think bankers are enormously helpful for entrepreneurs in raising money When you are trying to raise “strategic money” since these people are often hard to reach and they are often more used to being approached by bankers When you are raising a large, later-stage round given by this time you’ve likely got a fairly large business to run International money. Same as strategic – hard to reach, hard to get to know easily I think the issue I have always had with investment bank pitches was best summed up in this article about Y Combinator in which Paul Graham apparently made the following quotes “There are two things that people grumble about Y Combinator that are actually compliments,” he told me. “One is that Y.C. start-ups are overvalued. The only way for a company to be overvalued is if there’s someone willing to pay that price. So what they’re saying is: Going through Y.C. causes companies to raise money on better terms than they would have otherwise. We wouldn’t have the barefacedness to make that claim ourselves!” Therefore one goal of Y Combinator appears to be “get the highest price and best terms.” Fair play. They have an investment in each company so I can understand that goal. And they have access to some of the most talented technology entrepreneurs so this is a worthy goal for them. As an early-stage investor that is not always aligned with my goal, which I would express as, “pay the right price for the stage & risk in a way that is fair to the founders yet preserves our ability to grow into our valuation at the next financing event.” As far as “terms” go I’m 100% aligned to have the most vanilla, founder-friendly terms I can. But I think there is a down side that I see in startups that raise artificially at prices above what a normal market might value. It makes it extraordinarily hard to raise the next round of capital. And I’m seeing this even at some really well run startups. I have always advised startup companies against letting valuations get massively ahead of market norms. I normally advise “Raising at the Top End of Normal.” The other Paul Graham quote from the article is this: “The other thing they say is that they can’t tell on Demo Day which are the good start-ups. Well, it’s not because the good start-ups look bad; it’s because the bad start-ups look good! Which means we’re doing our job.” Recap: Our goal is to find investors who pay the highest price and to help make sure that investors can’t tell whether they’re getting a good deal or a bad deal. Hmmm. Lucky me. So I stand by my well-read Quora post of why I don’t attend demo days. I reiterate as I did back then – it’s not a Y Combinator thing. It’s a Demo Day thing. I don’t think they serve investors well. I feel like I’m attending theater rather than looking for deals. They are terrible predictors of success for investors. We are judging how well you are coached on stage. Do you have good quips? Good vocal variety? Or as the article on Y Combinator suggests, “is your accent too heavy?” Meh. I prefer to get to know companies over time. I know this will read like a criticism of Y Combinator and I’ll get in usual trouble for that, which I reget. Because my nuanced views will be read wrongly. I wish Paul & team could see my views in why Demo Days are not right for me as more of my style than anything I think is wrong with them. And for the record, GRP has funded YC alum. I view Y Combinator as a sort of Harvard Business School or Stanford in that I know the best young people of our generation want to go there. So I know that the people graduating will have a higher proportion of great talent than other places. I know they will continue to produce great successes and that they have a team of great thinkings and leaders running their program. I also know that there are people close with the program like Sequoia that get access to the companies early and therefore have a proprietary advantage over somebody like me. It is not my proprietary deal flow. I haven’t built Y Combinator. So if I’m the guy in the audience feeling the power of that great baritone projection with that beautifully designed product and if I am able to fund that company without a prior relationship with them, I’m guessing it falls into Paul’s category of “a bad startup looking good.” Otherwise, “why I am so lucky?” to get access to it when so many other investors who know the companies on a more proprietary basis have picked over it, spent more time with them and chosen not to proceed? Or maybe I’m paying the highest price? Hardly a reason to get excited about winning a deal. As the saying goes, “If you don’t know who the sucker at the table is, it’s you.” Bad companies that “look good.” And so it goes with bankers. They are designed to help good companies to get access to investors but also help to make bad companies look good. They do this because they have amazing skills at writing business plans. They know how to build pitch decks. They have blackbelts in Powerpoint. They tell you how to tell your story. They know the VCs so they know what interests them. Real life entrepreneurs are messier. And that’s how I like it. I like to see how they got introduced to me. How good they were at follow up. If they made a mistake how they recovered. I like to see their responses to hard questions – even if I don’t care if they have the “right” answer. I like to watch how they respond to set-backs and adversity. I like to see how they improve their products when there are obvious holes. I like to debate with them how they will land customers and how they deal with the press. I judge based on their ability to attract their fellow teammates and what choices they make. And I listen to the reasons their co-founders quit their well-payed job to join them. I like to hear their passion for the idea. I love complexity. And non-conventional ideas. I love when other investors “don’t get it.” I love businesses that don’t lend themselves well to VC Panels at conferences or Demo Days. If I’m willing to commit early and be out on a limb then I want to know if I can get a better price. If I wait for traction I know I have to pay up. That’s OK, too. I want to know that if I commit it’s not going to be a party round. I hate party rounds. I generally don’t like to work with founding teams to over-value “collecting logos” I know that the simple view of this is that I want “cheap” prices, which isn’t true. I have enough investments that people can diligence to tell you that I’ve been fair on price. But when your banker is pushing me, telling me “We’re expecting 3 other offers, so move fast” or “You’ll have to top “x” price to win this deal” You’ll understand why I have no enthusiasm. My value add in this deal? Ability to move fast and pay the highest price? And my reward for doing this? I get to watch 2-5% of my investment immediately squandered on a banking fee for the introduction. Lovely. To all my banking friends … I’m not a hater. Your skills are much appreciated later in our business. I would gladly work with you on a $50 million late-stage, complex financing. I would welcome you in an M&A process. I value your insights into industries and your unrivaled networks. But for A-round deals please understand why I don’t want to take the meeting. And given how easy it is to meet VCs through introductions I also wonder what’s wrong with your startup teams that given the unprecedented amount of transparency and access now in our industry – why they chose to hire a banker. Might there even be some selection bias in the companies in which you’re pitching me? To the investment bankers in the comments who argue, “Entrepreneurs have more valuable things to do then raise money. They have a business to run!” I think that misses the point. The process of raising capital IS part of running a business. It’s where you get to test your ideas in the marketplace of people who see many similar ideas. It’s where you meet people who have broad networks and even if they don’t invest in you may prove very helpful in your future. It’s part of a process where you learn which investors YOU like so you can decide with whom to entrust as a married member of your business. After all, if the banking process sanitizes your company and makes it more efficient to raise capital without all the “hard work,” so to does it sanitize the investors. Yet once they’re in your deal there is no turning back. I’ll take messy and hard work any day. **************** Let’s call this the “Hunter Walk” footnote. He pointed out that while I changed the title from “Why Early-Stage VCs Should Be Careful About Intros from Bankers” to the current title I hadn’t explained the change. I thought a lot about the original title (by the way, I often change titles after re-reading, editing and reflecting on the post) and I felt it was too hostile towards investment bankers, for whom I have no animus and I have many friends who are in the biz. The real point of my article seemed to be broader. It was … VCs need proprietary deal flow. Getting excited about a company at a conference and investing is a sucker’s bet. Entrepreneurs raising at prices not normally supported by progress face risks downstream when they have to raise more capital. And that fund raising is part of the job of being an entrepreneur – not something that gets in the way of your doing your job. So I changed the title to reflect the tone I wanted to get across.
How to Raise Money When You’re Not in a Major VC Market 27 April, 2013, 1:28 pm
I travel the country a lot. And I am often approached by entrepreneurs in cities which don’t have a vibrant VC community. They often ask whether they have to move to SF, NY or LA to get financed. I have the same response always, “Where do you want to live? Where do you want to build your community, your relationships, your family?” I’m trying to get a feel for their commitment to local community versus being in a place where financing is easiest. If their commitment to staying local is weak I normally say, “Well, it certainly would be easier on you to be in a larger community. It would be easier in terms of getting access to angels, VCs, the media, whatever. So if you’re really indifferent you might consider it.” On the other hand, if they have a strong preference to staying local I usually tell them that I believe you can build a business anywhere these days. You can build a meaningful company just about wherever these days. Just ask the people of Portland, Seattle, Boulder, Iowa, Princeton, Dallas or countless other cities that don’t have enough venture capital. Ask SuperCell. Or Rovio. Or UrbanAirship. NewToy, Dwolla, Pollenware or Wonga. If you don’t live in a major VC zone, I have some tips for how to make it easier to raise Venture Capital. Before I explain, let me give you some backgrounds why it’s harder to raise money if you live outside “the zone.” Let’s start with “oversight.” Most VCs view it as their responsibility to mentor, debate, cajole and generally assist with investments they make. They also view it as a responsibility of the money they manage on behalf of others to provide oversight of these companies. And it is significantly easier to help when you are local. Take me for example. This afternoon (Saturday) I have a coffee meeting with a portfolio company founder. Tomorrow I’m meeting with a senior exec who is considering joining a company in which we’ve invested. He would be a very senior hire for us and filling an urgent gap. I know local talent. I know who is perceived as good and who has a fancy resume but others think didn’t perform. That’s what local allows. I know the whole ecosystem: VCs, CEOs, tech teams, founders, angels – and I know people who have worked together for 15+ years. Local knowledge runs deep. Thus, a desire to invest more locally where I think I have a competitive advantage. Otherwise I’m just money. But I do invest outside of LA. Examples include DataSift (San Fran & London), MyTime (SF) and awe.sm (SF). Every year I’m in the SF Bay Area 12-14 times. I’m in NY 6-8 times. And then there are smatterings (Dallas 2x, DC 3x, Philly 3x, Austin, Boulder, Seattle not to mention San Diego 8x, Santa Barbara 8x – where I invested in RingRevenue). This isn’t a complaint. It’s a goal to help you understand the life of a VC. And I no longer control my calendar. When DataSift sets up a board meeting (next one in London, last was in NYC) we have investors from NYC (IA Ventures), SF (Scale Ventures) and the founding team + chairman in London. So when dates & locations are set – they’re set. So …. Am I looking to add 8 trips / year to [name your location not already on my annual itinerary]. Not easily. Of course if it’s a company on fire I would travel to any 2-hop city from LA. So how do you overcome that given that all VCs must have a similar pattern to me other than super-human VCs like Brad Feld or Dave McClure who have insane travel schedules but an unbelievable ability to put in the air miles and be whenever/ whenever? Here’s what I would do if I were you. I’ll pick a mythical company in Kansas City. For starters I’d try to raise my initial capital locally Next I’d research every VC in the country and find people who grew up in or near KC. Why? Because you know they must already come back 1-2 times / year anyways. Plus, they know the local market better and therefore don’t have the uninformed biases of those that don’t. If these people work for reputable firms and have the right industry knowledge they ought to be on your pitch list Importantly … I would pitch investors in SF, NY, Boston, LA, etc. and say the following “I live and work in Kansas City. I have the tremendous advantage of access to a hard-working, loyal and technical talent pool. So I want to stay here and build my business. That said I want the best VCs in the industry and for that I know I need to be in a major VC hub. So here’s the deal. I will commit to traveling to NYC seven times per year for board meetings. I’ll make your life easier because I know you travel all the time anyways and KC ins’t exactly on your normal path. Heck. I need to be in NYC a lot anyways. All I would ask is that you hold 1-2 board meetings / year in KC. You’re going to want to do that anyways to always kick the tires of the local team. Plus, we have some rocking bbq to make it worth your time.” I know some people will cringe at this idea, “if the VC really wanted me they would come to ME.” Maybe. But until you’ve achieved the kind of success you know you’re capable of, it’s a harder ask. And with my strategy, you take their biggest objection off the table. By the way, no VC will ever tell you, “I don’t want to come to KC 8 times / year” because it would sound bad. But as I always tell entrepreneurs, “Better That You Deal with The Elephant in the Room.“
Two Amazing Women Setting Out on Their Startup Journey 25 April, 2013, 7:08 am
Note: if you’re a parent please check out their website. Kara called me on a Tuesday. She was leaving IAC to start a company. “Tasha, clear some space on my calendar tomorrow. OK?” “I want you in my offices tomorrow, Kara. Does that work for you?” Kara came. She didn’t tell me she was bringing anybody. I didn’t ask her for a deck. Or what she was working on. Or whom she was working with. Tasha screamed. Literally. WTF? WTF is she going on about? Tasha! Pull it together. It was Soleil Moon Frye. Aka Punky Brewster. So? I repeat. WTF? We’ve had many celebrities walk through our doors including a-list film stars. Heck, I even had Robert Downey, Jr. bang on the windows of a board meeting recently and stick his tongue out at all of us. And Tasha never screamed before? We’re in LA. They’re only people. It’s not much different than having Dave Morin, Dick Costolo or Sheryl Sandberg sitting next to you at lunch. Turns out Punky was a childhood hero for Tasha. Ok. That’s cute. They pitched on a Wednesday. I had them at my partners’ meeting the next Monday. We had them a term sheet the same week. We signed it the following week. That happens, right? Well, sort of. Remember, it’s about Lines, Not Dots. I first met Kara 5 years ago. I considered her one of LA’s great talents. You can imagine the narrative … Native Angelino. Competitive sportswoman. Princeton. Stanford MBA. Ex Venture Capitalist with Battery Ventures. Leaves to work in Corp Dev at IAC. Tells me she wants to do operational stuff so she joins a small team of people running City Search. She learns how to ship product, how to deal with merchants, how to hire product managers. She had previously acquired UrbanSpoon. Now she was tasked with running it. She was a young mom back then. 2 kids. Sheryl Sandberg leans in? Kara perfected that. Somehow she was always on a flight up to Seattle or San Francisco. Always meeting her product ship dates. Getting involved with political events and fund raisers. And still able to make it out to LA networking events. She was always able to get into the weeds on product or biz dev discussions. She was everything I was looking for in an entrepreneur to back. Still. What was she doing with Soleil Moon Frye? Didn’t I make myself clear about celebrities & startups? Ok. ladies, show me what you got. It was magic at first meeting for me. Kara on one side of the table showing me market sizes, competitive dynamics, product roadmaps, pricing plans for physical products with COGS and gross margins. Soleil on the other side getting out sticker packages. Showing me designs. Talking about how to inspire moms to get their children engaged with iPads and physical activity sets customized for their kids and based in part on their digital lives. She speaks about ethical sourcing of eco-friendly products. She’s passionate about near-shore manufacturing in places like Haiti where we can do good and do well. About the need to be careful about being the low-cost provider of physical products but risking not providing products that mom’s can feel safe using with their children. She is a brand ambassador at Target. She runs a mom segment on the Today Show. 1.5 million Twitter followers. Nearly all probably moms. Plus me. She won me over at first meeting. Soleil returns emails at 1.30am. She flies from LA to NY every two weeks. She helps write press releases. She debates manufacturing strategies. She talks about creative design of websites and physical products – in our case – stickers. Turns out she’s done this startup thing before. Who knew? Kara & Soleil are hard-working powerhouses. Great moms, both. But passionate about building businesses. Soleil is paranoid about leaking design & product information because she’s been burned. Kara is showing me GANTT charts, wireframes, user stories and ship dates. They are yin & yang. In the most perfect sense of the definition. And they’re both full time committed to their startup – Moonfrye. Kara as CEO. Soleil at Chief Creative Officer. When I told them I really wanted to work with them and lead their funding round they each had their, “but can you please save some space for …” moment. Unsurprisingly for Kara is was the VC connections. So we have the pleasure of working with Dana Settle at Greycroft, whom I have a blanket offer with that any entrepreneur that wants to create room for Dana in a deal that I’m involved with has a free pass. She’s awesome to work with. As are her partners. And for Soleil it was her entrepreneur friends: Dan Rosensweig, Tim Ferriss, Kevin Rose, Shervin Pishevar, Randi Zuckerberg, Gina Bianchini, Erik Lammerding and Rick Marini. At one point she actually reached into her pocket and allocated some of her personal shares in the company to be sure that the people who advised her up to this point had enough advisory stock – she felt they had contributed to her success to date. I wonder if she even ever told them. That is Soleil. And part of the secret of her success. So, Mark, enough entrepreneur love. What the eff are they actually building? Turns out it’s something that instantly resonated with me. They have designed a digital, mobile product that engages parents and kids. It’s something you’d imagine working best on a tablet where the parents take digital assets (think: photos & stickers) and engage with their children in story telling, arts-and-crafts, scrap-booking and the like. They are designing physical products that will be shipped to kids and become both activities to do with friends & parents as well as collectibles. When you think about physical stickers and activity books every parent can understand. I drove 45 minutes across LA to The Grove to a specialty sticker shop when my boys were young – so obsessed with stickers were they. At every holiday: Thanksgiving, Passover, etc. my wife bought activity sets to put together little collages of turkeys and Pilgrims and talk about Thanksgiving. And I’m a huge believer in the merging of our digital and physical lives but mostly in preserving our physical ones. I’m passionate about personalization. Kids love stories that involve people they know: Aunts, uncles, cousins. They love looking at pictures PapaKay. And Bubbie. But mostly I’m a believer in Kara & Soleil. I’m excited to take this journey together. And watch the magic of what they produce working together. Now ladies, get back to work. Don’t think I’m going to be Mister Nice Guy if you miss that next product release date. Grrrr.

AVC

The IPA 22 May, 2013, 3:34 am
No, I am not blogging about India Pale Ale, although I must say that I am a big fan of it. I am writing about one of the best patent hacks I have seen in the decade that I have been working to find relief from the ridiculous patent system in our country. Twitter came up with a concept last year called the Innovator's Patent Agreement (IPA) and put a draft IPA up on GitHub. They have gotten a ton of feedback and have iterated and improved the concept since then. The basic idea of the IPA is that it is a contract between Twitter and the engineer(s) and designer(s) who developed the IP. The contract says that Twitter will not use the patent offensively nor will anyone who acquires the patent from Twitter. It goes on to say that Twitter or a subsquent owner could use the patent offensively with the engineers' and/or designers' approval. Twitter announced yesterday that it had entered into an agreement with Loren Brichter, the author of the pull to refresh patent that will subject that patent to an IPA. They also announced that they will subject all of their patents to the IPA. They went on to say that Jelly, Lift, StackExchange, and Tell Apart have agreed to adopt the IPA for all of their patents. USV has been talking to our portfolio companies about the IPA since Twitter posted it last year. They all know we are big fans of it and we hope they will choose to adopt it for all of their patents. We will not do more than that however. Our portfolio companies are independent of USV and can make up their own minds about their IP strategies. That said, I would expect to see other USV portfolio companies join StackExchange on this IPA parade. Twitter is an amazing company and I am very proud to be associated with it. The fact that they would take this extraordinary step and then show leadership in the industry to get others to join them is a testament to that. It's a proud day for Twitter and for me.
