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What founders can learn from a game company founder

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I’m not a gamer. Never even played one on TV. But as a kid I played checkers, chess, Monopoly, Parchesi and various card games. But I only did so because all my friends and acquaintances did, it was a “social network.”  By the time I went to college I had abandoned games entirely. And when the PC revolution hit in the late 1970s with its focus on games I continued to ignore them. And as a mentor, I can only recall on single session with a game developer in my ten years of mentoring.

But The Wall Street Journal article The Man Behind ‘Fortnite’, sub-titled At age 20, Tim Sweeney founded Epic Games in his parents’ basement. His company now owns one of the most popular videogames on Earth. But he doesn’t want the credit, caught my attention, perhaps because it was on the front page of the Exchange section with a great photo (see above) and but more profoundly, the last sentence in the sub-title:  But he doesn’t want the credit.

What can founders learn from Tim Sweeney, founder and CEO of Epic Games Inc., the developers of the worldwide blockbuster Fortnite?

Let’s start with company location:

While the biggest U.S. videogame companies are clustered in Los Angeles, New York and the Bay Area, Epic is based in Cary, N.C., down the road from Raleigh. Mr. Sweeney said the location prevents Epic from being swayed by Silicon Valley groupthink.

Actually there’s a bit more to it than that. The Research Triangle of North Carolina is rife with universities, the hiring pool for all startups, and high tech companies. Yet its moderate climate and moderate cost of living beat the heck out of Boston and New York. So lesson one is carefully consider where to locate your venture, taking into consideration the wants and needs of your future employees.

Secondly, Tim Sweeney spent a tremendous amount of time and energy making sure that Fortnite ran on virtually every device that could run a game. Why? Because of lesson three, games are inherently social. So making Fortnite ubiquitous created the largest possible social network for players of the game.

By erasing the barriers between players with different devices, Epic effectively turned “Fortnite” into a massive social network. Wearing headsets to talk to one another, groups of friends trade jokes and gossip while battling to survive.

Lesson four is how to set up your office. Rather than a cube farm or long tables of developers elbow to elbow, all wearing headphones, Epic has a series of six-person offices. “We find small group offices like this strike the best balance between individual work and group collaboration, versus solitary offices or cube farms.” says Sweeney.

Perhaps the most important decisions Sweeney made concerned the business model and playing mode, for lack of a better term.

Most free games make money by charging for weapons and super-hero powers that help gamers triumph over each other. But Epic resolved not to charge for those items. Rather it sells cosmetic add-ons, like dance moves or a pair of limited-edition Air Jordan sneakers. And again swimming against the tide, while Fortnite is a “war game” there’s no blood or guts. Its cartoon, bloodless style is welcomed by gate-keeping parents.

So two lessons here: tweak existing business models and user experiences, don’t try to totally remake them.

Perhaps the key lesson is how Fortnite keeps the user experience fresh:

Epic’s daily restocking of its virtual store and weekly content updates gave “Fortnite” another advantage. It could quickly incorporate player feedback and seize on sudden pop-culture obsessions, such as a hip dance move like The Floss.

“Every week we learn what’s working and what’s not, and we constantly evolve the game,” Mr. Sweeney said.

People have an innate need for novelty but also an aversion to the totally alien; refreshing a familiar experience hits the sweet spot between novelty and alienness.

Epic conintues to innovate. The company has added a “creative mode” to Fortnite, enabling players to build without the threat of enemy fire. And Epic is now competing with Valve Corp’s Steam by launching an online store that sells computer games.

And finally giving credit where credit is due:

“I think the thing I’m proudest of is not creating ‘Fortnite,’ ” Mr. Sweeney said, “because I didn’t create ‘Fortnite.’ But I did create and nurture the company that built ‘Fortnite.’ ”

A plethora of lessons from a videogame company founder. Don’t try them all, but some no doubt will be a fit and help your company compete. They won’t turn your venture into Epic Games, but they may up your game.

