Maybe You’re Just Not Lucky

I just finished reading Fooled By Randomness, by Nassim Taleb. I loved the book, and if you’re interested in financial markets, behavioral finance, probabilities and statistics I think you’ll really enjoy it. Check it out if you haven’t already. Nassim has a section that talks about survivor bias and it got me thinking about how it related to startups.

I was recently at a conference for startups in San Francisco, a day-long chance to learn from people who had built and run massively successful businesses. The speakers were gracious, humble and offered the best advice they could for the young operators in the crowd. But I was particularly struck by one CEO, who was the only one to attribute much of his success to luck. When asked a question about what he would have done differently, he said that you can’t ignore the massive role luck plays in the success of most startups, and he tried to keep that in mind while he was going through growing pains at the company.

I looked out over the 400 people in attendance and noticed how young everyone was, and I thought about how few of them would still be coming back to these conferences after five years.

One problem with taking to heart advice from successful startup founders is that we run the risk of mistaking correlation for causation, and we ignore survivor bias when we internalize this information. Of 100 startup founders, maybe 10-20% will be truly successful at operating their company from an idea to an M&A transaction or IPO that generates a return for everyone involved. Of the 80% plus who fail, most of them will be exceptional entrepreneurs and operators who picked the wrong market, the wrong product strategy or just had bad luck along the way.

Venture investors place very few bets in a given year, and all of them are on top notch people who are vetted and have the potential to become great leaders. Of those 100 theoretical startups, 100% of them are founded by credible people who have already proven their potential, and often have a previous track record of success – they are already winners on paper or they wouldn’t be able to raise capital.

I don’t think the community likes talking about this very much. We like to put successful startup leaders on pedestals and assume that they’re successful because of the decisions they made. Success rates in early stage, venture-backed startups are very, very low. The cemetery of failed startups is filled with entrepreneurs who did literally everything right, but were just unlucky. I was reminded to keep this in mind, not only when looking at failed startups, but also when looking at successes. Operating advice can be invaluable, but keep in mind that for every successful founder you see on a stage, there are probably 80 others who are just as talented, just as smart, and just as good at operating, who were just a little less lucky.

Good Reading – 1.20.14

– Mobile messaging app usage grew by over 200% in 2013, beating out every other app category in both usage and growth. In my view, messaging apps are a fast, simple way of creating dark social networks. 1-1 and small group communication is the new social media broadcast.  My personal behavior mirrors this, and all of the research we’ve done in-house backs it up: large social networks are good for some types of content, but most of the communication we do isn’t designed to be shared with everyone. Because of the  fragmented networks involved, messaging app users will likely stay multi-home for a few more years. Link >>

– Charter Communications made a $61+ bn. cash offer to acquire Time Warner Cable. By itself, the transaction doesn’t mean a ton, but looking at the overall telco and wireless carrier consolidation over the past years in the U.S., coupled with the recent ruling against  the FCC’s Open Internet Rule, is it safe to think the balance of power is starting to go increasingly larger players in the space? I have no certainty on how all of this will affect innovation in the startup scene for media, but I have to assume that these trends are overall bad for consumers when it comes to content delivery innovation.  Link >>

– Andreessen Horowitz is in the process of raising t’s 4th round, another $1.5bn., the majority of which will be dedicated to early stage investments. Anyone who doesn’t already, follow Marc Andreessen on Twitter. Marc’s feed is optimistic, though-provoking and is evidence why his approach to investing has been so successful of late. This 4th fund is just anther supporting data point.  Link >>

– Dropbox raised $250mm at a $10bn. valuation. As a company I pay every month for a service that completely changed my life, my view is that Dropbox still has a ton of runway ahead of it and, in my opinion, is in the unique position of being better as an independent company than as part of a larger suite of solutions like Apple, Google or Oracle.  Link >>

– if you were under a rock , Nest was acquired by google for $3.2bn. No sense in writing about this, but in three years this is going to see like a very, very cheap acquisition. Link >>

 

This Week – 01.13.13

– CES was this past week and everyone already wrote about it, streamed it and talked about it. I liked Tomasz Tunguz’s summary – it’s short but insightful. Read it if you’re looking for a quick recap of what happened and what to look out for in the next year. Link

– Someone hacked Snapchat and leaked 4.6mm names, usernames and phone numbers.  I was one of the users who had their info leaked, and I have to admit that it changed my attitude towards security on web services. Perhaps as breaches increase over the next few years, we are going to trust this info to fewer and fewer services, creating a defensive barrier for companies that already have much of it (Google, FB, Apple). Existing incumbents are pouring resources against increased security; strategically a great place to invest if you’re one of the early winners.

– Biz Stone (Founder at Twitter and Blogger) released his new ‘social search’ app Jelly (Link), which uses images, location and users’ existing social networks to deliver answers on visual questions. The product seems early and I haven’t gotten great answers yet, but I’m going to keep the app around to see how the community evolves.

