Category: Quotes

Sometimes advice columns don’t dish out the best advice!

 

businessMost of the ventures I mentor plan to raise capital at some point in their venture’s life, if they haven’t already. So being as I have been out of the capital raising game for the better part of a decade, I try to read as much as I can to keep up with current trends in startup investing. Thus I just had to read the article 4 Reasons Why Investors Won’t Invest In Your Business Model, sub-titled Approaching the private equity firms or investors and persuading them in [sic] the most daunting task for businessmen. A typo in the sub-title is not a good leading indicator, but I read on. And it’s repeated in the first paragraph! But this is from Entrepreneur.com, usually a reliable source … So let’s look at their “four reasons.” But first, always look at the author. In this case it’s not a person, it’s “BusinessEx Staff” not a named individual. So credibility goes down a few notches.

1.    Fail To Foresee The Future

I have the feeling this was written by a non-native English speaker, as the title would typically be “Failure to…” or “Failing to…”  First of all private equity firms rarely “scrutinize new entrepreneurs” because they rarely invest in new entrepreneurs. Private equity firms invest in on-going businesses or even buy them outright, with the goal of re-engineering the business and thus being able to sell it or even take it public at a significantly higher value than they paid for it.  Yes, “buy low, sell high.” Remember that! The only way one can know for sure if an entrepreneur can successfully foresee the future is to wait for the future to arrive … which can take years. But I do have to agree with the statement that “… it is vital as to how a business owner executes the plan and mould [sic] an emerging, nascent company out of it.” As Bill Gates has said, “Ideas are cheap, success is 99% execution.”

And I also agree with the statement: “The entrepreneurs, who lose this vision or get diverged by the money factor, fail to build concrete foundations of the business.” While again the English is tortured, the point is that entrepreneurs do need a lodestone to focus their attention. Having no vision or losing site of the vision results in companies thrashing – constantly pivoting. So no one can foresee the future, but you can execute your plan well, or not. And you need to build a plan to achieve your vision.

2.    Improper Cash Flows

Yes, the saying “cash is king in startups” is true. The worse thing an entrepreneur can do is to run out of cash. So being able to present a cash flow statement based on strong assumptions and early performance is indeed important.

3.    The Enormous Size Of C-Suite Executives

I’ve written before about the incredible growth in the size of the C-Suite. We now have Chief Design Officers, Chief Security Officers, Chief People Officers. You name it, there’s a Chief for it. Too many cooks do indeed spoil the dish. I am in violent agree with the message that startups should not have too many C-Suite executives. CEO and CTO should be enough for a raw startup. Having more CXXs is a red flag. Cliches prove true yet again: “Too many chiefs, not enough Indians.”

4.    Inability To Understand The Competitors

Back in the last century investors used to say in all my pitch meetings, “But what if Microsoft decides to copy what you are doing?” That got superseded by “What if Google decides to copy what you are doing?” I used to tell my mentees to ignore the “What if GiantCo enters your market?” question until I saw Instagram rip off the Stories feature from SnapChat, which fueled the growth of Instagram and hobbled SnapChat. So you better be sure that you aren’t hanging the entire fate of your company on one feature that isn’t difficult to clone – because success breeds many cloners, failures none.

Despite the inelegant English like “The business owners should further avoid these mistakes by planning strategized moves to entice funders and investors.” the advice is correct, but the idea the startups are going to be pitching private equity companies is just wrong. Where private equity does come in these days is in later rounds of companies growing rapidly that need a lot of capital, like Uber. The risk is much lower for these late round investors.  Let’s hope you are so successful that private equity comes knocking at your door! Until then execute, manage your cash tightly, keep the number of executives down to the bare minimum, and keep your eye out for competitors. Better yet build your company on a sound, sustainable competitive advantage.

Things you should know about VCs

vcThere are lots of myths out there about VCs, about how they will take over your company and replace you as CEO or that getting a VC investment paves the way on your path to riches. But Jason Lemkin of SaaStr, the world’s largest community of SaaS executives, founders, and entrepreneurs, has an excellent article on some facts you should know about VCs – forget about those myths!

