Saturday, July 13, 2013

Memory matters more than ever

There's a brand of technology enthusiasts who hail the power of "external memory."  According to these true believers, you don't need to bother remembering things; simply put it into Evernote, find it on Facebook/LinkedIn, or if all else fails, Google it.

This external memory is phenomenally powerful, and I rely on it constantly when I'm crafting written communications.  But it's no substitute for the good old fashioned memory of your brain.  In fact, that old-fashioned memory matters more than ever.

In a world in which any fact can be found with one or two Google searches, simply having the answer doesn't provide much power.  Otherwise, Alex Trebek or his Sith Apprentice Ken Jennings would rule the planet.

Instead, what matters is being able to place facts in context.  Things like pattern matching and storytelling are the key to persuading others.  The people who can use their experience and memory to do this kind of context creation in real-time are vastly more persuasive.

I have a near-photographic memory.  One of my favorite parlor tricks is the ability to conjure up a story or example for pretty much any situation.  (This may be the only way in which I might ever be compared to Abraham Lincoln)  Especially in startup situations where quick decisions are essential, being able to call up relevant examples and models from memory is a huge advantage.

Ideally, you can combine your internal and external memory for maximum effect.  When I'm being pitched over the phone, I'm constantly looking up information on a startup's customers, technology, competitors, etc.  That way, I'm able to use my internal memory to call up leads, and my external memory to follow up on them.

A Better Taxonomy for Introverts and Extroverts

We often think of sociability as a single axis, from introverted to extroverted.  On one end sits the shy geek who prefers to interact with the world via a computer screen, and on the other strides the back-slapping frat guy, calling everyone "bro" and speaking loudly enough to be heard on the other side of the city.

Yet I think it's more useful to think of sociability as a classic 2x2 matrix.  Not only is their an Introverted/Extroverted axis, there's also a Socially Skilled/Socially Awkward axis.  The result is a more insightful way to categorize the people you meet.

Introverted/Socially Awkward

This is the classic image we have of the shy introvert, terrified of saying the wrong thing.  Thank goodness Al Gore invented the Internet!  By focusing on written communication, you can still build a rich set of relationships.

Introverted/Socially Skilled

Yet introversion has nothing to do with shyness or awkwardness; rather, it simply indicates that interacting face-to-face with others consumes energy.  It's entirely possible to be both introverted and socially skilled.  My wife Alisha hates talking with other people, and has to psych herself up before going to parties that include mostly strangers, but knows how to put people at ease and draw them out.  If you fit into this category, you should recognize that you have social skills, but using them is likely to tire you out.

Extroverted/Socially Awkward

This is a bit of a sad case; think of someone you know who is gregarious, loud, yet fundamentally clueless.  This doesn't have to be a frat-boy a-hole; many times, this is simply someone who loves spending time with others, but has difficulties reading social cues.  You might find yourself in this category if you love going out, yet find that people always make excuses and leave their conversations with you.  If this describes you, your best bet here is to pick up a copy of "How To Win Friends and Influence People."

Extroverted/Socially Skilled

This is the classic image we have of an extrovert.  Note, however, that this doesn't mean loud or overbearing; in fact, this kind of person excels at being inclusive.  These are the social geniuses who can and do relate to anyone.  Fortunately, most of them have good hearts, or they'd rule us all.

Focus on winning the market, not winning the news cycle

When entrepreneurs ask me for help, the two things they always want is A) to raise money, and B) to get publicity.  While both fundraising and PR are important, I think entrepreneurs focus way too much on them, and not enough on perfecting the product and reaching out to customers.

Funding and press are the two most visible components of hype in the startup ecosystem.  Every financing is reported, and every TechCrunch/Mashable/GigaOm story is breathlessly forwarded to potential investors.  Yet funding and press are means, not ends.  They only matter inasmuch as they help you win customers and generate revenues.

When entrepreneurs focus too much on raising money or seeking publicity, they are making the mistake of trying to win the news cycle, rather than the market.

In politics, it's very tempting to try to win the news cycle.  The pundits chatter away 24/7, and the question they're always debating is simple: Who won?

The problem is, winning the news cycle guarantees nothing.  Color won plenty of news cycles when they launched...but they failed to win over users and customers.

Dropbox recently announced their data store API.  They didn't even bother with a press release, just a brief blog post.  Yet the news led tech headlines everywhere.  Focus on winning the market, and eventually, your success will let you win the news cycle.

Sunday, July 07, 2013

If People Don't Get Your Product, It's Your Fault, Not Theirs

Spend enough time with any startup's product team, and you'll hear complaints about the customers.

Many of these complaints are justified.  Customers misuse, misunderstand, and just plain miss the point of products.

But blaming the user is useless, unless you're going to find a brand new set of customers who, magically, are smart enough to figure out your product but dumb enough to pay you for it.

I like to draw analogies to other industries; in this case, consider publishing.

When you write a book, and people don't "get it," is that the fault of the reader?  Or of the author?

If you were ever forced to read "Tess of the d'Urbervilles," you'll know that it's the fault of the author. (Suck it, Thomas Hardy!)

The author writes the book, and it's his or her job to make sure that the reader gets something out of it.  If a reader "gets it," he or she darn well better get something out of it, be it wisdom, entertainment, or new skills.