Native Advertising Event 21 May, 2013, 3:16 am
This Thursday from 1pm to 6pm, our portfolio company Zemanta is co-hosting a summit on native advertising here in NYC. I've written and spoken a fair bit about native advertising so regular readers will likely be quite familiar with this topic. However, from what I am seeing out there, native advertising is really hitting its stride as social platforms and mobile consumption become the norm. If you are a marketer or an entrepreneur working in the advertising/marketing space, you should be paying attention to this trend. I will be kicking off the event at 1pm with a brief talk and some Q&A. If you want to go, here is a link to get a 50% discount on the event for readers of AVC. This is Internet Week in NYC and I am making a number of public appearances in addition to this native advertising summit. Here's the whole shebang: Last night - introducing the Gotham Gal at the MOUSE 15 Annivesary Event This morning - Opening the CMSummit with John Battelle at 9:10am Wednesday evening - March For Innovation (immigration) event at AppNexus with Brian O'Kelly Thursday mid-day - The Native Advertising event Thursday at 4:30pm - OpenCo Festival event with John Battelle and Dave Morgan at Simulmedia It's a busy week but with a Vespa scooter and a mind full of things to say, it shouldn't be too hard. I hope to see you all around town this week.
Success Has A Thousand Fathers 20 May, 2013, 3:50 am
Back in the early days of AVC, I did a thing called VC Cliche Of The Week. There was an RSS feed of all of them powered by Delicious, but it is broken and most likely can't be fixed. You can find some of them on gawk.it. One of the cliches I posted about is "success has a thousand fathers." I thought I would re-run that post. Here it is. ------------------------------------------------------------------------------------------ You can count on it - when a deal works out spectacularly everyone involved will take credit for it. This behavior is particularly annoying to the entrepreneurs who put the sweat, blood, and tears into the Company. They watch the VCs take credit for the big success and it grates on them. I have a couple rules that I try very hard to live by in this regard:1- the management team always gets the credit. VCs don't do the dirty work and should not get the accolades when things work out.2 - don't gloat. it's not becoming. humility in times of great success is a very becoming characteristic. But it's really hard to follow these rules when things work out well. Because success doesn't come that often, and when it does, it has a thousand fathers.
You Can Do Too Much Due Diligence 13 May, 2013, 3:18 am
It's Monday, time for another lesson I've learned in the venture capital business. Today I will tell a story that I love telling. It has some of my favorite people in it. Back in 2004, early in my blogging career, I heard about a service that had just launched called Feedburner. It provided a number of useful services for a blog's RSS feed. So I went and signed up and AVC became one of the first users of the service. I immediately liked the service and the idea. So I contacted the founder/CEO Dick Costolo, who has gone onto bigger and better things. I told Dick that I was interested in making an investment in Feedburner. My friend Brad Feld was also talking to Dick about the same thing so we decided to do the investment together. As part of our investment process, we do a bunch of fact gathering/checking work that is called Due Diligence in the vernacular of the VC business. So my partner Brad Burnham and I put together a list of leading blogs and online publishers who had popular RSS feeds at the time. I think there were a dozen or so publications on that list. It included Weblogs (Engadget), Gawker (Gawker), NY Times, and a bunch more. We know most everyone who ran those operations so we called them. What we heard was surprising. Not one of them was willing to hand over their RSS feed to a third party for analytics and monetization. We were very surprised to hear that and thought a bit about it. But, we decided, we could not invest in something that the big publishers would not support. So regrettably, I called Dick and told him we had to pass and why. Brad Feld went ahead with the investment and Feedburner closed their round without USV. About six months later I ran into Dick at an industry conference. We decided to grab lunch together and during lunch he said to me "you know those dozen publishers you called?" I said "yes, what about them?" He said "every single one of them is on Feedburner now." I was pissed. How could that be? So I said to Dick, "Would you consider letting us into that last round we walked away from." He said "No, but I will let you invest at a 50% increase in price". We did that and became an investor in Feedburner. And that worked out well when Feedburner was sold to Google a few years later. So what did I learn from this lesson? First, trust your gut. I was using Feedburner and knew it was a very useful service. I felt that others would see that too. They did, but it took some time. Second, I learned that a service can get traction with the little guys and in time, the big guys will come along. I have seen that happen quite a bit since then. And finally, I learned that you can do too much due diligence. It's important to talk to the market and hear what it is saying. But you have to balance that with other things; the quality of the team, the product, the user experience, etc. You cannot rely alone on due diligence, particularly early on in the development of a company and a market.
Off The Schneid 8 May, 2013, 3:15 am
The almost two year long slump is over. I've led a new venture investment for USV, which closed a few weeks ago and was announced last night. The company is Coinbase and my blog post announcing the investment is on the USV blog. The WSJ also wrote about it here. This hiatus, which I've blogged about a bit on and off, was mostly a result of being very full up with responsibilities for existing investments. I have made twenty investments since the founding of USV in the fall of 2004 (now 21) and have only exited six, so I have had fourteen investments that I am responsible for at USV. I take our responsibility to our portfolio companies higher than any other work related responsbility and these fourteen companies have required a lot of time and attention over the past two years. Two things have happened to get me off the schneid (a hitless streak if you aren't familiar with that term). First, the fourteeen companies have all matured a lot in the past two years and the demands of that group of companies has waned a bit. And second, I have come to believe that a number of new fundamental technologies have hit the Internet and it is time to get busy putting out money. One of these is Bitcoin. Here is a snippet of what I wrote today on the USV blog: We believe that Bitcoin represents something fundamental and powerful, an open and distributed Internet peer to peer protocol for transferring purchasing power. It reminds us of SMTP, HTTP, RSS, and BitTorrent in its architecture and openness. Like what happened with those other low level protocols, entrepreneurs and developers are now building technology on top of Bitcoin to make it more useful, more accessible, and more secure. It is possible that we may make more Bitcoin/digital currency investments but we will try to make sure they are not competitive with Coinbase. And there are other sectors out there that are emerging now that I am keeping my eye on as well. I hope to be more active in making new investments in the coming months. It's good to be back at it. Related articles Bitcoin: The Wild West Years Coinbase Nabs $5M in Biggest Funding for Bitcoin Startup Coinbase grew 15x in the past 3 months What Is Bitcoin and What Can I Do With It?
From DonorsChoose To Kickstarter 28 April, 2013, 6:41 am
In the wake of my Return and Ridicule post, I was asked how one goes about finding these services that are ignored and/or ridiculed. And the answer I gave was "if you use them you might realize how powerful they are." I woke up thinking about that in the context of Kickstarter today. How was it that I was so sure the Kickstarter project would work when it launched back in 2009? Well it was because of what happened on this blog a couple years before that. The story starts in the fall of 2007. Charles Best, the founder of DonorsChoose emailed me and asked if I would enter AVC into the DonorsChoose Bloggers Challenge. He wanted this community to compete with other tech blogs to see who could raise the most money for teachers and their classrooms. I said yes and we entered, and won, the tech category in 2007. We entered again in 2008 and won again. In the final year of the social media challenge (renamed to encompass more than bloggers) we won the tech category again. This post, which I wrote in November 2009, after our threepeat, shows that the AVC community raised almost $60,000 for teachers and their classrooms in those three October showdowns. So when Perry Chen came by to talk about Kickstarter in the summer of 2009, my mind was prepared to understand what he and his co-founders were up to. When he explained that artists and other project creators were going to post their projects and get them funded on the Internet, I thought "of course" instead of "that will never work." And I have Charles and the DonorsChoose team and the AVC community to thank for that. Which I book in the category of "what goes around, comes around". And I cannot resist reminding everyone that we have a DonorsChoose campaign running on AVC right now, called Good Things Come To Those Who Code. If you have not made a contribution and want to, now is the time. The campaign ends at midnight on Tuesday. Go here if you want to participate.
Video Of The Week: Parrot AR Drone 27 April, 2013, 3:52 am
I bought one of these on amazon at the suggestion of Laurent Eschenauer in yesterday's comment thread. I can feel my 14 year old self re-emerging. I can't wait to play with it. If you want to skip the unboxing and information and go right to the flying part, that starts about 5:40 in.
Return and Ridicule 25 April, 2013, 3:20 am
I am going down to Princeton today to talk to Ed Zschau's class on entrepreneurship today. Ed asked me what I wanted to talk about. I told him "return and ridicule". I have found that return and ridicule are highly correlated over the years. We have made more money on things that were highly ridiculed than on any other cohort. When I see people laughing at ideas and companies we have backed, I smile. It means we are going to make a lot of money on that investment. I saw Bill Gurley say that you can only make money by being right about something that most people think is wrong. His logic was that you can't make money by being wrong. And you can't make money by being right about something everyone else knows. So you have to be right about something that most people think is wrong. I really like that framework. The same logic applies to starting companies. If you start a company in a market everyone knows is going to be big, then you will have a ton of competition. If, however, you start a company in a market everyone is laughing at, you won't have too many competitors. This notion also plays into Clayton Christensen's framework for disruptive innovation. Many of the most disruptive technologies started out as what Clay calls "toys". The PC is a great example of that. PCs came out of the homebrew computer movement. Geeks were building computers in their garages. And everyone thought they were nuts. But from that came the Apple Computer and the IBM PC and we were off to the races with personal computers. Chris Dixon has a great post about hobbyists. He likes to look at what the next homebrew computer club type activities are these days. When I saw Chris yesterday he was talking about drones and asteroids. I laughed. He grinned ear to ear. Chris knows that it's good to be ridiculed. So many folks in the venture capital business are sheep that just want to follow the herd. They are momentum investors purchasing highly illquid investments. That is a recipe for disaster. Momentum investing works in highly liquid markets (sometimes). From what I can tell, it almost never works in private markets. Better to invest in laughing stocks. Becuase she who laugh lasts, laughs best.
Video Of The Week: The Tech Tonic Discussion 13 April, 2013, 4:36 am
Reuters Tech Tonic taping today 9 April, 2013, 3:14 am
A while back, I posted a video of the week of Avner Ronen on Reuters Tech Tonic. In the comments to that post, the host Paul Smalera invited me to appear on the show and then invited the AVC community to sit in the audience. Well the taping is today at the Reuters building in Times Square from 5pm to 6pm and the first 25 people to sign up can attend. The link to RSVP is here. Please don't RSVP unless you really plan to attend. We are going to talk about immigration, regulation 2.0, bitcoin, and a few other things that will be common themes to the AVC community.

Paul Graham

Startup = Growth 7 October, 2012, 9:07 am
Black Swan Farming 7 October, 2012, 9:07 am
The Top of My Todo List 7 October, 2012, 9:07 am
Writing and Speaking 7 October, 2012, 9:07 am
Defining Property 7 October, 2012, 9:07 am
Frighteningly Ambitious Startup Ideas 7 October, 2012, 9:07 am
A Word to the Resourceful 7 October, 2012, 9:07 am
Schlep Blindness 7 October, 2012, 9:07 am
Snapshot: Viaweb, June 1998 7 October, 2012, 9:07 am
Why Startup Hubs Work 7 October, 2012, 9:07 am

startuplessonslearned

How to Get Free Speaker Training with Kathy Sierra 7 May, 2013, 11:55 am
This post was written by Sarah Milstein, co-host of The Lean Startup Conference. We are downright thrilled to announce that Kathy Sierra, one of our all-time favorite speakers and teachers, has offered to provide free training for Lean Startup Conference speakers. If you've never spoken at a conference before, or it you've done it and found you weren't quite the MLK you had imagined, this is a terrific opportunity to build your skills. Company leaders: if you have no budget for speaker training, but you've got employees with amazing expertise and limited presentation chops, please encourage them to apply. As more companies in more sectors use Lean Startup techniques around the world, there are a burburgeoning number of useful lessons out there--but fewer chances we'll know about them. So we're actively seeking stories we don't know to share with our community, and we're interested in people who are not already on the speaking circuit. (In this post, we do a deep dive on our audience, the kinds of talks they find useful, and past talks that people loved. Hint: our best talks give advice; if you have some, consider applying.) Because we're looking for fresh speakers, and because we want to make sure all of our speakers are great communicators, we know we'll have to provide some speaker training. I've taught classes on speaking, and I had been planning to do it. But when Kathy saw that we were offering training, she volunteered enthusiastically, sending an outline for how she'd teach a distributed group, covering both stage fright and presentation skills. Why have the local tennis pro do the coaching when Serena Williams wants to jump in? If you're not familiar with Kathy's talks, take a look. You may also know of her through the Head First book series, which has a winning pedagogical approach based on brain science that Kathy and her partner Bert Bates researched extensively. In other words, Kathy's got game as a speaker and as a teacher, and her methods are rooted in a deep understanding of how people work. Of note: Kathy wants to do this training on a volunteer basis, because it will be rewarding for her--which tells you something about the kind of teacher she is. In order to give more people a chance to apply as speakers, we've extended the deadline by a week. It was originally this Thurs, May 9. It is now Thurs, May 16. If you're thinking of applying, do take the time to read our post about what we look for in talks, and do follow all of the instructions on our very short application form. And again, if you work with somebody who has useful advice to share and might do it eloquently with a little support, please pass along this post. Finally, note that we aim to run a merit-based speaker-selection process. In our experience, that means we wind up with a higher percentage of speakers who are women and people of color than your average entrepreneurship conference. So if you're in a group that's typically under-represented on stage, do know that we've had success in the past bringing in a range of great speakers--and we intend to build on what's worked.
How to Get Picked as a Speaker for The Lean Startup Conference 29 April, 2013, 11:11 am
This post was written by Sarah Milstein, co-host of The Lean Startup Conference. We’re looking for speakers for the 2013 Lean Startup Conference. Last week, we announced that our short application form was live. Today, we’re following up with answers to frequently asked questions we’ve received since then, because the answers will help your application succeed. If you’re a Lean Startup veteran, feel free to skim the beginning, as this is mostly stuff you already know. 1) Can you tell me more about your audience? The Lean Startup Conference is an event by entrepreneurs for entrepreneurs—except that our definition of “entrepreneur” may be different from the one you have in mind. Eric has talked often about recognizing a startup as an organization designed to create a new product or service under conditions of extreme uncertainty. Most commonly, that’s uncertainty about whether you can build the product at all (what MBAs call “technical risk”) or whether anybody will use or buy it (“market risk”). Although every organization faces some uncertainty in developing new stuff, the conditions are not always extreme. For example, when your company adds another blade to its disposal razors, the product’s technical development, marketing and sales will follow relatively predictable paths. But that’s not to say that every established company developing personal grooming products is operating risk-free. What if your company is concerned that emerging customer pressure and local laws will make disposable razors difficult, if not impossible, to sell in the U.S. in ten years? Now you may be facing several kinds of risk. Will you be able to think up alternative products? If so, will customers be interested in the new ideas and able to incorporate those products into their daily routines? If so, will you be able to manufacture those products efficiently—or at all? So when we say our conference is by entrepreneurs for entrepreneurs, we’re talking about people in any kind of organization—for-profit, non-profit, governmental, education, startup, Fortune 1000—who are responsible for developing products and services beyond the edge of what your organization can know through its or its competitors’ existing experience. Often, in very young organizations, those people are simply the founders. In more established places, they may have nearly any job title. And in any organization, they can be technical, but they can fill other roles altogether. What they share is a need to learn a lot very quickly and the ability to adjust—sometimes subtly, sometimes radically--after incorporating new lessons. 2) Ok, I get it: the “startup” part of “Lean Startup” can be a lot of things other than two people in a garage with a couple of laptops. So what kinds of talks do all these entrepreneurs find valuable? Our attendees are hungry to learn more about the “lean” part of “Lean Startup”—how to learn quickly and effectively to reduce all that extreme uncertainty (the MBAs call this “de-risking”; it would be fair to call the MBAs “language assassins”). Now, “lean” is often used to refer to a company’s financial situation, so it might make you think of a bootstrapped or under-funded organization. But when we talk about “lean,” we’re referring to the processes a company can use, when developing a new product or service, to learn quickly about the questions it has. (If you’re getting the sense that “Lean Startup” is neither “lean” nor “startup” as you’ve considered those words before, you’ve got the right idea.) We also care that those learning processes are as cheap as possible, so that you can try the maximum number of things as you’re learning before you run out of cash. “As cheap as possible,” though, is relative and may mean spending many thousands or millions of dollars to learn what you need to know. For example, if your publishing company is thinking of putting out a coffee table book in the U.S. about cooking with insects, you might reasonably ask: Will anybody buy this? (You know you can produce such a volume; the processes you already use for publishing lavish books on baking cakes nearly all apply here.) One way to find out if anybody will buy the book is to go ahead and publish it. Commission the writer and photographer, assign an editor to develop the book with them, find people to test the recipes, get a copyeditor to review the final text, have production people layout the pages and correct the photos, hire a freelance indexer, get a pro to proofread the whole thing, and then ship it off to China for printing (and probably send a production expert to oversee the run). Oh, and your salespeople have to make sure bookstores will stock it, and your marketing and PR people will have to make sure readers know it exists. From the time you decided to find out if anybody will buy it until the time you’re able to actually test the idea using this approach is approximately two and a half to three years. Not to mention $200,000 in staff time and hard costs. Or you could work with the writer to create a blog, see if it can attract a readership, and then test whether those readers will pre-order a book—which you can do before you’ve put ten seconds of effort into creating a print volume. Total time elapsed? Two to six months, and as a bonus, the readers test the recipes for you. Note that this isn’t a free process. You may have to pay the writer and photographer, and perhaps you’ll spend some money on training the writer to use blogging software and social media tools that help them build a following. Generously, it might cost you $20,000. In other words, you could test ten book ideas for the cost of publishing one. And because you can run your tests simultaneously, you could learn in several months rather than over the course of a decade or two which are worth investing more in. At The Lean Startup Conference, our attendees are keenly interested in ideas like the blog approach—that is, they’re looking for ways they can quickly and cheaply generate and test more ideas to learn faster. There are a few ways your talk can help them: You can provide advice on how a significant challenge—like a seemingly intractable and long-term development cycle—can be approached in new ways using Lean Startup methods. Last year, Danny Kim talked about how his company, Litmotors, was rapidly testing the market for totally new kinds of cars. While most of our attendees are not in the automotive sector, they could see ways to apply Litmotors’ thinking in their own organizations. Similarly, Diane Tavenner talked about the way Summit Schools had run short-term experiments within the fairly drawn out cycle of a school year. And Jessica Scorpio shared the way GetAround had used prototyping to test their very big idea. You can give hands-on advice for a particular process that helps people learn, like A/B testing. Maybe you’ve got technical advice for getting the most out of A/B testing on software projects. Or maybe you’ve done A/B testing with a food-delivery service and you have advice about how to run real-world A/B tests. Or maybe you've realized that A/B testing has some significant problems that most people aren't aware of. Last year, Janice Fraser on Laura Klein ran a workshop on tools that you can use to validate ideas. Adam Goldstein talked about a particular live-chat tool that Hipmunk has used to learn more quickly than they realized was possible. Matt Brezina shared techniques for learning when you’re developing a mobile app—an environment that many people think resists rapid development. You can give advice about working with other people when you’re using Lean Startup techniques. Perhaps you got fired up about MVPs two years ago, but it took nine months to convince your boss that there would be value in selling a product that didn’t yet exist—and now you can share the secrets of getting other people on board much more quickly. Last year, speakers from Intuit, Meetup, Knod.es, Neo, Change.org and BloomBoard all talked about how you can build internal support for Lean Startup. Dan Milstein talked about using the 5 Whys technique—and gave key advice for doing it better with your team. You can give counter-intuitive advice on implementing Lean Startup techniques. Last year, the co-founders of Back to the Roots talked about their innovation accounting and how they were ignoring sales metrics in order to grow. Charles Hudson shared his hard decision to pivot from the iPhone to Android platform for his company’s games. Jocelyn Wyatt and Tendai Charisika both gave specific examples of how getting out of the building had yielded surprising results. You can give advice about applying Lean Startup ideas to business areas other than product development. Last year, Stephanie Hay and Leah Busque both talked about Lean Startupping their marketing processes. George Bilbrey gave insight on using the methods on a sales team. I’m sure you see the theme emerging here: our attendees want your advice, based on your experiences. They don’t need to be convinced that Lean Startup provides a compelling alternative to traditional product development, so we are not looking talks about the fact that you’ve had success with Lean Startup in an unexpected sector or in a part of the world outside San Francisco. But if you’ve applied Lean Startup ideas, and you have experience to share that other people can use, our attendees may derive inspiration from an unusual context, like a story from the pharmaceutical industry or a startup in Nigeria. Hopefully, you've also noticed that checking out last year's talks can be a good way to get a sense of what we look for. (The talks linked here all all take you to videos from last year.) Our talks range from five minutes to three hours, and we structure them based on the information you have to share, so don’t worry too much about length. Focus instead on the advice you can give. 3) Cool—advice is key. Any particular themes you’re interested in this year? We’re looking for entrepreneurs’ stories from around the world and from different sectors that share deep learning. As this is the fourth year of the conference, and as noted above, we’re moving away from talks about the fact that somebody has applied Lean Startup in a place or company that’s unexpected and are instead focusing on advice from those people. If you need a theme to guide you, ask yourself: What advice can I give other people to help them achieve growth in their organizations? Based on attendee requests, some of our talks this year will be more in-depth and targeted to segments of our audience. So if you have advice that you think is relevant only to people working in established corporations, or only to government employees, or only to non-profit leaders, or only to innovative educators, or only to engineers, no prob—you can indicate that in your application. Do note that the conference is a no-hype zone (no pitches, no launches). Really, it's a place to learn and connect with other entrepreneurs. In addition to talks, the program will include peer-to-peer events for sharing ideas and meeting other entrepreneurs, along with structured mentoring. 4) I’m not a coder; should I bother to apply? Glad you asked. About half of our attendees are not technical, and very few of our talks focus on technical processes. So, no, you absolutely do not have to be a developer to give a talk. That said, we do have room this year for a handful of tech talks. So if you’ve got advice to share on implementing a continuous deployment framework, for example, we’re all eyes. 5) Do I have to follow the directions on the application form? Ok, nobody has asked this question yet. But I include it because we pretty consistently find that about a quarter of all applicants blow off the most important part of the form: the link to the two- to three-minute video you have made for us. Note that that is not “the link to your website” or “the link to a video of you speaking at another conference” or “the link to a video of you being interviewed on tv.” We require that you create a video for us, and we give explicit directions on how to do so. Once you’ve come up with your talk idea, the video itself should take just a few minutes to create. Don’t let it be a barrier to applying. Do follow the directions. Applications are due by May 9. We look forward to reviewing your ideas.
