Developing the Leader: Influence, Priorities

Influence

There is no leadership without influence (and power)

McKinsey's 10 methods of influence:

• Explaining
• Legitimizing
• Logical reasoning

• Asking
• Socializing
• Appeal to friendship
• Consulting
• Inspiring
• Role modeling
• Appeal to values
• Stating
• Exchanging
• Alliance building

McKinsey's sources of power (organizational):

• Resources
• Reputation
• Role/title
• Information
• Network

McKinsey's sources of power (personal):

• Knowledge
• Attraction
• Character
• Empathy
• History

The book talks about 5 levels of influence/leadership

1. Position/rights
2. Permission/relationship
3. Production/results
4. People development/reproduction
5. Personhood/respect

• To excel at level 1 (position): Exceed expectations with your job; accept responsibility
• To excel at level 2 (permission): Make those who work with you more successful; see things through others' eyes
• To excel at level 3 (production): Initiate and accept responsibility for growth; develop accountability for results, starting with yourself; communicate strategy and vision of org
• To excel at level 4 (people development) : Place a priority on developing people; be a model for others to follow; attract other winners/producers to a common goal
• To excel at level 5(personhood): Your followers are loyal and sacrificial; you transcend the organization

Priorities

Success: progressive realization of a pre-determined goal
Said a different way--focus, concentration of effort
Too many people are distracted from their goals, or try to take on too many goals and do not succeed in achieving any of them.
Leaders have the ability to focus, concentrate their efforts, prioritize on a small number of goals--and knock them out of the park

Methods of prioritizing:

• Pareto Principle (80/20 rule)
• Importance v. urgency prioritzation
• High importance, high urgency - do first
• High importance, low urgency - set aside time to do these
• Low importance, high urgency - find quick, efficient ways of getting done; delegate to a "can do" assistant if possible
• Low importance, low urgency - put it off as long as possible, indefinitely if you can; if it must be done, batch it up so that you can get it done with all at once
• Initiate, don't react (or said another way, "act, don't be acted upon")
• Don't let other people set your priorities/fill your calendar
• You initiate, you lead, you set your own priorities
• You can't have it all--focus on few priorities
• Time deadlines force us to prioritize--set them for yourself
  

Notes from Developing the Leader within You

10 key principles:

1. The definition: influence
2. The key: priorities
3. The most important ingredient: integrity
4. The ultimate test: creating positive change
5. The quickest way to gain leadership: problem-solving
6. The extra plus: attitude
7. Developing your most appreciable asset: people
8. The indispensable quality: vision
9. The price tag: self-discipline
10. The most important lesson: staff development
    

Transactional searches

Great post on Jeremy Liew's blog about the nature of searches (http://lsvp.wordpress.com/2007/08/08/monetizing-search/)

There are 3 types of searches:

1. Informational (50%)
2. Transactional (30%)
3. Navigational (20%)

All of the monetization comes from transactional searches. Vertical search engines (shopping, health, local, travel, and video) see a higher proportion of transactional searches than general search.

Luck and the entrepreneur

Marc Andreesen has an awesome post about luck and the entrepreneur here. In it, he talks about the 4 types of luck, and how entrepreneurs can best exploit luck.

Chance 1: Blind luck

The good luck that occurs is completely accidental. It is pure blind luck that comes with no effort on our part.

Chance 2: Motion

In Chance II, something else has been added -- motion. A certain [basic] level of action "stirs up the pot", brings in random ideas that will collide and stick together in fresh combinations, lets chance operate. Motion yields a network of new experiences which, like a sieve, filter best when in constant up-and-down, side-to-side movement... Chance II springs from your energetic, generalized motor activities... the freer they are, the better. [Chance II] involves the kind of luck [Charles] Kettering... had in mind when he said, "Keep on going and chances are you will stumble on something, perhaps when you are least expecting it. I have never heard of someone stumbling on something sitting down."

