Saturday, June 22, 2013

Stop thinking big and start thinking small

It's fashionable these days to lament the fact that Silicon Valley doesn't think big.  Instead, entrepreneurs are focused on building apps that will experience explosive growth and be sold for a billion dollars before ever having to discover a business model (sound familiar?).

I was at the 40th birthday party of one of my friends, a successful entrepreneur who's been part of a healthy exit.  I sat at a table with a couple of friends, including someone who just finished building a $20 million revenue business, one of the founders of a company that has build breakthrough networking technology, and the CEO of a hugely buzzed-about company that raised a $25 million initial round of funding.

And at least half of the dinner conversation centered around trying to understand why companies like Snapchat were worth a billion dollars, while actual revolutionary hardcore technology was being ignored. (I pointed out that Snapchat made it safer to send pictures of your genitalia, but was met with some skepticism)

Finally, issued the following rant, which I'm sharing with you now:

"You have to stop thinking big and start thinking small.  It's way too easy to get caught up in the hype that fills the Valley.  It's all over the press.  It's in every conversation.  So a few crazy ideas catch on and sell for a billion dollars.  Maybe some people get really, really lucky.  It doesn't matter.

I get that it hurts.  It hurts to spend a decade of your life building real products and real businesses, and then get told that you're out of touch, and just don't get it.

It hurts to have to go begging for money and press, when the seemingly trivial dominates the airwaves, and younger, dumber entrepreneurs swagger about as if they were the second coming of Steve Jobs.

But it doesn't matter.  You're not responsible for Silicon Valley.  And if you try to be, you'll go crazy.  Think small.  Find a market.  Develop customers.  Build a product.  Sell it for money.  Who cares if it's sexy?

Think small and do what you think makes sense.  That's where the big successes come from."

Learn to savor your mistakes

Mistakes an an inevitable part of the startup process.  You can't set out to do something that's never been done before, and expect to get everything right.  (For that matter, you can't set out to do something that's often been done before, and expect to get everything right!)

The key to success lies in how you react to your mistakes.  Here's some thoughts from the Daniel Dennett's new book, "Intuition Pumps":
"The chief trick to making good mistakes is not to hide them — especially not from yourself. Instead of turning away in denial when you make a mistake, you should become a connoisseur of your own mistakes, turning them over in your mind as if they were works of art, which in a way they are. The fundamental reaction to any mistake ought to be this: “Well, I won’t do that again!”

So when you make a mistake, you should learn to take a deep breath, grit your teeth, and then examine your own recollections of the mistake as ruthlessly and as dispassionately as you can manage. It’s not easy. The natural human reaction to making a mistake is embarrassment and anger (we are never angrier than when we are angry at ourselves), and you have to work hard to overcome these emotional reactions. Try to acquire the weird practice of savoring your mistakes, delighting in uncovering the strange quirks that led you astray. Then, once you have sucked out all the goodness to be gained from having made them, you can cheerfully set them behind you, and go on to the next big opportunity."
It's hard to savor your mistakes.  As Dennett points out, thinking about our own failings is usually  uncomfortable and unpleasant.  But adopting the right frame of mind can help you do it.

I always remember what someone told me about how he succeeded at his diet.  "Every time I feel hungry, I tell myself, 'This is the feeling of you getting thinner.'"

Entrepreneurs usually make the mistake of following one of two extremes when it comes to mistakes--they either ignore the mistake, or they beat themselves up about it.  Both squander the learning opportunity a mistake affords; you shouldn't waste time denying reality or on useless self-flagellation.  Instead, accept that you screwed up, and figure out what silver lining you can salvage.

The purpose of a startup is not "success"

I strongly urge you to read the entirety of Alex Payne's "Letter to a Young Programmer Considering a Startup."

This heartfelt, eloquent essay encapsulates much of the ambivalence I feel about the startup world.  I am, of course, a startup enthusiast.  Sometime in the next few years, I'll reach the point where I've started, worked for, invested in, or advised over 100 startups, and that's just including the ones where I had a formal relationship.  As an investor, I've probably seen pitches from at least 1,000 entrepreneurs.  I've probably read about 10,000 startups (and at least a few of them weren't in Ron Conway or Dave McClure's portfolios).