Speak at the 2013 Lean Startup Conference 18 April, 2013, 10:29 am
This post was written by Sarah Milstein, co-host of The Lean Startup Conference. Exciting news: we’ve nailed down dates for The Lean Startup Conference 2013. We’re holding it December 9 – 11 in San Francisco, with sessions at the Nob Hill Masonic Center and the Fairmont Hotel, a half-block away. This is the fourth year of the conference, and we’re acting on feedback last year’s attendees shared with us: as Lean Startup practices have evolved, you want in-depth talks, new speakers with fresh stories, and more time for structured networking and mentoring. So we’ve added an extra day and expanded into two larger venues--giving us the chance to offer hands-on breakout sessions, increase your chances of meeting fellow entrepreneurs with events that let you share ideas and learn together, and create active mentoring opportunities with real experts. While we’ll have announcements before long about our keynotes, our focus right now is finding the other 95% of speakers for this year—most of whom we don’t already know. We know Lean Startup methods are being applied by people around the globe, in startups and established organizations alike, and in sectors of every stripe. This conference has always been about entrepreneurs helping entrepreneurs, and most of the work is now being done by people we haven’t heard about. To find the great stories out there that other people can learn from, we’re opening our call for speakers today, and we’re seeking practitioners who are doing the real work, whether they’ve ever spoken at a conference before. Just like last year, we're committed to having a merit-based speaker selection process. This is different from most conferences, so if you'd like to learn more about it, we've included details below. When you're ready to apply, check out our short application form. Last year, we made a fairly big deal about looking for speakers outside our own networks. We noted that in previous years, the speakers had been excellent but had been limited to the pool of people Eric knew directly—and that had turned out to be mostly white men. When we broadened our search and aimed to find people based on the merit of their stories (rather than based on their proximity to us), we wound up with a speaker roster comprising approximately 40% women and 25% people of color - without using quotas. We mention this now because we think that too many people don’t apply to speak at conferences because they make a reasonable assumption that they won’t be accepted. Our past record demonstrates that we’re committed to creating a transparent, merit-based selection process that not only serves applicants fairly but also delivers great ideas for attendees. So how we can find people we don’t yet know who have very useful experiences we can all learn from? By asking all of you to help us find them, encourage them to apply, and convince them their stories are worth hearing. Here’s the deal: If you have a Lean Startup experience to share--regardless of whether you’ve ever spoken publicly before--we ask that you propose a talk via our short application form. We require that you submit your idea in the form of a short video, but as the application explains, we don’t care at all about the quality of the video. If you don't think you're qualified to speak at a conference like this, you're probably wrong! Most of our amazing speakers also feel that way. In fact, this is a well-documented and universal psychological feeling. So we hope you'll consider applying anyway. For new speakers we select, we’ll provide hands-on help developing presentations, plus speaker training. A few notes: * Although it's impossible to review a video blind (your speaking ability part of what we’re evaluating), we promise to review the written part of your application without being able to see for your name, ethnicity, sex or age. (This is the blind resume screening technique Eric has recommended elsewhere.) * The Lean Startup Conference is a no-hype, no-launch event. Publicists and those seeking PR and media attention should look elsewhere. * As you're refining your talk idea, bear in mind this IMPORTANT point: when we refer to "the Lean Startup," we mean specifically the set of ideas that Eric and others have articulated for testing, validating, and learning quickly. It's NOT about running a small company or a shoestring operation (though those can be smart things to do!), and we are NOT looking for talks about how to bootstrap or run a business on the cheap. * Our attendees are entrepreneurs of all kinds - venture backed, bootstrappers, even entrepreneurs in corporate and government settings. We are seeking talks aimed at all segments of our audience: corporate entrepreneurs; educators; government innovators; non-profit and social impact leaders; and developers. The application form lets you tell us if your idea is of particular benefit to folks in these groups. * We’re interested in all kinds of Lean Startup stories that other people can learn from. A straight-up story about how you followed Lean Startup principles at your organization and did pretty well with them is not useful for other entrepreneurs. Instead, tell us what you’ve learned. For example, if you’ve done lots of customer development, don’t suggest a talk reporting that; instead, tell us how you now do customer development in an unusual way that others might find useful. Or share what didn't work, or what took you by surprise. Or explain the obstacles you uncovered in applying Lean Startup in a counter-intuitive context, like a regulated industry. Or describe tactics that you’ve refined in an innovative way--say, a new take on A/B testing or continuous deployment. * Do follow the directions in the application form and read them first before emailing questions. Seriously. * The deadline is Thurs, May 9 at midnight PT. If you work with somebody--particularly a woman, person of color, or anybody else typically under-represented at tech conferences--who has relevant experience to share, please show them this post. Note, too, that we’re looking for speakers from all sectors. Again, here’s the new form. We look forward to learning from you.
How to make better decisions 27 March, 2013, 11:10 am
Those of you who have ever launched anything know just how precious the hours on launch day are. Yesterday, author Dan Heath took time out of his launch day to spend some time with me and answered some questions about his new book, Decisive: How to Make Better Choices in Life and Work, co-authored with his brother Chip. Dan also kindly asked his publisher to reserve 50 copies of the new book to give away to my readers. You can visit the Heath Brothers’ website and enter to win a free copy of Decisive. Dan is a Senior Fellow at Duke University’s CASE center, which supports social entrepreneurs. Before Decisive, Dan and Chip wrote two New York Times bestsellers, Switch and Made to Stick. I asked Dan a few questions about decision-making, including what decisions lead him and his brother to write this book. ER: Thanks for taking the time out on launch day. What was the hardest decision you had to make while writing the book? Dan Heath: I think the hardest decision was “which book to write,” honestly. After Chip and I finished up Switch, we had several ideas about what was next. Rather than agonizing over which was the right one to start with, we thought we’d just get started with all three and see, based on how the research developed, which one grabbed us. About six months in, we decided the decision-making topic was the one we were both most passionate about and the one where we could offer the most practical advice. And, actually, we talk about a similar concept in Decisive: the importance of “multitracking” your options when you have a difficult decision. We were inspired to do it ourselves because we’d just come across the research, which says that if you consider multiple options at once, it can yield better decisions. The reason is that you’re learning about multiple alternatives, along with their strengths and weaknesses, simultaneously. And not only that, but some researchers have found that it even speeds up your decision-making. ER: That’s something I see a lot with startups and yet I think it’s actually sort of counterintuitive that doing this extra work—considering more options—will help you make a decision faster. How is that possible that you are doing more work, yet it’s faster? DH: Exactly, we feel like we don’t have time to consider more options. It’s more work, and it’s slower. But the counterpoint comes from a researcher named Kathleen Eisenhardt at Stanford, who did a study of Silicon Valley firms and found that the firms that considered more options were actually faster for three basic reasons. The first is: When you consider multiple things simultaneously, you’re actually learning a lot about the shape of the problem—the important factors involved—and that knowledge makes you more confident and quicker to decide. The second piece is: When you consider multiple options, it depoliticizes the choice. When you have one option on the table, and the choice is “do we do this or not,” you get two camps fighting each other. You spend a lot of time bickering and arguing. Versus when you have multiple options, you can approach them more objectively and consider their strengths and weaknesses a bit more honestly. The third piece is maybe the most obvious: when you consider multiple options, you have a built-in fallback. So, if you go with Option A and for some reason it fizzles out, you’ve already got Option B teed up. But if Option A was the only thing you considered, you might exert a lot of energy trying to rescue or redeem it, and maybe try to make it work even to the point of absurdity. So that’s the case for considering multiple options. ER: It sounds a lot like the decision that a lot of startups struggle with, which is trying to figure out if they should pivot to a new strategy or persevere with what they’re working on. I know you guys write about PayPal, for one, and there are really a lot of other companies that end up doing something quite different than what they started on. I was really struck thinking about the framework that you guys propose in the book, and that really is the psychological counterpart to this: the pivot decision is often one that has to be made by a team under a lot of stress, under adverse conditions where it seems like every psychological bias in the book seems to get in the way of doing it well. DH: Right. In fact, the story we cite in the book about PayPal speaks exactly to that. What some of your readers may not know is that PayPal originally was designed as a way to secure financial transactions between PalmPilot users. The founder of PayPal, Max Levchin, had created this brilliant program to do secure transactions through PalmPilots, which is a very difficult thing to do. In fact, their first venture capital investment was actually beamed from PalmPilot to PalmPilot live in a restaurant in the Bay Area. Later, they built a web demo to demonstrate the functionality of the PalmPilot product—the idea was to lure people to the PalmPilot project. Then, to their surprise, the web demo really started to take off, and they started to attract a lot more interest in the web product than the PalmPilot product. Initially, this really frustrated them, because the PalmPilot product was much more technologically advanced. Levchin has this great quote about getting emails from people from this place called “eBay” who wanted to put the PayPal logo on their online payment options, and at first PayPal’s reaction was “no, no, go away!” We don’t want our logo on your owl macramé auction, thanks! But PayPal came to this point where they had to decide: okay, we have 12,000 users on our PalmPilot program and over a million on the online demo. What do we do? So they abandoned the Palm Pilot side. On the one hand, it seems absurd to call this a “tough decision.” 12,000 users for one product versus over a million for the other! But it makes a ton of sense from the perspective of psychology. There are all these biases that were pulling PayPal toward the model that they started with. One of them is called mere exposure, which is the idea that we get more comfortable with things that we are more familiar with. The PayPal team grew up as a Palm Pilot company. The Palm Pilot was in their bones. It felt more familiar, more natural. The second bias is loss-aversion. Losses are more painful to us than gains are pleasurable. So if you put yourself in the PayPal founders’ shoes, you start thinking “Yes, we could shift. Yes, there does seem to be a lot of enthusiasm on the web—but, what if we blow it? What if PalmPilots take over the world, and we threw away our advantage? What idiots we’ll look like to sacrifice our early lead for the sake of helping a bunch of flaky eBay sellers.” That IS a tough decision. And these forces are what complicate decisions like this, as you said, for entrepreneurs. ER: Unfortunately, in the business school cases that get written about these things, things wind up looking really easy in retrospect, so the narratives we have make it seem, sometimes, like the founders must just have been idiots. Why didn’t they just make the obviously correct decision? But when you’re in the moment, it’s a totally different cognitive experience. DH: Anyone who believes that business cases are the be-all and end-all of business education only needs to consider this fact: for years, Enron cases were a mainstay of the Harvard Business School curriculum. They were so innovative, you see! Then after the meltdown, those cases rather abruptly disappeared. ER: Ha! A very principled stance. I was thinking about, when you were telling the PayPal story, this great story about Starbucks. People forget that Starbucks began as an Italian copy-cat café called Il Giornale—complete with Italian opera, and waiters with bow-ties. Howard Schultz wouldn’t even allow people to take the coffee to go! Because, you know, a porcelain cup is the only way you should be allowed to have real Italian espresso. But, eventually, they end up buying the Starbucks brand back from its owners and have this company meeting where they have to decide if they should go forward under the brand name ‘Il Giornale’ or Starbucks. And I love the fact that they even had to have a meeting about it! But when you look at it through the framework you just laid out, they’d been working for years already at the Italian, very differentiated coffee shop concept and they were very invested in it, and you can imagine them feeling like, “What if we end up just being another bland American coffee purveyor and we miss a chance?” DH: That story is a perfect example of what mars our decision-making so often. You’ve got a bunch of smart, passionate people sitting in a conference room staging all these arguments in their head. But what entrepreneurs have to realize is that the answers are in the world, not in our heads. There are no points for predicting right from inside a conference room. There are only points for getting it right in the real world. And this is a case where what we talk about in Decisive overlaps very nicely with The Lean Startup because this speaks directly to the philosophy you have. We both talk about Scott Cook at Intuit and his willingness to get out of his head and stop being in the business of trusting his gut. He embraces the philosophy of “leadership by experiment,” which is about giving ideas a chance to prove themselves in the world. As you write, Intuit runs sometimes up to seventy tests per week. But we can do this same thing with our personal decisions! I’ve talked to people who are agonizing, sometimes for weeks or months, over whether or not they should go back to school for social work or for counseling, and often these people haven’t spent a single day shadowing a social worker or counselor! I think one of the fundamental principles of decision making is that good decisions happen when we get out of our head and start taking information from the real world seriously. ER: Amen. That is a core belief of everyone in the Lean Startup movement. Another question along these lines that I get a lot is: how do you know when you’ve collected enough information to make a good decision? DH: That’s a great question. I think there are two gating factors. One is: have you considered enough options? One trap that people fall into is that they make “whether or not” decisions. They consider one alternative really seriously and the decision is “do we do that or not?” That’s a big problem, because adding incremental options really increases your chances for success. So one rule of thumb we talk about in the book is to fall in love twice—make sure you have at least two legitimate options before making your choice. (Don’t apply this to romantic decisions, though.) So, if you’re hiring someone, keep taking applications until you have at least two really good applicants. If you’re house shopping, make sure you keep looking until you have two really good options that you’d feel comfortable living in. That helps stop you from falling into the trap of rationalizing away the faults of your options. So once you’ve got two or three options, then the question is: Have you gathered enough information from the world to tip you one way or another? And this is where Scott Cook provides a good example. Just run a test of some kind. If you have two or three good options, what kind of experiments can you run to get good, determinative information? Alternatively, you might make a values-based decision. You can ask yourself: which option is truest to your core priority? For resolving personal decisions, we offer a useful question in the book: What would you tell your best friend to do in this situation? ER: Yeah, project it onto somebody else. DH: Exactly. I know that sounds simple. But I’ve had conversations with people who have reported agonizing about a decision for months, and then I’ve asked that question and they’ve had an answer in ten seconds. There’s something profound that happens when we create a little bit of distance by shifting perspectives. ER: It’s almost ironic because a lot of us believe in a methodology called “net promoter score” in which you ask customers to recommend a product to a friend or colleague, and I’ve always thought of that as exploiting a bug in human psychology. It doesn’t actually predict peoples’ referral behavior very well—it actually predicts how much they like your product in the first place. So they’re projecting themselves on to their friends and colleagues and telling you what they feel. But if you ask them directly, they won’t tell you. But I want to switch topics here, because one of the things I really like about all of your books is that you organize your ideas around a very simple mnemonic device. Here you have a really nice one for how to think through a decision: WRAP, which stands for: Widen your options Reality-test your assumptions Attain distance before deciding, and Prepare to be wrong. I want to talk about my favorite of these, which is P for Prepare to be wrong. Because that’s the story of my life! I think people think preparing to be wrong is setting themselves up for some sort of failure, or it’s some sort of self-sabotage. DH: Yeah it sounds like we’re pitching some kind of defeatism. It’s not that at all actually, though. Psychologists tell us that we tend to be overconfident with our decisions, meaning that we think we know how things are going to turn out, but we’re often wrong. Ask anyone who has filled out an NCAA bracket and they can probably identify with this right now. ER: Ha! Yes. I even used Nate Silver’s bracket and that didn’t turn out very well. DH: Yes—and that was a pretty wise decision-making strategy by the way! But when we talk about “Preparing to be Wrong,” it doesn’t mean that we should be pessimistic or bummed out. What it means is that we need to do a better job of stretching our sense of how the future might unfold. We need to consider positive and negative outcomes. Our minds often know more than we think they do. For instance, there’s a study that asks people to estimate the average box office haul for movies in the 1990’s that featured Angelina Jolie. And they were told to specify a range of box office totals that you believe are 80% certain to contain the true value. So, you and I might think, okay, somewhere between fifty and a hundred million dollars is going to capture that to 80% certainty. But what they found is that the actual average fell outside of people’s ranges over 60% of the time, rather than the 20% you’d expect (since they were supposed to be 80% certain). People just did a horrible job estimating. But here’s the twist: The researchers did a separate study where they got people to probe for the extremes. They asked: what’s a high value for these Angelia Jolie movies that has only a 10% chance of being exceeded. Or, what’s a low boundary that has only a 10% chance of the number falling below it? What happens when you stretch peoples’ thinking that way is that they start surfacing new knowledge. They start thinking, “Well hell, Tomb Raider was in the 90’s, wasn’t it?, and that was a huge hit and so that means the average will be skewed up.” For the lower bound, they’ll think, “But wasn’t she in some really strange indie films, and I bet those barely cracked a million bucks and maybe that drags the average down.” And all of a sudden you’re accessing this information that before was ignored or flattened out because we came to this quick conclusion about the average. And I think the significance of that for entrepreneurs is obvious. Rather than making a prediction, treating the future like it’s a single point, we need to get people to stretch their expectations and begin, as much as possible, to start planning for the spectrum of possible outcomes. That’s preparing to be wrong. We need to start treating our decisions as predictions that could be right or wrong, rather than as a firm conclusion. ER: Right. In the Lean Startup movement, we’ve been trying to get people to think of something that used to be called “requirements” in business-speak as “hypotheses” instead. They’re beliefs about what might happen. Everything you do is an experiment, whether you admit it or not. You’ll always have—whether you call them this or not—predictions about how things will go, and that’s a great opportunity for learning. DH: That’s a beautiful sentiment and it dovetails so nicely with what we talk about in the book. People have such a sense of false permanence about decisions. There are some decisions, of course, where commitment is baked-in—marriage, say, or commitment to the armed forces, but those are the exceptions that prove the rule. The vast majority of decisions are nothing more than hypotheses. It’s: I think this going to be right job for me, the right place to live. We’ve got to stop treating our decisions as permanent and instead think of them as provisional. And of course, if you’re willing to make that leap, then it demands something of us. It means that when you make a decision, you’ve got to think about the circumstances under which you’d reconsider. What could you learn in 6 months that would convince you to go a different direction—or, conversely, convince you that it’s a great decision and worth doubling-down on? ER: Well this sets me up perfectly to take advantage of your expertise and ask a question I’ve been wanting to ask you. One of the recommendations I make in The Lean Startup is that since you know you’re going to have to pivot, you’re gonna fail, you’re gonna make mistakes, you should schedule the pivot meeting in advance. Say, start the company today but in six weeks from today, let’s have a meeting to see if our strategy is still working, so that way it’s not a crisis that we’re having this meeting and in fact it’s perfectly normal. Is that a psychologically-sound recommendation? DH: Yes. Absolutely. It sounds to me like we sort of wrote the same book with different terminology. We call that same idea in our book a ‘tripwire’—the notion that there’s something in the future that will snap us awake and force us to re-consider the decisions we’re making. The tripwire might be a metric we’re following, or a budget, or a date. So I’m 100% with you on that one. ER: You have a notion in the book that you should not only have tripwires for problems in the book but also for unexpected successes. DH: Yeah. There’s this great quote from Peter Drucker that I think sums it up really well [we looked up the full quote]: When a new venture does succeed, more often than not it is in a market other than the one it was originally intended to serve, with products or services not quite those with which it had set out, bought in large part by customers it did not even think of when it started, and used for a host of purposes besides the ones for which the products were first designed. If a new venture does not anticipate this, organizing itself to take advantage of the unexpected and unseen markets…then it will succeed only in creating an opportunity for a competitor. So part of what it means to be a great entrepreneur is to begin to sensitize your teams to the signs of unexpected threats or opportunities. This allows you to spot unexpected opportunities—novel ways that customers use your product, for instance. You must see this kind of thing a lot, given the work you do with entrepreneurs… ER: Yeah. That really is the principle advantage to being in-market and doing experiments rather than any other type of market research. It really allows you to be truly surprised by what customers actually do. You see that in many of the stories we talked about today—Starbucks or PayPal or even you guys with the three books you were considering writing. I remember in a business that I was in, I was constantly targeting the wrong demographic—in that case I was going after older users who were casual gamers. But teenagers kept using my product, and it was a communication product, and I’d be like “Dammit! Another teenager! Stop clogging up my access to my target customer!” The question I really want to ask is: if you’re opportunistic, and willing to change directions, how do you deal with the fear that you will inevitably compromise on your vision or abandon your core principles because you’re willing to do what’s popular? How do you reconcile the need for adaptability with this original goal? DH: I think this gets down to needing our decisions to align with our core priorities. For entrepreneurs, that answer is going to differ based on what you consider your core priority. A lot of great entrepreneurs start out with the goal to serve a certain audience. If serving that audience well is your core priority, then you might burn through a dozen product/service ideas before you finally find one that succeeds. In other cases, your core priority might be to introduce some new idea to the world—some clever way to help people collaborate better, for example. And if that’s your anchor, then you might be willing to discard one audience for another if they embrace it more quickly. But it’s hard to make good decisions without an anchor, or if your only anchor is “I want to make as much money as humanly possible.” ER: One last question. I was just thinking about—probably because I live in the Bay Area, and so this might come off as a little woo-woo—but I’m curious if this resonates with you. To me, the process of entrepreneurship is partly about the external world, but partly about self-discovery. In making the decision and putting it into practice, you actually discover something about yourself and what your core priorities really are. Does that resonate with you? DH: Yeah—it does. It’s almost like the notion you talk about in your book called Minimum Viable Product, which is similar to what we talked about earlier: the importance of conducting small tests. (In the book, we call that “ooching”—to ooch is to test something or sample it.) Let’s say someone wants to quit their job and go sell cupcakes. Rather than quit their job today, why not start a catering business or set up a booth on the weekend at a farmer’s market? Test it out a little. I think there’s something similar that happens for entrepreneurs, where you learn so much about who you are and what makes you tick just by doing stuff. And these are things you could not anticipate in advance. It’s only by virtue of running the experiment or conducting the ooch that you learn what’s important. And that brings us back to the idea that good decisions don’t start in our head; we find the answers in the world. ER: Amen. I could not agree more. Thank you for taking the time. Don't forget to click here to visit the Heath Brothers’ website and receive a free copy of Decisive.
