Is trust busted?

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The dictionary definition of trust is quite interesting:

  1. firm belief in the reliability, truth, ability, or strength of someone or something; acceptance of the truth of a statement without evidence or investigation.

In today’s environment of “alternative facts” and “fake news” can we have firm belief in anyone? We have people still believing that the earth is flat, others that the moon landing was faked. Currently that financier Jeffrey Epstein was either murdered or assisted in his suicide. But as The Wall Stree Journal article Trusting Jeffrey Epstein Taught a Retail Legend a Hard Lesson: Be Careful Whom You Trust by John D. Stoll, points out, trust is necessary in business.

It’s a question that brings into focus the role trust plays in American business. Long seen as nearly as essential as money for the economy, it is as powerful as it is dangerous. Trust serves as the secret sauce in every transaction, business plan and employment arrangement. But, behind every Ponzi scheme, market meltdown and corporate fraud lies a serious case of misplaced trust.

What does this article about trust have to do with founders? Plenty! Leslie Wexner became a billionaire by founding the Limited and other retail giants. Yet he was duped out of millions of dollars by Jeffrey Epstein. However, as “Roderick Kramer points out most successful business folks are risk takers. Risk requires trust, and leadership types tend to overestimate their ability to size up people or situations.” Mr. Kramer did a study about ten years ago that showed that “about 95% of M.B.A. students were routinely placing themselves in the upper half of the class when rating their ability to size up the trustworthiness, reliability and honesty of fellow classmates.”

Why do so many people get duped in startups, as the investors and employees of Theranos, the million dollar fraud did? Another expert weighs in:

Alexander Stein, a human-behavior expert and founder of Dolus Advisors, consults on white-collar misconduct and said we get duped because we “outsource trust.”

“It becomes less about who we trust and more about what we trust,” Mr. Stein said. “It’s not the person, it’s the image of the person, or the persona and the brand.”

So what’s a founder to do? Well when it came to dealing with his Russian adversaries, Ronald Reagan employed  the Russian phrase trust, but verify. But if we go back to the dictionary definition, this proverb is an oxymoron: trust is the acceptance of the truth of a statement without evidence or investigation. Verification requires evidence and/or investigation!

There are two skills I try to encourage my mentees to develop that help ascertain if they can trust an individual or organization due diligence and testing.

Due Diligence

According to Wikipedia:

 Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations.

The need for due diligence is inversely proportional to a founder’s personal experience and knowledge of the person or business in question – the subject. For founders the subject can be a prospective partner, candidates for staff positions; interested investors; professional service providers, like lawyers, bankers, consultants and accountants; contractors and vendors – in other words, virtually anyone and everyone a founder might do business with. The need for due diligence is also directly proportional to the importance of the transaction or business agreement. For example, you need to perform a lot more due diligence on a prospective VP of Sales than on the contractor who cleans your office. And more due diligence is generally required for a relationship than for a transaction.

But how do you perform due diligence? Excluding having actual direct experience working with a person or business, founders must rely on their subject’s reputation. There are two types of due diligence for reputation: primary and secondary research. Like market research, primary reputation research means communicating with people who know, and preferably have worked with, the subject in question. But I’m not talking about typical job candidate references. Who in their right mind would provide a bad reference? Rather I’m referring to a blind reference – someone who knows the person or business in question but is not provided to you as a reference. Unfortunately LinkedIn has bollixed up my practice of finding blind references, as it can be very hard to find blind references on people with an excess of 500 LinkedIn connections. But the real problem with LinkedIn is there is no way to measure the strength of the link, as Google does, by measuring the strengths of links to and from the target – the PageRank. However, all is not lost. You still may be able to find former classmates, investors, fellow workers or even neighbors who know your subject, but haven’t been put forth as references.

The second way to perform due diligence is through research. If LinkedIn shows connections that you share with your target you can communicate with them directly to try to find out how much you should trust the subject, in other words, how reliable and truthful they are.  Of course, checking the candidate’s web site, blog or social media posts can also be helpful. And finally, you would be surprised what a Google search can provide, assuming you can enter a unique search phrase for your subject. Let’s hope it isn’t named John Smith or Acme Corp!

Testing

If we go back to our handy online dictionary, test is defined as a procedure intended to establish the quality, performance, or reliability of something, especially before it is taken into widespread use. For our purposes I would modify that definition to say A procedure intended to establish the quality, performance, or reliability of someone before we decide to trust them. It can be difficult to test everyone you plan enter into a business relationship with. For example, they may be very senior to you and take umbrage at being tested. Or they may have been referred by someone you do trust and testing them may cause your friend to take umbrage. In fact, the basic problem with overtly testing people is that it can cause your subject or others to take offense. Taking offense doesn’t build trust! But I have found at least two ways to test those who may be offended: traveling and playing a sport. Both activities can test a subject’s tolerance for failure, their manners or lack thereof, their competitiveness, patience, persistence, and other important character traits. Travel and playing sports, at least golf, are embedded in business and it’s the rare candidate who would take offense at being asked to play a sport with you. Setting up a trip may be somewhat more difficult, but it can be worth it for an important subject, like a key hire.