The biggest mistakes founders make

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The Forbes article He Sold His First Startup To Yahoo, His Second One To Google And Now His Third Is Worth $500 Million by Alejandro Cremades is focused on the successful career of Craig Walker, as you might assume from the title. But buried in the long Forbes article is something Walker learned from his stint at TeleSoft Partners, a venture fund that brought him on to do telecom internet investments:

The 5 Biggest Mistakes Founders Make

In all his experience, Craig says the five most common mistakes he’s recognized among startups are:

  1. Being too greedy and not creating win-win deals
  2. Scaling too fast and spending too much cash
  3. Not trusting yourself and sticking to your direction when decisions need to be made
  4. Poor interpersonal dynamics between the founders
  5. Not anticipating a competitive threat to the product or company

Number one is quite interesting to me, as I focused on business development at most of my startups. However, in all my time as a founder and now as a mentor, spanning several decades, I’ve yet to see any significant number of startups make this mistake! I’m not sure where Craig Walker is coming from on this one. He doesn’t specify who the deals were with. Partners? Investors? In any event, while it’s good advice to strive for win-win deals and to not treat deals as a zero sum game, I’d hardly put this on the top of my worry list.

However, scaling too fast and spending too much fast are deserving of the number two slot in my book. The problem here is that VCs invest their capital to enable startups to scale – and they will push founders to do so. Having the backbone to resist pressure to scale prematurely is absolutely critical for founders. You must have product-market fit absolutely nailed before you put the pedal to the metal and start paying millions of dollars for Facebook ads or whatever marketing push you choose to fuel your growth.

Mistake number three – not trusting yourself – is in the “founders need strong backbones” category, just like resisting pressure for premature scaling. The prerequisite here is have a very clear vision and operationally defined mission that is well communicated to your team. The company’s vision is the founder’s lodestone in decision making. Founders will be making hundreds if not thousands of decisions in the course of building their companies. Without vision and mission it will be too easy to change direction based on market forces or pressure from investors or fellow partners. And a well-defined decision making process is a must. Nothing complicated, simply document the pros and cons of each option. Weigh the cost/benefits and make a choice. But don’t stop there. Create a decision tree based on that decision to make sure you don’t end up running off the rails based on choosing that option. And no decision is worse than a bad decision; at least you learn from making bad decisions.

Unfortunately I have see “Poor interpersonal dynamics between the founders” all too often. This usually stems from lack of alignment of values, metrics, goals and corporate culture between founders. This is why Y-Combinator’s research showed that founders who had worked together previously and/or knew each other for a significant period before founding their company were significantly more successful than those who just met recently.

Finally, as I’ve written previously, I made mistake number five myself by not being aware of an established competitor that I hadn’t found because they came out of a small business market, not the startup ecology I was part of. I’ve seen too many founders fail to do a sufficient scrub of the Internet to source competitive threats. There always will be some; the mistake is not anticipating them. If there’s no competition there is likely no market either.

And let me nominate my candidate for mistake number one: doing a poor job of customer discovery. Without knowing your target customer you are like a rifleman who fires before they aim. To extend the metaphor, keep your gunpowder dry until you have nailed your target customer. Don’t rely on being able to pivot if you make this list leading mistake. Lack of knowing who your customer is by far the most common mistake I  made by startups, in my experience.

Mapping the ecology of your market

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I often suggest to my MIT mentees that they map the ecology of their market: customers, competitors, vendors, media, and other stakeholders. This is particularly useful in determining potential partners. Who will benefit from your startup? What do you have to offer a partner? Too often founders think what’s in it for them when the secret to successful business development is figuring out what’s in it for the partner.

This diagram by Andrew Quint of The Absolute Sound is an excellent depiction of the the audio marketplace. He has put the customer – consumers, not audio professionals – in the center. But beyond that Andrew has segmented the consumer audio market into three major segments.

Hardware – amplifiers, speakers, turntables, etc. is at the top half of the diagram, with “software” or “content” in the bottom half. Note that music itself has three segments: record labels, streaming and download services, and musicians – in this case including live music.

Of course any such diagram can go beyond simple connections to color coding certain elements. For example, any media campaign would target Audiophile press, Online audiophile communities, and perhaps audio shows as well.

Ecology maps should be living documents, updated as your market as well as target customers and partners, may change.

