Tuesday, March 25, 2014

The Power of Knowing Where To Start

Each night, I wash the dishes for my family.

Some nights, the sink is fairly empty, and it's easy.

Other times, the sink is overflowing with dirty dishes, and it's tough to work up the motivation to get started.

But what allows me to get the job done every night is that I know where to start.

No matter how full the sink, I always start by washing the kid's mugs.

There's no magic to that order; it happens to work with how I stack the dishes, but I could do it differently.

But knowing where to start eliminates one the main barriers to getting started.  And once I'm started, it's far easier to keep going.

Maybe you have dishes that you have to wash in your life, or at your startup.  Figure out where to start and stick to it, and you'll spend a lot less time working up motivation, and a lot more getting things done.

Tuesday, March 18, 2014

The Value Of Being Able To Take Risks

One of the advantages of money that people fail to appreciate is the value of being able to take risks.  Because risk and reward are typically intertwined, the rich do get richer.

This year's March Madness tournament provides a particularly striking example.  Quicken Loans and Yahoo Sports are running a "billion dollar bracket": Pick the correct winner of every single NCAA Division 1 Men's Basketball tournament game, and win $1,000,000,000.00.

Now the odds of anyone winning are extremely remote, but it's still hard for either Quicken Loans or Yahoo to stomach handing over $1 billion to a lucky winner.  That's why they found someone to insure the prize: Warren Buffett.

Buffett's company, Berkshire Hathaway has a market capitalization of $300 billion.  It has nearly $50 billion in cash.  To Buffett, paying out a $1 billion prize is the equivalent of a person with $10,000 in the bank having to cough up $500.

Brad Null of BracketVoodoo.com has calculated the odds that someone out of the 15 million people expected to enter the contest actually picks a perfect bracket:

"Let’s assume at this point that 15 million people do enter. Leveraging the historical analysis that we have done on bracket picking behavior in the past, we estimate that the average bracket picked for such a contest would be about 20x less likely than the “all-favorites bracket” described above. And while there will be some duplicate entries, our analysis indicates that this would eliminate less than 10% of all brackets. Thus, there would be at least 13.5 million unique brackets among this set. Put that all together and you get about a 1 in 500,000 chance that Warren Buffett has to shell out that billion dollars. So the EV on that insurance policy he wrote is about $2000."

While we don't know how much Berkshire Hathaway got paid to write this policy, you can bet it was a pretty penny.  Let's imagine that Berkshire Hathaway charged $1 million for a policy that has an expected value payout of $2,000.  Not bad.  But only someone with that financial strength could A) afford to take on the risk, and B) be a credible counterparty.

Monday, March 17, 2014

The $2,000 Customer Service Call

This morning, I had the misfortune of having my car's transmission conk out while I was on the freeway.  Fortunately, I was able to exit the freeway and park on the street, where I could safely call GEICO for roadside assistance.

But this post isn't about the $2,000+ I'm going to have to spend on a new transmission.  Rather, it's about how GEICO turned a pure cost center--providing roadside assistance to its customers--into $2,000 in revenue.

After providing GEICO with my location and arranging to wait for the tow truck, the GEICO dispatcher told me, "From looking at your account, it looks like you're now eligible for a big discount on our comprehensive coverage.  Since you're going to be waiting for the tow truck anyways, would you like to hear more?"

15 minutes later, I had agreed to add $1 million in additional coverage for my car and home, at a cost of right around $100 per year.

I've been a GEICO customer for 16 years already, so it's not much of a stretch to speculate that I might be a customer for another 20 years.  That means that GEICO turned a costly customer service call into an incremental $2,000 in lifetime revenue.  That's something that any company learn from, especially startups which tend to view customer service as a necessary evil.  Here's how GEICO did it:

1. Timing.
The cross-sell came at the very end of the call.  GEICO had already taken care of me ("the tow truck is on its way") and knew that a) I was feeling relieved and b) I had some time on my hands.  And what better time to sell insurance than after that insurance has just proven to be valuable?

2. Personalization.
This wasn't one of your generic credit card company pitches ("Would you be interested in hearing about our balance transfers?").  Instead, it seemed like a personalized pitch.  The salesperson I was transferred to paid off that impression by explaining the nature of the insurance and how it would interact with my home insurance policy, even though I buy that policy from another provider.  She also pointed out that I could double the amount of coverage I had on our cars for just $0.40 more per year--a bargain that reinforced her helpfulness and GEICO's overall value.

