Lazy Thinking Vs. Pattern Recognition

We all use our past experiences and outside examples to help us solve problems or opportunities that we’re currently facing. 

Using analogies and history help us develop an understanding of the risks in a business. These tools can be incredibly useful (and efficient) for both entrepreneurs and investors in the early stage. Diving into where past companies succeeded, struggled and failed can help an entrepreneur focus on the right pain points, and borrowing analogies from other industries can really help an outsider quickly understand what the business is all about: this is often exemplified in the “X for Y” tool used by many entrepreneurs raising capital or selling their idea to someone new.

Examples:

“We’re building the Amazon for legal services”

“It’s kind of like a Netflix for babysitters”

“Picture the Apple of waste management”

etc…

When these tools get us all into trouble is when we we engage in lazy thinking and convince ourselves that we’re using our pattern recognition.  Here are a few land mines I’ve witnessed in conversations:

1.  Using what you knew about acquisition costs five years ago to make assumptions about today.

2. Incorrectly applying dynamics of one industry to another because they ‘seem’ similar. For example, the music industry is not like the film industry in a number of very important ways, but it’s easy to lump them together because they feel like they should be the same.

3. Using big rule of thumb assumptions like “SMBs are hard to market to” without digging into a company’s distribution plan.

4. Assuming complex problems are insurmountable because no one has solved them yet.

5. Using pedigree to drive 90% of your assessment of a team.

6. Assuming the industry dynamics have gone through a recent disruption, are now mature and won’t be changed again.

Google is probably the most famous example of an incredible business that started out as a ‘bad idea’. In 1999 David Cowan from Bessemer famously tried to avoid meeting Sergey and Larry when they were building their search engine. David used pattern recognition and hit two land mines: he assumed because the founders were students they weren’t doing anything serious, and he assumed that the search market movie had already been made. Neither of those assumptions ended up being right, but because 90% of the time those assumptions would have been true, it’s easy to overuse them and miss opportunities.

I think the art in early stage investing is avoiding these land mines – it’s where all of the opportunity lies.

Advertisements

Hustle

I spent yesterday morning at the DreamIt Ventures demo day and had a few takeaways.

First, I was reminded that good accelerators are a near-perfect vehicle for early stage companies to get a punch of exposure to investors, and also get the added benefit of refining their stories down to a concise package. I’m optimistic that a number of the companies that presented will raise some runway. Platforms like Angel list and Circle Up are also great ways to introduce your company to investors, but they’re probably better at helping you round out a round than raise the first slug.

Second, I was reminded while watching these companies present of the age-old concept of hustle. Fred Wilson wrote a great story a few years back about the Airbnb founders selling Obama-Os to fund their early days at the company. At YouCast, one of our founders had an uncanny ability to get us in front of anyone we needed, from Marc Andreessen to 50 Cent (both of whom worked with us).

Having hustle is not about being sales-y, or being good at bullshitting people.

I see hustle as an intuitive understanding that access is universal, and an understanding that there aren’t as many rules to the game as you might perceive from the outside. Second, hustle means being incredibly productive with a pathetically small amount of resources.  I saw a few companies presenting yesterday that had great hustle, and I’ve met with entrepreneurs that show it right away. It can’t replace a great market, amazing product team or great operational execution, but I’ve been consistently impressed with how far a startup can go with one great hustler on the team.

Being Fair With Equity

I met with a friend last night who is considering a role in a pre-Seed stage startup that she was excited about.  She had a lot of great questions about how she should structure a negotiation for coming on board.  I gave her the answers I had from my experience, but wanted to dig into the topic a little this morning to see if there are some good guideposts out there to leverage.

It turns out Joel Spolsky pretty much closed the book on this topic with this response.  I wish I had this five years ago, so I’m sharing it here in the hopes that it helps someone else along the way.

I’m not going to repeat Joel’s entire framework here (you should go read his response), but I will call out a few points that resonated with me:

  • His ‘risk-layer’ approach is the right way to think about equity. The 2-3 people who start out with a blank page are taking all of the early risk and are entitled to the largest share of equity. If you are coming into a startup with a salary, you are probably not in that first risk layer and shouldn’t have an expectation that you are.  At the same time, if you are the first ‘non-founding’ employee and you’re a catch, you should think about that second layer and what you feel is the right amount to ask for.
  • The notion that ideas are essentially worthless is a great point, and this is a movie I’ve seen a number of times in the past.  It’s not that ideas are worthless, nothing could happen without them, it’s just that they aren’t worth valuing in terms of founding equity because it’s too difficult to assign value to them, and outcomes will be 99% determined by execution.
  • All equity (founders included) being subject to their equity vesting is a great idea.  To be perfectly honest, I’ve never, ever seen this and I don’t think it will ever become the rule, but it’s a really smart idea.