By quantifying relevant sections of your market this type of diagram can help educate investors, advisors, potential hires, et al.

Most important when you present this type of depiction is to elucidate the dynamics amongst the players. For example, what is not shown is “merch” – merchandise sold at shows by musicians: cds, t-shirts, signed photos, etc. Merchandise has become an ever growing share of a musician’s income as revenue from recorded music continues to shrink. While at the same time streaming is rapidly surpassing CDs and downloads as consumers’ preferred method of music consumption.

And, of course, market dynamics vary by country or region. For example, in Japan CDs are still the music medium of choice.

Common product development mistakes

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As I’ve written elsewhere, I’m not in favor of the MVP concept. Why would you launch something that is just minimally viable in today’s ultra-competitive marketplace? That means barely able to survive!

Be that as it may, the article by Rashan Dixon, 4 Mistakes Entrepreneurs Make When Building an MVP on Entrepreneur.com doesn’t just apply to MVPs or MRPs (Minimally Remarkable Products), they apply more broadly to the development and launch of any startup’s products. I’ve seen these mistakes in my own startups as well as many others. As I say to my mentees, “Be creative, make your own mistakes, don’t repeat mine!”

1. Failing to prototype

Prototyping is absolutely critical to successful product development. By the time you get to alpha or beta testing major changes cannot be made; you’d basically have to restart the product development process. As Rashan Dixon writes:

Prototyping is the art of spotting and validating your riskiest assumptions. They don’t always have to do with hardware, either. Is your product’s user interface unclear? To find out, wireframe it and show your target audience. Is a key feature missing? Users can tell you that, too. Prototyping is a guess-and-check process, so don’t spend too much on any one iteration; you’ll almost certainly need a few to get it right.

Of course, two important steps need to precede prototyping: customer discovery and demoing to prospective customers. With that feedback in hand you can move to the prototype stage with some confidence you are building a product customers actually want.

2. Thinking “M” is for maximum.

“Feature creep” is endemic in product development, but especially so in software, where writing a few lines of code can easily add a new, but unplanned and probably unwanted, feature. Everyone loves to add their favorite feature but few people get nearly the same kick out of fighting to remove extraneous features. Yet Steve Jobs was quoted as saying he was as proud of what he said “no” to as to features and products he greenlighted. Feature creep is the enemy of simplicity, the enemy of speed to market, and a proven way to ship a bloated, unusable product! As they say in the film industry, be willing to leave your favorite scenes on the cutting room floor.  Whether you are of the minimally viable or minimally remarkable camp, minimal is critical for a resource-constrained startup.

3. Pushing onward when the market says “pivot.”

It tough to say “when to hold ’em vs. when to fold ’em.” Being persistent is usually what separates the winners from the losers in the startup world. But keep in mind you need to be persistent in your vision and your mission; when it comes to your product you need to be not only fast and focused, but flexible. If your demos and prototypes elicit lukewarm response (“interesting” is the most common sign of this) you just may have to go back to the drawing board. Making this call is an art, not a science.

4. Over-investing in marketing

The valuable lesson from Mr. Dixon’s article, courtesy of Bren Armour, VP of Marketing at Kibii, is to skip traditional outbound marketing like advertising and events. These are expensive and premature for an MVP.

Instead, he points to inexpensive [inbound] tactics like blogging, building influencer relationships and building backlinks to the product page. Your goal should be to build buzz around your brand while convincing your most loyal customers to try your first version. Then, use their feedback to make improvements before the masses buy in.

So whether it’s your first product or your fifth, these four rules should be kept in mind. Violating them is a good way to ensure a failed product launch. The major difference between large established companies and startups is that large companies can afford to make mistakes, startups, not so much.

Making is about iteration, not failing fast!

adam savage

I’ve been meaning to write a post about how I’m just not onboard with the startup platitude that failure is to be celebrated, and how we learn so much from failure. I have a contrarian view that actually you can learn more from success – study Jeff Bezos for example if you want to learn how to create and inculcate values and build and incredibly strong customer-centric culture. Study Bill Gates if you want to learn how a tiny company can get the best of a dominant giant (Microsoft vs. IBM). Don’t study the story of Pets.com!