But while I love the startup world, I also recognize its limitations.  As humans, we love absolute goods--they allow us to turn off our brain and live by simple rules.  But nothing, not even startups, are an absolute good.  Here's what Alex had to say:

"I recently interviewed a young man. I asked him where he wants to be in four years. “Running my own company,” he said without hesitation. I asked why. “Because entrepreneurship is in my blood,” he replied. There was no mention of what his hypothetical company would do, what problem it would solve for people. His goal was business for the sake of business. That’s what he had gone to school for, after all.

A startup is just a means to an end. Consider the end, and don’t seek to revel in the means. What do you care about? Who do you want to help? Does a startup make meeting your goals easier or harder? Where will it leave you when your goal is met? Where will it leave you if it isn’t?"
I've been in the startup world since 1995.  There are times when everyone loves startups (like today, 2007, and 1999) and there are times when everyone hates startups (like 2009 and 2002).

When everyone loves startups, lots of people say that entrepreneurship is "in their blood," because it's trendy, and because they want to make a ton of money.  But it's not really in your blood unless you can't bring yourself to accept any other alternative.

I'm also a writer, and I've always felt that the definition of a writer is simple: A writer is someone who writes.  A professional writer is someone who makes their living by writing.  End of discussion.  Many want to have written; few are truly driven to actually spend a year of their life writing a book.

Writers are very specialized entrepreneurs.  It just so happens that in the startup world, there are times when investors fling money at startup entrepreneurs (sadly, this never happens to us writers, unless we happen to be famous for some other reason, like becoming president or killing Osama bin Laden).

The purpose of a startup is not "success."  The true purpose for a startup is to fulfill the irrational creative urge of the entrepreneur.

Sunday, June 16, 2013

Are you a cockroach or a sabretooth?

Consider the cockroach:

The cockroach has been around for over 300 million years, and has outlasted countless other species.  It's secret?  It's nearly impossible to kill:
"Cockroaches are among the hardiest insects. Some species are capable of remaining active for a month without food and are able to survive on limited resources, such as the glue from the back of postage stamps. Some can go without air for 45 minutes. In one experiment, cockroaches were able to recover from being submerged underwater for half an hour."
The cockroach isn't the most glamorous of animals (for example, I've never heard of a professional or college sports team that adopted the cockroach as a mascot) but it has a remarkable track record of success.

Contrast the cockroach with Smilodon, AKA the sabre-toothed tiger:

Sabre-toothed tigers are exemplars of charismatic megafauna--large animals with popular appeal.  Diego the sabretooth is a popular character in the "Ice Age" movies; the last heroic cockroach I can recall is Wall-E's friend in the Pixar movie of the same name.

Yet sabre-toothed tigers are a miserable failure from an evolutionary standpoint, in comparison to the humble cockroach.  The tigers lived for about 2.5 million years, dying out 10,000 years ago after their big, slow-moving prey went extinct.  The cockroach has been around 120 times as long, and is still going strong.

Which is the role model you've followed for your startup?  Patient, frugal, and unsexy like a cockroach?  Or flashy and risky like a sabre-toothed tiger?

Being a sabre-toothed tiger gets you TechCrunch headlines and "buzz."  But being a cockroach lets you fulfill the #1 job of the startup CEO: Survival.

The whole point of suggestions is that *you* choose whether to follow them

When you're an entrepreneur, you'll hear lots of suggestions.  These suggestions may come from co-founders, employees, investors, customers, friends, relatives, cab drivers, and so on.

One rookie mistake is to rush to follow others' suggestions, especially when those others are rich, powerful, experienced, or all three.

It's very tempting to follow the suggestions of the wise.  But the whole point of suggestions is that *you* get to choose whether to follow them.

I make suggestions all the time; that doesn't mean I expect them all to be followed, especially when they're suggestions that just popped into my head in the course of a conversation.  (I do expect some of them to be followed, but that's a good topic for another post)

It's true that it's often a good idea to follow suggestions from experts...but don't let those suggestions become an excuse for avoiding a decision or abdicating your responsibility.