I also believe in testing prospective partners. I usually ask them to do a simple task by a fixed date, such as provide me a document relevant to my business or to connect me with someone in their organization. The task doesn’t matter, but it has to be non-trivial and something that can’t be outsourced. You would be surprised by the number of eager partners who can’t meet an agreed upon date for completion of such a task and who offer weak excuses for their inability to do so. Ideally your test should result in something of value to you in the business discussion, like a sample contract.

I highly recommend founders read the entire WSJ article and be on the lookout for other articles about trust. Trust is an important building block in any venture. Trust me on that!

 

 

 

 

 

How do you recruit technical talent?

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I found a great answer to this question embedded in a Forbes article entitled How To Create An App Without Programming Knowledge. And the answer to the recruiting question in my title actually came from Quora, which seems to have an agreement with Forbes, enabling Forbes to re-use answers posted to Quora. If you are a founder and you are not using Quora you are missing out!

Greg Poulin, Founder and CEO of Goodley, has five tips for founders on recruiting engineers in the current hyper-competitive marketplace. As usual I’ll annotate his post based on my experience hiring software engineers.

Don’t fake it

This was never hard for me as I never had enough technical expertise to even fake having technical expertise! But if you are tempted to fake it, don’t! Engineers will suss you out quickly and you’ll lose them. Rather show respect for their profession, describe their value to your venture, and explain how your culture supports engineers. As in all recruiting you have to sell you company as a great place to work. And it better be, or you’ll be in the startup graveyard faster than you can post an ad on Facebook.

Create an engineering-led culture

The best way to do this is my experience is to have a partner as CTO or VP of Engineering. Barring that make an experienced and respected engineering manager part of your executive team ASAP. It is possible, but very difficult, to manage engineers if you are not one. While domain expertise was only ranked number seven in Google’s survey of needed engineering management skills it still made the top ten. I’d advise anyone trying to hire engineers to study Google’s survey and follow their guidance carefully. But keep one thing in mind: the important difference between your venture and Google is that you can offer a tremendous opportunity for an engineer to have impact. No matter how good you are, Google has about 20,000 engineers – it’s very hard to make much of an impact on customers there.

Remember, talent attracts more talent

This is probably Greg’s most important tip. I was taught early on that A players hire A players, but B players (who are afraid to be shown up by A players) hire C players, and C players – well you can guess. As Greg says, People want to work beside people who are smart, driven, and hardworking. Hire A-players.

Be mission-driven

I taught my managers that no matter how much they paid their staff the amount was soon forgotten – simply taken for granted – until and unless a promotion was in the wind. But what should never be forgotten nor taken for granted is the mission of your venture. It has to be compelling – and memorable! I used to tell my team that we should be able to wake up anyone at 3 am and ask them the mission of our venture and get a correct answer in 20 seconds or less before they went back to sleep. When we sold my first company to Thomson their mission statement was so long I couldn’t memorize it to save my life, but it was good at putting me to sleep!

Don’t be a nightmare:

This should go without saying. Just because a genius like Steve Jobs could act like an asshole sometimes that is not an excuse for you. Here’s another great quote from Greg: Creating a positive company culture that rewards great work, treats people with respect, and works to improve people’s lives will be a place people want to work. 

Create a separate career path for engineering talent

And here’s my organizational design tip on engineers. Many, if not a vast majority, of engineers hate managers! Why? Because about all they see managers do is create meetings and meetings interfere with getting their work done. Engineers like to build stuff. And they like to build stuff that lots of people use and are delighted with. So set up an individual contributor promotion path for engineers, so they can gain the status and compensation of a manager without having to become a manager. Because you know what happens when you turn an engineer into a manager? You lose a great engineer and gain a lousy manager!

And if you want to retain those engineers you worked so hard to recruit, do your best to minimize interruptions in an engineer’s day! (Interruptions from product managers and others are one reason engineers prefer to work at night or better yet, from home.)

Elon Musk’s words of wisdom on alignment

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Dharmesh Shaw is a founder of HubSpot and he relates what he considers a life-changing encounter with Elon Musk in an article in Inc. by Jessica Stillman.

Shaw managed to ask Musk a question at a small dinner they were both attending. He asked Musk’s advice on growing and scaling a business. Here’s Musk’s answer:

 Every person in your company is a vector. Your progress is determined by the sum of all vectors.