  1. Entrepreneurs tend to think about VC firms, but in reality VC firms don’t do investments, individual partners at VC firms are the ones making the investments. Just like medical device makers don’t sell to hospitals, they sell to the individual financial decision makers in departments in hospitals that need those devices. And the hard truth is that partners at VC firms do very few investments per year, typical just one or two. So as a collective firm they may do a significant number but the individual partner who’s a potential fit for your firm only one or two. So you need to have a really compelling fit for that VC and you better know from your research which partner in the firm might invest in your firm. That knowledge should be based on their track record, blog posts, social media presence, and G2 you can gather from their portfolio companies.
  2. As the Bob Dylan song goes, “Everybody gotta serve somebody” and in the VCs case it is their limited partners, those pension funds, college endowments, and wealthy individuals who invest in venture capital as part of their diversified investment portfolio. So check out the limited partners, for example, when we were talking to Greylock about funding Course Technology it turned out they had six or seven limited parters which were college and university endowments – so they were excited to invest in our educational software and publishing company.
  3. Partners are diversified, you aren’t. Unless you are Elon Musk or Jack Dorsey, chances are very high that the only company you are fully invested in is your own. Not so for partners in VC firms. In essence they are portfolio managers; your firm is just one amongst several in their portfolio. So they will tell you that their interests are fully aligned with your’s but in fact they are not. Resources – money, connections, and their attention – will go to only those firms in the portfolio that they perceive as the winners.
  4. VCs don’t just make money on exits, they make money on management fees. And to make a lot of money on management fees – typically 2% of funds invested per year – they need to raise multiple funds. And they raise those funds by getting step ups on the valuations of the companies in their portfolios. Yes these are paper gains but they can show their LPs strong IRR on their current investments. So VCs always have one eye on the next fund and how they will raise it.
  5. Small VCs Align With You, But Lowball You.  Big VCs Don’t Align As Well, But Can Pay More. Big VCs can write big checks and they also can hold funds in reserve, so they can participate in multiple rounds without getting diluted. But small funds will probably have to syndicate their rounds – share the investment and any returns – with other firms. Big VCs can write very big checks, but then they need to have a big return to impact the fund. And partners can only serve effectively on just so many boards – typically no more than seven to nine – so if you only need a small amount of funding they can’t afford the opportunity cost of taking the time and attention to invest in you, let alone serving on your Board.

Entrepreneurs have learned about product/market fit, but investor/venture fit is equally important. The amount you need to raise, the market you are targeting, how you play with the partner’s portfolio, and your need to raise multiple rounds to get to breakeven are all factors you need to take into account before you even start contacting VCs. As Sun TZu wrote in his work The Art of War, “Every battle is won before it’s ever fought.”

“I am what survives me.”

 

live forever book

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.

 

The first mover’s advantages vs. fast followers’ advantages

 

footraceBack in the late ’90s during the dot.com boom everyone was trying to be first to market to gain first mover advantages. But what are those advantages?

  • Media relations – if you are first to market you are bound to garner more press and other media’s attention than being seen as an “also ran”.
  • If your market is not growing, then market share becomes a zero-sum game. Thus by being a first mover you may able to grab more market share, or at least grab the low hanging fruit first. Those following you will have to fight harder to gain share in a static market.
  • Attracting talent. Engineers like to be with “hot” companies, as they assume those companies will grow the fastest, exit the fastest, and make them richer than a following company.
  • Partnering – by being first to market you will have the pick of distribution, marketing, and other types of partners.
  • Exclusivity – you may be able to forge exclusive agreements with suppliers, partners and even customers, thus shutting out companies that follow you.
  • Intellectual property – if you can both file first and apply your patent first you may well get that patent or patents granted, potentially shutting out or slowing down competitors.

Going first seems like the smart strategy. But why is that behemoth companies like Apple and Microsoft are fast followers? For example, the iPhone was not the first smart phone, but it was the first to elegantly integrate the touch screen UI into a sleek form factor that enabled users to surf the web, send messages, take photos, listen to music and even make phone calls. So what are the advantages for fast followers?

