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.

Have you written your guest post yet?


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.


Constraints

This is a guest post by Matt Wensing, a good friend and someone I admire. Matt is the CEO of StormPulse, an incredible service that helps customers plan better against weather risks and protect their assets, employees and maintain business continuity. I am happy to start this guest writer series with a post by Matt (twitter: @mattwensing).  Have you written yours yet? As an aside, you can see Matt’s stand on value creation and pricing in GigaOm.


Stormpulse in action at the White House

As an entrepreneur, I’m used to working under constraints. The best definition of entrepreneurship I’ve ever heard is “the pursuit of opportunity without regard to resources currently controlled” (Howard Stevenson, HBS). I like how the usage of “without regard” leaves you wondering if the entrepreneur is noble and brave or mentally deranged.

My friend and I bootstrapped Stormpulse for 5 years (2007-2012), making ends meet with a smattering of friends and family money and customer payments. In late 2012, we finally succeeded at raising capital from professional investors. The bootstrapped years were a long and difficult road, but most would argue that those years made us stronger.

Did they? With confidence, I can say that we became accustomed to constraints. The good kind (the kind that force creative solutions), the bad kind (which limit you for ‘no good reason’), and the ugly (which force you to choose between cutting off your right arm or your left leg).

So here is the riddle: how can you identify a good constraint or a bad constraint? And is that the purpose of fundraising, to remove constraints?

Removing constraints for the sake of removing them is a mistake. Some constraints are good because they reflect limitations which your business will certainly encounter eventually. Shielding yourself from those constraints by raising money could also prevent you from taking on the challenge of overcoming those constraints in a more profitable and innovative way.

On the other hand, some problems fit the old adages such as “the cost of doing business” or “you gotta have money to make money.” Sometimes you need to place a bet, but you can’t afford the table stakes. This prevents you from being able to validate aspects of your business model.

And therein lies my answer—for now. Constraints are good when they embody a limitation that must be overcome for your business to scale. “Buying success” (removing the constraint through fundraising) will ease the short-term but may introduce a crippling flaw that will limit you later.

Constraints are bad (some also call them “artificial”) when they originate from a lack of resources that doesn’t reflect the market’s challenges. You simply don’t have money because you are a poor entrepreneur with only a vision. Wrong time, wrong place, no believers. You must, through no fault of your own, start from zero, comparative to certain peers.

That is a constraint in the psychologically-hardest sense, because it is very unfair and uncaring. It will only be considered good in hindsight if it’s overcome. If it isn’t, you will die unnoticed, and it is likely that no one will even care to tell your tale.

Can you handle it?

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.

Don’t be a product person, be a merchant

Founders and product managers alike wear this proudly on their sleeves (or twitter bios)

The Ultimate Product Person – who loves products, building products and sweating the details.

Skim through any of the many valley job postings for product managers – the one mandatory requirement is love for products.

Makes sense? Why would you hire someone who does not say they are a product person to build products? Let us keep things simple and not talk all those products that are insanely great and making friction less something or other. How about coffee? Say your business is running a coffee shop, as founder and CEP, don’t you think you should be a coffee person?

Here is what someone who knows a thing or two about coffee, Howard Schultz founder and CEO of Starbucks, describes himself,

CEO Howard Schultz says he’s never been a “coffee person.” Sitting in his sprawling Seattle office overlooking Puget Sound, he says that what he’s always been is a merchant.

Schultz is right in describing himself as a merchant. The dictionary meaning does not seem to carry the intent of Schultz,

mer·chant  (mûrchnt) n.

1. One whose occupation is the wholesale purchase and retail sale of goods for profit.
2. One who runs a retail business; a shopkeeper.

Literally yes he owns the shops, buys beans on wholesale and sells grande lattes for profit. But a more apt definition for the term should be

mer·chant  (mûrchnt) n.

3. One who figures out what customers value and willing to pay a premium for and finds a way to deliver it to them at lower cost

You can obsess over the product, about its velvety finish, beveled edges, etc., but if you fail to understand how and why those features add value to customers that compels them to pay a premium price for it, being a product person is pointless.

When you are a product person you start with features, think of your product as a bundle of features, speak about features, obsess about features, throw a tantrum when engineering wants to drop a feature because of resource constraints, use words like ‘awesome’, ‘uniquely positioned, ‘award winning, and ‘remarkable’ without explaining what that means and finally price your product as a sum of its parts.

When you are a merchant you start with customers, those you want as your customers over others, find out what they value and deliver it at a price that matches the value perception and at a cost that makes you a handsome profit.

A product person keeps iterating on what is at hand, moving along the same curve and failing to jump to another curve.