Chance 3: Recognizing good fortune

We see blind luck, but it tiptoes in softly, dressed in camouflage. Chance presents only a faint clue, the potential opportunity exists, but it will be overlooked except by that one person uniquely equipped to observe it, visualize it conceptually, and fully grasp its significance. Chance III involves involves a special receptivity, discernment, and intuitive grasp of significance unique to one particular recipient. Louis Pasteur characterized it for all time when he said, "Chance favors the prepared mind."

Chance 4: Personal approach to the opportunity

[Chance IV] favors the individualized action. This is the fourth element in good luck -- an active, but unintentional, subtle individualized prompting of it.

Chance IV is the kind of luck that develops during a probing action which has a distinctive personal flavor. The English Prime Minister, Benjamin Disraeli, summed up the principle underlying Chance IV when he noted: "We make our fortunes and we call them fate." Chance IV comes to you, unsought, because of who you are and how you behave...Chance IV is so personal, it is not easily understood by someone else the first time around... here we probe into the subterranean recesses of personal hobbies and behavioral quirks that autobiographers know about, biographers rarely. [In neurological terms], Chance III [is] concerned with personal sensory receptivity; its counterpart, Chance IV, [is] involved with personal motor behavior.

To recap:

• Chance I is completely impersonal; you can't influence it.
• Chance II favors those who have a persistent curiosity about many things coupled with an energetic willingness to experiment and explore.
• Chance III favors those who have a sufficient background of sound knowledge plus special abilities in observing, remembering, recalling, and quickly forming significant new associations.
• Chance IV favors those with distinctive, if not eccentric hobbies, personal lifestyles, and motor behaviors.
  

For entrepreneurs, this means:

• How energetic are we? How inclined towards motion are we? A variation on the "optimize for the maximum number of swings of the bat" principle. (Same thing that Reid Hoffman mentioned in his talk) In a highly uncertain world, a bias to action is key to catalyzing success, and luck, and is often to be preferred to thinking things through more throughly.
• How curious are we? How determined are we to learn about our chosen field, other fields, and the world around us? Curiosity is more important than intelligence. Curious people are more likely to already have in their heads the building blocks for crafting a solution for any particular problem they come across, versus the more quote-unquote intelligent, but less curious, person who is trying to get by on logic and pure intellectual effort.
• How flexible and aggressive are we at synthesizing -- at linking together multiple, disparate, apparently unrelated experiences on the fly? I think this is a hard skill to consciously improve, but I think it is good to start most creative exercises with the idea that the solution may come from any of our past experiences or knowledge, as opposed to out of a textbook or the mouth of an expert. (And, if you are a manager and you have someone who is particularly good at synthesis, promote her as fast as you possibly can.)
• How uniquely are we developing a personal point of view -- a personal approach -- a personal set of "eccentric hobbies, personal lifestyles, and motor behaviors" that will uniquely prepare us to create? This, in a nutshell, is why I believe that most creative people are better off with more life experience and journeys afield into seemingly unrelated areas, as opposed to more formal domain-specific education -- at least if they want to create."

Rising tide lifts all ships

Great post by VC Jeremy Liew here. He quotes a McKinsey study that shows the following:

"Within industries, there was very high variability in the growth rates of competitors. For example, ten European telcos saw compound annual growth rates of between 1 and 25% between 1999 and 2005 - a very wide range.

McKinsey found that there were three key drivers of the variance in growth:

1. Portfolio momentum: organic revenue growth from the market growth of segments where they compete
2. M&A: inorganic growth from acquisition or divestiture
3. Market share performance: organic growth from gaining share in a market

Interestingly, market share performance was found to explain just 22% of the variability in growth rates. Portfolio momentum explained 43% of the differences in growth rates, and M&A explained 35%. McKinsey concludes:

Simply put, a company’s choice of markets and M&A is four times more important than outperforming in its markets. This finding comes as something of a surprise, since many management teams focus on gaining share organically through superior execution and often factor that goal into their business plans."

"Plan B"

We met with Randy Komissar again from Kleiner Perkins. He talked to us about a framework that startups should use to make a lot of progress quickly. His working title for the framework (and book that he is writing) is called "Plan B."