  • The saying that “pioneers are the ones that get the arrows in the back” has some truth to it. There are all sorts of issues that a first mover can’t foresee that can trip them up, from government regulations to new technical standards.
  • Fast followers can sit back and see if there’s actually a market for the first mover’s product. Perhaps it is too small to bother with. Or it may be the wave of the future, as the cloud is. Amazon gained first mover advantage with AWS, but Microsoft, is closing fast from the fast follower position.
  • Fast followers can observe customer behavior: what do customers like about the first mover’s new product? What don’t they like? What features aren’t even used? What features are missing? Is it performance or a slick UI that attracts customers?
  • Determining the right business model is one of the toughest problems innovators face. By being a fast follower you can study the market and see if the pioneer’s business model is working. Perhaps the first movers try to price their product a la carte, but the fast follower sees that a subscription model would work better. First movers are then faced with having to change their business model, which may upset customers, whereas the fast followers can launch with the right business model in place.
  • Setting pricing is another one of the tough problem the first mover’s face with their new product. Perhaps they have priced the product too high, which leaves room for fast follower’s to undercut the market leader. Or perhaps the first mover looks like they have left money on the table, enabling fast followers to start with higher prices without having to deal with customers who object to price increases.
  • What’s the USP (unique selling proposition) for customers? Fast followers can observe the market and see if the pioneers had an effective USP or if that prize is still up for grabs.

You see that the list of advantages for fast followers is longer than that for first movers. But don’t be fooled by the number of bullet points. Analyze your market and your customers’ behavior. Typically it is large, established companies like Apple and Microsoft that are the fast followers. The bigger the company the slower they tend to move, and they are typically risk-averse. This is why startups often defeat large companies with more resources. As Kris Kristofferson sang, “If you ain’t got nothin’, you got nothin’ to lose.”

Whether you chose to be a first mover or a fast follower, be aware of the advantages you may have, but also the disadvantages and make the trade-offs strategically. Too many startups just assume they need to be first movers, only to establish a market that bigger companies then enter with more resources and market power. And whatever you do, if you are successful you will have imitators. You need to build a sustainable competitive advantage, such as patents or exclusive distribution agreements. While there can only be one first mover, there can be dozens of fast followers!

How a strong, clear vision can help you focus

focus

I find founders have a lot of trouble focusing. For one, on their target market. Everyone wants to boil the ocean; start by trying to boil a teaspoon! For another, startup founders often seem to think they can support two different products at the same time. No you can’t, as Scott MacNealy said, “Put all your wood behind one arrowhead.” As a founder you need to be ruthless and ruthlessly focused, that can mean killing your babies, as in backburning a pet product to put 100% of your focus on the product with the best chance of getting near term traction.

But like so much mentor advice, focusing is so much harder for the founder to enact than for the mentor to say.

Inc has a great Q & A on focus with Jeff Bezos, who has done an incredible job of first focusing on a single beachhead market, books, then moving to adjacent market, CDs; then another adjacent market, DVDs; and so on, as Amazon conquers the world of retail.

In a world that’s filled with more distraction than ever, how can you achieve greater focus?

That’s a question Amazon CEO Jeff Bezos touched on in a recent interview in New York. At a private event for The Wings Club, a global society of aviation professionals, Bezos spoke primarily about his private aerospace company, Blue Origin, and its plans for the future.

 

Towards the end, the moderator asked Bezos how he manages to stay focused on such a tremendous, long-term vision, to which he replied with the following:

“Vision is absolutely important, but it doesn’t deserve your day-to-day attention. You need a vision, then, that’s a touchstone: It’s something you can always come back to if you ever get confused. But mostly, your time should be spent on things that are happening today, this year, maybe in the next 2 or 3 years.”

Bezos then concluded with these two powerful sentences:

“So I would always encourage people to hold, powerfully, [to] a vision and be so stubborn of it. Don’t let anybody move you off of your vision.”

So there you have it from one of the world’s greatest entrepreneurs. I strongly recommend you read the entire article, by Justin Bariso entitled It Took Jeff Bezos Exactly 2 Sentences to Teach a Major Lesson in Achieving Great Focus subtitled Whether you’re running a company, working for yourself, or leading a team, there’s a lot to be learned from this simple advice.

You need a mission as well as a vision. And what’s the difference?

Your vision should be the overarching goal, the established purpose and objective of an organization (or an individual).

While vision could include a company’s mission, it goes further. Mission generally describes what you are currently doing; vision goes into the future and describes what you hope to accomplish.

For people buying a house or condo, what’s are the three most important factors to consider? Location, location, location, goes the old real estate saw. For startups, it’s focus, focus, and focus.

 

Not all customers are created equal!

customer

To the struggling startup – which is redundant, as all startups struggle at some point – any customer is a great customer. Any port in a storm, right? After all management guru Peter Drucker said “The purpose of business is to create a customer.”