Lean Analytics 21 March, 2013, 7:27 am
Lean Analytics is the latest addition to the Lean Series. The book has been a year in the making, and authors Ben Yoskovitz and Alistair Croll—themselves successful founders with several exits under their belts—spent much of that time speaking with founders, investors, and analysts to understand a really basic, but seldom-asked, question: What's normal? As it turns out, normal is a hard question. Normal depends on what kind of business you're in, and what stage of that business you're at. If you're working on the Sticky Engine of Growth, you're focused on very different metrics from those that you care about in the Viral Engine of Growth. Similarly, a two-sided marketplace cares about different things from a traditional e-commerce product. Start with metrics in mind To help with this, the book looks at dozens of metrics—such as churn, customer lifetime value, viral coefficient, acquisition cost, uptime, and engagement—and suggests where that metric should be before you can move on to the next stage of your business. Here's what they have to say about churn rates in SaaS businesses: The best SaaS sites or applications usually have churn ranging from 1.5% to 3% a month. For other sites, it’ll vary depending on how you define “disengaged.” Mark MacLeod, Chief Corporate Development Officer at Freshbooks, says that you need to get below a 5% monthly churn rate before you know you’ve got a business that’s ready to scale. Remember, though, that if you’re surprising your subscribers in a bad way (i.e. billing them for something they didn’t know they’d ordered) then churn will spike during your first billing period, sometimes to 50%, so you should factor this into your calculations. Matrix Partners' David Skok agrees with the 5% churn threshold, but only for early stage companies, and says that you have to see a clear path to getting churn below 2% if you want to scale significantly. “In the early days of a SaaS business, churn really doesn’t matter that much. Let’s say you lose 3% of your customers every month. When you only have a hundred customers, losing three of them is not that terrible. You can easily go and find another three to replace them. However as your business grows in size, the problem becomes different. Imagine that you have become really big, and now have a million customers. Three percent churn means that you are losing 30,000 customers every month. That turns out to be a much harder number to replace.” Not all SaaS companies are the same, of course. Certain products or services are very sticky, in part because of the lock-in users experience. Photo upload sites and online backup services, for example, are hard to leave—because there’s a lot of data in place. So churn for those product categories may be lower. On the other hand, in an industry with relatively low switching costs, churn will be substantially higher. Social sites may have some tricks at their disposal, too. If users try to leave Facebook, they’re reminded that some of their close friends will miss them—along with pictures of those friends. This is an example of how an emotional tweak was supported later by the data: once implemented, this last-ditch guilt trip reduced deactivations by 7%, which at the time meant millions of users stayed on Facebook. If you’re going to offer users an incentive to stick around—such as a free month or an upgrade to a new phone—you’ll have to weigh the cost of doing so against the cost of acquiring another customer. Of course, if word gets out that you’re incenting disgruntled users to stick around then many customers may threaten to leave just to receive the discount. And getting the word out is what the Internet is for. Bottom line: Try to get down to 5% churn a month before looking at other things to optimize. If churn is higher than that, chances are you’re not sticky enough. If you can get churn to around 2.5% you’re doing exceptionally well. Knowing what normal looks like is essential. If you don't know what normal is, you can't tell if your efforts are paying off. You don't know if you're at a point of diminishing returns and should focus on something else. Finding your One Metric That Matters But it's not enough just to know "normal". It's also vital to know what the most important metric is to your business right now. That's because one of the most precious resources a startup has is focus, and spreading your attention across dozens of metrics gets in the way of learning. Ben and Alistair call this focusing on the One Metric That Matters (OMTM), and it's a core theme of the book. The following table shows some examples of an OMTM based on stage and model: Many Mores The book goes into detail about how founders can move the needle a different stages of growth. For example, in the revenue stage—where the company is busy growing revenues and pouring a percentage of them back into user acquisition—there are several places where analytics and iteration can help increase revenues. Sergio Zyman, Coca-Cola’s CMO, once said that marketing is about selling more stuff to more people more often for more money more efficiently. Business growth comes from improving one of these five “knobs”: More stuff means adding products or services, preferably those you know your customers want so you don’t waste time building things they won’t use or buy. For intrapreneurs, this means applying Lean methods to new product development, rather than starting an entirely new company. More people means adding users, ideally through virality or word of mouth, but also through paid advertising. The best way to add users is when it’s an integral part of product use—such as Dropbox, Hotmail , or a project management tool that invites outside users—since this happens automatically and implies an endorsement from the inviting user. More often means stickiness (so people come back), reduced churn (so they don’t leave) and repeated use (so they use it more frequently). Early on, stickiness tends to be a key knob on which to focus, because until your core early adopters find your product superb, it’s unlikely you can achieve good viral marketing. More money means upselling and maximizing the price users will pay, or the revenue from ad clicks, or the amount of content they create, or the number of in-game purchases they make. More efficiently means reducing the cost of delivering and supporting your service, but also lowering the cost of customer acquisition by doing less paid advertising and more word of mouth. In the Revenue Stage, you need to figure out which “more” increases your revenues per engaged customer the most: If you’re dependent on physical, per-transaction costs (like direct sales, or shipping products to a buyer, or signing up merchants) then more efficiently will figure prominently on either the supply or demand side of your business model. If you’ve found a high viral coefficient, then more people makes sense, because you’ve got a strong force multiplier added to every dollar you pour into customer acquisition. If you’ve got a loyal, returning set of customers who buy from you every time, then more often makes sense, and you’re going to emphasize getting them to come back more frequently. If you’ve got a one-time, big-ticket transaction, then more money will help a lot, because you’ve only got one chance to extract revenue from the customer and need to leave as little money as possible on the table. If you’re a subscription model, and you’re fighting churn, then upselling customers to higher-capacity packages with broader features is your best way of growing existing revenues, so you’ll spend a lot of time on more stuff. Any founder knows that it's really, really hard work to identify the riskiest part of the business, then find the simplest way to validate or repudiate your business model with that risk in mind. To do this, you need metrics, and a mindset that turns everything into a learning an experience. As I said in the foreword to the book, Ben and Alistair have done the incredibly hard work of surveying the best thinking on the metrics and analytics, gathering in-depth examples, and breaking new ground in presenting their own frameworks for figuring out what metrics matter, and when. Their work collecting industry-wide benchmarks to use for a variety of key metrics is worth the price of admission all by itself. While Lean Analytics applies to startups, it's also valuable for companies selling to business customers, and to intrapreneurs within large organizations trying to change the status quo. That's because the cycle of learning and measurement is universal. But unlike startups, Intrapreneurs have to work within existing systems and ultimate hand over their successful new products to the host organization, which presents some unique challenges. If you work in a company of any significant size, you owe your org chart to an enterprising General Superintendent of the railroad era named Daniel C. McCallum. In the 1850s, railroads were a booming business. Unfortunately for investors, they didn’t scale well. Small railroads turned a profit; big ones didn’t. McCallum noticed this, and divided his railroad into smaller sections, each run by subordinates who reported back a standard set of information he defined. McCallum’s line—as well as other lines that copied this approach—thrived. McCallum’s model, inspired by his time as a soldier and the regimented hierarchies he had learned there, was then applied to other fields. McCallum was the first management scientist, introducing controls, structure, and regulations in order to reduce risk and increase predictability at scale. Companies like Google and Apple know this, creating their own advanced research groups such as the Google X Lab. Intrapreneurs aren’t trying to solve for safety and predictability. Their job is to take risks, and to uncover the non-obvious and the unpredictable. If you’re trying to provoke change and disrupt the status quo, then the organizations McCallum introduced are your kryptonite. You need to shield yourself, just as the engineers within the Skunk Works did decades ago. But you also need to coexist with the organization, because unlike an independent startup, the fruits of your labors must integrate with your host company. What you make may cannibalize the existing business, or threaten employees’ jobs. People will behave irrationally. When Marc Andreesen famously said “software eats everything,” one of the things in its diet was jobs. When a software company introduces a SaaS version of their application, salespeople who make a living selling enterprise licenses get angry. Inertia is real. If you’re asking people to change how they work, you’ll need to give them reason to do so. Consider an Apple store: there’s no central cash register, and they’ll e-mail you a receipt. It takes a fraction of the time to purchase something; but convincing an existing retailer to change to this model will require retraining and modifying store layout. If you do your job well, you’ll disrupt the ecosystem. A traditional music label has relationships with distributors and stores. That made it hard to move into online music distribution, leaving the opportunity open for online retailers. Your innovation will live or die in the hands of others. While it’s easy to be myopic about your work—and disdainful of what the rest of the company is doing—the two are one and the same. “When problems crop up it is easy to see things from your own point of view,” says Richard Templar in The Rules Of Work, “Once you make the leap to corporate speak it gets easier to stop doing this and start seeing problems from the company’s point of view.” In their book Confronting Reality, Larry Bossidy and Ram Charan list the six habits of highly unrealistic leaders: Filtered information; selective hearing; wishful thinking; fear; emotional overinvestment; and unrealistic expectations from capital markets. Intrapreneurs need the opposite attributes to thrive—and many of those attributes are driven by data and iteration. You need access to the real information, and you need to go where the data takes you, avoiding confirmation bias. You need to set aside your own assumptions and preconceived notions, and you need to combine high standards with low expectations. Data Yields Insights In many of the book's case studies—there are thirty in all—analysis of the data yields an insight that unlocks product-market fit, such as the discovery of an adjacent market or the effectiveness of a different pricing model. Consider what happened to ClearFit, a SaaS recruiting software company, as described in the book. ClearFit is a SaaS provider of recruitment software aimed at helping small businesses find job candidates and predict their success. When they started, founders Ben Baldwin and Jamie Schneiderman offered a $99/month (per job posting) package. “We kept hearing over and over that monthly subscriptions was the key to growing a successful SaaS business,” says Ben. “So that’s the direction we took, but it didn’t work as planned.” Two things confused ClearFit’s customers: the price point and the monthly subscription. Ben and Jamie wanted to price ClearFit below what customers paid for job boards (typically $300+ per job posting), but customers were so used to that price point they were skeptical of ClearFit’s value at $99/month. Ben says, “We don’t compete with job boards, we partner with them, but at the time it seemed reasonable to have a lower price point to garner attention.” Customers didn’t understand why they would pay a subscription fee for something that they would most likely use sporadically. “When a company needs to hire, they want to do it fast and they’re willing to invest at that moment in time,” says Ben. “Our customers are too small to have dedicated HR staff or recruiters that are constantly looking for talent, and their hiring needs go up and down frequently." Ben and Jamie decided to abandon their low monthly subscription and switch to a model that their customers understood: a per job fee. ClearFit launched its new price point at $350 for a single job (for 30 days) and almost immediately saw three times the sales. The increase in volume and the higher price point improved revenue 10x. “When we increased the price,” Ben says, “it was an important signal to our customers. They understood the model and could more easily compare the value against other solutions they use. Even though what we do is different than a job board, we wanted our customers to feel comfortable with purchasing from us, and we wanted to fit into how they budget for recruiting.” In ClearFit’s case, innovating on the business model didn’t make sense. Ben says, “People don’t do subscriptions for haircuts, hamburgers and hiring. You have to understand your customer, who they are, how and why they buy, and how they value your product or service.” ClearFit’s switch to a per job posting model may go against the popular grain of subscription-based SaaS businesses, but the company continues to see great success with 30% month-over-month revenue growth. ClearFit initially focused on a subscription model for revenue, but customers misinterpreted their low pricing as a sign of a weak offering. They switched to a paid listing model, and tripled sales while improving revenue tenfold. Ultimately, the problem wasn’t the business model, it was the pricing and the messages it sent to prospects. The company learned that just because SaaS is a recurring service doesn’t mean it needs to be priced that way. If your product is ephemeral—like a transient job posting—it might be better to offer more transactional pricing. Pricing is a tricky beast. You need to test different price points qualitatively (by getting feedback from customers) and quantitatively. Don’t assume a low price is the answer; customers might not attribute enough value to your offering. This prescriptive, data-informed approach shows founders what to do, when. While every business is unique, the book provides a starting point for building your own model, creating your own metrics, and deciding when it's time to grow, when it's time to pivot, and when it's time to quit. Ask Good Questions As Ben and Alistair say in the conclusion: "There’s never been a better time to know your market. Your customers leave a trail of digital breadcrumbs with every click, tweet, vote, like, share, check-in, and purchase, from the first time they hear about you until the day they leave you forever, whether they’re online or off. If you know how to collect those breadcrumbs, you have unprecedented insight into their needs, their quirks, and their lives. This insight is forever changing what it means to be a business leader. Once, a leader convinced others to act in the absence of information. But today, there’s simply too much information available. We don’t need to guess—we need to know where to focus. We need a disciplined approach to growth that identifies, quantifies, and overcomes risk every step of the way. Today’s leader doesn’t have all the answers. Instead, today’s leader knows what questions to ask. Go and ask good questions." You can order Lean Analytics today.