– AT&T unveiled sponsored data this week, in a move that would subsidize data costs for users, and simultaneously took a swipe at the open Internet. (Link). Albert Wenger from Union Square Ventures also wrote a great editorial piece encouraging us all to work to keep the Internet and open place in 2014. (Link). I get the sense that selling money via free sponsored Internet sponsored is going to be a huge hit and a strong headwind against the open Internet. If the markets are allowed to evolve naturally, this is going to be the end state – great for business, but questionable how this works out for humanity at large.

– Aereo raised an additional $34mm in Series C investment, as the great unbundling of media continues. With Aereo, Netflix and a few other packages I have very little need for a full cable package anymore (HBO the obvious holdout). With that said, making the assumption, as many of my colleagues have, that cable operators are going to lay down and die in the content delivery space is a huge mistake – if anything I expect to see the better companies raise their game significantly in the coming years. My prediction: the next five years will be epic for consumers.  Link

This Week – 01.05.14

After a brief stint on Medium, I’m back to my old WordPress Blog.  I didn’t really see the value yet, but I may be back at some point.

I am also making a few plans to change the format of the content of this blog. While I intend to continue posting original content, I’m going to start posting a weekly summary on Sundays of what I read during the week that I found interesting, and I may post a few upcoming events in New York that I’m looking forward to.  If people like this, I’ll start sending it out in a Newsletter.  Mostly, I intend to cover startups, marketing and marketing tech, management and some tech related industry items.  I’ll also have a New York Tech slant as that’s where I mostly operate.  I’d love thoughts and feedback on these moving forward.

On Twitter’s Average Revenue per user – There was a useful post on Quartz that did some quick math to calculate average quarterly revenue average per monthly user, landing on $0.55 in quarterly revenue per monthly active user on Twitter.  I’ve always found this metric to be a bit confusing as it uses quarterly revenue and monthly-active-users, so this helps break the calculation down to a fairly intuitive level. As a comparison, $FB was closer to $1.20.  Link

More On Acquisition Costs vs. Lifetime Value – Saar Gur from Charles River Ventures created a nice presentation on how to think about acquisition costs versus lifetime value. A lot of startups try to tackle growth before revenue, thinking about it as a sequential equation. While that’s tactically correct, it’s strategically a little lazy.  There are always bigger, publicly traded comps that can help you think about LTV, even if you’re pre-revenue. Link

 The U.S. Student Debt Bubble– Peter Thiel submitted his Graph of the Year for 2013,  choosing to highlight the growing student debt burden in this country juxtaposed against the average starting salary for a student fresh out of school.  This is going to come to a head at some point soon and it’s likely to be an ugly resolution.  It’s also a huge opportunity for disruption and innovation. Link

Kevin Rose’s Tiny New Prototype – Kevin Rose, founder of Digg, created a new blogging platform prototype and just put it out into the world to get feedback. Tiny gives a reader a live, obfuscated view of the author while they’re writing.  While Tiny probably needs some more refinement, I think Kevin’s decision to release a prototype to his audience was a really smart way to work on a product, and contrary to the way a lot of first-time entrepreneurs think about the world (fixed pie, hide your ideas).  I’m also a big believer in the space he’s shooting at, making the web more dynamic, richer and more live.   Link

Trying out Medium

For the next month or so, I’m going to give writing on Medium a try.  A couple reasons:

1. I haven’t been writing as much as I used to.  I’m hoping that a new publishing layout will hope me focus on content and get me back into posting a few times per week.

2. The spam commenting on WordPress has gotten out of control.

3. I like the layout on Medium – it’s clean and focuses on writing. WordPress has made a few changes to it’s UI over the past year that have been a little annoying to manage around.

If this experiment works out I’m going to rethink my homepage (cbrucculeri.com), probably post long form on Medium, share links on Twitter and LinkedIn, and post personal stuff on Instagram and Facebook.

 

 

 

Managing Startups: Objective-Key-Results (OKRs)

leupold-target-dot

Having spent the past year working with and incredible team on a product I love, I thought I’d share a management tool that we adopted from Google called Objective-Key-Results (OKRs).  OKRs are a quarterly panning tool that help you and your team focus priorities and align around a common set of objectives.

Before I lay this out, I want to point out that this gets trickier if your company is pre product-market fit (defining P/M fit is all over the web, so I’m not going to get into it here). Until you have P/M fit, your only objective is likely to find that. Everything else is such a distant second that your process should probably be a little more organic and less structured on quarterly goals.