Most importantly, the theme on fairness and transparency really resonated with me.  Fairness, above everything else, is the most important piece of this equation.  Not that everything in these negotiations has to be perfectly ‘fair’, but in the end everyone needs to feel that they were treated fairly and with respect.  The probability of success from early stage to liquidity event is so, so low and the only thing propelling the company forward is the team.  If great people feel that they’ve been treated unfairly, they will bolt when a better opportunity comes along.  The subject of equity can be the most important conversation you have with your employees, be transparent and be fair.

Google Glass Comes Close

After a week with Google Glass, I’m reminded of that  Bob Uecker line from Major League “Juuust a bit outside!” (here’s a clip with the line if that was too esoteric.)

I’m generally excited about Glass, and I loved a few things about it. But  I struggled to find opportunities to use it. Currently, Glass feels like a really great prototype of something that’s going to be smaller, sleeker, less obtrusive and more useful when it hits the market. But unless the device is delivered in a contact lens version, I think it’s unlikely to hit scale adoption as a product that we wear on our faces.

If you’re wearing Glass, it can be pretty disruptive to the people around you. It feels a little rude to have them on in most situations because it draws a ton of attention and people struggle to look past them, so most of the time I found myself leaving them on my desk.  In my experience, the disruption was two-fold: the first was that people stared at the device because it looks unusual.  I think we can all get passed that eventually, but I’m not sure people like having a camera pointed at them all of the time, it makes them generally uncomfortable.

Also, you can’t really ‘compute’ and talk to someone at the same time, so Glass doesn’t yet solve the problem of people staring at their phones in a graceful way. I get the sense that Glass was created, in part, to solve the problem of us all staring at our phone screens instead of at each other, but it doesn’t really help you stop doing that. I  found myself either computing or talking to people, and it tended to make both a little more difficult and a little more awkward.

Google took the first real swipe at wearable computing in a big way. There is no question that this product has opened up the door to a platform of game-changing devices that we will command with our voices, eyes and even our thoughts. Taking a photo or a video, or surfing the web using Glass was a magic experience and something that felt completely new.  I’m long on the category and I think Google will eventually  figure out a product that solves for the social awkwardness. Glass is close.

Using Every Canvas In Marketing

I had breakfast with my friend and schoolmate Jon Steiman this week, and we got onto on the topic of the iTunes app store. Jon is at TalkTo and we share some of the same challenges around product marketing. Being who he is, Jon had some great thoughts for leveraging every opportunity to build a brand. [As a promotional aside, TalkTo is absolutely awesome – it lets you text businesses that you would normally have to call. I’ve used it five times this week.  Try it].

Jon used Chuck Lorre as a benchmark for his latest tactic. At the end of his television shows, Mr. Lorre posted short essays on his production company’s Vanity Cards. At first, they were ineffectual because they flashed on the screen too quickly for people to read, but as DVR usage increased, the impact of Mr. Lorre’s essays increased exponentially. His Vanity Cards have become relevant enough to be a published book.

So where did TalkTo find its latest canvas? They tapped into the “What’s New” section of the Apple iTunes store. The conventional wisdom is to use the What’s New space to explain the minute details of a new release. Typical notes include copy like “Speed and improvements and bug fixes” or “Lots of new features.” Informative, but not much of a page-turner.

Two updates ago, TalkTo posted the following notes:

details

Cheeky, branded, fun.  It also drove some buzz for them (which TalkTo was nice enough to provide when I told them I wanted to post about it):

handley

cutler

 

I agree with Jon – never let a canvas go blank. If you’re in product marketing, take occasional stock of your communications and  make sure you’re leveraging every opportunity to communicate your brand and product benefits.

Analytics Won’t Get You To Product Market Fit

all-you-need-to-know-about-big-data

In the new world of big data, everyone in the startup community seems obsessed with collecting data and making data-driven decisions. For the most part, this is a healthy obsession. New analytics platforms like KISS, Mixpanel and Localytics are providing great tools for product managers and marketers to better understand what’s happening inside their apps and web products.

We’ve also developed great processes for defining success from a metrics standpoint.  Aside from K-factor for viral apps and standard retention metrics for paid services, we have frameworks like Dave McClure’s Startupp Metrics For Pirates that help any startup with customers think about their product-market fit goals from an analytical view.

