A deep dive into a game-changing startup

 

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Virtual reality was one of those technologies like AI. It emerged from the labs and had a brief moment in the sun until total eclipse plunged it into darkness for years. Too expensive, too kludgey, not enough content, no tools for content development – a long list of why virtual reality has been a tiny niche in the vast expanse of the high tech field.

And so it remained until a totally unlikely founder – Palmer Luckey – virtually single handedly created a low cost consumer-friendly HDM (Head Mounted Display). I’ve gotten very interested in VR lately, not because I’m a game player as virtually all VR advocates are, nor because I want to watch video in the immersion of my HDM. I’ve found that VR is a great way to manage pain. More about that at some other time. Not only is The History of the Future: Oculus, Facebook, and the Revolution That Swept Virtual Reality by Blake J. Harris an incredibly detailed and highly readable history of Oculus, the company Palmer Luckey founded, but it holds many lessons for founders of tech-based startups. 

Luckey goes from 19 year old inventor living in a trailer to selling his startup for almost $2 billion to Facebook to – spoiler alert! – getting kicked out of his own company. Along the way you’ll find a rogue’s gallery of co-founders, bit players, and of course, the mega-player of them all, Mark Zuckerberg, who personally drove the acquisition of Oculus. According to Harris’ account, Zuckerberg foresaw the plateauing of the smartphone as the platform of choice and with it Facebook’s fortunes. So he was on the hunt for the Next Big Thing – what would replace the smartphone as the communications/entertainment/remote control for billions of people. Zuckerberg convinced himself that next platform was VR.

Harris conducted hundreds of interviews over three years, with inside access to both the founders of Oculus and those at Facebook intimately involved in the acquisition of Oculus. At times I found the detail overwhelming and extraneous – I really couldn’t care less what Palmer ate for lunch. But the story of the rise of the hero and his tragic downfall is totally engrossing; I plowed through the entire 400+ page book in two days. Palmer Luckey was a hardcore teenage game player who must have been an autodidact as he never took any courses in software or hardware development and seemingly learned everything he needed to know on the fly. But what he didn’t learn was how to start a business nor how to choose his partners.

Unlike Zuckerberg, who moved from dorm room hacker to a founder intent on world domination in short order, Luckey’s ambition was simply to sell a few VR kits so others could experience the VR environment he had built. But like a Hollywood starlet in the days of yesteryear, he gets discovered by a successful serial entrepreneur who virtually takes over the company and eventually plays a hand in Luckey’s getting booted out of the company he had planned to spend his life with.

One tell that was obvious to me early on was the cap table for Oculus which gave Luckey basically the exact same percentage as his co-founders, about 15%, totally ignoring the fact that Luckey was totally responsible for the first prototype. In other words, Luckey let himself be screwed from the get-go by experienced entrepreneurs who saw him as their golden goose – their ticket to riches.

I won’t spoil any more of the book for you. But even if you never pick it up keep in mind two things: choose your co-founders wisely and structure your cap table to acknowledge both past and future contributions of all founders.

As Alan Kay has pointed out, it can take about 25 years or more for a technology to go from lab to commercialization. In VR’s case it took even longer. Computer scientist legend Ivan Sutherland created what is widely considered to be the first VR HMD in 1968! In eight days Facebook’s Oculus division will release the Oculus Quest, a low cost, self-contained VR system that is the first VR product with the potential to become a mass market hit – 51 years later!

 

 

 

Why advertising doesn’t work as the business model for discussion sites

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Alex Hern’s interview with Roger McNamee on The Guardian: ‘It’s bigger than Facebook. This is a problem with the entire industry’ prompted me to buy McNamee’s book  Zucked: Waking Up to the Facebook Catastrophe.! I highly recommend the book for anyone wanting to understand why the DNA of social networks – their baked-in model of advertising – is antithetical to the needs of their users.

