Friday, March 23, 2001

Theory vs. Practice: "You can't cash a syllogism!"

Building a successful business takes practice. You have to learn the hard way: by doing, making mistakes, and redoing. Theory can be helpful, but true insight comes from the friction between planning and execution.

99.9% of business failures over the past year resulted from overemphasis on theory and underemphasis on practice.

A theorist believes that the world works based on a set of rules, that you can read those rules in a book or article, and that you can use those rules to design a successful business.

I call this the "Dungeons & Dragons" approach to business, and it's likely to be as successful in business as your average D&D player is in a singles bar.

The X-Files summed it up best when the slovenly hacker pulls himself up and says, "I didn't play all those years of D&D without learning something about courage!"--right before the camera shows him cowering and whimpering with fear.

That kind of second-hand knowledge is almost always useless; the rest of the time, it actually hurts your chances.

I'm not knocking education; as I've said before, I'm the product of the world's finest (and most expensive) institutions of higher learning. However, classes don't teach you how to run a business.

A practitioner may work with rules, but understands that rules were meant to be broken, and that the effectiveness of following any given rule is always in a state of flux.

The old rules were, "spend a ton of money to get big fast." Theorists who treated that law as immutable are now on a permanent vacation. Practitioners follow a rule as long as its clear that it still applies, but are willing to shed their prior beliefs and turn 90 degrees at a moment's notice.

I call this the "no-huddle" approach to business. You must always read your environment, and be ready to change your play, your formation, even your entire philosophy in less than 30 seconds. There's no time to huddle and call plays from a set script. Even if there was time enough, blindly executing a seven-step drop against a blitz formation is a recipe for disaster.

Yes, you're going to make mistakes. But a good entrepreneur, like a good quarterback, learns from those mistakes and instantly adjusts the offense for the next play, almost by instinct.

If you want to succeed in business, lay down the dice, forget about fighting orcs, and pick up a football. Besides, it'll be good for your complexion.

Thursday, March 22, 2001

Market Research, or "Who Buys This Shit?":

To make money, you have to sell a product or service. To sell a product or service, you have to offer value to a customer who is willing to pay.

It sounds simple, but the bubble made millions forget.

When you're starting a company, you always have to put yourself in your potential customers' shoes and ask, "Honestly, would I buy this." If there's any doubt, head back to the drawing board.

The bubble made people believe that the idea was everything. MBAs, consultants, and investment bankers specialize in this kind of top-down thinking, so they crafted extremely persuasive stories around these ideas.

Attractive young people with fancy pedigrees produced beautiful PowerPoint slides with hockey-stick charts. They filled their pitches with magic incantations, and gesticulated with holy passion. The VCs saw the vision and opened up their checkbooks to these "paradigm-breaking" companies.

And you know what? Less than 1% ever bothered talking to a customer first.

It's easy to skewer with hindsight, which makes it politically incorrect, but it's still worth doing. Would you ever buy dog food online? Designer clothes? Furniture for your home? I've bought all of those things, but I'd never buy them online. It just doesn't make any sense.

But it wasn't just the B2Cs that lost sight of the need to sell. Take the B2B exchanges. Please. How many ever bothered to talk seriously with the actual purchasing managers and salesmen, whose personal relationships make that business go?

If you want to succeed, do the following:

1. Talk to potential customers before you plan out your product. If you've already decided what to do, their feedback will be useless.

2. Don't leave any room for ambiguity. Ask them, point blank, will you buy my product at X price? Get them to schedule delivery if you can. "Yes, that looks interesting" just ain't good enough.

3. Keep talking--and listening. If you've got a new competitor, your customers will know. If your product desperately needs a facelift, your customers will know. If you are secretly plotting to defraud your customers, they will know.

Remember, to make money, you have to convince someone else to part with theirs. It's not easy, but nothing worth doing ever is.

Tuesday, March 20, 2001

Shortcuts and Spaghetti:

Now that the dot-com crash has exploded the myth of "Internet time," it's a good opportunity to look back on one of the most dangerous practices that arose during the bubble: taking shortcuts to "get big fast."

While it is true that the Internet has increased the velocity of business, far too many companies used it as an excuse to take shortcuts.

Shortcut #1: In the old economy, you built a brand over time, by delighting your customers. In the new economy, you built your brand by spending $100 million on television advertising, paying customers to use your product, and IPOing to increase your "buzz."

Shortcut #2: In the old economy, you built your company organically, by hiring good people. In the new economy, you built your company virtually, by hiring Scient, Viant, Sapient, or somebody else with a cool "ient" name, and by making offers to anyone with a pulse.

Shortcut #3: In the old economy, you learned about business by working for a successful company, and struck out on your own when you had accumulated experience. In the new economy, you dropped out of school/b-school/McKinsey and started your company right away, since your "paradigm-breaking" ideas rendered old-fashioned experience useless.

Unfortunately, while the idea of these shortcuts was appealing--who doesn't want to get rich quick?--they led their proponents off the proverbial cliff.

I advise you to pick up a copy of "The Mythical Man-Month," quite possibly the greatest book ever written about the software development process. In it, Fred Brooks describes how taking shortcuts in complex, interdependent endeavors like software development inevitably leads to a trail of tears.

Taking shortcuts in the development process leads to "spaghetti" code: disorganized, unreplicable, and unmaintainable. And when you've made that mistake, no amount of money or resources will correct it. One famous Brooks saying is that the surest way to delay a project is to add more people to it.

The shortcuts taken during the Internet boom led to "spaghetti" companies, and now we're all paying the price for the few lucky ones who got liquid and got out before the music stopped.

However, "The Mythical Man-Month" also offers us a recipe for success.

The key to success is discipline: planning carefully, executing systematically, and documenting thoroughly. In other words, doing things the old fashioned way.

So the next time you consider taking a shortcut, remember: becoming a spaghetti company is a good way to let your competitors eat you for lunch.