When you read a book, and you don't "get it," I'd bet you don't say, "Gee, I guess I'm just not smart enough for this fine work of literature."  You're far more likely to say, "Man, this author blows."

Products are no different.  If people don't get your product, it's your fault, not theirs.

Build Great Products That Solve Important Problems

If I had to boil down my best startup advice into a single sentence, I'd tell people:

"Build great products that solve important problems."

If you solve an important problem, people will try and pay for your product.  Getting someone to pay for your product is the surest path to revenues.

Yet simply solving an important problem is not enough.  You also have to build a great product.

Building a great product won't help you get money from your customer...but it does help you get money from new customers.

A customer who buys your product because you solve an important problem might not give it a second thought once it's installed.

But a customer who thinks you have a great product will tell his or her friends.

Your customer will be eager to share, not just because of gratitude, but because sharing your product will win the gratitude of his or her friends.

If you build a great product that solves an important problem, you'll be able to organically acquire paying customers--nothing could be a more direct path to startup success.

Choose your path wisely

I believe in the lean startup philosophy, but our love of pivots has a downside, in the belief that it doesn't matter where you start.

Where you start matters.  The path you choose matters.

It's never too late to change (until you run out of money), but it gets harder and harder the further along you get.

If you launch a product, it's hard to kill it.

If you take money from customers, it's hard to give that money back...and even if you do, people still won't be happy.

Momentum works for good and ill.

Choose your path wisely.

Timely and Timeless

We live in an age that values the timely.

We race to tweet or post, to catch the continuous wave of conversation that runs 24/7/365.

The rewards of timeliness are great; it allows us to influence and persuade.

It burns like a firework, lighting up the sky.

But in our haste to live a real-time life, we must not forget the timeless.

As the saying goes, a day-old newspaper is good for wrapping fish.  What use is a day-old tweet?

The timeless seems slow, is slow.

The timeless is a slow burn, not a bright flash.

It lasts and delivers value long after the timely is forgotten.

Take some time to do the timeless, not just the timely.

You need to shape the envelope of possibility

Most entrepreneurs focus on expanding the envelope of possibility.  They love to tell me about potential applications of their technology and new markets that could use it.  Their goal is to expand the envelope of possibility.

Expanding the envelope is critical.  Startups begin with nothing; only by expanding the envelope of possibility can they succeed.

But at the same time, expanding the envelope is insufficient.  You also need to shrink that envelope.

A startup in a garage is better off have 1-2 markets than 10-20 markets.  You simply don't have the resources or mental bandwidth to do so many things.

One of my startups came to me recently to ask my advice.  This startup had been approached by potential customers in a new market.  The entrepreneur was excited about expanding the envelope.

"Correct me if I'm wrong," I said, "But don't we already have a market where we have traction, a clear revenue model, and mess of customers in the pipeline?   New markets are great, but later.  Right now, let's take advantage of the market we already have!"

Possibility is wonderful, but to reduce it to reality, you need to contract the envelope and focus your efforts.  You need to shape the envelope of possibility.

Your startup's advantage is tempo

Why do startups succeed?

They have fewer people.

They have fewer resources.

They have less brand recognition.

Most founders are smart, but incumbents have smart people too.  That's usually how they became incumbents.

The answer, and your startup's fundamental advantage is tempo.

We usually call it speed or agility, but speed and agility are capabilities, not strategies.  Tempo is a strategy.

In music, tempo is the pace that you set.  To succeed as a startup, you have to set and maintain a faster pace than the incumbent.

If the incumbent releases updates every quarter, you need to release updates every month.  Or week.  Or day.

It's hard to maintain a faster tempo than the incumbent.  But if you don't, you don't have a sustainable competitive advantage.

Build a profitable business while spending as little as possible (the lesson of Xobni)

It's not that complicated to build a success startup.  Just build a profitable business while spending as little as possible.  It's not complicated, but it's hard.

I recently saw the news that Yahoo! had bought Xobni.  Xobni was a noble attempt to tackle the email overload problem (xobni = inbox backwards).  According to the stories I read, Xobni was bought for anywhere from $30 to $60 million.

Whenever such news comes out, I have a couple of friends who write to me, asking me if this represented a good outcome or a bad one.

My general response is that any outcome beats going to zero, but I follow that up by analyzing the financing history of the company.  Here's my analysis of Xobni:

Judging from Xobni's Crunchbase entry, the company raised $42 million dollars in four rounds of funding.  It looks like none of the rounds were down rounds, which means there was no recap.

Therefore, the $42 million has to be paid back to investors first, assuming a simple 1X liquidation preference.

Best case scenario, the company sold for $60 million, which means there’s $18 million to divvy up*.  After 4 rounds of funding, assume the founders ended up with 20% of shares fully diluted, and thus split $3.6 million amongst everyone who was there at the beginning.  If there were four founders, none of them would make even $1 million off the sale, and that's before accounting for taxes, the time value of money, and so on.

This is why raising a ton of money can be hazardous to your health.  Bootstrapped, they’d just be splitting $60 million.  Even a $5 million exit bootstrapping would be better financially.

The venture capital process rewards capital efficiency; the less you raise, the better off your outcome, especially in "smaller" (e.g. sub-$100 million) exits.

* It is possible that there was a carve out for management, but it still wouldn't represent a big windfall.