Here’s the problem in a nutshell according to MacNamee:

It never occurred to me that there would be an asymmetry in the way that advertising works. That in order to command attention, you want to appeal to what [Tristan Harris] calls “the lizard brain”, the things that provoke outrage and fear. Things that essentially create a perception of reward. Those things, when you put them into advertising, can really be bad for democracy. Suddenly a neutral centrist idea gets very little traction on Facebook, where really extreme, emotionally charged ideas are viral.

The issue with Facebook and other ad-supported social media sites, is that their goal is very simple: attract as many users as possible then garner as much attention as possible – which they call engagement – from these users as possible, early and often. Then gather as much private data as possible about these users. This data is then used to target advertising. This works amazingly well, as anyone familiar with the financial success of Facebook can recognize. But while it works well for Facebook, it doesn’t work very well for users, especially those users who want to enter into a thoughtful discussion with their peers.

… the business model that Facebook and Google have created is something we’ve never seen before.
They were very much in the business of manipulating attention in order to get you to spend more time on [their services]. And that is a very dangerous business model for society. It’s bad for the mental health of the people who use it.
The problems are not isolated. They are systemic. They’re related to a business model that has worked extraordinarily well for investors and horrifically for everyone else. The failure to recognise that moderation would’ve been a better long-term strategy for the company is ultimately going to be very costly, because they are leaving governments around the world no choice but to bring the hammer down.
Simply put moderation does not scale to the enormous user base of Facebook – 2 billion users. Facebook never built moderation into their platform and never will. Here are some of the problems you get when you forego moderation on a discussion site:
  • Fake accounts – yes in theory Facebook requires your real identity and in fact I applauded their insistence on a .edu email address when they launched in the college market, as I had seen the problems anonymity can cause on message boards. But today Facebook is rife with fake accounts. For all you know you may be commenting on a post by a bot!
  • Disinformation – as we’ve seen in the Russians’ attempt to sway the 2016 election to Trump, it is far eaiser to spread disinformation than truth. There is only one true fact, but there are an infinite number of false ones when it comes to any issue. This asymmetry dooms any site that relies on algorithms to moderate their discussions, as facts are easily overwhelmed by falsehoods or “fake news.”
  • Trolls – angry young men with access to computers have existed for decades, and yes it’s mainly angry young men who post provocative and worse content in order feed on attention. Unfortunately few people realize that the best way to kill off trolls is to ignore them, they die of starvation. Facebook and its advertisers benefit from trolling, however, as it generates page views and engagement and concomitantly advertising opportunities.
  • Lack of helpful profiles – on the heavily moderated discussion site I frequent, Steve Hoffman’s Forums, every user is given the opportunity to post a profile and most do. The subject matter of the Forums is mainly music and music technology, so knowing what equipment a poster owns and if they are a professional musician or engineer, really helps understand their potential biases.
  • Violent and pornographic content – YouTube, which has thousands of very useful, informative and entertaining videos also plagued by content that fit for neither work nor home.
  • Fake ads – this is a great way for bad actors to make money and it cheats honest advertisers and worse yet can even damage their reputations.

I’m sure there are even more problems baked into the advertising model than I’ve listed above. But the answer to all of these problems is two-fold: verified identity and moderation. In 10 years of frequenting Steve’s forums I’ve yet to run into spam, trolling, disinformation or any other of the problems of advertiser-based social networks. Steve’s volunteer team of moderators does a great job and he makes very clear to newbies what the rules of the road are – if they are frequently flouted the user is banned.

But as I wrote above, moderation doesn’t scale well – the number of users on Steve Hoffman’s Forums is a rounding error on Twitter or SnapChat, let alone Facebook. Heard the expression, “Small is beautiful”? That applies to any discussion-based site, I’m afraid. Until AI gets a lot smarter, and far more important, until social sites move away from the advertising model, Facebook and others like them will  fight a losing battle against fake accounts, disinformation, trolls and all the other ills they fight with.