The Lean Startup SXSW 2013 6 March, 2013, 3:02 pm
We're back! Once again, along with my partners at 500 Startups, we are proud to present the most substantive track at SXSW: http://leanstartupsxsw.co/ There was a running joke last year that "the Lean Startup track was the only place at SXSW you couldn't get out of the building." That's because the room we were in was so packed, the only way to stay for the next session was to refuse to give up your seat. Luckily, in a room full of entrepreneurs, plenty of new businesses popped up to bring people food and water. (If you want to see what all the fuss was about, you can watch complete video of last year's track courtesy of my friends at Udemy.) Because of your tremendous enthusiasm (and possibly a few words from the fire marshall), SXSW has granted us a much bigger space this year to put on what may be the best lineup we've ever had. I've embedded the flyer for the event below, but the best way to see what we're doing is on the conference website - which we try to keep up-to-date with the inevitable flurry of last-minute changes. (This year, we're battling both the flu and the Congressional sequester.) If you're planning to be in Austin, please come say hello. See you there! THIS SATURDAY! JOIN THE BIGGEST TECH EVENT @SXSW, featuring... + 1,000 startup founders, investors, and press! SATURDAY, MARCH 9TH - Hilton Austin Downtown KEYNOTES & CASE STUDIES FROM... Vinod Khosla Founder Dave McClure Founding Partner Eric Ries Author Steve Blank Serial Entrepreneur & Professor Todd Park CTO Travis Kalanick CEO & Co-Founder Joe Zadeh Director of Product Sam Shank Co-Founder & CEO NEW! Nicole Lazzaro President Udi Nir CTO NEW! Seth Sternberg Co-Founder & CEO Scott Chacon CIO Kevin Hale Senior Product Manager NEW! Juan Diego Calle CEO Dharmesh Shah Co-founder & CTO Ross Snyder Sr. Software Engineer Steven VanRoekel CIO Dan Greenberg Co-Founder & CEO CHECK OUT THE AGENDA... > Uber's "Reality Therapy 4 Startups": What U Need 2 Know NOW > Steve Blank on why NOT to be an Entrepreneur > Airbnb's Globetrotting Lessons: Building 4 a Global Market > Vinod Khosla - The VC Legend: Interview w/ Dave McClure > Eric Ries on Entrepreneurship: What He's Learned Along the Way > GitHub's Secret 2 Success: Rethinking The Way We Work > The Metrics Behind Hotel Tonight: Sam Shank Reveals It All > The CTO & CIO of the USA: Innovating our Government > Wufoo's 29,561% Return: Kevin Hale on Customer Development > Etsy's [Backend] Transition: From Startup to Superpower > Meebo's Pivot to Acquisition: Seth Sternberg's Pivot Metrics > Under the Hood of ModCloth: CTO on Agile Development > David BEATS the Goliath: The true story of .CO's rise to fame > Tips from an Anti-Social Founder: Dharmesh Shah on culture PLUS: > 8:30am Mimosa Meetup - 1st come, 1st served, hosted by GitHib > Grilled Cheese + Beer (not lean, but awesome) - hosted by Neo > Elon Musk + Popcorn - hosted by DealFlicks, during SXSW keynote > .CO hookups 4 startups: A SXSW favorite is back again! > Mentor Sessions - Featuring experts in building + running startups LEAN STARTUP MENTORS INCLUDE... Patrick Vlaskovits Author Alistair Croll Co-Author + JOIN US ON PLANCAST APPLY TO JOIN THE AFTER-PARTY... STAY #500STRONG ON THE INTERWEBS OUR STARTUP LOVIN' PARTNERS...
Sneak preview of the new Lean UX Book 23 February, 2013, 2:28 pm
Lean Startups require cross-functional teams working closely together. This is especially true when designing a great product. In this excerpt from the newest addition to the Lean Series, Jeff Gothelf and Josh Seiden discuss the idea of collaborative design -- an opening up of the product design process to all members of the team -- and why they feel this way of working produces not just better products but better teams as well. What follows is an excerpt from Chapter 4 (Collaborative Design) of Lean UX: Applying lean principles to improve user experience by Jeff Gothelf and Josh Seiden The most effective way I’ve found to rally a team around a design direction is through collaboration. Over the long haul, collaboration yields bet- ter results than hero-based design (the practice of calling in a designer or design team to drop in, come up with something beautiful, and take off to rescue the next project). Teams rarely learn or get better from working with heroes. Instead, designing together increases the design IQ of the entire team. It allows every member of the team to articulate his or her ideas. It gives designers a much broader set of ideas to draw upon as they refine the user experience. This collaboration, in turn, breeds increased feelings of ownership over the work being done by the entire team. Finally, collaborative design builds team-wide shared understanding. It is this shared under- standing that is the currency of Lean UX. The more the team collectively understands, the less it has to document in order to move forward. Collaborative design is an approach that allows a team to create product concepts together. It helps teams build a shared understanding of the design problem and solution. It allows them to work together to decide which functionality and interface elements best implement the feature in their hypothesis. Collaborative design is still a designer-led activity. It’s the designer’s responsibility not only to call these meetings but to facilitate them as well. Sometimes you’ll have one-on-one sessions with a developer at a whiteboard. Other times, you’ll gather the whole team for a Design Studio exercise. The key is to collaborate with a diverse group of team members. In a typical collaborative design session, teams sketch together, critique the work as it emerges, and ultimately converge on a solution that they feel has the greatest chance of success. The designer, while still producing designs, takes on the additional role of facilitator to lead the team through a series of exercises. The output of these sessions typically consists of low-fidelity sketches and wireframes. This level of fidelity is critical to maintaining the malleability of the work, which allows the team to pivot quickly if their tests reveal that the approach isn’t working. It’s much easier to pivot from a failed approach if you haven’t spent too much time laboriously documenting and detailing that approach. Collaborative Design in Practice In 2010, I was designing a dashboard for a web app targeted at TheLadders’ recruiter and employer audience. There was a lot of information to fit on one screen and I was struggling to make it all work. Instead of burn- ing too much time at my desk pushing pixels, I grabbed a whiteboard and called the lead developer over. I sketched my original idea about how to lay out all the content and functionality for this dashboard. We discussed it and then I handed him the marker. He sketched his ideas on the same whiteboard. We went back and forth, ultimately converging on a layout and interaction schema that was not only usable but feasible given our two- week sprint timeframes (see Figure 4-2). At the end of that two-hour session, we returned to our desks and started working. I refined our sketch into a more formal wireframe and workflow and he began to write the infrastructure code necessary to get the data we needed to the presentation layer. We had built a shared understanding through our collaborative design session. We both knew what we were going to build and what it needed to do. We didn’t need to wait to document it. This approach allowed us to get the first version of this idea built within our two-week timeframe. Figure 4-2. Whiteboard sketch that we arrived at together. Style guides One tool that makes collaborative design easier is the style guide. A style guide is a broadly accepted pattern library that codifies the interactive, visual, and copy elements of a user interface and system. Style guides (also known as pattern libraries) are a living collection of all of your product’s customer-facing components. If it’s made of pixels, it goes in the style guide. Headers, footers, grids, forms, labels, button logic, and everything else that goes into your product’s user experience goes in the style guide. Because they capture all of the detailed elements of your design system, your collaborative work sessions can focus on customer need, business problem, interaction, flow, structure, business rules—all things that are productive to work on in a team setting. Some companies use wikis for their style guides, which allows the collection to stay current and accessible to everyone on the team. Other teams choose to create “live” style guides. These are repositories of front-end code and design that not only define how the product looks and behaves, but actually function as the underlying markup and stylesheets for that experience. If you change the style guide, you change the product. Style guides create efficiency. They provide a repository of ready-to-go, approved interface components that can be assembled and aligned to form a workflow. By minimizing debate over mundane elements like the placement of labels in forms or the never-ending debate over left/right placement of the “positive” action button, developers can get started creating core UI components without waiting for a designer to define and specify these assets. The assets are already designed, defined, and collected in one place. Interaction and visual designers benefit as well. They no longer have to recreate representations of experiences that already exist. They become free to focus on new design challenges—novel interaction problems or extending the visual system to new elements. Approval cycles are streamlined because the repetitive elements (e.g., the treatment of the global navigation) are no longer up for debate. Reviews become more focused on the core product challenge and broader views of the proposed solution. Creating a Style guide There are two basic approaches to creating a style guide: Big bang In this approach, your team takes a limited amount of time (e.g., one to two weeks or sometimes months) away from their current efforts to document all of your product’s UI elements in a style guide. The benefit here is that the style guide gets created in a relatively short amount of time. The negative is that your team is not learning anything new about your product during this time. Slow drip In this approach, your team adds an element to the style guide each time they create or change one for the project. The biggest benefit here is that the team continues to work on the project. However, the drawback is that the style guide is rarely completed and therefore fails to provide some of the efficiencies that a complete one does. Maintaining a Style guide When planning your style guide, it’s important to plan for maintenance. You’re going to need to create a process and dedicate people to keeping your style guide up to date. Think of a style guide as a living process that you launch and maintain, rather than a static thing you create. When you have an up-to-date and easy-to-use style guide, you make it easy for the team to actually use the style guide—and your goal should be to make it easier to use the style guide than to avoid it. You want to make compliance easy! So plan to dedicate people and time to keeping your style guide current. Want to read more? Order the book. Interested in applying these ideas but not sure where to begin? The authors are also the organizers of Lean Day: UX, March 1st, 2013 in NYC, brings together 9 practitioners of Lean Startup and Lean UX in the enterprise sharing case studies of how they put these tactics to use every day.
The Lean Entrepreneur is here 7 February, 2013, 11:28 am
Last May, I shared the news that long-time Lean Startup advocates Brant Cooper and Patrick Vlaskovits were working on a new book called The Lean Entrepreneur featuring illustrations by FAKEGRIMLOCK. That new book is about to hit bookstores everywhere. I was honored that they asked me to write the foreword, and with their permission I'm posting an excerpt below. After the 2012 conference I viewed it as an opportunity to reflect on the growth and evolution of the movement as a whole. One of the things that I love about what Brant and Patrick have done with The Lean Entrepreneur are the numerous case studies of how entrepreneurs are tackling new ventures, minimizing risk and learning their way to success - these case studies will speak to garage startups and corporate entrepreneurs alike. A few of the detailed case studies include: Tech legend Bill Gross building an MVP in 1999 to test demand for online car sales, which grew into CarsDirect.com. LitMotors approach to using Lean Startup to create a new vehicle category. AppFog creating "high-hurdle" experiments to surface authentic early adopters with real pain. The Embrace infant warmer was developed - by getting out of the country -- and how Rob Emrich learned and scaled his non-profit, Road of Life. (Social entrepreneurs take note!) BetaBrand building apparel MVPs and testing them quickly with targeted customer communities. Telecom O2 learning to move at the speed of the internet 500 Startups and their accelerated feedback loops on what works, and what doesn't work in early-stage investing. Scott Summitt iteratively leveraging the emerging technologies of digital fabrication and 3d-scanning to change people's lives. PayPal, under the leadership of David Marcus and Bill Scott, re-defining and re-engineering itself by embracing Lean Startup to improve the product experience. KISSmetrics building and empowering cross-functional teams to attack problems in their sales funnels via hypothesis testing. Intuit showing large organizations how to combine Lean Startup with horizon planning to nurture internal innovation and startup experiments. Berkeley Pizza: from pizza in the farmer's market to a sit-down restaurant. Another thing I love about The Lean Entrepreneur is how Brant and Patrick are treating their book like a startup. One example is in their marketing, which in today's environment requires providing value. This doesn't mean pointing to the product and describing the product's value, but rather the marketing provides value itself. As part of their book campaign, Brant and Patrick have teamed up with General Assembly to offer 4 free online video classes, including: Lean UX Research Techniques - Rapid Prototyping - How to Hire Developers - Growth Hacking Every book pre-order get access to all of these classes - and quite a bit more. You can pre-order on their site until February 10th 2013, and after that on Amazon. Lastly, I wanted to share with you the foreword I wrote for The Lean Entrepreneur. As we head into 2013, it's a good time to reflect on how far the Lean Startup movement has come: When I first started blogging in August of 2008, I had no idea what to expect. Startup blogging was hardly "cool" back then. Plenty of venture capitalists advised me against it. My personal background was as an engineer and my companies had been Web-based startups, so that is what I wrote about. Struggling to explain the successes and failures of those companies, I discussed principles like continuous deployment, customer development, and a hyper-accelerated form of agile. When I delved into lean manufacturing, I discovered the concepts and terminology dovetailed. The result: a new idea I called The Lean Startup. I started with some basic theory: that a startup is an institution designed to thrive in the soil of extreme uncertainty; that traditional management techniques rooted in forecasting and planning would not work well in the face of that uncertainty. Therefore, we needed a new management toolkit designed explicitly for iteration, scientific learning, and rapid experimentation. At the time, I viewed it as incidental that the theory might be tied to a particular industry, such as high-tech startups or web-based environments. Lean, after all, emerged from Toyota, a huge automobile manufacturing company. I simply stated my belief that Lean Startup principles would work in other types of startups and in other areas of business where uncertainty reigned. Boy, was I unprepared for what happened next. I was hopeful that we would change the way startups are built - but I didn't know.Fast-forward more than 4 years and I'm astounded by what has emerged. A nascent community has blossomed into a full-fledged movement. Entrepreneurs, both new and experienced, proudly share their Lean Startup learning in case studies, conferences, and many, many blogs. Books, workshops and courses authored by passionate practitioners relate experience, share insight, and create tools to teach students ways to make Lean Startup principles their own. Many investors, advisors, mentors and even celebrity entrepreneur icons speak the Lean Startup language. It's a big tent. We stand on the shoulders of giants: customer development, the theory of disruptive innovation, the technology life-cycle adoption theory, and agile development. Complementary lines of thinking, such as that of user experience professionals, design thinking practitioners and the functional disciplines of sales, marketing, operations and even accounting, come together to share practices that lift us all. Lean Startup has gone mainstream. I wish I could say that this was all part of some master plan, that I knew all along that companies of all sizes - far outside the high-technology world - would embrace Lean Startup. I wish I had foreseen that within a year of publishing The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Achieve Radically Successful Businesses, many large organizations, including such monsters as the United States Federal government (!) would have recognized that to cope with today's world -faster, more competitive, and inundated with data - new methods are needed to keep up. The truth is that all of this change has happened faster and more thoroughly than any of us imagined. And - as you're about to see - we're just getting started. That's why I am so excited by the volume you hold in your hands. The Lean Entrepreneur is about those new methods. Brant Cooper and Patrick Vlaskovits are among the earliest adopters of new ideas such as Lean Startup and customer development. Their new work turns their lens on three primary focal points: how to interact with customers, run experiments, and use actionable data to move the needle of any uncertain business endeavor. As with all of their work, theirs is not just a book of theory. Brant and Patrick provide great tactical depth in each of these areas. They endeavor to answer the question: No matter where you are as an organization, how do you know where to focus your Lean Startup activities? The Lean Entrepreneur offers new thinking, tools and activities that help organizations identify and act upon business model challenges in a waste-eliminating manner. Following the precepts of traditional lean thinking, Brant and Patrick introduce the value stream discovery process, which helps organizations hypothesize what they must do, including product development, marketing, and sales in order to create value. These business model assumptions are then ripe for testing, measuring and iterating upon. Further, the value you create is meaningless without a customer who needs, wants, desires and ultimately, determines the final value of your creation. Brant and Patrick spend considerable time helping you think through your customer segments. Cleverly and in the spirit of the scientific method, they even help you discover where your customer theory is wrong. Everyone likes a good story; Brant and Patrick interviewed dozens of entrepreneurs and documented numerous case studies both inside and outside of high-tech, in both startups and large enterprises. There's even a classic Wizard of Oz minimum viable product that dates back to 1998! Make no mistake, Brant and Patrick have been here since the beginning. They self-published The Entrepreneur's Guide to Customer Development in April of 2010 From the outset, they were both practitioners and mentors, urging entrepreneurs not to follow a paint-by-numbers approach, but rather to think lean: fast, agile and continuously learning. Over the last two years they've traveled around the world speaking, advising, and teaching Lean Startup. The Lean Entrepreneur is an important addition to the growing library of principles and practices designed to improve how we tackle innovation and uncertainty, be it in tech startups, Fortune 100, non-profits or government. I consider myself lucky to count Brant and Patrick as friends and colleagues. It is my hope that from this book you will gain valuable insights, make Lean Startup your own, and - much more importantly - that you are successful in changing the world for the better. Eric Ries, San Francisco, December 2012 If you want to read more, you can find an excerpt of Chapter 6, Viability Experiments here.
