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.

Managing Startups: Objective-Key-Results (OKRs)


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!


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.

Focus (a.k.a. f(success) = M * (runway / burn rate) )


Of all the characteristics and skills we consider when assessing the quality of a given entrepreneurial team, the ability to focus on the right things is probably the most critical.

Any given early stage startup probability of success can be expressed as the relationship between a key problem-solving milestone, the cost of taking a shot at hitting that milestone and the amount of shots you get.

I picture startups as being lined up at a one of those carnival attractions where you’re trying to hit a dunk tank bullseye.   The bullseye represents a real market problem that you’re trying to ‘fix’.  The amount of chances you get to hit depends on how much money you have in your pocket to buy beanbags, or balls, or whatever object you’re using to hit the goal with.

It turns out that, often times, you shouldn’t even be there because you’re not ‘solving a problem’.  In other words, even if you hit the target no one will care.  This is the problem for 60% of startups.

Assuming you are solving a problem, you need to have enough capital to trade in for shots at the goal.  That can come in the form of time or money.  Most first-time entrepreneurs get very few shots because no one is willing to give them tons of money and if they’re bootstrapped they can only survive or so long..

Then, the biggest problem that first-time entrepreneurs seem to have is that, assuming they get past the first two hurdles and they get to take a few shots at their target, they lose track of the bullseye because they become distracted by other things.  All of a sudden there are new people nearby, and other bulls-eyes pop up, and suddenly your goal doesn’t seem as interesting.  Before you know it, you’re out of chances.

Obsessive focus on customer problems allow great entrepreneurs to get closer to the goal by the time they need more capital.  Startups are just a game of those cycles – don’t waste yours.

Rethinking the Tip Jar

I picked up some coffee the other day at Birch Coffee near our offices and encountered this tip jar (yes, I tipped for LOTR):

Tip Jars @ Birch

Aside from this being a creative way to ask for tips, I am willing to bet that this tactic is more effective than a standard tip jar.  Instead of asking explicitly for money, the staff here cleverly made tipping a game.  It was actually fun to tip the Brich folks, I got to simultaneously vote for my preference.  In it’s own way, this tip is about the tipper as well.

There are so many things in the world of business that are set up and executed without any creativity applied. This inspired me to try to rethink assumptions on monetization with some of our companies.

The Rest of the Story: Revisiting 2011 Predictions

Happy New Year, all.  Here’s to another twelve months of limitless possibilities in 2012.

A year ago I wrote a post on predictions for 2011 and listed five meta-trends that I saw transpiring in the world of tech and media.  I thought it would be a good idea to bring them back up and discuss what happened and what didn’t.  It looks like the obvious stuff happened (although I would welcome contrarian viewpoints), but some of the more nuanced predictions fell flat.  Later this week I’ll write some predictions for 2012, but for now here’s some analysis on how this past year panned out:

Prediction 1: Exponential growth in the U.S. smartphone market.

This was the low hanging fruit of predictions and to a large extent it’s safe to say that this happened.  According to eMarketer,  aggregate U.S. smartphone penetration jumped from 26% in 2010 to 38% in 2011.  That’s the biggest jump we’ll see as adoption slows YOY through 2015.  Of particular interest is the increased adoption in the 35-44 and 45-64 cohorts of the population.  A big question we should ask is how this group intends to use smartphones in the coming years, and what types of mobile services can we offer them?

Prediction 2: An increase in mobile gaming, but a decrease in pay-for-app models.

This prediction largely played out as well (don’t worry, I’m wrong about everything else).  I think this graph from Flurry is the best visualization of the sea change that’s happening in gaming:

Freemium Games

This graph came from a great piece written by Flurry’s GM of games, Jeferson Valadares,  who identifies why this strategy is useful to game developers.

Flurry data shows that the number of people who spend money in a free game ranges from 0.5% to 6% depending on the quality of the game and its core mechanics. Although this means that more than 90% of players will not spend a single penny, it also means that players who love your game spend much more than the $0.99 you were considering charging for the app.  And since you gave away the game for free, your “heavy spender” group can be sizable.

