Who Do You Create Value For And Why?

This is a guest post by my friend and classmate Rachel Wolan. I worked alongside Rachel in helping run the Berkeley Digital Media Conference, >play. Rachel is the founder & CEO of YadaZing – product maven, ex-Facebook and ex-SAY Media. She shares her thoughts in her blog and tweets at @rachelwolan.

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I am the founder of YadaZing.com, a media platform for English language instructors (producers) and students (consumers). We maniacally focus on the question, “who do we create value for and why?”

In every platform business, you need to solve the Chicken/Egg problem AND make sure that producers produce. On our platform, we are focusing on the underserved but small segment, English instructors. We give them tools to engage and interact with English students, the overserved but enormous segment.

We are making a bet that our early adopters will be part of the 1% (of the 90/9/1 rule) who will create great content; this is our gateway to the 99% who consume the great content.

Who do you create value for and why?


Follow the yellow brick road to startup success

This is a guest post by Hubert, Palan, a good friend and classmate from Haas School of Business, UC Berkeley. Hubert (twitter: @hpalan) is the founder and CEO of ProductBoard.com, a platform for strategic product design and management headquartered in San Francisco, California. Prior to ProductBoard, Hubert was the Vice President of Product Management at GoodData, where he managed GoodData’s disruptive platform business, built the whole front-end product management team from the ground up and established and embodied modern principles of user experience designs.

An additional note – I see Hubert as the model for taking risks. He decided to launch a startup not because it was the only option available to him but when he was succeeding in his career and had multiple choices at his disposal.

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yellow brick road
yellow brick road (Photo credit: hairchaser)

Let me tell you a short story. My wife, Jenna, and I went for a run early one morning in the Oakland hills. We had an idea where we wanted to go, but we didn’t have a map so we didn’t know how to get there. As we ran we asked several dog-walkers for directions along the way. Since it was after a rainy night, and I was running in very thin-soled running shoes, we asked if their recommended path would be muddy or not. As it turns out, different people have conflicting opinions about both the directions and the quality of the road. Eventually after a few wrong turns we found the right path, but of course contrary to what people said, it was pretty muddy.

Why am I telling you this? I recently quit my job at GoodData and started working on my own startup. Our morning run got me thinking about the challenges you have as a founder building a startup, or a new product. You have an idea of where you want to arrive – your dream target audience with a great need, that your perfect solution will satisfy.

You need to create a product roadmap that would navigate your team. Not only do you not have a map, you don’t even know if there are any roads out there. Muddy or otherwise.

So you head out and start asking for advice. You talk to advisors, investors and one potential customer after another trying to discover the roads and choose the best and shortest one. Advisors and investors give you conflicting advice about the best way, because even though they are great runners, they never ran quite the same route. Various potential customers suggest different features they would want, though they are not really sure if they even need them. They are like the dog-walkers, who are not sure about the route either, but since you ask, they make up an answer.

So you run in circles and take many wrong turns. You hope for smooth paths, and they turn out to be muddy. Hopefully though, you end up finding the right way and reaching your goal.

My friend and mentor Arthur J. Collingsworth always said: “Persistence, persistence, persistence.” So no matter if you are running in some hills, building a startup or working on a new product, persevere and keep on running.


What startup founders can learn from Katniss Everdeen? #CatchingFire

catchinggire

Last night a friend of mine and I saw second part of The Hunger Games franchise, Catching Fire.  Note:  Spoilers below! If you haven’t seen the movie yet, you might want to stop reading. But then again, it’s Katniss. You probably know the story already.

Afterward, as we left the theater,I was thinking about what the movie had to say about entrepreneurship. (I can’t help it as I constantly look for lessons in every activity I do. It is almost a disease one would say.)  Nobody actually starts a business in Catching Fire, but the movie is as much about hustle, networking and customer development to achieve a worthy goal as it is about action and killings. In other words, film’s heroine, Katniss Everdeen, embodies the best principles every startup founder must adopt. Here are my top takeaways:

1. Always Be Lean and Hungry

Katniss Everdeen came out alive at the end of part one. She was declared winner along with her partner Peeta Mallard. She was rewarded with incredible wealth by the evil Capitol. In part one she had to hunt for her food and starve other times. With all the reward from winnings she had everything she wanted in part one and yet she continues to live the same life as part one. She lived lean, continued to hunt and did not splurge except for the new house she moved into which the Capitol gave. Staying true to her core principles helped her through the travails of second Hunger Games. Had she been relaxing and enjoying the spoils of her newfound wealth she would have been one of those to get killed early on in the movie.