Presidential Innovation Fellows, round two 5 February, 2013, 7:00 am
Yes, there are Lean Startups even in the United States federal government. I know this is an unpopular thing to say, since it sounds so patently absurd. But I've seen the teams with my own eyes and witnessed their results first hand. For my take on how this is possible, you can see my previous post on Lean Government here. Today, I'm excited to share the latest round of startups that are being run by the Presidential Innovation Fellows program. If you'd like to try your hand at being an entrepreneur inside one of the world's largest bureaucracies, you can apply right here starting today. I've excerpted descriptions of the program and summaries of all the projects below. Take a look and judge for yourself. The Presidential Innovation Fellows (PIF) program pairs top innovators from the private sector, non-profits, and academia with top innovators in government to collaborate during focused 6-12 month “tours of duty” to develop solutions that can save lives, save taxpayer money, and fuel job creation. Each team of innovators is supported by a broader community of interested citizens throughout the country. The 1st round of five projects – MyUSA (formerly known as MyGov), RFP-EZ, Blue Button, Better Than Cash, and Open Data Initiatives – launched in August 2012 with 18 inaugural Fellows. Each of these five project teams have made remarkable progress. The 2nd round of the Presidential Innovation Fellows program will include nine projects, described below – four that are the second phases of Round 1 projects and five new projects. Presidential Innovation Fellows have a unique opportunity to serve our Nation and make an impact on a truly massive scale. We will be accepting applications to be a Round 2 Fellow from February 5 through March 17, and are looking to put together a dynamic, diverse, innovative class that will produce tremendous results for the American people. WhiteHouse.gov/InnovationFellows has information about the program, past PIFs, and will serve as the gateway through which to apply (just click on the “Apply Here” button starting February 5th) Those interested can follow @WhiteHouseOSTP on Twitter and can discuss the program on social media using: #InnovateGov Applications to be a Round 2 Fellow will be accepted through March 17th Disaster Response & Recovery Collaboratively building and “pre-positioning" needed tech tools ahead of future emergencies or natural disasters in order to mitigate economic damage and save lives. During an emergency or natural disaster, it is essential that first responders, government agencies, volunteers, the private sector, and the public have access to real-time information about the critical needs of survivors and resources that can help them. The goals of the Disaster Response & Recovery project are to: (1) identify information critical to saving lives and mitigating damage in a disaster; (2) identify existing and new tools to be built and deployed that can collect, synthesize and distribute that information; and (3) build out these tools and train disaster response personnel in their use. Once these tools are built and rolled out, they can be used collaboratively by the private sector, first responders, local officials, volunteers, and survivors themselves in order to get information where it needs to be in real-time. This improved ability to collect and disseminate information will support disaster response and recovery efforts for years to come. The potential savings – in terms of both American lives and taxpayer dollars – are dramatic. MyUSA Simplifying the process of finding and accessing information and government services that are right for you. Helping American businesses access the information and services that will help them grow, hire American workers, and export to foreign markets. MyUSA (formerly known as MyGov) is creating a new service that helps Americans find the information and services they need across the Federal Government. Rather than organizing services around the agencies that deliver them, as most Federal websites do today, MyUSA organizes services around people and the specific tasks they need to complete. Building on the work of the inaugural class of MyUSA Presidential Innovation Fellows, motivated by President Obama's call for a smarter, leaner government, and inspired by innovative models of collaboration in the private sector, the US Chief Technology Officer, the US Chief Information Officer, and the White House Director of Digital Strategy will work closely with and support the Round 2 MyUSA Fellows as they take the MyUSA service to the next level. In particular, small businesses and exporters have a fundamental problem navigating the Federal Government’s myriad resources. It can be difficult to locate information about government assistance programs or find and complete the correct forms for taxes or business operations. MyUSA is working to solve these problems. The project team will build and beta-test new features and tools for entrepreneurs and businesses with the purpose of cutting red tape, increasing efficiency, and supporting American businesses and American jobs. MyUSA will save people and businesses time when transacting with the government, increase awareness of available government services, and speed up notifications and updates. MyUSA has the potential not only to save Americans time and money, but to reshape how they interact with and view their government. @ProjectMyUSA on Twitter. RFP-EZ and Innovative Contracting Tools Making it easier for the government to do business with small, high-growth tech companies, and enabling the government to buy better, lower-cost tech solutions from the full range of American businesses. RFP-EZ improves the operations of government by making it easier for small businesses to sell their services to government buyers, and by making it easier for contracting officers within government to navigate the process of purchasing. In Round 1 of the PIF program, the RFP-EZ team opened the door to small businesses by building a platform for small, creative businesses to more effectively sell to the Federal Government. The objective of the RFP-EZ 2.0 team is to improve upon the existing product and scale the tool across additional government agencies so that fewer taxpayer dollars are spent getting the technology that government needs to do its work for the American people. As RFP-EZ is tested and scaled, a new effort will be launched to improve Federal procurement by building a portal of prices paid by agencies under their contracts. Improved information sharing, both within and between agencies, about prices paid for common-use goods and services will make it easier for agencies to find “best in class” spending options. More informed decision making promises to help save substantial amounts of money each year by pooling resources in the vehicles that offer the best value for the taxpayer. RFPEZ.SBA.gov and follow @ProjectRFPEZ on Twitter. Cyber-Physical Systems Working with government and industry to create standards for a new generation of interoperable, dynamic, and efficient “smart systems” – an “industrial Internet” – that combines distributed sensing, control, and data analytics to help grow new high-value American jobs and the economy. The emerging “industrial Internet” revolution, enabled by the convergence of networking and information technology with engineered physical systems and associated services, is enabling a new generation of “smart systems” and an innovation-based growth engine for the U.S. economy in a broad range of industries including manufacturing, transportation, energy, healthcare, defense, agriculture, and emergency response. These cyber-physical systems (CPS) will combine distributed sensing, monitoring, actuation, and control networks with interoperable systems integration, advanced analytics, and user interfaces featuring customized degrees of autonomy to enable adaptive, predictive, and collaborative optimization of system performance over the entire life cycle of a device (e.g. design, build, operate/use, maintain, and service). These innovations could lead to entirely new markets and platforms for growth in the economy, increase U.S. competitiveness, catalyze the creation and retention of U.S. jobs, enable cost-effective renewable clean energy, enhance national security, and help support affordable health care and improved quality of life for our citizens. Realizing this potential will require partnerships between industry and government to develop a framework and best practices for cyber-physical-systems platform technologies that include integrated architectures, standards and protocols, advanced analytics, evaluation testbeds, and reference implementations to ensure such systems perform reliably, correctly, safely and securely. These platform technologies will leverage advances in control systems and process engineering, big data and cloud computing, broadband communications, and cybersecurity. Open Data Initiatives Accelerating and expanding efforts to make government information resources more publicly accessible in “computer-readable” form and spurring the use of those data by entrepreneurs as fuel for the creation of new products, services, and jobs. The Open Data Initiatives project is “liberating” government data and voluntarily-contributed corporate data to fuel entrepreneurship, create jobs, and improve the lives of Americans in tangible ways. As a model, decades ago, the National Oceanic and Atmospheric Administration began making weather data available for free electronic download by anyone. Entrepreneurs used these data to create weather newscasts, websites, mobile applications, insurance, and much more. Similarly, the government’s decision to make the Global Positioning System (GPS) freely available has fueled a vast array of private-sector innovations ranging from navigation systems to precision crop farming, creating massive public benefit and contributing significantly to economic growth. More recently, the Health Data Initiative, launched by the Institute of Medicine and the U.S. Department of Health and Human Services in 2010, has opened growing amounts of health-related knowledge and information in computer-readable form from the vaults of the government and publicized the availability of these data to entrepreneurs and innovators. Hundreds of companies and nonprofits have used these data to develop new products and services that are helping millions of Americans and creating jobs of the future in the process. Working closely with the US Chief Technology Officer, the US Chief Information Officer, and an array of agencies, the Open Data Initiatives team has launched and is continuing to scale open data efforts in Health, Energy, Education, Finance, Public Safety, and Global Development. These efforts involve government releasing general data resources in computer-readable form and in accordance with policies that rigorously protect privacy. The goal is to stimulate a rising tide of private-sector entrepreneurship that leverages these data to create tools that help Americans find the right health care provider for them, identify the college that provides the best value for their money, save money on their electricity bills through smarter shopping for the right rate plan, keep their families safe by knowing which products have been recalled, and much more – a rising tide of innovation that also contributes to economic growth and creates jobs. @ProjectOpenData on Twitter. For Round 2, we are looking for Presidential Innovation Fellows to work on the existing Open Data Initiatives in Health, Energy, Education, Finance, Public Safety, and Global Development, as well as the following new data innovation efforts: Building Virtual Learning at National Scale Harness new techniques in big data and learning analytics to help students master core academic subjects such as math and science. Digital Tools for the Smithsonian Develop new ways for the Smithsonian Institution to engage in the historic effort to make its unparalleled collections in science, history, art, and culture more open and available to the American public – from researchers to schoolchildren and everyone in between. Data.gov Build upon the success of Data.gov (launched in 2009) – and recent improvements such as Alpha.Data.gov – to create an optimal hub for the growing open data work of the Federal Government. @USDataGov on Twitter. MyData Initiatives Empowering the American people with secure access to their own personal health, energy, and education data. The MyData Initiatives seek to spread the ability for people to securely access to their own data while spurring the growth of private-sector applications and services that a person can use to crunch his or her own data for a growing array of useful purposes. Existing MyData Initiatives are paving the way. For example, through Blue Button – a growing initiative across the public and private sectors – patients can download their own health information from a growing array of organizations (the Department of Veterans Affairs’s health system, private-sector health care providers, etc.) and securely share their medical histories with caregivers, import their prescription histories into mobile reminder apps, and more. Similarly, the Green Button team at the U.S. Department of Energy and the National Institute of Standards and Technology is working collaboratively with industry to enable millions of residential and commercial energy customers to securely download their own energy usage data in a standardized machine-readable format directly from their utilities. The MyData Initiative at the U.S. Department of Education is empowering learners of all ages in hundreds of school districts to access machine-readable copies of their academic transcripts and student loan/grant histories, including their own Federal student loan and FAFSA data. The Round 2 MyData team will work with public sector and private sector organizations to continue to expand the ability for Americans to securely and privately access their own data from wherever it might be, and encourage the development of private-sector tools and services that help people utilize their own data for their own benefit. @ProjectBlueBtn on Twitter. Innovation Toolkit Developing an innovation toolkit that empowers our Federal workforce to respond to national priorities more quickly and more efficiently. Inspired by President Obama’s pledge to “make government cool again,” the U.S. Office of Personnel Management, in connection with the General Services Administration and the U.S. Department of State, will lead an effort to apply technology to augment and tap into the skills, creativity, and capacity for innovation of the Federal workforce. There are a variety of ways the Federal Government can improve the efficiency and productivity of its talented people – by connecting employees through an intuitive online collaboration platform, by providing opportunities for online learning and skills sharing (particularly since 85% of the Federal workforce is located outside of the Washington, DC metro area), and by offering dynamic libraries of case studies, guides, and “how to” documents – an “innovation toolkit” – for employees looking to think out-of-the-box without having to reinvent the wheel. Using these and other tools, we can deliver on President Obama’s call for a smarter, leaner government and enable the Federal workforce to deliver greater value to the American taxpayer by saving time, money, and resources. 21st Century Financial Systems Moving financial accounting systems of Federal agencies out of the era of unwieldy agency-specific implementations to one that favors more nimble, modular, scalable, and cost-effective approaches. The Federal Government has traditionally approached new financial system implementations by focusing on implementing commercial, off-the-shelf (COTS) packages and adapting them to agency-specific needs. This approach has resulted in many cost and schedule over-runs, aborted implementations, and overly complex systems that are not used to their full potential. The Office of Management and Budget and the Department of the Treasury’s Office of Financial Innovation and Transformation (FIT) are charting a new course for Financial Systems focused on using shared services, standardized requirements, and fewer agency-specific tweaks. The 21st Century Financial Systems project is focused on designing and building an evidence-based “test” that Treasury will use to ensure agencies don’t put out over-engineered requirements. The key to this effort will be designing and implementing a credible and efficient process to determine which agency deviations from a standard set of requirements are truly required and what would be the best way to accommodate those deviations. The success of this program could lead to dramatic and lasting cost savings on behalf of American taxpayers. Development Innovation Ventures Enabling the US government to identify, test, and scale breakthrough solutions to the world’s toughest problems. Great ideas and breakthrough solutions come from all kinds of different places, and the US Agency for International Development (USAID) has recently pioneered a competitive method for sourcing and scaling innovations to drive faster, more cost effective, and more reliable results. It uses staged financing to make small investments in promising approaches and technologies and larger investments when there is clear evidence that the method is producing significant results. It accepts proposals from startup or established businesses, social enterprises, academic institutions or non-profits, both domestically and internationally. Over 2000 proposals have been reviewed and over 40 investments made across the world in a wide range of sectors, with many more under negotiation. Building on this innovative approach to government financing, there are opportunities to scale this effort to reach millions of people more quickly and ensure that the program structure is sustainable (through either profitability or host country adoption, not long-term donor support). Of particular interest would be supporting enterprises that are scaling through the private sector. In addition, there is a desire among domestic Federal Government agencies to optimize the use of taxpayer resources and further their missions by adapting this model of broad competitions and tiered funding for additional missions, to produce the most cost-effective, evidence-based, and scalable solutions. USAID.gov, and @DIVatUSAID on Twitter.
Join a conference simulcast near you 1 December, 2012, 10:40 am
One of the most important things we do with The Lean Startup Conference is make a livestream of the plenary talks available for free to groups around the world, supporting entrepreneurship communities everywhere. The number of hosts has grown annually, and this year, we have 200+ groups joining us on Monday, December 3. They represent more than 10,000 people total. If you're not attending the conference in person, consider meeting up with one of these groups to watch. Past livestream attendees have reported great conversations and networking. Most simulcasts are free, although some charge a small fee to cover their costs. All require RSVP in advance, so please sign up via their page linked below. The following sites are confirmed livestream hosts. Click through to sign up at any given location, and if you have questions, you can contact the host directly. If you don't see a city near you, please check the conference livestream page - we are constantly adding more venues as they get confirmed. Within the United States Alabama: Birmingham Arizona: Scottsdale Arkansas: Little Rock California: Canoga Park Goleta Los Angeles (downtown) Pasadena Riverside / Inland Empire San Clemente San Diego Santa Monica Colorado: Broomfield Centennial Fort Collins Connecticut: East Hartford Stamford Florida: Jacksonville Tampa Georgia: Atlanta Hawaii: Honolulu Maui (Kihei) Idaho: Boise Illinois: Arlington Heights Evanston Schaumburg Indiana: Fishers Iowa: Cedar Rapids Des Moines Iowa City Kentucky: Lexington Louisville Maine: Portland Maryland: College Park Massachusetts: Boston, Microsoft NERD, One Memorial Dr. Boston, Pearson Education, 501 Boylston St. Michigan: Detroit Van Buren Minnesota: Minneapolis Missouri: Kirksville Montana: Bozeman Helena Missoula Pablo Nebraska: Lincoln Omaha Nevada: Las Vegas, /usr/lib, 520 Fremont St Las Vegas, CHSI Technologies, 770 Pilot Rd. New Hampshire: Portsmouth New Mexico: Albuquerque New York: Brooklyn Ithaca Manhattan North Carolina: Asheville Charlotte Durham Ohio: Athens Cincinnati, The Brandery, 1141 Vine St. Cincinnati, NEO HQ, 3700 Park 42 Dr Cleveland Columbus Oklahoma: Tulsa Pennsylvania: Lititz Philadelphia Puerto Rico: San Juan South Dakota: Sioux Falls Texas: Austin: Tech Ranch Austin, 9111 Jollyville Rd. San Antonio Utah: Orem Provo Salt Lake City Virginia Ashburn Norfolk Reston Richmond Washington: Richland Seattle Walla Walla Wisconsin: Milwaukee Outside the United States Argentina: Buenos Aires Australia: Melbourne Sydney, NSW Ultimo, NSW Austria: Vienna Bahrain: Bahrain Barbados: Bridgetown Bermuda: Hamilton Brazil: Aracatuba Florianopolis Porto Alegre Rio de Janeiro Sao Paulo Bulgaria: Rousse Sofia Canada: Abbotsford, British Columbia Edmonton, Alberta Fredericton, New Brunswick Hamilton, Ontario Kentville, Nova Scotia Mahone Bay, Nova Scotia Sault Ste. Marie, Ontario Toronto, Ontario Vancouver, British Columbia Caribbean: Martinique Chile Santiago China: Shanghai Costa Rica: San Jose Croatia: Zagreb Czech Republic: Prague Denmark: Copenhagen Egypt: Alexandria Cairo Finland: Helsinki France: Bordeaux Paris Germany: Berlin Coburg Cologne Karlsruhe Munich Nuremberg/Furth Wiesbaden, Rhein-Main Greece: Athens Thessaloniki Hungary: Budapest Szeged India: Bangalore Chennai Pune Indonesia: Jakarta Ireland: Belfast Dublin, Enterprise Ireland, E Point Business Pk Dublin, The Digital Hub, Crane St. Israel: Haifa Italy: Cesena Milan Rome Kuwait: Kuwait City Lithuania: Vilnius, Jasinskio 16C Vilnius, 6 Šermukšnių gatvė Malaysia: Kuala Lumpur Mexico: Mexico City San Pedro Garza Garcia, Nuevo Leon Netherlands: Maastricht Utrecht New Zealand: Auckland Christchurch Norway: Bergen Oslo Peru: Lima Philippines: Davao City Poland: Gdansk Gliwice Poznan Warsaw Portugal: Braga Lisbon Romania: Bucharest Sibiu Timisoara Russia: Moscow Omsk Samara St. Petersburg Yekaterinburg Serbia: Belgrade Singapore: Singapore Slovakia: Bratislava Slovenia: Ljubljana South Africa: Johannesburg, 169 Oxford Rd. Johannesburg, Microsoft Campus, 3012 William Nicol Dr. South Korea: Seoul live stream Seoul time delay Spain Barcelona, InfoJobs HQ, Numància, 46 6ª planta Barcelona, UXdna, InfoJobs, 3scale Las Palmas de Gran Canaria Madrid, 166 Calle de Velázquez Madrid, Lean Startup Circle Pamplona Santa Cruz de Tenerife Sweden: Gothenburg Uppsala Switzerland: Geneva Turkey: Istanbul, Özyeğin Üniversitesi Istanbul, Alcebra Mediaone UAE: Dubai UK: Brighton Edinburgh Leeds London Manchester Uruguay: Montevideo

Steve Blank

Why Too Many Startups (er) Suck 21 September, 2012, 6:00 am