This ‘sizable’ group can drive the business value for your game, and the free-to-try model drastically lowers acquisition costs, keeping your funnel lean and activity high.  I expect this trend to continue for non hit-based games (think casual gamers) in 2012.

Prediction 3: Continued adoption of cloud-based productivity apps by businesses

2011 saw a number of companies make this bet in various industries, and I am confident that cloud-based applications will continue their adoption curve into 2012.  Was 2011 the breakout year for this change?  I think the jury is still out on that and I’ve had trouble finding hard data around this either way.  If anyone has real data on this in terms of customers or revenue I’d love to check it out.  The best piece I’ve found was this NYT article on SAP, but it doesn’t really size the market shift.

One observation that I had this year was that consumers are starting to bring their preferred apps into the workplace.  I didn’t see this as an entry point for enterprise businesses, but it looks like companies like Evernote and Dropbox are going to make their way into the workplace not through the traditional, long sales cycle that enterprise apps make to businesses, but through consumers just adding them on to their computers and demanding that they be permitted to use them.

Chris Dixon correctly points out that the user and the buyer in enterprise are different people, and I think that explains the drag in adoption pretty well.  We’ll see what happens in 2012, but this change is definitely on its way.

Prediction 4: Fragmented social networks

Last January I predicted that people would want more choice in how they share content and who they share it with.  This largely hasn’t happened yet on the web.  Facebook continues to grow at shocking rates considering the law of large numbers – I think they’re predicted to grow over 8% in 2012 according to eMarketer.  In defense of my prediction,  Google seemed to have thought the same thing and made a big bet on Google+ and the ability to develop ‘circles’, which are essentially micro-social networks.  We’ll see how this plays out in 2012.

Another note, when it comes to mobile I think we’re going to see an increase in demand for smaller networks.  Path reached over 1M users this year and released a beautiful iOS app.  Two mobile networks in the K2 Portfolio, Sonar and Tracks,  are both focused on unique mobile networks and are seeing incredible traction.

Prediction 5: Flat adoption of mobile coupons

This was flatter than most predicted, or hoped.  I think the best example of this lack of pickup would be Groupon Now: Groupon’s mobile solution. According to Yipit, when Now launched in May of 2011, Groupon predicted that mobile deals would represent 50% of Groupon’s sales within two years, but it has largely failed to deliver on that promise-  Now has been less than 1% of revenues in North america so far:

Groupon Now

I don’t think there’s a question of whether or not mobile coupons will become a driving force for consumer behavior in the future.  However, timing is everything an 2011 was not the year for widespread adoption.

That’s is for 2011. Overall the big trends that we saw forming up a year ago have largely played out as predicted.  I’ll put some predictions around 2012 later this week.

Joining the team at K2

K2 Media LabsI’m very excited to announce that I’ll be joining the team at K2 Media Labs on a full-time basis in the coming weeks.  K2 is an early stage private equity fund that invests in startups focused on the connected consumer.

The Company is a bit of a hybrid, in that it makes early-stage investments and also incubates companies in-house.  My day-to-day job will include working with CEO Daniel Klaus and Chairman Kevin Wendle on due diligence, planning and implementing strategies around new startup investments, as well as working in a supporting role with the current portfolio companies.  On the investing side I hope to build on what I’ve learned from Joe, Nikhil and the rest of the team at Softbank Capital, and from my time learning from Jerry Neumann at NEU VC.  From an operations perspective,  I’m hoping my time in business development, social marketing, product development, and my background in media & entertainment has given me a foundation of experience to be a value add to the incredibly talented group of entrepreneurs at K2.  I’ve spent lots of time selling services to businesses, and building in mobile and on Facebook.  While I still have limited knowledge and tons to learn, I hope that the skill set and network that I’ve built will be helpful to the entrepreneurs I will work with.

Aside from the in-house team at K2 , the fund has a phenomenal group of investors and advisors. Overall, I could not be more excited by the opportunity to learn from this team.  There aren’t many opportunities to work on both the investment and operations sides of early stage businesses, so I feel incredibly lucky to be here and I can’t wait to hit the ground running.

I plan to invest more time and energy into this blog, posting more often on topics covering startup operations and early stage investing.  If you ever want to connect, you can find me at christian[at], or on twitter @nycsteady.