The process works like this: the founding team should identify all relevant analogs and "anti-logs" for the new opportunity that is being explored. Analogs are examples of successful companies--not necessarily from the exact same space, but relevant enough that we can glean lessons applicable to our opportunity. The "anti-logs" are companies that were not successful. We want to draw upon the experience of others before us to identify the "knowns" regarding the given opportunity.

Then we identify the unknowns, upon which we wish to take a "leap of faith." These leaps of faith are pivotal for the start-up, and they are where the company should be focusing all of their efforts.

To address the leaps of faith, the startup should follow a 5-step iterative process.
1. Identify what the key questions are that need to be answered regarding the leap of faith.
2. Develop hypotheses regarding each of the key questions.
3. The company should go out and do testing to validate or invalidate the hypotheses.
4. Interpret the data from the testing to generate insights.
5. Refine the original hypotheses based on the insights from the testing.

Iterate steps 1-5 until you have resolved most of the key questions/leaps of faith. Once you have done that, you will have backed into a business plan which you can then execute.

Seems like a pretty simple, straightforward process? The challenge in executing this process well lies in the judgment that needs to be applied at each step.

• What analogs/anti-logs do you select for comparison?
• What are the most important leaps of faith? What are the key questions that need to be answered?
• What are the hypotheses for each key question?
• How do you create and execute the tests to validate the hypotheses? How do you run the tests as quickly and inexpensively as possible?
• How do you interpret the results, and what insights do you draw?
• When do you refine your hypotheses, vs. when do you throw out your test results and try again?

The most successful companies, according to Randy, can get through the process quickly because (1) their hypotheses are usually correct, so they don't have to spend a lot of time and energy iterating their hypotheses; (2) the hypotheses that are wrong fail early, fail often, and fail quickly. So you have to have the experience and judgment to develop hypotheses that are mostly right, and/or you have to be lightning fast with your iterative testing and have your hypotheses fail quickly up front.

Randy then took us through the example of Steve Jobs and the iPod. Jobs had a few different analogs: (1) the Walkman (people were willing to listen to music on headphones in public places), (2) Napster (people were willing to download and share digital music), (3) VCRs (media industry had to settle for "fair use"). He also had a couple of anti-logs: (1) The Rio (a poorly designed MP3 player), (2) Napster (got sued by RIAA because the record labels felt they encouraged pirating). He knew that people would listen to music on-the-go, and that they craved digital music. He also knew that he could design a much better user experience than the Rio, and he could create an ecosystem that would be friendly to the record labels. His biggest leap of faith--would people be willing to pay for digital music? Jobs didn't believe that they would. So what did he do? He hedged his bet. He decided that he wouldn't make money off of music, but off of the hardware. He created a "fair use" case by charging money for the legitimate music, but he also enabled users to download pirated music onto the device as well. The result? Only 3% of music on iPods was actually purchased from iTunes. But the record companies weren't able to sue Apple, and in fact, they cooperated with them.

Made to Stick

We've already talked about Simple and Unexpected as 2 key principles for why ideas stick. Now we cover 2 more:

1. Concrete - use of simple, vivid language. The opposite of abstraction.
2. Credible - use of internal or external authority to make your message more believable.

Concrete

Easy visualized nouns ("bicycle" or "avocado") are easier to remember than abstract ones ("justice" or "personality").
Use personas to make your customer more concrete.

Credible

Have someone that knows the intended recipient spread your message for you. We believe our family and friends.
Use authorities--experts, aspirational figures, or "anti-authorities" (people who truly embody the essence of the message)
Internal credibility comes from relevant details, statistics (using the human-scale principle: "in other words, you would have to drink 200 glasses of OJ to get the same Vitamin C"), the Sinatra test (if you can make it here, you can make it anywhere).