Entrepreneurial wisdom: I can see so much similarity to startups winning the first round by securing Series A funding. Competing hard with others with similar Apps like yours, you managed to get funding from evil VCs (like evil Capitol). That is just part one. You still have part two and part three (part four in the movie version) to go. If you stray from your lean principles, lose your agility and hustle you will be least prepared for part two. But go ahead use some of the money to move into new fancy office in the City like Katniss did.

2. Trust in your team

In part one Katniss was a lone wolf. She had to fight for survival on her own. In part two she could not have survived without her team. At first she was looking at the people who wanted to team up and work with her with complete suspicion. She could not trust the motives of Finnick Odair (like Twitter’s Ev could not trust  Jack, or something like that). It was the sheer muscle power and ninja like skills of Finnick that saves her many times. She also wouldn’t trust the brain powers of Betee and Wiress but it turns out her hustle and grit alone were not enough. Katniss survives only because of Betee and Wiress.

Entrepreneurial Wisdom: You definitely need a team to succeed. You can’t play every position as your startup grows. You should learn to hire the right skills for right jobs and trust them. At some point in your growth cycle you need someone formally trained in business, like Katniss hired Betee and Wiress you should hire MBAs to do your business development, strategy and other business stuff.

Remember one thing, you should not start a company with someone you will not be competing with in The Hunger Games.

3. It’s not what you say, it is all action

There is hardly any stretch in the movie Katniss speaks. It is all action. Her action made her team believe in her and follow her as a leader.

Entrepreneurial Wisdom: Don’t spend time writing speech filled with inspirational quotes. Let your actions speak.

4. Everything happens in a predictable way, like clockwork

It came as a big surprise to me when Katniss discovers, with help from looney sounding Wiress, that events in the Arena follow a rhythmic pattern and repeat in sequence. The monkeys, gas, toads, etc. all repeat in cyclical pattern. Once Katniss figured it out it helped her anticipate and plan ahead for the next big one.

Entrepreneurial Wisdom: Like Katniss figured out you must figure out the cyclical pattern events follow in your business. Everything in business has a pattern to it. If you find out before others and prepare ahead you get to stay alive and win in the end.

5. Ideas are worth nothing, execution is everything

Everywhere Katniss goes she was on camera. Every word she utters can be heard by the game makers. There is absolutely no secret she could keep. And Katniss did not let that slow her down, she simply used that to her advantage. When she knows the Capitol knows her every move she simply focused on better execution.

Entrepreneurial Wisdom: As a founder you may be too secretive about your startup, product and technology. I am perplexed by those asking me to sign Non-Disclosure Agreements just to have coffee with me. Get over it. Ideas are worth nothing and everyone like you has similar ideas. It is all about execution. If you execute faster and better than your competitors,  like Katniss did to her fellow players in the arena, you will live to tell the story.

There you have it, five incredible startup lessons and entrepreneurial wisdom from Katniss Everdeen.

Here is a bonus lesson: Don’t have names with two many vowels like Peeta. 

If you liked this article you will also like, “Three Winning Entrepreneurial Lessons from Heats“.

Note: I moved the disclosure from the beginning to the end. Here is what I had before:

I usually would wait till the end to say this is a parody. It appears however, either because my humor is not so good or I am getting so good at deadpanning, the articles seem real and serious to some.

So I warn you, this is a parody (or a weak attempt at it). I have read the Hunger Games book series, was intrigued by possibilities part-1 offered, disappointed by part-2 and outright insulted by part-3.  I did not see #CatchingFire or plan to. 

If the article seems serious it is because I am going to model this after a very serious one published in Forbes.

3 Winning Entrepreneurial Lessons from Miami Heats

Not a fan of basketball or sports in general? You may still walk away from the NBA finals with inspiration for your startup.

Past Thursday, two of my friends and I saw the NBA finals – the seventh and final game of the best of seven NBA finals. Spoiler Alert – if you have TiVo-ed it and planning to see it this weekend don’t read ahead. But then again, it is King James, so you know the story.

miami-heat-2012-parade-champions-biscayne1

Afterwards, as I left my friends’s house, my mind wandered to what the game had to say about entrepreneurship. (I could not think of any but my deadline was fast approaching and I know half-life of Heats victory is short if I want to get the page views. Besides I am an established entrepreneurial guru and I can see lessons anywhere. Luckily the next day morning NPR story gave me the material.)