Customers represent cash – the lifeblood of any business. But beyond that they represent validation and Le mot du jour – traction.

But startups need to learn what a successful, experienced sales person knows: not all customers are created equal. For that reason sales reps qualify prospects, and founders – most not being experienced in sales – must learn to do so as well. Lets define terms for a start. A customer pays for your product. A prospect is a potential customer.

For a startup your prospects should:

  • Not demand customization of your product, or you will end up spending time implementing features that aren’t on your roadmap, consuming valuable resources that should be devoted elsewhere
  • Have the potential to be repeat customers. There are two types of business relationships: transactional and relational or consultative. Transactional relationships are like those awful restaurants on turnpikes – they don’t care if you are one and done, as the odds are they wouldn’t see you again, even if they did provide better fare. But if you can build a relationship with your customer, then they will want to come back to you to purchase services or in the case of consumables, to purchase your product again and again. Preferably on a regular basis. Recurring revenue is the holy grail for startups. (Which is why the subscription business model is so desirable.)
  • Have the potential for up selling. Up selling is when you sell your customer more expensive products and/or products that provide a better gross margin.
  • Don’t cause you to lose focus or divert you from your mission. One common problem I see, and I’ve been there, is that startups tend to be opportunistic, not strategic. Meaning they exploit a chance offered by immediate circumstance without reference to their business strategy and plan.  Startups need to be strategic. Customers should fit with your long-term plan and company mission.
  • Have the potential to act as a reference or provide a testimonial. This is primarily a B2B value. No one likes going first. The typical  initial question from the enterprise prospect is “Who else is using your product?”  You need customers who are willing to be references for you, to talk with prospects about why they bought your product. Ideally your customers would provide you with testimonials, for use on your web site and or in a press release.
  • Offer the opportunity to sell to other divisions or subsidiaries. Again this is an enterprise sale value.  With startups you often start with one division or department or even just one team. But your goal should be leveraging that sale to many other sales within the company. Introductions by your customer to other prospects within their company are very valuable.
  • Provide valuable feedback on your product. The job of the founder and the venture is to learn.  Thus customers who will help you learn by providing feedback on what’s good and not so good  about your product, what features they would like to see in new versions (not that they need to see for a sale!) and even feedback about your sales process, are far more valuable than customers who are just  interested in a plug and play product and have no feedback for you.

Profile your ideal customer, in writing! And make sure that anyone who is at all involved in your sales process can recite that profile fluently, and more importantly, can say no to prospects who will suck up valuable resources or divert you from your path. Of course, not all customers will have every desirable characteristic, especially if you are in a consumer business where driving necessary volume may make sales more transactional than relational.  But a goal of a startup is to measure return on investment, be that time or money. Thus you need to focus on customers who will maximize your return, not simply sign a purchase order. The cost of customer acquisition must be a fraction of customer revenue – that’s your gross margin, which must be healthy.

Do you have what it takes to be a great mentor?

mentorWhen it comes to mentoring entrepreneurs rather than career mentoring, I’ve yet to find any formal training programs. The closest I’ve come is that the MIT Venture Mentoring Service runs an orientation program for all new mentors and presents best practices in mentoring at the monthly mentors’ meeting.

However, Inc. magazine wrote about the Entrepreneurs’ Organization (EO) list of what you should look for in a potential mentor to help you meet your business goals.

They list what they consider five compelling traits of exceptional mentors. I’ll list each and annotate them with insights from my own experience as a founder and as a mentor.

1. Candor

I’ve always had a reputation for being blunt. It probably ties in with the fact that I’m an impatient person. I hate beating around the bush. I want to get to the point. I just find candor is far more efficient, both for the mentee and the mentor. Occasionally being candid can raise the hackles of founders, such as when you list that it takes to be investor-ready and they see that their venture just isn’t. MIT VMS and now MIT Sandbox use team mentoring. So being candid is not only efficient for the founder and for me, it helps the other mentors as well. Sessions are as short as an hour, so there is no time to waste. But just because you are candid does not mean you aren’t diplomatic. The best way to do both is to ask questions rather than make bald statements. For example, for the company that wasn’t investor ready I listed the five elements needed to be investor ready and asked the entrepreneur how many his venture had. When he saw his venture fell short on three out of five of them he realized he wasn’t ready to raise money – I didn’t have to tell him.