Connecting the Dots

A couple weeks ago when Steve Jobs announced his retirement, I did a little research to try to sum up my takeaways from his success.  One of his stories was about taking a calligraphy class in college, and how that class gave him enough knowledge in the subject to create font sets in the first Apple products (which were later copied by Microsoft for Word).   At the time when he took that class, he had no idea how or why that class would be useful. Only when Jobs looked backwards he was able to connect the dots.

Jobs’ belief that ‘you can only connect the dots looking backwards’ struck me when I heard it, probably for the same reasons that it resonates with all of us. We all like to believe that everything we do has a deeper meaning, that every experience is building to a purpose and therefore no time and energy is ever truly wasted.  I like to think that way on a personal level,  but I also think this can be applied to entrepreneurship and product development.

Businesses are products of several environmental inputs:  the entrepreneurs behind them, the industry that they serve, the macro-economy, the trends at the time, customer needs, etc.  I believe many budding entrepreneurs, especially in the MBA communities, spend a lot of time thinking about these inputs and putting them into their business plans.  I think this is smart work to do.   You want to make sure that the market exists and is big enough to make your effort worthwhile.  With that said, there’s a limit to the value of doing this exercise and very few people seem capable or willing to take the next step, which I believe is creating a minimum viable product for early adopters to see and give you feedback on.   There’s a limited amount of planning that can be done in the startup phase, and much of entrepreneurship is based on experience and a ‘hunch’ that there’s some white space where you’re attacking.  5% of your learning will happen in the business planning process, 95% of it will happen when you start building.

In software, this process is called iterative development, or the agile method.  Here’s a quote from the wiki page:

The basic idea behind the agile method is to develop a system through repeated cycles (iterative) and in smaller portions at a time (incremental), allowing software developers to take advantage of what was learned during development of earlier parts or versions of the system. Learning comes from both the development and use of the system, where possible key steps in the process start with a simple implementation of a subset of the software requirements and iteratively enhance the evolving versions until the full system is implemented. At each iteration, design modifications are made and new functional capabilities are added.

Creating a feedback loop that includes early adopters will allow you test many of the assumptions that you’ve made in your business plan.  It also allows you make changes to your business model based on what you’ve learned.  When we built Crowdstream, we weren’t really sure what was going to resonate with artist managers or with fans.  It took four iterations to get it closer to right and we’re still iterating.  The product that we have today is vastly different from the product that we originally designed, but looking back its easy to connect the dots.

Five Things I Learned From Steve Jobs

On the heels of Steve Jobs’ announcement that he’s retiring from Apple (okay, I’m a little late for the heels, but there was a pseudo-hurricane),  I thought I’d reflect on the top five things I take from the single greatest entrepreneur in the history of consumer technology.

1. Know Your Customer:  When you start a business or step into an existing enterprise, it becomes easy to focus on operational or strategic issues.  It seems to me that having an almost religious obsession with the customer experience is the best bet you can make on where to expend your limited resources.

  • Jobs understood that his customers want their computing experiences to be seamless, and that they’re not interested in working through compatibility issues between manufacturers and software developers.  This understanding has allowed Apple to enjoy premium prices in a commoditized market for decades.
  • Remember what everyone was saying about the iPad before it was released?  Those who doubted the market demand for tablets spent months trying to catch up after the iPad’s initial success,  only to release products that felt like cheap knockoffs months too late.
  • An example from another successful tech company: when Google’s Page Rank algorithm was first created, the company’s first strategy was to license its search technology to existing search engine websites.  The issue, as the story is told, is that Google’s technology was too fast and, if users left the search sites too quickly it would hurt display advertising revenues.  Of course, users wanted fast search and that became the model that eventually won out.

There are a million other great examples of this approach paying off in big ways.  Know your customer and understand their needs.

2. You Cannot Replicate Culture: One of the reasons that Apple’s stock didn’t take a big hit following Jobs’ announcement is that investors have bought into the idea that not much is going to change at Apple.  The reason that nothing is going to change is because their culture is fully-baked.  One of the advantages of being a first-mover is that you can spend more time developing your product than your fast followers can.  Apple is a design firm first and that DNA shows in everything they release.  That type of culture is almost impossible to replicate; it will give Apple a competitive advantage for years to come.