Nobody actually started a business in the finals but the game is as much about teamwork, hustle, and competitiveness to achieve a worthy goal as it was about free throws and jump shots. Here are my top 3 takeaways:

1. You need every inch of what everyone has to give

I do not know how many know this but NBA basketball teams have only five people on the court. That is exactly like the size of a startup team.  Miami Heats needed every inch of what those five had to give. You may not see this from the game statistics (as you may know, lies, damn lies and statistics). Even though four of your Rock Star coders wrote 999,900 of our million lines of code, 100 lines from your fifth member matter.

Lesson: In your startup, your entire team’s contributions, however small any member’s may appear, is needed for your team to win.

2. Don’t pick one, do everything

Any other  NBA team has to pick their poison on defense. Those are strategic choices. Do they want to guard the shooters or guard the opponent’s big men downfield? But Heats are champions. They are champions because they rejected status quo and conventional wisdom of picking one poison. A remarkable team has to be everywhere and do everything. It is the losing team that makes excuses on what they had to choose and what they had to compromise. But the winners take away the middle and take away the three point shots.

Lesson: Strategy and choice are wrong things to consider for your startup. When you are disrupting status quo, building something insanely great and finding product-market fit you don’t need strategy. You don’t pick and choose what to do. You do everything. It is not easy. It is excruciatingly difficult. It is very exhausting. But that’s what your startup must do.

3. Believe in your own abilities

During the game I saw this player, James, who goes by the monicker King James. He consistently shutdown the opponent’s top players. He scored 37 points, five three pointers and many jump shots. He did that because he believed in his own abilities and ignored all the social media chatter on what he can and can’t do. James has been called selfish, an egotist and passive. Well most of these critics are like those who drive up to Niagra Falls and complain about wetness without ever seeing the greatness of waterfall.

Lesson: Be a superstar. Believe in your awesomeness and ability to code and design sticky products that people will fall madly in love with. Social media may ignore your greatness or call you an egotist for your awesome design skills. Call you selfish when you get $45 million in funding at $500 million valuation. But whose loss is that? Not yours. Definitely not yours when  Facebook comes calling.

If you liked these lessons, subscribe to this blog for  sequels

  1. 4 More Winning Entrepreneurial Lessons from Miami Heats (I started with 7 lessons then realized I can get two articles by splitting into 2, besides the NPR story had only 3 I could use.)
  2. What can startup founders learn from NBA concession vendors
  3. No one remembers the runner ups – Startup Lesson from NBA Finals

Yes this is meant to be a parody but you knew that. This caricatures the format and phrasing of  this article but any such article, there are thousands of them, would have worked. The text under lessons learned are straight from the NPR story which was surprisingly un-NPR like.

Product, Strategy, Business Model and Two ‘>’ Symbols

Quick! Write an inequality equation using two ‘>’ (greater than) signs and

  1. Product
  2. Strategy
  3. Business Model

Depending on where you stand and which articles you read recently there are six possible permutations.  If you had recently read what Fred Wilson, a Venture Capitalist, wrote you are  mostly likely to write down

Product > Strategy > Business Model

Is that all to it?  According to research done by four business schools, this permutation defines only one of two classes of VCs. More precisely, there are two schools of thoughts of how VCs make investing decisions. The second class of VCs believe the right permutation is,

Strategy > Business Model > Product

While Fred Wilson makes a compelling case to get product-market fit correct, then define your strategy and then worry about making money, a VC who falls in the second category will argue, equally eloquently, strategy (making choices about segmentation and needs to serve) first, finding how you add and capture value (business model) is next and what the offering (product) is last.

The two ways of reasoning are called  Effectual and Causal reasoning respectively.

Effectual – Instead of doing market research, competitive analysis, value analysis etc, go build something and keep iterating on it and building a growing customer base. Then worry about strategy and business model.

Causal: Start with customer segmentations and their unmet needs (or jobs to be done).  Make choices on the right segment you should target first and understand its value perception, alternatives and willingness to pay. Define a product version that serves that segment and offer at a price they are willing to pay.

There exists a class of VCs who apply effectual reasoning and there exists another that applies causal reasoning. You can see Fred Wilson falls in the effectual bucket.