So if you are planning an online business that is going to rely on UGC – User Generated Content – and advertising based on that content, you are going to have to either keep your site small or succeed where Facebook and Twitter have failed – presenting a clean, well lit room for thoughtful discussions to take place to vast numbers of users.

 

Are you a micro-manager?

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I’ve never liked rules, most seem arbitrary to me. But I have to admit that every time I started a company I didn’t give second thought to two major types of rules: those governing personal leave (vacation days, sick days, personal days, etc.) and recording and submission of travel expenses. Yet at the same time I was doing my best – and I largely succeeded – to hire great people for my companies. Thus the Incarticle by Justin BarisoNetflix Avoids Rules Like the Plague. Here’s What It Does Instead, subtitled One reason for Netflix’s success: It throws the rulebook out the window. was a real eye opener for me.

The embedded assumption in having rules in a company is rules are needed to manage behavior, with a goal toward ensuring quality and consistency of performance. Yet in Netflix’s culture deck they made clear their belief that though there may be short term benefits to rules, in the long term companies that become enmeshed in rules and processes get sclerotic due to bureaucracy.

Netflix focuses on two things: hiring high performance employees and building a culture that rewards high performers and weeds out unimproved low performers. Netflix is one of the companies in the book  Great Leaders Have No Rulesby Kevin Kruse. Here is the major takeaway from the section on Netflix:

“Netflix leaders believe that responsible people–the people every company wants to hire–are not only worthy of freedom, they thrive on it,” Kruse continues. “Creating an environment where these individuals are not inhibited by myriad rules allows them to become the best version of themselves.”

There’s another way of expressing this which I had heard before, but never operationalized: get your employees to act like owners! Two great examples of this at Netflix are unlimited vacation days and no formal travel and expense (T & E) policy. Netflix doesn’t bother with the unwelcome overhead of tracking employee vacation days – salaried employees can take as much as they want within certain guidelines. Similarly, with regard to T & E expenses employees are expected to spend money as if it’s their own–and look for opportunities to save when possible. The company’s expense policy is very simple: “Act in Netflix’s best interests.”

Kruse considers rules another way to micromanage. Rather than burden employees with a nest of rules the Netflix culture ensures that they feel ownership and accountability for their decisions.

“Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause,” former Netflix chief talent officer Patty McCord wrote in a piece for HBR. “Instead, we tried really hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.”

So Kruse recommends founders follow the Netflix model:

  • Focus on hiring the best.
  • Set guidelines, not rules.
  • Reward great performance.

 

Do this right, and you’re no longer managing your people. You’re inspiring them. Leaders inspire, managers manage. If you can turn everyone into a leader you will harness the, creativity, and talent of your workforce.

 

“I am what survives me.”

 

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Jane Brody, who has been writing about personal health and nutrition for The New York Times for years, might seem an odd source for a blog about mentoring entrepreneurs. But, of course, the title to her New York Times article Want to Leave a Legacy? Be a Mentor sub-titled How to make a positive impact that would keep you alive in the memories and lives of others caught my attention.

Her reading of Marc Freedman’s new book, How to Live Forever: The Enduring Power of Connecting the Generations inspired her to write this column about mentoring. Mr. Freedman, the founder of Encore.org and co-founder of Experience Corps, both dedicated to helping older adults find purpose later in life, calls himself a social entrepreneur. Mr. Freedman’s latest endeavor, now in its second year, is called Generation to Generation, a foundation-supported nationwide project that aims to “build a movement of older people focused on the well-being of future generations.”

Here’s the quote that hit the heart of the matter for me:

“The real fountain of youth is the fountain with youth,” Mr. Freedman said. “It’s spending less time focused on being young and more time focused on being there for the next generation.” As the developmental psychologist and psychoanalyst Erik Erikson said nearly 70 years ago, “I am what survives me.”