When you're in a big company, you might be able to get away with the, "I was just following orders" excuse.

When you're an entrepreneur, being able to blame someone else is cold comfort.  You're the only person who is responsible for the survival of your company; I'm not going to have much sympathy if you're pitching me on your next company, and when I ask you why your last company failed, you tell me, "I got some bad advice from my investors."

Listen, that's what investors do.  They give bad advice.  If their advice were foolproof, they'd just start their own companies!

Make sure you treat suggestions as suggestions.  It's *your* job to make the decisions and take the blame if they go wrong.

You can be a warrior without being a diva

In America, we seem to believe that to be a great success, you need to be a bit of a jerk.  The classic example is basketball star Michael Jordan (and his intentional clone Kobe Bryant).  As a player, he was fiercely competitive to the point of getting into fistfights with his teammates during practice.  He berated teammates who didn't live up to his standards, and treated a wide array of opposing players, coaches, and even his own team owner with withering contempt.

And we loved him for it.

Other stars also fit the diva mold.  Think of business leaders like Steve Jobs, or entertainers like Jim Carrey.

It's often tempting to mistake correlation for causation, and I think that's exactly what's happened in this case.

Sadly, I see many entrepreneurs falling into the trap of believing that they need to be a diva in order to be a warrior.  Just last week, I heard a story about a CEO who forced an entire team to switch conference rooms, simply because she had already sat down, and felt that the team needed to come to her.

Nothing could be further from the truth, or less productive.  Tim Duncan of the San Antonio Spurs is also one of the greatest basketball players of all time.  He has won four championships, and is currently playing for a fifth.  He's been the consummate teammate, is the picture of stability...and his reward is being considered boring.

Yet he is a warrior who gives his all on the court every time.  And his teams, while often comprised of unwanted players who were passed over or even cut by other teams, have been consistent winners.

We all want to be successful.  But being successful doesn't mean being a jerk.

Get the big rocks rolling

You've probably heard the parable of "put the big rocks first":

The point of "big rocks" is that you need to fit the stones and pebbles in your life around the big rocks, rather than vice versa.

I'd like to propose a corollary of "put the big rocks first."  I call it, "Get the big rocks rolling."

The saying popped into my head as I was meeting with one of my startups and discussing what they needed to do to move the business forward.

This startup is getting traction in their initial market, and were trying to figure out how much energy to devote to adjacent markets.  For example, they've spent a bunch of time working with the biggest company (a Fortune 500 household name) in an adjacent market.

I told them that they needed to focus on the big rocks.

Yes, they said, but what about staying focused?

Good point, I thought.  Here's what I told them:

"None of us really knows what's going to be the biggest market for your technology.  It might be our initial market, it might be one of these adjacent markets.  What we need to do is to get a couple of big rocks rolling.  We might not be able to close them, but there's a 100% chance we won't close them if we do nothing.  Don't sweat the pebbles at this stage, because there are too many unknowns.  Just get the big rocks rolling, and see which ones take the lead."

It's easy to get caught up in details.  Solving details gives us a hit of dopamine, and lets us feel good.  But the big rocks are the ones that matter.  And because we're all dealing with an uncertain and largely unknowable future, getting those rocks rolling is likely to lead to unexpected (and potentially game-changing) results.

Don't fight battles you can't win

One of the most important lessons an entrepreneur needs to learn is to avoid fighting battles your startup can't win.

I like to make this point with entrepreneurs by sharing a funny story from my life.  When I first met my wife (I won't share the year, for fear of comments like, "Wow, that's the same year I was born!"), I was (unknowingly) in competition with another guy she'd recently met.

One weekend, my future wife asked me if I wanted to go clubbing with her.  Sadly, unless it's ballroom dance, my dancing abilities are like my C++ coding abilities--non-existent.  I thought fast.  "Sorry, but I'm still recovering from a sprained ankle from playing basketball.  Maybe in a month or two."  By the way, I *did* have a sprained ankle, though it wasn't bad enough to prevent me from dancing.