2. Big-picture commitment

My mentoring focus is on the entrepreneur, not on the venture. Why did they start this venture? What goals do they have both for the business and for themselves? The more I understand their intentions – why they started the venture and what they are trying to accomplish, the more helpful I can be. Mentoring sessions can often veer off into the weeds if you are not careful. It’s up to the mentor to keep the discussion on track. Mentoring is for solving big picture problems like should the venture be a non-profit or a for profit company, not for discussing the design of their web site. Founders can help by bringing agendas that focus on major issues where they need guidance and by resisting the temptation to go down implementation rabbit holes.

3. Encouragement

What rewards me as a mentor is seeing the accomplishments and growth of a founder and their venture. Yesterday we had a session where the founder had some great accomplishments to share with us, adding two new experienced team members, closing an important sale, and finalizing a partnership he’d been working on for some time. It’s fun to encourage the founder at times like these. But it’s more important to encourage a founder when times get tough – when a major deal falls through, his co-founder quits, the term sheet fails to turn into an investment. Building a company is a grind and can be lonely. There are typically more losses then wins, especially in the early days. So I make it a point to encourage founders the most when they are down. As the football coaches say “You are never as good as you think you are when you win and you’re never as bad you think you may be when you lose.”

4. Accountability

I believe in giving founders “homework” – that is to mutually agree on a specific milestone they will plan to reach by our next meeting. Mentoring tends to be focused on the short term – what does the venture need to be investor ready? to ship their first product? to recruit a sales director? Setting short term milestones keeps mentoring on track and keeps the founder accountable to the mentors. But we make it clear that it’s not our job to check in on the founder’s progress – we expect the founders to stay on track unless we hear something different from them.

5. Experience

Despite all the courses, books, lectures and blogs like this one, a mentor’s experience in starting, developing, and exiting a venture gets conveyed on a just-in-time basis. While we occasionally see founders who have built a company before, most are first timers and the stories we can tell to help them through issues they are facing are almost always well received. Frankly, if you haven’t ever started, built, and exited a company I don’t think you can be a successful mentor for startups. You may well have domain expertise in a particular industry like retail, or functional expertise, like sales, but these can’t substitute for the many zero stage issues founders face. In fact when a venture transitions from needed founding expertise to domain experience we know they are on their way to growing their venture. And because every mentor has different experience, team mentoring is more than doubly effective, as we bring different perspectives as well as different lessons learned from our experience to team mentoring sessions.

Check out the video at the end of the Inc. article 5 Compelling Traits of Exceptional Mentors Starting your own business is challenging. Accessing entrepreneurial experience can be the key to success.

Lies, damn lies, and statistics

TAM-SAM-MarketThe saying “Lies, damn lies, and statistics was popularized by Mark Twain, who attributed it to the British prime minister, Benjamin Disraeli. The actual origin of the phrase isn’t clear and doesn’t really matter – it’s as true today as it was in Twain’s day and far more relevant in a world flooded with statistical analyses derived from reams upon reams of data.

But what does this evergreen phrase have to do with founders and mentoring? Increasingly in our data-driven world investors and business partners are insisting on quantitative evidence of both a new venture’s market opportunity and the size of the problem it is trying to solve. Thus many founders need to rely on third party research to buttress their arguments, as they don’t have the resources to do in-depth primary research themselves. Typically the sources of the data they rely upon – government and market research analysts – have far more credibility than the founders do.

I came across a perfect example of the perils of “data risk” for founders in The New York Times article Digital Divide Is Wider Than We Think, Study Says by Steve Lohr. It describes how Microsoft researchers did a study on the actual use of high-speed internet in the U.S. They concluded that 162.8 million people do not use the internet at broadband speeds. However, the Federal Communications Commission (FCC) claims that only 27.7 Americans lack broadband access!

If you are a company like Microsoft that is interested in profiting by solving the so-called digital divide – the large gap between the many millions of U.S. residents who have broadband access and those who don’t – you have to have the correct data to act as foundation for your business. Microsoft, of course, has far more resources than ever available to a startup, but the discrepancies found by their researchers between FCC findings and their’s are dramatic. This gap is most striking in rural areas of the U.S. For example in Ferry County in northwestern Washington, the area highlighted in the  Times article, Microsoft estimates that only 2 percent of people use broadband service, versus the 100 percent the federal government says have access to the service.