The bulk of the article is about how older people, like me, benefit from staying engaged with others and ways to do that. Certainly it’s been a privilege to be a mentor at MIT in several different programs, The Venture Mentoring Service, The MIT Sandbox Fund, and the Post-Doctoral Program. As a mentor I’m sure I get more out of it than I give: the brainpower, creativity, and drive of the students and alumni I mentor are energizing. I tell people that I’m like an RFID chip. Alone, I’m can be passive. But the powerful rays of energy radiating from an entrepreneur energize me just like an RFID chip is energized when struck by radio waves.

Mr. Freedman sees older people as uniquely suited for a mentoring role:

“The critical skills for nurturing relationships — emotional regulation and empathy — blossom as we age.” And, of course, those who are retired also have more time to devote to younger people, be they grandchildren, neighbors or strangers.

This is probably why I see so many gray haired heads at the monthly VMS mentors meeting!

But we do have some younger mentors, and there is no reason why young people can’t be mentors. In fact my 98-year old mother has been mentored in the use of her Apple iPad by Babsonn College students, who visit her at her continuing care retirement community. She raves about them all as being knowledge, patient, and helpful.

The key to mentoring is what I consider the purpose of life: gain personal satisfaction through helping others. It only took until age 60 for me to realize this! And ever since I’ve found that mentoring entrepreneurs is the best way I have to help others.

Through my successful ventures and the many more failures, I’ve learned a lot about mistakes to be avoided by founders and tell my mentees, “Please be creative, don’t  repeat my mistakes, invent your own!”

What survives us is the impact we have on others. There is no point in being the richest person in the cemetery, but having been the most influential would be worth striving for.

 

What’s your product narrative?

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I’ve posted previously how at Amazon developers’ first step in new product development is to write a press release about the product they plan to create. But Scott Belsky in his new book The Messy Middle takes narrative well beyond the press release.

Carmine Gallo, one of my favorite business writers, writes about Belsky’s book in the Forbes article An Early Uber Investor Reveals A Creative Strategy To Build An Irresistible Brand. His key take-away from the book is that founders should build their narrative before they start developing their product.

According to Belsky, “Most entrepreneurs jump in and build a product. They’ll spend months, even years, building an MVP (minimal viable product). Right when they’re about to share it with the world, they realize it doesn’t resonate with consumers. People don’t understand why it helps them and why they should use it instead of something else.” Belsky recommends that entrepreneurs avoid this problem by starting with a story before the product is built—paint a picture of what the world will look like when the product is finished.

Belsy recommends that developers build a private web page for the product that should answer the following questions:

·     What inspired the idea?

·     Why does it need to exist?

·     Why is it relevant?

·     How does it make the future better?

The narrative services not only as the roadmap to how you develop your product but how you will market it as well. All stakeholders, from investors, team, or partners are helped to visualize the future.

Being able to recite a narrative—tell a story—about a future customer and how the product will solve a real-world problem is a powerful exercise that few leaders do in the early stages of the development process. “It’s very powerful and most teams don’t spend a lot of time on it,” says Belsky.

It’s a truism that investor pitches need to tell a story, but Belsky’s concept of the narrative goes beyond that to acting as the lodestar during the entire lifecycle of the product.  I see Belsky’s approach as similar to what I recommend to founders, using the journalists who? what? why? why” where? and how? to tell their products story. But what is different about Belsky’s approach is that it helps everyone envision the future. He gives a great example, how Garrett Camp, co-founder of Uber imagined a future where where everyone could call up a private driver, something only reserved for wealthy elites at the time. He imagined it as a superpower that ordinary people would have at their fingertips, literally. The story evolved into Uber’s first tagline: Uber is everyone’s private driver. Journalists report on the present; you narrative is a report from the future!

This also ties in with how Alan Kay recommends founders develop their products which I wrote about in the blog post How to invent the future. Belsky’s put his money where his book is, he was an early investor in Uber, in addition to founding Behance, an online portfolio company for creatives that he later sold to Adobe for an estimated $150 million. Today, Belsky is Adobe’s chief product officer and a venture capital investor.