This is a guest post by my Startup Owner’s Manual co-author Bob Dorf. ——————- While statistics are weak on startup success rates, the worst one I’ve seen suggests that 2 in 1000 venture backed startups will ever achieve $100-million or more in valuation. Another stat puts that number at 2% rather than 0.2%. Either way, the “hurdle” for successful, scalable startups is high, and it gets higher every day as customer acquisition challenges continue to increase. I’ve spent more than four decades founding, coaching, teaching and investing in startups, and nothing breaks my heart more than meeting a starry-eyed founder who says “we’re almost ready to show it to people.” The “it” is a physical or web product they’ve often been locked-down, pounding away at, for many weeks. In my view, this is the nastiest of all startup sins: failing to involve customers and their feedback from literally the first day of a startup’s life, keeping the most vital opinions silent—those of the eventual customers—for far longer than necessary. When I hear this comment, as I do far too often, I switch to pleading mode: “Please. Take a week. Get some feedback. Does anybody really care, or are they giving you polite nods and little more. This generally leads to the second biggest reason too many startups suck: they’re solving a non-problem. Does anybody care? Many Startup Owner’s Manual readers ask why Steve Blank and I are adamant that Customer Discovery happen in two separate, distinct phases: “problem” discovery and, later, “solution” discovery. There’s just no other way but, as Steve Blank has said for a decade, to “get out of the building” and talk to the only folks who matter—your customers. Building a solution to a problem of moderate or lukewarm interest to users is a long-term death sentence for startups, where founders will almost certainly commit to 20,000 hours of their lives(or 5 years of 80-hour workweeks) in order to “beat the odds” and deliver a breakout success: a sustainable, scalable, profitable business. Why, then, are so many founders so reluctant to invest even 500 or 1,000 hours upfront to be sure that, when they’re done, the business they’re building will face genuine, substantial demand or enthusiasm. Without passionate customers, even the most passionate entrepreneur will flounder at best. Dropbox is a great example. It scaled like lightning by solving an urgent, painful problem for millions of consumers. The product is so good, helpful, and easy to use that it literally almost does its own marketing organically through the product’s viral nature, just as Hotmail and Gmail have done since inception. What’s the honest trajectory? There can only be one Mark Zuckerberg, and at last look he’s young and healthy. Can every startup skyrocket like Facebook or Square or Google? It’s downright impossible. The solution: understand your startup’s “honest trajectory” and align objectives of the founding team and—importantly—its investors to define and agree about what “success” looks like. Thousands of entrepreneurs would be a lot happier if their focus was a solid, growable, defensible niche business that might never go public or be worth $100-million. There’s a ton of money to be made “in the middle,” a broad swath between struggling or gasping for cash and ringing the bell at the NASDAQ. Find the right trajectory for your business and focus not only on reaching it, but on assuring that the result is a sustainable, repeatable profit engine that can perform and grow healthily over time. Use Customer Development to identify and refine the potential profitable niche and stay in close contact with customers as you build, to be sure you’re building something they’ll want to have…and keep. Stand Out in the Crowd: If you’re solving an important problem, make sure your solution stands out in the crowd. Hundreds of entrepreneurs I’ve met never spent an entire day Googling their industry, other ways to solve “their” problem, and few have spent time “playing consumer,” trying to find “their” own product, or one like it, and creating a “market map” that assesses all the competitive solutions, their strengths/weaknesses, and where the new product fits clearly and distinctly in its competitive environment. If you can’t figure this out on your own, and relate it to customers succinctly, it’s a certainty that your customers never will. Going Forward is NOT About Standing Still: Another of my high-frequency “sad” moments happens when visiting with a team that is consistently “flatlining,” or delivering minimal or trivial user growth week after week or worse. Clearly, something’s horribly wrong, and everyone just keeps showing up, doing their jobs, without attacking the core problem that’s almost always a lack of palpable customer enthusiasm. What’s the point? What are they waiting for? It’s time to bring the leadership team into a room, dissect each key element of the business model, and identify pivots that are worth exploring smartly—where else—with customers. Going Forward Is Often About Going Backward First: Entrepreneurs pride themselves in their problem-solving abilities, tenacity, and willingness to run through brick walls to make things “go.” More often than not, the DNA strand that makes entrepreneurs great is the one that’s their undoing when confronted with “flatlining” user adoption, growth, referrals, or frequency. These entrepreneurs need to switch smartly out of “do” mode and return to the earliest “discovery” steps to find a distinctive, exciting solution to a seriously painful customer need or problem. It’s the only way to make a startup not suck. Filed under: Customer Development
The Lean LaunchPad Online 6 September, 2012, 6:00 am
You may have read my previous posts about the Lean LaunchPad class taught at Stanford, Berkeley, Columbia, Caltech and for the National Science Foundation. Now you too can take this course. I’ve worked with the Udacity, the best online digital university on a mission to democratize education, to produce the course. They’ve done an awesome job. The course includes lecture videos, quizzes and homework assignments. Multiple short video modules make up each 20-30 minute Lecture. Each module is roughly three minutes or less, giving you the chance to learn piece by piece and re-watch short lesson portions with ease. Quizzes are embedded within the lectures and are meant to let you check-in with how completely you are digesting the course information. Once you take a quiz, which could be a multiple-choice quiz or a fill in the blank quiz, you will receive immediate feedback. Sign up here ——– Why This Class? Ten years ago I started thinking about why startups are different from existing companies. I wondered if business plans and 5-year forecasts were the right way to plan a startup. I asked, “Is execution all there is to starting a company?” Experienced entrepreneurs kept finding that no business plan survived first contact with customers. It dawned on me that the plans were a symptom of a larger problem: we were executing business plans when we should first be searching for business models. We were putting the plan before the planning. So what would a search process for a business model look like? I read a ton of existing literature and came up with a formal methodology for search I called Customer Development. That resulted in a new process for Search: Customer Development + traditional product management/Waterfall Engineering. It looked like this: This meant that the Search for a business model as a process now could come before execution. So I wrote a book about this called the Four Steps to the Epiphany. And in 2003 the Haas Business School at U.C. Berkeley asked me to teach a class in Customer Development. With Rob Majteles as a co-instructor, I started a tradition of teaching all my classes with venture capitalists as co-instructors. In 2004 I funded IMVU, a startup by Will Harvey and Eric Ries. As a condition of my investment I insisted Will and Eric take my Customer Development class at Berkeley. Having Eric in the class was the best investment I ever made. Eric’s insight was that traditional product management and Waterfall development should be replaced by Agile Development. He called it the “Lean Startup.” Meanwhile, I had said startups were “Searching” for a business model, I had been purposefully a bit vague about what exactly a business model looked like. For the last two decades there was no standard definition. That is until Alexander Osterwalder wrote Business Model Generation. This book was a real breakthrough. Now we understood that the strategy for startups was to first search for a business model and then after you found it, put together an operating plan. Now we had a definition of what it was startups were searching for. So business model design + customer and agile development is the process that startups use to search for a business model. And the organization to implement all this was not through traditional sales, marketing and business development groups on day one. Instead the founders need to lead a customer development team. And then to get things organized Bob Dorf and I wrote a book, The Startup Owners Manual that put all these pieces together. But then I realized rather than just writing about it, or lecturing on Customer Development, we should have a hands-on experiential class. So my book and Berkeley class turned into the Lean LaunchPad class in the Stanford Engineering school, co-taught with two VC’s – Jon Feiber and Ann Miura-Ko. And we provided dedicated mentors for each team. Then in the fall of 2011, the National Science Foundation read my blog posts on the Stanford version of the Lean LaunchPad class. They said scientists had already made a career out of hypotheses testing, and the Lean LaunchPad was simply a scientific method for entrepreneurship. They asked if I could adapt the class to teach scientists who want to commercialize their basic research. I modified the class and recruited another great group of VC’s and entrepreneurs – Jim Hornthal, John Burke, Jerry Engel,Bhavik Joshi and Oren Jacob – to teach with me. We taught the first two classes of 25 teams each, and then in March of 2012 trained faculty from Georgia Tech and the University of Michigan how to teach the class at their universities. Georgia Tech and the University of Michigan faculty then taught 54 teams each in July of this year and will teach another 54 teams in October. We then added four more schools – Columbia, Caltech, Princeton and Hosei – where our team taught the Lean LaunchPad. We also developed a 5-day version of the class to complement the full semester and quarter versions. Then last month we partnered with NCIIA and taught 62 college and university educators in our first Lean LaunchPad Educators Program. And now we’ve spent weeks in the Udacity studio putting the lecture portion of the Lean LaunchPad class online. Sign up and find out how to start a company! Filed under: Business Model versus Business Plan, Customer Development, Lean LaunchPad, Teaching
Entrepreneurship is hard but you can’t die 4 September, 2012, 6:00 am
We Sleep Peaceably In Our Beds At Night Only Because Rough Men Stand Ready To Do Violence On Our Behalf Everyone has events that shape the rest of their lives. This was one of mine. ——- I’ve never been shot at. Much braver men I once worked with faced that every day. But for a year and a half I saw weapons of war take off every day with bombs hanging under the wings. It never really hit home until the day I realized some of the planes didn’t come back. Life in a War Zone In the early 1970’s the U.S. was fully engaged in the war in Vietnam. Most of the fighter planes used to support the war were based in Thailand, or from aircraft carriers (or for some B-52 bombers, in Guam.) I was 19, in the middle of a hot war learning how to repair electronics as fast as I could. It was everything life could throw at you at one time with minimum direction and almost no rules. It would be decades before I would realize I had an unfair advantage. I had grown up in home where I learned how to live in chaos and bring some order to my small corner of it. For me a war zone was the first time all those skills of shutting out everything except what was important for survival came in handy. But the temptations in Thailand for a teenager were overwhelming: cheap sex, cheap drugs (a pound of Thai marijuana for twenty dollars, heroin from the Golden Triangle that was so pure it was smoked, alcohol cheaper than soda.) I saw friends partying with substances in quantities that left some of them pretty badly damaged. At a relatively young age I learned the price of indulgence and the value of moderation. What a great job But I was really happy. What a great job – you work hard, party hard, get more responsibility and every once in awhile get to climb into fighter plane cockpits and turn them on. What could be better? Near the beginning of the year when I was at an airbase called Korat, a new type of attack aircraft showed up – the A-7D Corsair. It was a single seat plane with modern electronics (I used to love to play with the Head Up Display.) And it was painted with a shark’s mouth. This plane joined the F-4’s and F-105 Wild Weasels (who went head-to-head with surface-to-air missiles,) and EB-66’s reconnaissance aircraft all on a very crowded fighter base. While the electronics shop I worked in repaired electronic warfare equipment for all the fighter planes, I had just been assigned to 354th Fighter Wing so I took an interest in these relatively small A-7D Corsair’s (which had originally been designed for the Navy.) He’s Not Coming Back One fine May day, on one of my infrequent trips to the flight line (I usually had to be dragged since it was really hot outside the air-conditioned shop), I noticed a few crew chiefs huddled around an empty aircraft spot next to the plane I was working on. Typically there would have been another of the A-7’s parked there. I didn’t think much of it as I was crawling over our plane trying to help troubleshoot some busted wiring. But I started noticing more and more vans stop by with other pilots and other technicians– some to talk to the crew chief, others just to stop and stare at the empty spot where a plane should have been parked. I hung back until one of my fellow techs said, “Lets go find out what the party is about.” We walked over and quickly found out it wasn’t a party – it was more like a funeral. The A-7 had been shot down over Cambodia. And as we found out later, the pilot wasn’t ever coming home. An empty place on the flight line While we were living the good life in Thailand, the Army and Marines were pounding the jungle every day in Vietnam. Some of them saw death up close. 58,000 didn’t come back – their average age was 22. Everyone shook their heads about how sad. I heard later from “old-timers” who had come back for multiple tours “Oh, this is nothing you should have been here in…” and they’d insert whatever year they had been around when some days multiple planes failed to return. During the Vietnam War ~9,000 aircraft and helicopters were destroyed. Thousands of pilots and crews were killed. It’s Not a Game I still remember that exact moment – standing in the bright sun where a plane should be, with the ever present smell of jet fuel, hearing the engines of various planes taxing and taking off with the roar and then distant rumble of full afterburners – when all of a sudden all the noise and smells seemed to stop – like someone had suddenly turned off a switch. And there I had a flash of realization and woke up to where I was. I suddenly and clearly understood this wasn’t a game. This wasn’t just a big party. We were engaged in killing other people and they were equally intent on killing us. I turned and looked at the pilots with a growing sense of awe and fear and realized what their job – and ours – was. That day I began to think about the nature of war, the doctrine of just war, risk, and the value of National Service. Epilogue Captain Jeremiah Costello and his A-7D was the last attack aircraft shot down in the Vietnam War. Less then ninety days later the air war over Southeast Asia ended. For the rest of my career when things got tough in a startup (being yelled at, working until I dropped, running out of money, being on both ends of stupid decisions, pushing people to their limits, etc.), I would vividly remember seeing that empty spot on the flightline. It put everything in perspective. Entrepreneurship is hard but you can’t die. Filed under: Air Force, Family/Career/Culture
Vision versus Hallucination – Founders and Pivots 27 August, 2012, 7:32 am
A founder’s skill is knowing how to recognize new patterns and to pivot on a dime. At times the pattern is noise, and the vision turns out to be a hallucination. Knowing how to sort between vision and hallucination can avoid chaos inside your startup. ——— Yuri, one of my ex students started a big-data analytics company last year. He turned his PhD thesis into a killer product, got it funded and now was CEO of a company of 30. It was great to watch him embrace the spirit and practice of customer development. He was constantly in front of customers, listening, selling, installing and learning. And that’s where the problem was. I got to spend time inside his company while I was using their software to analyze early-stage ventures. What I saw reminded me of some of the best and worst things I did as a founder. A Pivot a Week It seemed like once a week Yuri would come back from a customer meeting brimming with new insights. “We’re building the wrong product!” he’d declare. “We got to pivot now.” Tossing their agile development process and at times their entire business model in the air, the company would go into fire-drill mode and engineering would start working on whatever his latest insight was. Other weeks Yuri would be buffeted by the realities of his burn rate, declining bank account and depressing comments from customers. This time he’d be back in the building declaring “We’re going to be out of business in 3 months if we don’t get our act together.” I even heard him say to a customer, “If we don’t get your order we’ll just have to close up in 90 days.” As a consequence everyone was afraid to make a decision because they couldn’t guess what Yuri wanted to do that week. Some of the engineers figuring if the founder was declaring they were toast in 90 days were updating their resumes. The company already was gaining a reputation as one without a coherent strategy. I cringed when I saw this – it sounded like me early in my career. I would come back from customer visits convinced that what I just learned was the “real” solution to the company’s future and havoc would reign. Unfortunately for Yuri’s company, while there were three other founders, Yuri was the CEO and none of them had the stature to tell him that his “insights” were damaging his company. So when we had a few minutes alone I offered Yuri that he was misusing the word “pivot” and confusing it with “whatever I feel like at the moment.” I said, “You got to realize you’re not just a smart engineer anymore; 30 people are dropping everything they’re doing when you make these pronouncements.” Pivot as an excuse I wasn’t surprised when he pushed back, “I’m just getting out of the building and listening to customers. All I’m doing is pivoting based on their feedback.” By now I’ve heard this more times than I liked. “Yuri, one of the things that you make you a great founder is that you have insight others don’t. But like all great founders some of these insights are simply hallucinations. The problem is you and other founders want immediate action every time you have a new idea.” “That’s a mistake.” “A pivot is a substantive change to one or more of components to your business model. You’re using “Pivot” as an excuse to skip the hard stuff – keeping focused on your initial vision and business model and integrating what you’ve heard if and only if you think it’s a substantive improvement to your current business model. There is no possible way you can garner enough information to pivot based on one customers feedback or even 20. You need to make sure it’s a better direction than the one you are already heading in.” Sit on it for awhile I said, “Sit on your great insights for 72 hours and see if they still seem good after reflection. Better, during that time brainstorm them with someone you trust. If not your co-founders, someone outside the company.” I offered that at Epiphany, my partner Ben’s office was the first place I would go when I thought I had new “insights.” And we’d run them to the ground for days before we’d even let anyone else know. Most of the time after a few days of thought, these insights were really not much better than the current course the company was on. Or by then other customers would tell us something quite different. And the rule was we weren’t changing anything about the product architecture until Ben and I agreed. Which required Ben hearing from the same customers I did. Change Value Proposition Last Second, that he needed to recognize that changing the value proposition – the features of the products/services he was offering – was a lot more traumatic for a startup than changing other parts of the business model. He should make sure that there aren’t other parts of the business model (revenue model, pricing, partners, channel, etc.) that couldn’t change before he declares “we’re building the wrong product.” In searching for product/market fit (the right match between value proposition and customer segment) the product should be the last part you think of changing – not the first – as the cost of upending your product development organization is high. And to make sure everyone knew what he was doing, he might want to consider letting the entire company know “don’t worry when I’m talking about changing our business model every week – it’s a natural part of searching – only worry if I ask you to change the value proposition every month.” Find a Brainstorm Buddy Finally, I suggested that he find someone he respects on his advisory board, who he was comfortable brainstorming with and would tell him when he has a bad idea. Yuri sat quietly for awhile. I wasn’t sure he had heard a thing I said, until he said “Wait 72 hours? I can do that. Now can I call you when I have a hot new idea? Lessons Learned Founders are great at seeing things others don’t – at times it’s a vision, most often it’s a hallucination Founders want immediate action – often they call it a pivot A Pivot should not be an excuse for a lack of a coherent strategy or a lack of impulse control Disconnect your insights from your mouth for 72-hours If you can unilaterally overrule your co-founders there are no brakes on you Your board members are not your brainstorm buddies-find others you trust Filed under: Customer Development
The Lean LaunchPad Class Online 24 August, 2012, 10:03 am
Filed under: Customer Development, Lean LaunchPad, Teaching
When Microsoft Threatened to Sue Us Over the Letter “E” 20 August, 2012, 6:00 am
By 1997 E.piphany was a fast growing startup with customers, revenue and something approaching a repeatable business model. Somewhere that year we decided to professionalize our logo (you should have seen the first one.) With a massive leap of creativity we decided that it should it should have our company name and the letter “E” with a swoop over it. 1997 was also that year that Microsoft was in the middle of the browser wars with Netscape. Microsoft had just released Internet Explorer 3 which for the first time was a credible contender. With the browser came a Microsoft logo. And with that same massive leap of creativity Microsoft decided that their logo would have their product name and the letter “E’ with a swoop over it. One of E.piphany’s product innovations was that we used this new fangled invention called the browser and we ran on both Netscape and Microsoft’s. We didn’t think twice about. That is until the day we got a letter from Microsoft’s legal department claiming similarity and potential confusion between our two logos. They demanded we change ours. I wish I still had their letter. I’m sure it was both impressive and amusing. I had forgotten all about incident this until this week when Doug Camplejohn, E.piphany’s then VP of Marketing somehow had saved what he claims was my response to Microsoft’s legal threat and sent it me. It read: Response Letter to Bill Gates Dear Bill, We are in receipt of your lawyer’s letter claiming Microsoft’s ownership of the look and feel of the letter “e”. While I understand Microsoft’s proprietary interest in protecting its software, I did not realize (until the receipt of your ominous legal missive) that one of the 26 letters in the English language was now the trademarked property of Microsoft. Given the name of your company, claiming the letter “e” is an unusual place to start. I can understand Microsoft wanting exclusive rights to the letter “M” or “W”, but “e”? I can even imagine a close family member starting your alphabet collection by buying you the letters “B” or “G” as a birthday present. Even the letters “F” “T” or “C” must be more appealing right now then starting with “e”. In fact, considering Microsoft’s financial health and legal prowess you may want to consider buying a symbol rather than a letter. Imagine the value of charging royalties on the use of the dollar “$” sign. I understand the legal complaint refers to the similarities of our use of “e” in the Epiphany corporate logo to the “e” in the Internet Explorer logo. Given that the name of my company and the name of your product both start with the same letter, it doesn’t take much imagination to figure out why we both used the letter in our logos, but I guess it has escaped your lawyers. As to confusion between the two products, it is hard for me to understand why someone would confuse a $250,000 enterprise software package (with which we require a customer to buy $50,000 of Microsoft software; NT, SQL Server and IIS), with the free and ever present Internet Explorer. Given that Microsoft sets the standard for most things in the computer industry, I hope we don’t open the mail next week and find Netscape suing us for using the letter “N”, quickly followed by Sun’s claim on “J”. Perhaps we can submit all 26 letters to some sort of standards committee for arbitration. Come to think of it, starting with “e” is another brilliant Microsoft strategy. It is the most common letter in the English language. Steve Blank Epilogue Given later that year Microsoft ended up being a large multi-million dollar E.piphany customer all I can assume is that cooler heads prevailed (more than likely our new CEO,) and this letter was never sent and the threatened lawsuit never materialized. Ironically, since the turn of the century Microsoft has done great things for entrepreneurs. Their BizSpark and DreamSpark programs have become the best corporate model of how a large company can successfully partner with startups and students worldwide. But I am glad we helped keep the letter E in the public domain. Filed under: E.piphany, Marketing
At times not losing is as important as winning 17 August, 2012, 6:00 am