3. Seamlessness.
Once I agreed to the additional coverage, the GEICO rep didn't ask me for a credit card or turn me over to another department to complete the sale.  She simply said, "Would you like me to just bill this additional coverage to the bank account you currently use to autopay your car insurance?"  All I had to do was say yes.  That's the position in which you always want your customers to be.

Do all GEICO roadside assistance calls end with making a sale?  Probably not.  But if you have a chance to turn a simple service call into $2,000 in additional revenue, don't you have to try?

Thursday, March 13, 2014

You Don't Have To Choose Between Meaning And Happiness

My good friend and fellow writer Ben Casnocha asked the question recently, "Do You Want a Happy Career or a Meaningful One?"

To Ben, there is a fundamental conflict between the two:

"The things that make you happy (low stress, good health, sex) are not the same things that make your life seem meaningful (sacrifice, service, goals). Compare the effect that staying at a luxury hotel has on you (happy!) versus the feeling of training really hard for a marathon and completing it (satisfying and meaningful!).

If you had to pick whether to prioritize happiness or meaning, my advice would be: choose a career that’s meaningful, but weave in happiness habits as much as possible. By "happiness habits" I mean the small tactical things -- like keeping a gratitude journal -- that's proven to lift your mood day-to-day."

I'd argue that this choice is far too black and white.  Ben draws a distinction between things that bring pleasure in the moment with things that generate longer-term meaning.  It's certainly true that some things (staying at a luxury hotel) bring pleasure without meaning, and that other things (completing a marathon) are painful but meaningful.  Yet even these examples aren't so clear cut.

Staying a luxury hotel with your spouse, or with a group of friends, can be an integral part of a truly meaningful experience that generates a lifetime of fond memories.  And running a marathon brings the pleasure of a runner's high, along with the pain of sore muscles and joints.

For me, many of the things in my life supply both happiness and meaning.  These might include writing an essay, mentoring an entrepreneur, or taking a road trip with my family.

It is true that certain high-meaning achievements such as starting a new world religion, curing a dreadful disease, or becoming President of the United States might require a great deal of unpleasantness, but that's a problem for the ambitious (like Ben).

An unambitious fellow like me simply thinks, "Eh, I wasn't going to be doing those things anyways," and focuses instead on the things that bring me both meaning and happiness.

Life as a Startup Barber

One of the popular expressions used by investors is "How much hair is on the deal?"

A hairy deal includes messy complications, like a product that hasn't yet found a market, or inexperienced founders.

Some investors shy away from hairy deals.

I, on the other hand, have decided to ply my trade as a startup barber.

When I work with startups and entrepreneurs, my role is to help them figure out how to shave the hair off their deal.

Shaving the hair off a deal isn't always fun.  In fact, it's usually hard unpleasant work, like reading legal documents and negotiating settlements.

Again, that's a good thing for me, because that means there aren't that many people who are willing to do it.

The people who walk through my door don't have Mitt Romney hair.  It's more likely that they have 80s-hair-metal hair.  It may seem like an impossible task to tame those unruly locks.  But the way you shave the hair is the same as anything else--start as soon as you can, and keep going until you're done.

Rock on.

Wednesday, March 05, 2014

More Lessons from WhatsApp

Forbes has been doing a great job of covering the story behind WhatsApp.  If you're too lazy to read their entire stories, here are a few more lessons that I took away from the saga:

1. Do something that people easily understand.
WhatsApp had a simple vision: SMS, but free.  Hard to argue with that!

2. Do something hard.
The WhatsApp founders were hardcore technical, and built WhatsApp on their own servers running things like Erlang, so they could provide better reliability and performance.

3. Companies are bought, not sold.
Mark Zuckerberg reached out to WhatsApp founder Jan Koum unsolicited, and pursued the company with great persistence.  Facebook accelerated the acquisition when they found out that Google was sniffing around as well.

4. Leaders, not lawyers and bankers, do deals.
Koum and Zuckerberg hammered out their deal 1:1, at Zuck's house, on Valentine's Day.  Only after they had reached agreement did they call in the deal people to paper things up.

I love well-reported detail:

"Koum walked out of the room and found Zuckerberg. “I just talked to Brian,” Koum said. “He thinks we should work together and that you’re a good guy and we should do it.”

The two of them shook hands and then hugged. Zuckerberg remarked it was “f–king exciting,” and whipped out a bottle of Johnnie Walker Blue Label, which he knew was Koum’s favorite Scotch. They each called their business-development directors to come over and finalize the process. About an hour later Koum drove home in his Porsche and went to bed."