As you may recall from high school algebra, a vector is a measurement with that captures two variables: magnitude and direction.  For example, measuring a car in motion, one variable is speed and the other is direction.

So everyone in a company is a vector with both magnitude of impact (how much they achieve, like lines of code they write or sales they close) and a direction of that impact (what feature they are working on or what vertical they are selling into).

The problem is most leaders focus on only one of the two elements of a vector: magnitude and tend to ignore direction. So if you have some people on your team running hard in the wrong direction when you sum the vectors of everyone on the team those running hard in the wrong direction cancel out out those going in the right direction.

So how do you ensure that your entire company is aligned? According to Shah:

  1. Align people with the organization’s goals.

  2. Align individual teams (product, marketing, sales, service, etc.) with the organization’s goals.

  3. Align the organization’s goals with the needs of the customer.

However, I’d start with point zero, alignment amongst the founders, without that points one through three can not be attained.

You can learn more from watching Dharmesh Shaw’s 46 minute talk: Aligning Vectors, What Elon Musk Taught me about growth, embedded in the Inc. article.

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.

Making is about iteration, not failing fast!

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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

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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.

 

Incomplete article on why Massachusetts can’t birth tech IPOs

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Scott Kirsner of The Boston Globe has a business section front page article entitled Where are all the Massachusetts tech IPOs, sub-titled When it comes to going public, the sector remains in the long shadow of California. 

This is scarcely news to anyone who has been or is in the entrepreneurial economy in Massachusetts. Silicon Valley has lead Massachusetts in every dimension of tech startups since the downfall of the Route 128 computer companies like DEC, Prime, Wang, Data General, and Apollo.  I assume what prompted Scott to write the article is the current flock of IPOs and soon-to-be-IPOs from Silicon Valley, including Uber, Lyft, Zoom, Pinterest, and Slack.

Unfortunately the article, while accurate, is incomplete. It principally blames founders for several sins:

  • Thinking too small – building million dollar companies that get acquired versus billion dollar companies that go public
  • Inadequate PR – not creating the kind of buzz that attracts big investors and star employees
  • Poor culture of mentorship – “We have a poor culture of mentorship relative to the Valley and now New York,” says Michael Greeley, an investor at Flare Capital Partners in Boston.

But he manages to mainly give a pass to both investors and the Commonwealth of Massachusetts. Having been in the “innovation economy” for 39 years, I can tell you there is a very strong investor culture here that is in one word conservative.  The first generation of VCs came out of companies that were consistently profitable. In fact, back in the day of DEC and Data General, the rule was you could not go public until you had four consecutive quarters of profitability. Tell that to the investors in Uber, Lyft et al! These VCs also hated consumer plays. They told me there was no way they could perform their due diligence on B2C companies. With enterprise companies they could call all their CIO friends in large companies and get a reading on the viability of new products from these potential customers. They had no idea who to call to get a reading on a consumer startup like Uber. So they passed. I can’t count the number of times I was told by founders from California that the startups I couldn’t get funded here in Boston would easily have raised capital in Silicon Valley.

And Scott leaves out one of the major governmental problems with the startup economy in Massachusetts: non-compete agreements. In California non-competes are illegal. Period. You can leave your company on a Friday and form a startup on a Monday to compete with your former employer. And many entrepreneurial-minded employees do just that. It’s a fact of life in the Valley. But it’s more than that. The constant spawning of new companies creates the winners that go public and in turn spawn more startups. Not here. The large legacy companies and their lobbyists have kept the legislature from ending indentured servitude in the tech sector. Until the legislature wakes up and does away with non-competes, Massachusetts is doomed to fall further and further behind the Valley.

But founders also share part of the blame that isn’t mentioned in the Globe article. The best and brightest leave Boston for Silicon Valley. The canonical example being Mark Zuckerberg, who founded Facebook in his dorm room at Harvard, but as soon as he got traction he headed for the Valley. Perhaps far more importantly, but lesser known, is that Paul Graham, the founder of Y-Combinator, perhaps the most important early stage investor of the past ten years if judged by the sheer number of investments it has made, started Y-Combinator in Boston. For a while he maintained both an East Coast and West Coast presence, before shutting down his office here and putting all his focus on Silicon Valley.

The tech sector in Massachusetts has been second fiddle to Silicon Valley since startups moved from 128 into Cambridge and Boston. But it has fallen farther and farther behind to the point that Massachusetts is no longer even number two, it’s behind New York, and if we aren’t careful, we will fall behind Texas next.

And there is plenty of blame to go around: entrepreneurs, investors, state government all play a part in squandering the tremendous entrepreneurial engines of MIT and Harvard. Until the culture changes amongst all three groups my advice to the founders I mentor is, sadly, “Go west, young man.”