It turns out that the FCC relies on simplistic surveys of internet service providers that inherently overstate coverage. For example, if one business in an area has broadband service, then the entire area is typically considered to have broadband service available. You can get the full details of how Microsoft generated their data in the article, which I highly recommend, but suffice to say that they did not rely solely on ISPs for their data – they performed primary research.

There are several lessons for founders who are relying on government or other sources for data that may be the foundation of their business case.

  • Consider the source of the data. In this case one would expect the FCC to have accurate data. But anyone who has been following the politicization of the FCC would realize that they are very biased: it’s in the FCC’s interest to show that they are doing a great job by making broadband universally available through their policies that favor ISPs.
  • Try to learn the source behind the source. The FCC did not do any primary research into broadband access, they totally relied on third parties – ISPs – who like themselves, were biased towards showing universal data access.
  • Find out the foundational definitions.  Nowhere in The Times article is broadband defined! Access speed can vary exponentially from 100 mbps to 1 gigabit service.
  • Learn how the data was gathered. The FCC relied on simplistic surveys of ISPs rather than performing rigorous surveys of consumers’ access to broadband. The best data is gathered from primary – firsthand – research.
  • Find multiple sources for the data. One way to factor out bias or poor data collection techniques is to find more than one source for the data. Just as it’s a risk for manufacturing companies like Apple to rely on a single vendor, if your venture is relying on just a single source for foundational data you are exposing yourself to the risk that your data may be in the “damned lies” category.
  • Verify data sources with your own research. Let’s assume you were looking to start a business to serve a rural area, for  example, an internet-connected animal tracking service for cattle ranchers. Rather than just basing your total addressable market on a single, potentially biased source like the FCC, do your own primary research.  By interviewing just a few ranchers you would probably find that most lacked internet service or relied on very slow satellite systems for their internet connectivity. Others might even have to drive to their local library to access the internet. Hard to get real time location tracking by relying on your local library for broadband access!
  • Understand that there is no such thing as “objective data.” No matter how rigorous the statistical methods used, biases of the researchers will seep into the data. Microsoft has its own bias, as it is trying to convince the FCC to allow them to use the “white space” between TV channels to deliver internet access to rural areas. So it’s in their interest to show very low levels of internet access – just the opposite bias of the FCC (and big ISPs and broadcasters, both of which are dead set against Microsoft’s initiative).

The bottom line is that secondary market research that has value in determining your total addressable market may be necessary, but not sufficient. Supplement that research with your own primary research, as cash-constrained as that research may be. A good question to ask during your customer discovery process is to ask your potential customers how big they would estimate your market to be and what, if any data, they rely on themselves. While not all data is lies or even damned lies, it may well be tainted by bias – it’s up to you understand and account for the biases and assumptions of your market research sources.

There’s no success like failure and failure’s no success at all

dylan

I doubt Bob Dylan had entrepreneurs in mind when he wrote that lyric in the song Love Minus Zero/No Limit. And I’m not sure I understand what he’s saying either, but Dylan’s great at creating enigmatic aphorisms, as well as song titles that are inscrutable at best.

But Bill Gates, who I doubt was the Dylan fanatic his competitor Steve Jobs was, came up with a great quote that every entrepreneur should take to heart: “Success is a terrible teacher.” Jean-Louis Gassée, in his Monday Note #519,even improved on this quote when writing about Steve Jobs:

As Bill Gates once felicitously said, “success is a terrible teacher”. (The French translation, maîtresse, is even better as it combines knowledge and infatuation.) The success of the Apple ][ might have seduced Jobs into believing that he knew while he might have simply been a kind of Chauncey Gardner: At the right place at the right time.

I was a victim of the success syndrome myself, thinking that after starting two companies backed by a host of blue chip VCs and corporate venture arms of companies like Apple Computer, that I could start a third company by myself, based on my own idea. You can find the Throughline story elsewhere on this blog, so I won’t repeat it.