Much later, after she'd seen me (non-ballroom) dance, she said, "That was a pretty slick trick you pulled."  By then, I had won the war, and was firmly ensconced as her boyfriend.

The point is, you need to know what your startup can and can't do.  There's no shame in being bad at something, as long as you're awesome at others.  It's not admitting defeat to back away from a battle you can't win.

This still comes up today; at PBworks, we don't respond to all the RFPs we receive.  If we don't think the criteria fit with the things we do well, we simply tell the potential customer, "We don't think there's a good fit with the RFP, but if you're interested in what we do, we're happy to talk outside the process."

It's hard to pass up potential business--especially when you're a raw startup that's just getting off the ground.  But avoiding battles you can't win is the key to winning the war.

Why is coaching rewarded in sports (but not in the startup world)?

One of the sports rumors from the weekend is that the Los Angeles Clippers are going to make a trade with the Boston Celtics to acquire their coach, Doc Rivers.

Yes, that's not a misprint.  The Clippers would trade players to the Celtics in order to acquire a coach.

This has actually been done before; Moneyball famously describes how Billy Beane traded his manager, Art Howe, for draft picks.

In sports, the coach is one of the key members of the organization.  A college football coach is like unto a God on some campuses.  And their compensation reflects it--in most states, the most highly compensated public employee is the head football coach of the state university.

So why is coaching so feebly rewarded in the startup world?

You could argue that this is a matter of semantics; that a sports coach is more like a CEO than a coach in the world of business.  That may be true.  But the contrast in compensation is still remarkable.

When I advise a company, I often act as a coach for the entrepreneur.  This often includes phone calls and meetings at strange times, well outside business hours.  Emergencies don't always follow business hours.

Yet I do all this for less than 1% of the company, which is standard for advisors.

Perhaps I'm just a crappy negotiator, but I think there's something more to it.  Entrepreneurs are often the ultimate individualists; coaches are like Tiger Woods' swing coach--a servant who can be dismissed, rather than a truly paternal/maternal figure of guidance.

But building a great startup isn't an individual achievement; it's a team sport.

So why isn't coaching rewarded in the startup world?  And is their a business opportunity for someone who figures out how to make that relationship work better?

Be interesting for what you do, not "who" you are

My official mission statement is to "help interesting people do interesting things."  The logical corollary of that statement is that you're interesting for what you do, not "who" you are.

On some level, I think we all know this fact.  Think of your childhood heroes--they are generally people who have achieved great things--astronauts and Olympic athletes, for example.  They have done interesting things, which makes them interesting people.

When people are considered "interesting" without having done interesting things, we see this as a violation of the natural order of things.  There's a reason why "reality" television performers are held in such contempt; besides the fact that they represent the downfall of our civilization, we simply can't abide the fact that such unaccomplished people are being rewarded with fame and fortune.

Now let's apply this principle to the startup world.  Marc Andreesen is an interesting person.  He created Netscape and is now a wildly successful investor.  On the other hand, the startup world is full of "interesting" "personalities" who lack the same kinds of achievements. (I'd consider myself in that category, except that not that many people find me interesting!)

Which would you rather be?

Being interesting is properly a result of doing interesting things.  So if you want people to find you interesting, get started on doing!

Are you getting good "At Bats"?

One of my more quixotic quests is my ongoing habit of blogging about what the startup world can learn from the sports world.  As I've noted before, the founders of Silicon Valley seem to take a perverse delight in their ignorance of sports, which they probably view as the purview of the jocks who gave them wedgies in high school.

(Though if the recent 21 Jump Street movie is to be believed, jocks are the new nerds, displaced by green activists)

Therefore, it is with little hope that I set out to note what startups can learn from baseball.

One of the big revolutions of the Moneyball era is the emphasis on "good At Bats."  Whereas old-school scouting focused on a hitter's batting average (the number of hits), Billy Beane's Moneyball tactics focused on the hitter's ability to avoid making outs by drawing walks and taking (e.g. not swinging at) lots of pitches.

A good at bat (or "AB" as the players refer to it) is one where you don't swing at baseballs thrown outside the strike zone, and where if you do swing, you make good contact.