3. Do What You Love / Follow Intuition:  Check out this quote from Jean-Louis Gassee.  I think that doing what you love means accepting that fact that a lot of people will be sure that you’re doing it wrong.   I’m finishing a behavioral finance class with a professor who spent all of 1999 shorting tech stocks.  He said that he became physically ill every night as the market continued to rise– that he didn’t sleep for a year.  But his intuition was right: doubling your market cap every month is unsustainable and it doesn’t make any sense.  When I think about Steve Jobs, I think about how difficult it must have been to get fired from the company that you founded.  The idea that ‘you’re doing it wrong’ can affect your decision-making if you let it and the contagion can eat you up, even if you were right in the first place.  Doing what you truly love helps you mitigate those downsides and it helps you trust your intuitions.

4. Think Big and Small: Apple’s products are a collection of seamlessly integrated UX details.  While Apple changed the world in a lot of ways, most of what they accomplished came through creating superior user experiences– the details.  For example,  while strategy played a roll with the iPod (iTunes music store), everyone bought an iPod because it was slick and it made digital music fun.  I think that the importance of UX / design cannot be overstated, especially in web and mobile products.

5. Fail: As Jobs himself said in his commencement address at Stanford,  “you can only connect the dots looking backwards”.  Creating and ideating are the only tools you have to build something great.  Failing is, for most people, an inevitable outcome for the majority of your attempts.   Don’t think Apple has had any failures?  Check out these five epic Apple fails (granted, not all of them occurred on Steve Jobs’ watch).  Aside from these more esoteric failures,  think about the battle for industry standard when the PC first came out.  Jobs and Apple lost in a glorious fashion to the Wintel model.  As a result of that failure, Jobs learned the importance of available software applications on any system– which is why we have the App Store today and why the iPhone and iPad have been such a huge success.  Early failures + great leaders = future successes.

Building Networks

I had the privilege of hearing Albert Wenger speak this evening at the Entrepreneurs’ Roundtable in Microsoft’s New York office.  I met with him once before at Union Square’s open office hours a little over a year ago when I was working on a location-based service for live events.  Both then and tonight, Albert talked about the USV approach to investing in networks, the idea being that the only lasting competitive advantage on the web comes from establishing networks.

The web is generally a very fluid place for users.  The ‘next click is always free’ and attention is harder to capture than ever (and is being driven by different forces than just a few years ago).  Albert mentioned this evening that the scarcity of the web is attention, not publishing. In other words, it’s relatively easy to put something out, and content is in near-infinite supply as a result,  the real challenge is getting noticed.  A few years ago, one of the biggest solutions to the attention issue was getting up in organic search results, or paying for search in order to get traffic (attention) to your site. That’s been changed significantly as social media has altered the way we find and consume content on the web.  The Facebook stream is the new organic search result.

I think this thesis is what has driven new startups towards the user acquisition model in the web. Most new consumer-facing web businesses have focused less on ‘traffic’ and more on ‘users’.  The smartest businesses are leveraging a new user’s social graph in order to get their friends in on the experience, which creates value that cannot be replicated by a competitor.  Users don’t buy into a new service on the web based on feature sets, the stickiest users are actually buying into being a part of a network.

In the world of Facebook and Twitter, very large horizontal networks that have captured massive user bases, this probably means creating vertical networks that are still big enough opportunities to make them worth the effort and risk.  These opportunities can be identified by analyzing groups that have high-intensity shared needs and interests that cannot be satisfied by the larger players.  For example, AirBnb has built a network for people with apartments and people who need to rent for short durations.  Craigslist wasn’t doing this in a way that facilitated any trust, and Facebook doesn’t offer a place for these transactions–  so now Airbnb is on its way to becoming a billion dollar business.  I think there are still an incredible number of industries that haven’t been disrupted by the new way that we organize and consume information.  Even industries with existing players on the web, like tutoring or test prep, tend to replicate the real-world model online without considering the fact that the same assumptions that are required to make a real world business work are not the same assumptions required to make a web business work.