Startups are hard and just because you have done one or two before doesn’t mean you’ll succeed again. Mitch Kapor, did a brilliant job of creating Lotus 1-2-3, the spreadsheet that succeeded VisiCalc and preceded today’s standard, Microsoft Excel (which may in turn be superseded by Google Sheets) and Lotus Development Corporaton. But he could never match the success of 1-2-3, though he tried mightily with Symphony, Agenda, and Jazz at Lotus. In fact Jazz, a Macintosh variation of Symphony, was such a turkey that Jim Manzi, who took over from Mitch as CEO of Lotus, joked that “We got more returns of Jazz than we shipped!”

Mitch went on to try more companies and yet more products, On Technology being one company I recall, before hitting his stride as an angel investor, where he has probably made far more money than he ever made at Lotus or elsewhere.

Silicon Valley likes to focus on failure and how it’s a great teacher and how successful entrepreneurs just fail harder the next time. But not enough attention is paid to the perils of success!

If you are interested in a computer industry veteran’s view of today’s tech world you can subscribe to Gassée’s weekly Monday Note newsletter, as I do, for worthwhile insights as well as interesting historical tidbits from his fifty years of experience in the computer industry.

 

 

The pros and cons of “defaults”

badge

I first came across the concept of a default in a computer program when product manager for VisiCalc, the first electronic spreadsheet. The idea that a programmer could pre-select a setting or option for the user seemed very powerful to me. Having options is always good, except when too many options can either become annoying or result in “paralysis by analysis” or cognitive overload.

The art of choosing defaults or what are now commonly called “preferences” is a balancing act between annoying or confusing the user and providing them with the ability to personalize the app to meet their needs.

It’s been a few years since I’ve been involved in designing software, so I hadn’t given the concept of defaults much thought, if any, until recently. Like a good Apple user I dutifully downloaded and installed the latest version of iOS for my iPhone. All seemed fine until I noticed that the icon badges for email and messages had disappeared from my iPhone! Icon badges are very useful, as they inform me not only if I have new mail, but how many unread messages I have. This is the first thing I check on my phone after coming out of a meeting.

I turned to my universal tech support provider, Google, to find that iOS has a preference to turn off badges, not only for email but for text messages as well.  Somehow the new version had reversed the icon badge setting. I had to dig into my iPhone’s preferences to change the badge icons from “Off” to “On” for mail and messages. Not that difficult, but annoying, and I found that a change that had been made for me without notification a bit disturbing. What other defaults might be reset by new versions of iOS, with no notice, choice, or notification?

Those of you designing software for smartphone apps, give careful thought to what features have default options and how you set defaults. Those choices can result in either a smooth, streamlined user experience or one marred by an annoyance. And changing defaults without notice to the user can tend to erode trust in your app or operating system.

The concept of defaults can also be used in other contexts than computer user interfaces. For example, in my first startup we decided that everyone should get stock options, depending on two parameters: when they started with the company and what level of position they held – VPs got more than directors who got more than managers, who go more than staff (though star individual contributors could demand and merited more stock options). But we soon learned that the default of granting everyone options was not a wise move. It turned out that a significant minority of our hires would have preferred a higher salary in lieu of stock options. This group tended to be the family breadwinners (what a strange archaic phrase that is!) who needed more cash to pay their bills. Young, single people with no family to support and no mortgages preferred stock options. So we redesigned our compensation plan to give new hires an option: take a higher salary with no stock options or opt for a lower salary with stock options. Our CFO calculated the trade-off numbers for new hires and we found that new hires were now more satisfied with their compensation plans.

Note we only offered two choices, for simplicity’s sake. While some people might have wanted a slight salary decrease in exchange for some stock options, it is hard enough managing your employee compensation plan and cap table without having an infinite number of combinations of salary and stock options.

Going beyond a simple “on”or “off” or “opt in” or “opt out” risks generating needless complexity. Thus the brilliance of Facebook’s Like button vs the typical five stars used for ratings on other platforms, such as Amazon. Facebook makes the decision very easy, “Like” or don’t. And for the generator of the content they can simply measure the number of Likes, rather than attempting to compute their average star rating. Or should that be the median number of stars? Or maybe the mode?

There’s another term I like to borrow from software engineering: combinatorial explosion. A combinatorial explosion results from the multiplier effect of having choices or options on top of options such that the number of options the user had grows exponentially. That’s what our CFO would have faced had we offered new hires any combination of salary and stock options that struck their fancy.

As Einstein is reputed to have said, “Everything should be made as simple as possible, but not simpler.” I’d say that applies well to options or preferences, whether in technology or business.

 

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