But  thought I was alone in this contrarian viewpoint until I read Don Steinberg’s article in The Wall Street Journal, Adam Savage Shares His Secrets of Creation, sub-titled The ‘Mythbusters’ co-star has a best-selling book, ‘Every Tool’s a Hammer,’ a new show, ‘Savage Builds’—and still enjoys blowing things up. I have to admit to not being familiar with Adam Savage nor his show Mythbusters. As a kid I was a maker, building electric motors and crystal radio sets with my dad. Later building an Altec Lansing Voice of the Theater cabinet and furniture for our tiny cabin in Oregon, including a platform bed and a kitchen table. But the considerable maker talent of my dad (an electrical engineer) and his father (a metal worker) all went to my sister and nothing I built was that exceptional. I eventually found my role first as a product manager, helping others to build stuff, then as an entrepreneur, building companies.

The closest I’ve come to the maker space was visiting the Artisan’s Asylum in Somerville, MA. and having a few talks with some guys who worked there about starting a maker space of our own. Like so many of my startup ideas, that one never went beyond a few meetings and looking over some potential spaces for rent.

So I was very pleased to read about Adam Savage’s attitude toward failure:

He discusses how a workspace represents one’s personal philosophy on interacting with the world and his belief that the trendy enthusiasm for celebrating failure (“fail fast”) puts too negative a spin on the natural process of figuring things out. He prefers the term “iteration.”

Which reminded me of the attitude of Bob Frankston, co-creator of VisiCalc, the first electronic spreadsheet: build quickly and iterate continually. Bob never talked about failing fast, he was and still is, about iterating fast.

I’m going to both read Mr. Savage’s book and search for his Mythbuster’s series, not because I’m a maker, but because I believe Mr. Savage has a lot to teach me, and to teach founders as well.

 

 

The best entrepreneurs are missionaries instead of mercenaries

jeff bezos

Of the many companies I have started – four of them venture-backed – and worked for, none of have been founded with just the goal of making money. Of course, making money is vitally important, but I’ve always believed that revenues and profits were byproducts of creating great products and that the reason to make money was to be able to invest in the company’s growth and to reward stakeholders: employees, investors, advisors, and yes, even founders.

I have long admired Jeff Bezos for his brilliant accomplishments with Amazon and have been a loyal customer since day one. As the Inc article by Scott Mautz Jeff Bezos Just Pinpointed What Makes the Best Entrepreneurs in 4 Brilliant Words says, Jeff Bezos says a lot of smart things. He writes plenty too, like thoughtful annual shareholder letters, nestling sharp nuggets within. Jeff’s yearly shareholders’ letters are recommended reading.

The gist of Scott’s  article is that the best entrepreneurs are on a mission, one that’s bigger than them and isn’t all about profits, power, fame or glory but about making a meaningful contribution to the world.

The recent Amazon investment in electric vehicle startup Rivian is a good example:

In the announcement of Amazon’s investment, Scaringer said Rivian’s mission is to bring “sustainable mobility” to the world and to “reset expectations of what’s possible”, including eliminating compromises electric cars make on performance, capability, and efficiency while setting a new bar in innovating the total customer experience.

Missionary over mercenary.

Chobani CEO Hamdi Ulukaya is an exemplar of the mission-driven over money-driven philosophy:

You see, if you’re right with your people, community, and product, you’ll be more profitable, innovative, and you’ll have more passionate people working for you and a community that supports you.

All this is not to say that successful founder/CEOs like Jeff Bezos are not laser-focused, task-oriented, cold and calculating and ruthless, especially when it comes to crushing competitors. That’s necessary but not sufficient to be a truly great and impactful founder.

As founders we always developed two things before we wrote a line of code or tried to raise a dollar of investment: our vision and our mission, as I posted about previously.

Your vision is the purpose of your company and where you are going, you mission is how you plan to get there. Everyone involved with the company, from founders to staff, investors to advisors, must be aligned with both the vision and the mission to build a successful company. A compelling vision and mission will attract the best and brightest staff and investors, then it’s up to you to execute to bring that vision and mission to life.