Baseball stat-heads know that the batting average on balls in play (BABIP) is largely a product of luck; all the hitter can control is how many pitches he sees, how many times he strikes out, how many times he walks, and how many times he puts the ball in play.

In the startup world, it's easy to get caught up in the results--the rounds raised or the companies sold.  But that's scoreboard watching.  It doesn't tell you enough about the process.

Good founders get good at bats.  They don't swing at pitches outside the strike zone, and they wait patiently for the opportunity to unleash their best swing.

Are you focused on getting good at bats?  Or are you scoreboard watching?

Silicon Valley: The "Ultimate Meritocracy"

My fellow denizens of Silicon Valley are fond of referring to our happy little ecosystem as the ultimate meritocracy.  It's definitely true that in comparison to the rigid and/or corrupt regimes that prevail in other industries and geographies, Silicon Valley is a meritocracy, but it is far from perfect.

I often joke with the female/minority/over-30 entrepreneurs that I meet that Silicon Valley *is* the ultimate meritocracy, as long as you're a young male who is white or Asian, who went to Stanford or an Ivy League school.

Now Catherine Bracy from Team Obama's technology field office has dug out the data behind my statement:

The astounding facts are that essentially 100% of funded founders are white or Asian, and 89% of founding teams are all-male.  In comparison, less than 1% of funded founders are black, and only 3% of founding teams are all-female.

If you want to claim that Silicon Valley is the ultimate, nearly-perfect meritocracy, you need to also make the argument that white and Asian males are the only people who can become entrepreneurs.

Anyone want to make that argument?  I didn't think so.

Yet plenty of people are willing to state the semantic equivalent, which is that Silicon Valley is a meritocracy.

What every investor thinks about your startup...but isn't willing to say

I loved Sam Altman's post on 95 pieces of great startup advice:

The whole piece is a must-read for entrepreneurs, but I want to highlight one particular item:

"9. In the current pivot-happy world, good ideas are underweight.  It’s worth the time to think through a good one."
I've discussed this point with a ton of my fellow investors, both angels and VCs, and we all agree: It's amazing how many awesome teams of founders are working on dumb ideas.

Sadly, it's tough for us to deliver this message.  Entrepreneurs don't want to hear, "We love you, but your startup idea sucks donkeys.  Want to try something else?"

The only reason that an entrepreneur makes it to an investor meeting is their relentless focus and dedication to their idea.  No one wants to hear that their baby is ugly.

But that doesn't stop it from being true.

You're about to spend a significant chunk of the best years of your life on your idea--it's worth taking the time to think of a good one!

The real reason it's hard for entrepreneurs to say goodbye to B2C

I enjoyed Noah Glass' guest post on pivoting his startup from B2C to B2B OLO.  His story has a ton of good lessons about how to successfully make the transition, but it's the psychology of leaving the consumer market that interests me:

"What followed was a soul-searching period in my life as a young entrepreneur. I knew that the numbers were not on my side, but did I really want to spend my time working on a non-consumer startup? That wasn’t why I’d gotten into entrepreneurship in the first place. I wanted to create consumer-facing products to make consumers’ lives better. I didn’t want to have to compromise with other companies’ brand guidelines and other exogenous limitations. I shuddered to imagine my company being categorized as just another supplier/vendor/service provider.

I didn’t have many startup entrepreneurs to turn to and ask for advice and perspective. Essentially every startup I knew was in the B2C space and found B2B “boring” and/or “not worth the effort.”
Glass' words are telling--he didn't want to be categorized as a supplier or vendor.  B2B was boring.

The real reason it's hard for entrepreneurs to say goodbye to B2C is that it hurts their ego.  And that's a pain they need to get past, because startups exist to create value, not aggrandize their founders.

It's fun to run a consumer internet startup.  You can tell cool stories at parties, and you're always running into happy users who treat you like a rock star.  And that's fine if you're bootstrapped.  But if you took money from investors, you have an obligation to try to deliver a good return on their investment.

If not, you'd better be prepared to tell them, "We should probably change our business model, but doing so would crimp my social life and my sense of self worth, so we're just going to blunder along and keep wasting your money."