He uses as an example Garrett Camp. the cofounder of Uber. (Belsky was an early investor in the company) Before Uber was a product—or a company—Camp was working on the narrative. Camp began to imagine an experience where everyone could call up a private driver, something only reserved for wealthy elites at the time. He imagined it as a superpower that ordinary people would have at their fingertips, literally. The story evolved into Uber’s first tagline: Uber is everyone’s private driver.

To recap, while Jeff Bezos’s practice of writing a press release for a new product that has yet to even begin development acts as a guiding light, a narrative envisions the future how the product will change life for consumers. Both approaches will not only guide developers but help them communicate the nature and value of their product to all stakeholders from investors to users.

I’m a reformed workaholic and proud of it!

 

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ILLUSTRATION: JOHN. S. DYKES

After I graduated from college I started a business providing sound reinforcement services to local bands. Building my own Altec Lansing Voice of the Theater loudspeaker cabinet introduced me what was to become a decades-long addiction, not to any drug, but to work. It wasn’t until years later that I came across the concept of flow, but I knew what it was like to be in the zone building stuff. Hours flew by like minutes and the body signals of both hunger and the need to for rest were shut down. That single project introduced me to the addictive nature of work and helped turn me into both a perfectionist and a workaholic. I wrote previously of The Dangers of Perfectionism, now it’s time to tackle the dangers of addiction to working.

As usual it was an article the spurred to write a blog post, this time The Wall Street Journal article by Jason Gray. I always look forward to Jason’s articles on sports in the Journal but the sports columnist tackled a serious business issue in his article Working Like Crazy May Actually Be, Well, Crazy, sub-titled Are you griping about working too much, or bragging about it? If you are too busy working to read the full articlewhich I  highly recommend – here’s my synopsis coupled with my some of my experiences.

Jason provides a great, and typically humorous, self-test for workaholism. Does any of this seem familiar?

I can’t believe how much of a time suck this project has been.

I feel like I’m living at the office.

I’ve forgotten my dog’s name.

I just returned 20 emails on a Sunday.

Peanut. I think the dog’s name is Peanut.

Jason introduces the concept of the workbrag – the element of pride embedded in our complaints about the long hours we work. The Apple team that built the Macintosh proudly wore T-shirts reading “Working 90 hours a week and loving it!” Workaholism seems part and parcel of working in technology and media. The advent of the Internet and mobile phones has enabled the always on 24 x 7 connection to work and the workplace. The two metrics that founders often tout – much to my dismay, as neither correlate positively with a venture’s success – are how many employees they have and how many hours a week they work.

But I fell into the trap of working crazy hours myself. Predating the internet, I remember having at-home access to Software Art‘s Prime minicomputer, enabling me to send and receive email, draft and review documents, and effectively work at home. For someone who ate, lived, and slept his job this was paradise by the VT100 terminal light. And I still remember that when I told my co-founder of my first startup that bought an early flip phone, the Motorola StarTAC, he responded with glee that he could now get in touch with me wherever I was, any time of the day!

At don’t recall exactly when it was that I discovered the downside of working crazy hours – that errors start creeping in when you are pushing past natural limits. Then when trying to correct those errors you end up creating new errors! It finally dawned on me that working past my limits was counter productive. I could actually deliver higher quality work by putting in less hours. That lead me to start monitoring my teams and not so subtly reminding them of our vacation policy, which we made “use it or lose” it to prod our staff to take needed time off. And we added personal days to the company’s benefits package so staff didn’t use up their vacation days or use their sick days when some type of personal obligation – like closing on buying a house – demanded their in-person attention. However, being a workaholic I hired people in my own image, so we had teams full of workaholics! And I was seeing their error rate rising when they exceeded a normal day’s work of eight to ten hours.