 

Managing your board of directors

Silhouettes of Business People Discussing Business IssuesFirst time entrepreneurs seldom give enough thought to their Board of Directors, many don’t have one until forced to after raising a series A round of investment. That’s what prompted my first post about BoDs. Before we get into how to manage a BoD let’s just spend a minute on the makeup of a BoD. Experienced founders know that the BoD has hiring and firing power over the CEO – the CEO reports to the BoD. That being said, Series A investors will take as many as one or two Board seats if there are two vcs investing. Generally they will allow two founders. Because no one wants paralysis of the venture through a 50/50 split of the BoD its in everyone’s interest to add a fifth independent Board seat. That should be it until you raise a Series B and C at which time you may need to add another investor and/or outside Board member. But I was taught to keep Boards small; the smaller the Bod, the easier it is to manage, which is the job of the CEO.

What is the value added of your Board? That depends on the added value of your investors whom you have chosen. The Forbes article buy Chaka Booker, Your Board Of Directors: Managing Their Gift And Their Curse, provides a good answer:

Board members generally have a depth of experience that has exposed them to a range of problems in a variety of contexts. As a result, their minds move quickly. They understand patterns. They ask questions you don’t have answers to and provide suggestions you hadn’t considered. They have an uncanny ability to poke holes in your thinking and mend holes in your strategy. This is their gift.

Here are Chaka Booker’s tips on managing your BoD, with my annotations based on experience serving on half a dozen boards:

Boards don’t focus on execution.

The role of the board is strategic, not operational. Typically they are freer to explore strategic alternatives because they are freed from the weight of execution. You need to be open to these ideas, even if they generate stretch goals. Keep in mind you and the BoD are typically on the same side of the table: how do we best create value in our venture?

Boards don’t need details. Until they need them.

That means that while you may only present the absolute minimum amount of detail to support your business case, be prepared to have all the details that went into your decision in the appendices to your BoD presentation.

Always “pre-wire.”

I learned to brief each member of the BoD before the Board meeting from Sigrid Reddy, who was the Director of the Watertown Free Public Library where I was assistant director. She either met personally or had a phone call with every member of her Board of Trustees (the non-profit equivalent of a BoD for a public library) to preview any potentially controversial topics and find out where each member stood on them. There should be no surprises at your BoD meeting if you have done your pre-meeting prep properly.

As I’ve written elsewhere, founders need to get their Board members to work for them, either en toto or as individuals. This means you know the experience and expertise of each BoD member as well as how likely they are to help, if asked. Too few founders realize that their BoD is a valuable resource that they should manage just like other resources – capital and human – under the CEO’s purview.

But don’t just rely on a conversation, make sure you send a brief memo along with the list of agenda items to each Board member well in advance of the meeting. Don’t make assumptions that they understand all the issues or even that they are going to back you if the issue comes to a vote. Test your assumption in that f2f meeting or phone call.

Keep in mind that your directors are usually extremely busy people, so get them in the habit of dedicating a block of time with you before your BoD meeting. Also don’t assume Board meetings are simply a formal necessity whose function is to rubber stamp your decisions. You should welcome being challenged on your assumptions by BoD members. And you should work to generate a spirit of camaraderie amongst the directors. Helping the BoD function as a team rather than a group of individuals will turn them from spectators to active participants in your venture – again, at the strategic level. The only operational functions the Board should play are to interview high level candidates – at your request – and to help in raising capital through their connections.

If you have zero experience building and managing a BoD I suggest you mine your contacts for a CEO who has that experience and is willing to share it with you. There really is no work experience that can substitute for the important task of building and managing your Board.

Finally keep in mind that being a director these days probably carries more risk than back in the last century when I was founding companies. You may need to invest in D & O (Directors and Officers) insurance if you have a key Board member who won’t serve without it. Directors have a fiduciary responsibility to shareholders, so if your venture goes sideways they bear some exposure to litigation from shareholders. D & O insurance is expensive, so try to avoid it unless you have so much capital from your seed or first round that it’s a very manageable expense.

To those of you who haven’t raised vc money, keep in mind that your lead investor will also be a Board member, so your due diligence on them and their firm is doubly important.