Doesn't sound very good, does it?  So don't allow it to happen.  Decide on strategy based on what's good for the company, not what's good for your ego.

The Mobile Gold Rush Has Just Begun

Mary Meeker is one of the few folks who was a leading figure during the first dot com boom who is still playing a similar role.  (Contrast her with Mark Andreesen, who back then was the wunderkind behind Netscape, and today is an elder statesman and VC)

That's actually a good thing, because she continues to deliver insight through analysis.  Yet I couldn't help but feel struck by a sense of deja vu when I saw her recent internet trend slides:

The money slide is the first one in the article, which compares overall ad spend with time spent on media.  The two things that stick out like a sore thumb are that by this measure, print is enormously overvalued (6% of time, 23% of ad dollars) and mobile is enormously undervalued (12% of time, 3% of ad dollars).

The reason I felt deja vu is that this is almost exactly what the graphs looked like at the dawn of the Internet era.  Having been in the online ad business since 1995, I still remember the excitement when we first developed the concept of the banner ad!

One of the key tenets we focused on was the belief that eventually, ad dollars would catch up with screen time for the Web.  Today, they essentially have; the Internet ad market represents 26% of screen time and 22% of spending.  Sadly, I couldn't find any 2000-vintage graphs, but as recently as 2009, those numbers were 28% and 13%, so just in the past three years, the ad market dramatically shifted:

Back in 2000, when internet ad spending was roughly where mobile ad spending is today, people were wondering if online ads could ever have the impact on consumer spending as TV.  Google was a small search engine, and many dot com stocks were trading for under $1/share.

I'm sure a lot of people felt that market was mature.  They were wrong.  The list of leading internet companies today is radically different than in 2000; the same will apply to the mobile leaders if 2022.

The mobile gold rush has just begun.  There's still time to stake your claim.

Culture is never neutral

As you know, I'm a big advocate of working on the culture of your startup.  The instant you start your company, you're starting to build the culture, and the decisions you make in the garage days are likely to reverberate for years to come, even if your company grows by orders of magnitude.

But far too many people try to evade the responsibility for the culture of their company.  Perhaps they don't want to feel like they're being too overbearing (I felt this way when I was a 24-year-old founder).  Perhaps they're just not happy about how their startup's culture developed (I felt this way when I was a 24-year-old founder).  But this is a responsibility you must take on as a founder.

Here's a great example I ran across when I read VentureBeat's excellent guest editorial on women in Silicon Valley:
"The problem isn’t just too few female engineering grads — it’s that junior-level programmers are leaving the industry in their droves.

The NSF conducted deeper research that revealed that workplace culture is a big problem. In a survey of almost 4,000 female engineers, a third of respondents said they left the industry due to a bad boss or negative working environment.
One quote from the NSF report is particularly troubling, especially as it reflects the experience of many women: “At my last engineering job, women were fed up with the culture: arrogant, inflexible, completely money-driven, sometimes unethical, intolerant of differences in values and priorities. I felt alienated in spite of spending my whole career trying to act like a man.”
Think about it.  We spend decades educating bright young women, training them in the engineering skills we need so desperately, then we drive 1/3 of them out of the industry by adopting bad company cultures.  The cost to our society and economy are staggering.

Sadly, many young men are unaware of what they're doing.  They say things like, "We have an open and honest environment," or "We don't make a bid deal about culture."  What they don't realize is that culture is never neutral.  We build a startup's culture with every choice we make--and that includes choosing not to speak up or raise a fuss about small things like the jokes people make or the topics people talk about.

Nor is this limited to gender.  In fact, this can lead to some really interesting situations.  One guy I know is both a born-again Christian and a Republican--two major no-nos in Silicon Valley.  I've heard people mock both his faith and his politics, at least behind his back.  On the other hand, he's the kind of guy I've also had to repeatedly nudge regarding his tendency to say things like, "Let's not get our panties in a bunch," or "Just because I don't have a vagina..."

The point is, allowing your culture to drive away people who can build value for your company is a major mistake.  As a founder, you need to take responsibility for culture and make sure this doesn't happen.