These innovations have been net positive for business building, but they can also enable a bigger problem:  they allow entrepreneurs to analyze  metrics as a replacement for talking to real customers.  in truth, it’s way easier to look at a Mixpanel screen than it is to talk to a person about your product. First, no one wants to face judgement directly, they’d much prefer to have it distilled into a bad retention metric. Second, talking to users is noisy – it’s really hard to pull actionable insights from a handful of conversations.

Analytics can provide us a window, but they don’t give us a narrative for how people think about our products, how they think about competing products, or even what they think of our value proposition (assuming they even know what our value proposition is).  The narrative around a given product will inevitably be the leading indicator of success or failure, but analytics will only give us a sliver of insight around it.

Depending on your product type (consumer and enterprise startups should handle this problem differently), there are a few tactics you can employ to get more narrative-based feedback on your product.  None of these will cost you much more than time, but they can save you months of incorrectly deploying your resources.

1. Follow Michael Margalis’ Quick and Dirty Consumer Research. Michael is a partner at Google Ventures’ Design Lab.  In this video, he offers a wealth of information about how to find and interview users. The video is 90 minutes and every single minute is worth watching. I cannot recommend this video enough for the discovery phase of your product development.

2. Have Users Test Competitive Products. If you want to build a great product, see where people are getting tripped up with your competitors’ products. The best part about this is that you don’t have to build anything to test competitors’ products.  Aside from identifying UX / UI opportunities, you’ll quickly understand how users feel about products in your category, and how they fit them into their lives. Most technology products are used to satisfy a need – understanding how people  think about their needs and solutions is as important as any metric in your analytics dashboard.

3. Talk To Your Existing Users.  There are two primary ways to get in front of your existing users –  phone calls and email surveys. I’ve found that both are great for different goals. Survey’s tend to get you ‘crowd-sourced’ style data points, general sentiment towards your product (e.g. satisfaction scores, net promoter scores, etc.). They can also help influence your product roadmap.  Interviews are better for the narrative questions – how do your users think about your product, when do they use it and what need(s) does it satisfy?

You Probably Dont Need a Growth Hacker Yet

GHC

I was lucky enough to attend the Growth Hackers Conference this week in San Francisco. I’m not typically that interested in conferences, but I could not miss this speaker list and I wasn’t disappointed. Product marketing and growth folks from PayPal, Facebook, LinkedIn, Twitter, Tagged and 500 Startups spoke on their experiences driving growth from early to the late stages of their respective companies, offering their insights and suggestions. It was a pretty priceless experience set. Here a few things I gleaned :

Growth Hackers Are Not Valuable Before Product Market Fit: There’s a common misconception that growth hacking (like regular hacking, I guess?), happens early in product development. It makes sense that people are confused. There’s been a lot of conversation about lean startup in the scene lately, so I guess people think of growth hacking as lean’s marketing-y sister.

It isn’t.

Growth hacking is experimenting with a pretty big data set, and that data set is a user base in the multiple millions of users / profiles / content pieces. Yes, the multiple millions. Think about it, if you’re going to hack your way into additional growth, you need to start with something to hack into. That pool is a large group of users coming through your door every day. It allows you to run multiple experiments per day and the scale means that even small optimizations will move the needle in big ways.

When Growth Hits, Build A Dedicated Growth Team: Growth hacking isn’t different from marketing, but it’s building a more technically-inclined team. I heard from a number of veterans today that growth hacking teams are typically comprised of a product manager, engineer, designer and data analyst. Everyone had a slightly different composition of talents in mind, but this was roughly the composition of the standard team.

Don’t have 10mm users yet? If you’re in a consumer business there is no question that exponential growth is important to you, so here are a few things to consider now while in the early stages

Build a Growth Culture: Baking growth into the organizational decision engine is a choice. It’s not for everyone, some companies want to focus on brand and having a growth culture can create tension with a brand focus. Keith Rabois noted that one of the best performing emails of all time at LinkedIn had a grammatical error in the subject line. At Square, he never could have gotten that email sent because the branded experience is so important to Square.

Set Measurable Goals: Facebook famously set a goal of getting new users to add 10 friends within 13 days of signup. At some point they figured out that users who add 10 friends within 13 days were far more likely to stay active, so that’s the metric that they optimized against.

Focus On Core Metrics: There used to be a school of thought that encouraged product managers to “track everything”. Instead, it’s better to define what your core metrics are and chase those. It minimizes distraction and keeps focus on the drivers of the core business

Experiment, Experiment, Experiment: There’s nothing more poisonous at an early stage company than creating a culture that punishes failure. Stan Chudnovsky said at PayPal that he might run five experiments in a given week and that they would all fail. Elliot Schmukler similarly noted that at LinkedIn they would actually repeat failed experiments letting other people run them. #awesome