Jason’s article is based on a talk he hosted by the authors of a new book It Doesn’t Have to Be Crazy at Work by Jason Fried and David Heinemeier at a Wall Street Journal event in New York City.

The authors are co-founders of the workplace software company Basecamp, Fried and Hansson are successful entrepreneurs who pay their employees to take vacation—not vacation time but the actual vacation. Fried and Hansson’s company used to have one of those “limitless vacation” policies, until they realized that it made employees nervous about taking vacation. Now they insist on three weeks.

The concept of work-life balance hadn’t emerged until years after I did my last startup. Whether or not people actually do attempt to balance their work life with their personal life or just give the phrase lip service I don’t know.

But as a reformed workaholic I’ve learned how to turn off work and spend more time with my friends and family, though I’ve yet to learn how to actually stop thinking  about work when I’m not working!

 

What separates successful people from talented ones?

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Attempting to determine whether or not someone will be successful is quite different than whether or not they are talented. Predicting whether or not someone will be successful is existentially critical for founders, VCs, recruiters, and many others in the worlds of business and technology.

As I’ve written multiple times, the best predictor of a startup’s success is the team. And investors see the CEO as foremost. But how can they predict that the CEO will succeed? Or bring the company out of startup mode only to falter and need to be replaced?

In an upcoming book, to be published on November 6th, The Formula: The Universal Laws of SuccessAlbert-László Barabási, a physicist at Northeastern University, describes what makes some ideas and people succeed and others fail.

The Wall Street Journal article by Jason Zweig titled You’re a Bad Investor? That Can Be Good didn’t catch my eye, as I’m not an investor. However the sub-title certainly did: What makes people successful is different from what makes them a good performer.

Prof. Barabási is a network scientist, researching the dynamic forces that connect neurons in the brains of worms, govern which books become bestsellers, or help determine which financial assets burst into or out of favor.

In his book, set for release Nov. 6, Prof. Barabási distinguishes between performance and success.

“Performance is deeply linked to the individual,” he tells me in an interview. It follows what he calls “a bounded distribution”: the best in the world are barely separated from each other.

Many of you are familiar with Metcalfes’s Law: the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n2). This law is often cited as the reason that companies like Facebook grew so quickly and have come to dominate their markets. However, Prof. Barabási credits a process he calls “preferential attachment.” Through this, networks expand explosively as new nodes link most often to those that are already most widely connected. This helps explain the power of Facebook’s Likes. However, he also writes that networks can fail When your network oversteps the boundaries of the community where you are welcome, you may find it’s no longer a proper fit. Google certainly found that out with its attempt at a social network, Google +, they overstepped their market for search and search engine-based advertising.

So what does all this have to do with founders? According to Professor Barabisi, people’s ability to create and capitalize on ideas is constant. It varies little, if at all, from young adulthood to old age.But what does vary? Persistence. It’s long been my belief, which has grown stronger over decades in the startup ecology, that persistence is the most critical success factor – not native intelligence, training or degrees from elite institutions. It’s rewarding to see a scientist agree with my intuition!

“If you’re good at something, that’s like having loaded dice,” says Prof. Barabási. “If you only roll once, you’re wasting your chances. You have to roll over and over again!”

But how can a founder take advantage of this insight?

So, if your company brings job candidates in for interviews, each member of your team should speak to them in a different order or on separate visits.

You should review potential investments in random order, lest you be influenced by whether they come toward the beginning or the end. Sleep on important investment decisions: Today’s good or bad idea may seem the opposite tomorrow, and thinking twice will improve your odds of making the right choice.

This jibes with my belief that startups need to follow the scientific method: generate a hypothesis, create an experiment to test your hypothesis, gather data, and analyze the data to judge if your hypothesis was correct or not. A startup has to run hundreds if not thousands of small experiments. As The Wall Street Journal article concludes:

Above all, never stop learning about the markets; your best idea may be yet to come.