A merchant is laser focused on the customer and what job they are hiring the product for. They keep adding many different  curves that are relevant to that customer.

An ultimate product person is not one who has products in their blood. The ultimate product person is really a ‘merchant‘ who understands that a product is simply a value delivery mechanism.

Belief that Entrepreneurship is risky fosters risky ventures

You have seen my attempt to analyze data provided by a VC firm on how they decide to invest in startups. Contrary to what they thought they were doing there was just one factor that decided investment decision.

Do VCs make informed evidence based decisions by meticulously rating startups like the data we saw led us to believe? That requires a meta analysis across all VC firms and someone just did that.

These are some quotes from a  article by http://goo.gl/WivWG“>Stanford GSB Professor, Jeffrey Pfeffer, on the need for Evidence Based Management in Entrepreneurial environments:

  1.  … it has become conventional wisdom, accepted by all the parties ranging from entrepreneurs to those who provide them financing, that a high rate of failure is an inevitable consequence of doing new things, inventing new technologies, and opening up new markets—activities which are inherently risky and uncertain because they involve doing things that have not been successfully done before. Because this conventional wisdom suggests that a high failure rate is inevitable, there is often little effort expended trying to improve decision-making in new venture activity.
    (In other words, people start ventures without trying to validate customer demand and VCs invest based on all kinds of criteria but validity.)
  2. Many of the VC firms do what they do without much introspection or reflection, partly as a result of the egos and self-confidence of the VC partners. People who have survived and prospered in the venture industry have obviously done well, and those VC’s who don’t do well generally don’t last. Therefore, it is axiomatic that most fund managers (those who survived and prospered) believe they are much above average in their abilities and in their decision making.
    (Hey, smart people succeed. If not they wouldn’t have succeeded, would they?)
  3. Positive qualities get attributed to the people, groups, or companies that enjoy those good outcomes whether or not these qualities are true or causal. This means that high-performing VC’s will be perceived as having individual skill as a consequence of their performance, whether or not such skill actually exists.
    (No wonder we bow at the altar of success. This finding was first stated decades ago John Kenneth Galbraith in his Conventional Wisdom essay.)
  4. Entrepreneurs, too, mostly have strong egos, which is what is required to take on something new where the risks of failure are high. But this overconfidence among entrepreneurs and those that back them makes it difficult for people involved in creating new businesses to question things and to learn from setbacks and other experience.
    (Everyone is killing it! Disrupting status quo! I hope they would stop at that and not write seemingly erudite articles on brain science.)
  5. Most venture capitalists and entrepreneurs believe that outstanding individual people make the difference, leading them to focus on finding and recruiting stars and to eschew much attention to process, including decision making processes.
    (If you are already successful you are perceived to be outstanding and thought of as having success potential)
  6. Few of the participants in entrepreneurial activity suffer significant consequences from unsuccessful decisions, and therefore many players have less incentive than one might expect to improve their decision-making  – VCs get guaranteed principal and Entrepreneurs often, although not always, are working with other people’s money, so their financial downside, except in terms of the opportunity costs of their time, are also limited
    (Because failure is most often seen as an unavoidable risk of being an entrepreneur, there are few if any career risks for starting something that doesn’t work out!)

Do This Thing That Doesn’t Scale – Charge For Your Product

In his recent essay titled, Do Things That Don’t Scale, Paul Graham (who needs no introduction) urges startups to do things that don’t scale. In the context of customer targeting he writes,

Sometimes the right unscalable trick is to focus on a deliberately narrow market.

Take this specific advice and think of it in the context of monetization although that is not what Paul Graham had in mind or would approve.

In any market there exists a distribution of prices customers are willing to pay for a product. It ranges from $0 to some reasonably high positive number. If you set your price at $x then anyone who is willing to pay $x or more will buy your product and the rest wont. If you set the price to $0 you let the whole market in. That is indeed scale.

What if the deliberately narrow market you define is the segment that has a compelling problem to address and is willing to pay for an offering that fills that need? Sure it won’t scale because you need to

  1. Find the segment and precisely define its needs
  2. Find the economic value add to that segment from a solution that fills the need
  3. Find a way to target the customers in the segment as they do not stand up and identify themselves
  4. Understand how these customers make buying decisions and adapt your methods to make it easy for them to hire your product
  5. Explain to them why your product is the best option over other alternatives
  6. Prove to them the value from your product
  7. Finally do the most unscalable thing – ask them to pay for the value you created

Does charging for the value you create comes to mind when you think of things that don’t scale?

After all in the words of another startup founder,

 “It’s not a product until you define a set of customers whose needs you meet and who want to pay you.”