At times not losing is as important as winning. Customer Validation E.piphany was an 11-month-old startup with 31 people and on fire. We had closed four $100,000 deals for our customer relationship management software. Joe Dinucci, our VP of Sales, was hot on the trail of our next big order. He had just demo’d our product to his friend, the CFO of Autodesk. After seeing the demo, the CFO walked Joe over to the office of Autodesk’s VP of sales, and said to her, “I think this product might solve your sales reporting problem.” After a demo she agreed it would. Joe came back to our company excited. If we won the Autodesk account it could be worth half a million dollars or more. They Have A Problem and Know It At the time Autodesk’s sales organization was frustrated with their IT department. It took weeks or months for Sales to get financial, sales results and customer reports from IT. Autodesk’s VP of Sales fit the profile of a earlyvangelist: she understood she had a pressing problem (couldn’t get timely data needed to forecast sales), she was searching for a solution (beating up the Autodesk CIO on a weekly basis to solve her problem), she had a timetable for a solution (now) and her company had committed budget dollars to solve this problem (they spend anything to stop missing forecasts.) A Match Made in Heaven For the next several weeks, the entire E.piphany engineering department worked with Autodesk’s sales operation team to build a prototype using real Autodesk data. Joe made a compelling ROI (Return On Investment) presentation to the VP of Sales and the CFO. E.piphany and Autodesk seemed like a match made in heaven and it looked like we had a $500,000 deal that could close in weeks. Not quite. The CIO The CFO casually mentioned that as IT would install and maintain the system, they would have to recommend and sign off on an E.piphany purchase. As the CIO worked for the CFO, Joe paid what he thought was a courtesy call on Autodesk’s CIO. The CIO didn’t say much in the presentation (warning, warning) and he passed Joe on to his manager of data warehouse development. What Joe didn’t know was that months ago, this IT group has been tasked to solve Sales’ reporting problems and was struggling with the complexity and difficulty of extracting data from SAP. Joe was aware of the tense history between Autodesk sales and its IT department, but given how happy the VP of Sales was with E.piphany’s prototypes plus Joe’s personal relationship with the CFO, he didn’t see this as a serious obstacle. Joe believed the IT organization had nothing but technical piece parts to compete with E.piphany’s complete solution. Given E.piphany had a vastly superior solution, Joe believed there was no logical way they could recommend to the CIO to deploy anything else but E.piphany. Wrong. The IT Revolt Unbeknownst to Joe a revolt was brewing in Autodesk’s IT organization. “Sales keeps asking for all these reports and now they are telling us what application to buy? If we deploy E.piphany’s entire solution, we’ll all be out of jobs. But if we recommend software tools from another startup, we could say we’re solving the needs of the Sales VP and still keep our jobs.“ Late in the afternoon, Joe got a call from a friend in Autodesk’s IT department warning that they were give the order to another startup. And the CIO would approve the recommendation and pass this to his boss, the CFO, the next day. We’re Going to Lose Joe arrived in my office, his face making it clear he brought bad news. E.piphany was now about to lose a half million-dollar Autodesk sale. Joe looked at his shoes while he muttered his frustrations with internal Autodesk politics. We had a long discussion about the consequences if we lost. It was one thing for a startup to lose to a large company like Oracle or IBM. But to lose the sale to another startup with an inferior product would have been psychologically devastating to our little startup. E.piphany’s product development team had spent weeks inside the account, and they believed the deal was all but won. The competitor would trumpet the sales win far and wide and use the momentum to get more sales. We couldn’t afford to lose this sale. What could we do? The Third Way It struck me that there might be more than two outcomes.Sales had defined the problem as a win or lose situation. But what if we added a third choice? What if we formally, publicly and noisily withdrew from the account? The worst case was that we could tell our engineering team that we should have won but the game was rigged. While we certainly wouldn’t win the business, withdrawing would solve the more emotionally explosive issue of losing. (And In the back of my mind, I believed this third way had a chance of giving us the winning hand.) At first Joe hated the idea. Like every great sales guy, he was eternally optimistic about the outcome. However, I wasn’t in the mood to put the company’s future at risk on the testosterone levels of our sales guy. Withdrawing by claiming that Autodesk’s IT staff had already decided that it was “any solution but ours” was making the best of a deteriorating sales situation. Joe called his friend the CFO, waiting until after 5pm, when he was sure he wasn’t in his office, and left him a message: “Thanks for introducing us to the VP of Sales and your technical staff. We really appreciate the opportunity to work with you. Unfortunately it looks like this deal isn’t going to happen. You have a bunch of smart guys working for you, but they are determined to make sure that the status quo won’t change. We have limited resources and can’t continue to give demos and hold meetings when the outcome is predetermined. My guess is we’ll be back in six to nine months when the VP of Sales is still unhappy. I’m going to call her and let her know that we can’t put in the system that she wanted, but I thought I’d check-in with you first. Thanks again for the opportunity.” The “Take Away” Gambit This is known as the “take-away” gambit. I believed that by pulling the deal away, there was at least a 50% chance the CFO would do what I knew he didn’t want to – go to his CIO and help him make the “right” decision. I understood that a potential downside consequence of this maneuver was an uncooperative IT organization when we tried to install the product, but by then their check would be in the bank, and I had a plan to win them over. Joe was concerned that we had just lost the account, but he made the call and left the message. Two hours later Joe got a call back from the CFO who said,, “Wait, wait! Don’t pull out. Why don’t you come up and meet with me tomorrow morning. I’ve chatted with my staff and we’re now ready for a contract proposal.” Autodesk became our third paying customer. Over the next year they paid us over $1million for our software. After a full-court charm offensive, the IT person who wanted anyone but us became our biggest advocate. She keynoted our first user conference. Lessons Learned In complex B-to-B sales, multiple “Yes” votes are required to get an order. A single “No” can kill the deal. Understanding the saboteurs in a complex sale is as important as understanding the recommenders and influencers We needed a selling strategy that took all of this into account. In a startup not losing is sometimes more important than winning. Filed under: Customer Development, E.piphany, Marketing
Massacre at IBM 3 August, 2012, 6:00 am
Long before there was the Lean Startup, Business Model Canvas or Customer Development there was a guy in Santa Barbara California who had already figured it out. Frank Robinson of SyncDev has been helping companies figure out their minimum viable product and pivots since 1984, long before I even knew what it meant. They’ve done it for more than 400 companies ranging in size from 200 hundred starts-ups, one of whom was Citrus Systems that became Citrix, to IBM. Here’s a guest post from Frank. ———- I want to tell you a story about how a team pivoted and succeeded by synchronizing product and customer development. Though it’s about a large company, it’s applicable to teams in start-ups. It’s vivid with respect to method and outcome. Massacre at IBM Intel was angry at their supplier about a third-generation wafer-inspection system. “How dare you,” the fab manager said. “We shut down production to setup your machine.” He blocked new business for two years. The supplier’s CEO directed his business unit general managers to take a SyncDev workshop. The inspection- system GM decided to use it for his fourth-generation system, an 18-month program. Though development was already underway, I kicked-off SyncDev in early November. The core team — a cross-functional team who could make all the business and technical decisions within a set envelop ─ consisted of product manager, hardware-engineering manager, software-engineering manager, applications analyst, and software designer. We would travel throughout the US and Asia to test-sell a validation prototype, listening to each customer as a jury listens to each witness. The first wave of meetings was with five US customers in mid-November. On Monday, in San Jose, near the factory, we met with UltraTech Stepper, a friendly account. We did a quick overview of the product. That earned us the right to ask questions of fact about their department’s mission, goals, operations, volumes, tools, methods, and success metrics. We asked, “Given all that, what problems are you having?” We followed that with an hour-long design review, including disclosure of product limitations. For 30 minutes we did trial closes: Who would use it, how often, how would you justify it, and where does it rank on a list of purchase and to-do priorities. The customer asked, “Where’s off-line setup?” The product manager said, “It’s in the release after this.” That night we flew to Boise. Tuesday, 17 people at Micron asked the same question. We responded the same way. We took a red-eye to JFK and a commuter to Burlington, VT for a 9:00 AM Wednesday meeting at IBM. At noon the boss said, “You guys have no credibility. We’ve asked for off-line setup for years. No one listened!” Leaving the parking lot, the engineering managers in the back row of the van argued. The product manager who was driving whispered, “For years that said no one needs off-line setup. Now they’re arguing about how to do it.” Wednesday night we flew to Orlando for A&T. Thursday, off line set up was not an issue. The same thing happened on Friday in Austin. Off-line set up had disappeared into the team’s rearview mirror. Thanksgiving had come early that year. We were on the road again by late November to meet IBM in Fishkill, NY. After a 15-minute overview, they asked about off-line set up. After we responded their boss said, “Gentlemen, this meeting is over. We don’t want to hear about your roadmap. Please leave!” Humiliated and depressed, our ride to the hotel felt more like one in a hearse than a van. The customer’s wants the next day would be no different. The product manager described the metamorphosis: We gathered that night at the hotel, but we were changed. Humility had crumbled the walls between marketing and engineering. We had heard the voice of the customer as a team and they were unhappy. Thank God the whole team was there so we could decide on the spot. For appetizers we slashed requirements. For soup we compressed schedule. For the main course we sliced up the configuration into bite-size pieces. For dessert we integrated customers into our testing. For after-dinner drinks we polished the new presentation and said a short prayer. The next day was sunny. Breakfast was actually jovial. We looked back at yesterday with humor, not to cover our humiliation but because we had pivoted. The next meetings went far better. We took wounds, but none like those at Fishkill. We continued with three more meetings. We returned to the factory and presented our new path. “Are you nuts?” our product board asked. “You can’t change direction midstream!” Without missing a beat, Engineering quoted the customer. I explained how we’d manage technical risks. We were a team, convinced by a shared experience, that we knew what to do. Better yet, we had switched the burden of proof from us to our skeptics. In December and January we met with ten customers in Korea, Japan, and China. Changes were minor. Instead of pivoting we built virtual backlog. In February, we returned to Fishkill. “Congratulations, gentlemen,” IBM said, “We apologize for November. With the train heading our way, we’ll get on now. We’ll take two more old units (multi-million dollar) now and replace all seven with new ones when it ships.” In 90 days the team pivoted the product, saved a major account, captured a large order, cut schedule from 18 months to nine months, and developed virtual backlog. Two years after release, product market share was up by 30% to 70%. Twelve of 17 competitors were gone. The division was the dominant global player. The team followed these rules: Cardinal Rules of Synchronous Customer and Product Development Meet Customers as a Core, Cross-Functional Team authorized to act within a defined envelop. Report to a “Board,” to explain and defend your strategy and business case Meet Customers’ Decision Making Teams not just users Meet on Site in the customers’ habitat: Home, office, lab, factory, or playground. See what they do. Meet their colleagues, form relationships, help fix stuff now, and return as required Test Sell a Validation Prototype: Renderings, specs, and props. Don’t sell a vision! False positives result. Ask questions. Take Notes. Ask question of fact, not opinion and shut up. Take notes. Tag data and quotes. Disclose Limitations to surface objections. It enhances your credibility, too. Conduct Trial closes. There are thirty good ones starting on slide one. Meet in Waves to get bonked over the head by patterns, two customers per day, Tuesday to Thursday. Find and Fix Bad News. Bad news early is good news, if you find and fix it early. Filed under: Customer Development
Lying on your resume 30 July, 2012, 6:00 am
It’s not the crime that gets you, it’s the coverup. Richard Nixon and Watergate Getting asked by reporter about where I went to school made me remember the day I had to choose whether to lie on my resume. I Badly Want the Job When I got my first job in Silicon Valley it was through serendipity (my part) and desperation (on the part of my first employer.) I really didn’t have much of a resume – four years in the Air Force, building a scram system for a nuclear reactor, a startup in Ann Arbor Michigan but not much else. It was at my second startup in Silicon Valley that my life and career took an interesting turn. A recruiter found me, now in product marketing and wanted to introduce me to a hot startup making something called a workstation. “This is a technology-driven company and your background sounds great. Why don’t you send me a resume and I’ll pass it on.” A few days later I got a call back from the recruiter. “Steve, you left off your education. Where did you go to school?” “I never finished college,” I said. There was a long silence on the other end of the phone. “Steve, the VP of Sales and Marketing previously ran their engineering department. He was a professor of computer science at Harvard and his last job was running the Advanced Systems Division at Xerox PARC. Most of the sales force were previously design engineers. I can’t present a candidate without a college degree. Why don’t you make something up.” I still remember the exact instant of the conversation. In that moment I realized I had a choice. But I had no idea how profound, important and lasting it would be. It would have been really easy to lie, and what the heck the recruiter was telling me to do so. And he was telling me that, “no one checks education anyway.” (This is long before the days of the net.) My Updated Resume I told him I’d think about it. And I did for a long while. After a few days I sent him my updated resume and he passed it on to Convergent Technologies. Soon after I was called into an interview with the company. I can barely recall the other people I met, (my potential boss the VP of Marketing, interviews with various engineers, etc.) but I’ll never forget the interview with Ben Wegbreit, the VP of Sales and Marketing. Ben held up my resume and said, “You know you’re here interviewing because I’ve never seen a resume like this. You don’t have any college listed and there’s no education section. You put “Mensa” here,” – pointing to the part where education normally goes. “Why?” I looked back at him and said, “I thought Mensa might get your attention.” Ben just stared at me for an uncomfortable amount of time. Then he abruptly said, “Tell me what you did in your previous companies.” I thought this was going to be a story-telling interview like the others. But instead the minute I said, “my first startup used CATV coax to implement a local-area network for process control systems (which 35 years ago pre-Ethernet and TCP/IP was pretty cutting edge.) Ben said, “why don’t you go to the whiteboard and draw the system diagram for me.” Do what? Draw it?? I dug deep and spent 30 minutes diagramming trying remember headend’s, upstream and downstream frequencies, amplifiers, etc. With Ben peppering me with questions I could barely keep up. And there was a bunch of empty spaces where I couldn’t remember some of the detail. When I was done explaining it I headed for the chair, but Ben stopped me. “As long as you’re a the whiteboard, why don’t we go through the other two companies you were at.” I couldn’t believe it, I was already mentally exhausted but we spent another half hour with me drawing diagrams and Ben asking questions. First talking about what I had taught at ESL – (as carefully as I could.) Finally, we talked about Zilog microprocessors, making me draw the architecture (easy because I had taught it) and some sample system designs (harder.) Finally I got to sit down. Ben looked at me for a long while not saying a word. Then he stood up and opened the door signaling me to leave, shook my hand and said, “Thanks for coming in.” WTF? That’s it?? Did I get the job or not? That evening I got a call from the recruiter. “Ben loved you. In fact he had to convince the VP of Marketing who didn’t want to hire you. Congratulations.” Epilogue Three and a half years later Convergent was now a public company and I was a Vice President of Marketing working for Ben. Ben ended up as my mentor at Convergent (and for the rest of my career), my peer at Ardent and my partner and co-founder at Epiphany. I would never use Mensa again on my resume and my education section would always be empty. But every time I read about an executive who got caught in a resume scandal I remember the moment I had to choose. Lessons Learned You will be faced with ethical dilemmas your entire career Taking the wrong path is most often the easiest choice These choices will seem like trivial and inconsequential shortcuts – at the time Some of them will have lasting consequences It’s not the lie that will catch up with you, it’s the coverup Choose wisely Filed under: Convergent Technologies, E.piphany, ESL, Family/Career/Culture, Zilog
Unrequited Love 24 July, 2012, 6:00 am
If there’s only one passionate party in a relationship it’s unrequited love. Here’s how I learned it the hard way. The Dartmouth Football Team After Rocket Science I took some time off and consulted for the very VC’s who lost lots of money on the company. The VC’s suggested I should spend a day at Onyx Software, an early pioneer in Sales Automation in Seattle. In my first meeting with Onyx I was a bit nonplussed when the management team started trickling into their boardroom. Their VP of Sales was about 6’ 3” and seemed to be almost as wide. Next two more of their execs walked in each looking about 6’ 5” and it seemed they had to turn sideways to get through the door. They all looked like they could have gotten jobs as bouncers at a nightclub. I remember thinking, there’s no way their CEO can be any taller – he’s probably 5’ 2”. Wrong. Brent Frei, the Onyx CEO walks in and he looked about 6’ 8’ and something told me he could tear telephone books in half. I jokingly said, “If the software business doesn’t work out you guys got a pretty good football team here.” Without missing a beat Brent said, “Nah, we already did that. We were the Dartmouth football team front defensive three.” Oh. But that wasn’t the only surprise of the day. While I thought I was consulting, Onyx was actually trying to recruit me as their VP of Marketing. At the end of the day I came away thinking it was a smart and aggressive team, thought the world of Brent Frei as a CEO and knew Onyx was going to succeed – despite their Microsoft monoculture. With an unexpected job offer in-hand I spent the plane flight home concluding that our family had already planted roots too deep to move to Seattle. But in that one day I had learned a lot about sales automation that would shape my thinking when we founded Epiphany. I Know A Great Customer A year later my co-founders and I had formed Epiphany. As other startups were quickly automating all the department of large corporations (SAP-manufacturing, Oracle-finance, Siebel and Onyx-Sales) our first thought was that our company was going to automate enterprise-marketing departments. And along with that first customer hypothesis I had the brilliant hypothesis that my channel partner should be Onyx. I thought, “If they already selling to the sales department Epiphany’s products could easily be cross-sold to the marketing department.” So I called on my friends at Onyx and got on a plane to Seattle. They were growing quickly and doing all they could to keep up with their own sales but they were kind enough to hear me out. I outlined how our two products could be technically integrated together, how they could make much more money selling both and why it was a great deal for both companies. They had lots of objections but I turned on the sales charm and by the end of the meeting had “convinced them” to let us integrate both our systems to see what the result was. I made the deal painless by telling them that we would do the work for free because when they saw the result they’d love it and agree to resell our product. I left with enough code so our engineers could get started immediately. Bad idea. But I didn’t realize that at the time. It’s Only a Month of Work Back at Epiphany I convinced my co-founders that integrating the two systems was worth the effort and they dove in. Onyx gave us an engineering contact and he helped our team make sense of their system. One of the Onyx product managers got engaged and became an enthusiastic earlyvanglist. The integration effort probably used up a calendar month of our engineering time and an few hours of theirs. But when it was done the integrated system was awesome. No one had anything like this. We shipped a complete server up to Onyx (this is long before the cloud) and they assured us they would start evaluating it. A week goes by and there’s radio silence – nothing is heard from them. Another week, still no news. In fact, no one is returning our calls at all. Finally I decide to get on a plane and see what has happened to our “deal.” Instead of being welcomed by the whole Onyx exec staff, this time a clearly uncomfortable product manager met me. “Well how do like our integrated system?” I asked. “And by the way where is it? Do you have it your demo room showing it to potential customers?” I had a bad feeling when he wouldn’t make eye contact. Without saying a word he walked me over to a closet in the hallway. He opened the door and pointed to our server sitting forlornly in the corner, unplugged. I was speechless. “I’m really sorry” he barely whispered. “I tried to convince everyone.” Now a decade and a half later the sight of server literally sitting next to the brooms, mops and buckets is still seared into my brain. I had poured everything into making this work and my dreams had been relegated to the janitors closet. My heart was broken. I managed to sputter out, “Why aren’t you working on integrating our systems? Just then their VP of Sales came by and gently pulled me into a conference room letting a pretty stressed product manager exhale. “Steve, you did a great sales job on us. We really were true believers when you were in our conference room. But when you left we concluded over the last month that this is your business not ours. We’re just running as hard and fast as we can to make ours succeed.” Unrequited Love I realized that mistake wasn’t my vision. Nor was it my passion for the idea. Or convincing Onyx that it was a great idea. And besides not being able to tell me straight out, Onyx did nothing wrong. My mistake was pretty simple – when I left their board room a month earlier I was the only one who had an active commitment and obligation to make the deal successful. It may seem like a simple tactical mistake, but it in fact it was fatal. They put none of their resources in the project – no real engineering commitment, no dollars, no orders, no joint customer calls. It had been a one-way relationship the day I had left their building. It would be 15 years before I would make this mistake again. Lessons Learned When you don’t charge for something people don’t value it When your “partners” aren’t putting up proportional value it’s not a relationship Cheerleading earlyvangelists are critical but ultimately you need to be in constant communication with people with authority (to sign checks, to do a deal, to commit resources, etc.) Your reality distortion field may hinder your ability to realize that you’re the only one marching in the parade If there’s only one passionate party in a deal it’s unrequited love Filed under: Customer Development, E.piphany, Marketing

subscribe for mail

recently suggested

suggest a feed