With that caveat, here’s how to manage with Objective-Key-Results. To illustrate, I’ll use a baseball team as an example startup:

1. Define, at a high level, what you want to accomplish over the next three months

This should be qualitative and narrative based. If you’re in between financing rounds, your goals should help you get to where you need to be in order to raise your next round.  I always like to look at runway, subtract six months to raise and decide what the company should look like at that point. How many quarters you have until that milestone date should inform this process.  For our baseball team startup, let’s define this as ‘build a world class team with a rabid fan-base and huge profits’.

2. Define three high-level objectives that support your goals

Some people recommend that these objectives are narrative based, e.g. ‘improve our first-time user retention’, or ‘surprise and delight our customers’.  We tried that at first but we ended up making our objectives measurable outcomes that required results from multiple teams.  Coming back to our team,  one of our objectives might be ‘win the World Series’.  Winning the World Series is measurable – it’s a binary outcome, but it requires results from multiple teams: pitching, batting, coaching and owners.

3. Define three measurable results that support each objective

These should be very specifically measurable and, to the extent that’s possible, owned mostly by a single team. They should also be results of actions, not action items. Lastly, they should directly support the objective.  An example result that would support winning the World Series might be ‘sign a five-tool player with an OBP over .325’ or ‘get a team-wide OBP of .150’. That’s a result of scouting, budgeting, deal making and finally signing a player or set of players who can get you the result you’re looking for.

Make sense?

A few other notes:

– get team input and buy-in. The important work in defining OKRs is the process of defining and prioritizing objectives. Handing these down from above doesn’t include the team in the processes, and if there’s no buy in then no one feels accountable for the results.

– these should be stretch objectives. You should expect that you’ll hit 60-70% of these.

– notice the use of three (three months, three objectives, three results-per objective). Stick to this. If you have three objectives and three results for each, you’re basically asking people to internalize twelve points. This is hard enough. If you start throwing a few bonus results in there the process will become unwieldily and ineffective.  Keep it simple.

– try to create objectives that will actually drive your business. This sounds obvious, but on our first shot at this we set vanity metrics as goals. The problem with vanity metrics isn’t so much that they don’t drive your business, but they really don’t tend to inspire your team.  As an example, try to focus on a metric that supports both growth and engagement – returning users might be one. It requires both growth and retention, so it’s both more challenging and more valuable to hit.

Have fun and happy managing!

Want To Work in Startups? Go Work For The Man First

Clippers Lakers Basketball

I had an economics professor who used to talk about the value of unique skills as a competitive advantage. He would use Kobe Bryant as a metaphor, saying “The Lakers pay Kobe Bryant because there are very, very few people who can do what Kobe Bryant does”.

I’ve been reflecting on that in terms of my career, and also because I’ve recently been working with some young people right out of school and looking to break into the startup scene. I look at the generalist vs. specialist debate from the perspective of my career, and also from the perspective of having to hire people at startups.

My Own Experience

I have always been a generalist. This was not a conscious decision. It was more a result of being  kind of geeky, a little ADD and not particularly sure of what I wanted to do when I grew up.

So, I’ve now held roles in marketing, product management, UX research, strategy, business development, sales and bartending.

I can say without question that I would have risen faster from a career standpoint if I had specialized in a functional area. Working in early stage startups, I’ve been able to get by because I’ve learned a lot of ways to add value to an organization, but I suspect I’ve also been pretty lucky and have a tendency to out-grind people.

As A Hiring Manager

Most of my experience hiring has also been in early stage startups. I’ve been in a half-dozen environments that we’re ‘in utero’ in terms of their  infancy. In all of them, almost without exception, I would prefer to hire people with some type of domain expertise rather than a ‘jack of all trades’ employee who I can put on anything.

Here’s my advice if you want to work in startups:

DRIVE A WEDGE [OR A BEACHHEAD IF YOURE INTO THE WAR ANALOGY] AND BUILD FROM YOUR BASE.

You can always go more general. Getting specialization as your career advances is significantly more difficult. I suggest that young entrepreneurs get great at something and be able to deliver in a functional area. Learn to code front end, learn BD or acquisition marketing, get your design on. The idea that specialists can’t run companies is a complete myth.

Go Work For A Big Company To Break Into Startups

If you’re out of school and you want to get into a great startup, you should consider going work at a big name brand company and get some functional specialization or a year or two.  Why?

  1. You can add a name brand to your resume. This matters when you’re raising money or trying to work at a startup. People will tell you it’s not important but it matters.  The girl who worked at Google out of school is going to get funding over the exact same person who worked at a failed startup out of school.
  2. You’ll get a structured process for skill development. I realize that there are a ton of online tool for learning skills, but the structure and process that big companies place on employees can actually be pretty beneficial when you’re just getting out into the world.
  3. It’s easier to go from big to little than little to big. It’s hard to spend ten years in early stage start ups and then get a job at Bloomberg.  It’s far easier to spend 2 years at Bloomberg and get a senior role at an early stage startup [or raise funding] because of your functional expertise and the brand on your background.