So when you have two classes of entrepreneurs and two classes of VCs, the next obvious question is which pair would work together well. The aforementioned research suggests, cognitive similarity (“I like how you think”) was a decisive factor in how VCs decide choose to invest in startups.

Their study was conducted on 49 partners from different VC firms, by presenting them 16 different hypothetical investment opportunities and asking them to rate how likely are they to fund these ventures. From these 784 data points, the researchers employed conjoint analysis to tease out the influence of individual factors on VC’s decision. This is approach is far better than stated preference studies that ask VCs for their rating and data mining studies that succumb to data errors.

vc-startup

 

The number one deciding factor?  How similar the thought process is between the VC and the founder. The researchers call this cognitive similarity, which has nothing to do race, national, education, gender or other physical characteristics. It is how a founder thinks and how similar it is to VC’s thought process. Higher the similarity, greater the chances of getting funding.

Everything else, including the perception of the team, its experience and commitment (human capital) are influenced by VC’s reading of founder’s thought process.

“A founder who demonstrates cognitive similarity with a VC is more likely to be perceived in a positive light, and viewed as better positioned to make effective use of his or her human capital”

All other positive attributes we hear about, the product’s competitive advantage, scalability, founding team’s ability to hustle, their focus etc seem to be bestowed after the fact.

What does this mean to you as a startup founder seeking venture funding?
You are better off seeking those VCs who think like you do in terms of product, strategy and business model. If you think market demand and opportunity size first and pitch to Fred Wilson you are most likely going to come back empty. On the other hand you at least get to play if you think product-market fit first. So knowing how you reason and seeking as venture partners only those who think like yourself saves lots of wasted time and agony.

Will Fred Wilson and other VCs admit to this influence of cognitive similarity in their investment decisions?  More broadly, do VCs know and admit to the influence of cognitive similarity on their funding decisions?

No, they do not recognize this hidden factor. And I expect comments from a few stating so. In the same study that teased out this hidden factor, the researchers asked an explicit question on how much weight VCs place on cognitive similarity with founders.  VCs rated this as the the least important factor, but when they had to place a bet given a profile of venture and its founders, the hidden influence of cognitive similarity came out loud and clear.

Finally, is Fred Wilson right? Is effectual better than causal?  The proponent of this classification, Professor Saras Sarasvathy, goes one step beyond this mere classification.  She argues great entrepreneurs are ‘effectual’. They opt for doing things vs. analyzing things.  I do not subscribe to this latter part of her theory regarding what defines entrepreneurial greatness.

How do you reason?

I think I can charge $300 – Conversations with an aspiring entrepreneur

This is my conversation with a friend of mine who is thinking of starting a non-tech venture. She is very energetic, very smart and is convinced of her ideas. She is also very protective of the ideas, so even I do not know what the product is.

Here is part of our conversation, if your answers would be similar to her answers or if you find nothing wrong with any of these answers, I can help, let us talk.

Who?

Who will buy this product?
I think anyone can benefit from this product. If they want one, I will sell it to them.

Can you be more specific?
Well I should say, this is more useful to baby boomers and people in that age group.

How will you find them and how will they find you?
It is all online sales. I do not need to get my product into stores. They will find me through their Google searches. It is made to order and hence I do not need to make more than I can sell.

Customer and Competitor research:

Have you found out what these customers value, what they look for in this product, why they buy the competitor product at its current price and how the competitor will react?
I don’t know. How will I find that information?

Pricing:

What do you think customers will pay for it?
I think I can charge $300 for my product.

But what do you think your customers will pay?
They will pay $300 because the current option in the market is priced at $800. Compared to that mine is a steal.

Do you think the segment you mentioned will pay $300 for your product?
I will be targeting only those who have money and want to pay. Again, compared to $800 mine is cheap.

Why $300?
Well  I want to charge 40% to 50% margin.

Cost and Expenses:

How did you compute the expenses?
There is the cost to make each unit and then I need to account for marketing cost. I calculated that I need to sell just 1000 units for me to quit my day job and do this full time. Using that 1000, I divided my total cost to compute the product cost.

How do you know you can sell 1000, what if you cannot sell 1000?
<No response>

Branding:

(without my prompting, I got this response)

You know, I am going to call this product by this  (redacted) name. You know why, because it is a name I have fallen in love with and think this is such a great name.

What about your customers, what will the brand mean to them and what does it say about them?
It is my product. They may see it as new but will get used to it.

Do you identify yourself with this person or have other thoughts? Send me a note.