The last point re: internal credibility--I've seen this at work in a few different situations. At McKinsey, I noticed that the most effective folks were the ones who had a phenomenal memory for details. They could surface extremely specific, relevant details at the right moment. Lars, one of my EMs, also told me that you should have the numbers in your model at the tip of your fingertips. This also goes to the point of statistics. People--especially analytical people in business--tend to be persuaded by numbers and quantification. Finally, regarding the Sinatra effect--we used this at Yodlee. We would say, "Our security has been audited by the top 10 banks, companies like Merrill Lynch, American Express, and Bank of America. Don't you think we could pass your security audit process?"

Learnings from 4-Hour Workweek

Principles in book:

1. Retirement is worst-case scenario insurance.
2. Interest and energy are cyclical.
3. Less is not laziness.
4. The timing is never right.
5. Ask for forgiveness, not permission.
6. Emphasize strengths, don't fix weaknesses.
7. Relative income is more important than absolute income.

Quotes:

"The first principle is that you must not fool yourself, and you are the easiest person to fool." - Richard Feynman
"I can't give you a surefire formula for success, but I can give you a formula for failure: try to please everybody all the time." - Herbert Bayard Swope
"Everything popular is wrong." - Oscar Wilde
"Action may not always bring happiness, but there is no happiness without action." - Benjamin Disraeli
"The reasonable man adapts himself to the world; the unreasonable one persists in adapting the world to himself. Therefore all progress depends on the unreasonable man." - George Bernard Shaw
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity." - Bruce Lee
"It is vain to do with more what can be done with less." - William of Occam
"Perfection is not when there is no more to add, but no more to take away." - Antoine de Saint-Exupery
"What gets measured gets managed." - Peter Drucker
"Learning to ignore things is one of the great paths to inner peace." - Robert Sawyer
"Do your own thinking independently. Be the chess player, not the chess piece." - Ralph Charell
"Genius is only a superior power of seeing." - John Ruskin
"I not only use all the brains that I have, but all I can borrow." - Woodrow Wilson
"Companies go out of business when they make the wrong decisions or, just as important, make too many decisions. The latter creates complexity." - Mike Maples

Comfort challenges:

1. Practice gazing into the eyes of others.
2. Learn to propose--stop asking for opinions and start proposing solutions.
3. Get phone numbers
4. Revisit the terrible twos--say "no" to all requests
5. Use the criticism sandwich
6. Find Yoda--call at least 1 potential superstar mentor per day for 3 days

Community Next Take-Aways: Slide.com and Meebo

Keith Rabois, VP Business Development, Slide.com

• Was involved with PayPal, Yelp, LinkedIn, and now Slide.com
• Common trait: original business model/idea was wrong
• Yelp: original idea was to spam friends with email on where to go to eat
• Try something, iterate until it works
• Start with value proposition, eventually people will find out about it
• YouTube, for example--didn't set out to be a video sharing site; people watched videos and cut and paste code into their email client (like Outlook); YouTube hit upon a consumer need (an easy way for people to keep in touch was to send something cool and interesting that they watched on YouTube)
• Most successful companies have an obsession with metrics--you won't be able to find out what's working until you have metrics
• Viral marketing is a way to hedge against strategy; if you don't know what your revenue model is, you have to acquire users cheaply; if your marginal cost of user acquisition (and user support) is $0.01, you should be able to generate more than $0.01 in revenue
• Only 3 successful types of Facebook apps: (1) intuitive judgment from recent college grads about product needs (e.g. free gifts), (2) widget makers (Rock You, Slide), (3) convert fully to focus on Facebook (iLike, Flixster)
• Yelp: paid reviewers in new cities to write reviews; only good if you can get the right people to do it, otherwise you don't inspire the right contributors later

Martin Green, VP Business Development, Meebo

• There is a difference between recruitment and retention
• Meebo focused on retention: delight and satisfy people who use the service
• Company mindset: wiki, forum, customer service--everyone in the company is on those
• Can't always predict what users want: most popular color was pink
• Who is the target user--get them in, show them mock-ups
• How do you get user feedback? Need to be them, or interview them all the time
• We have a short list of people we show stuff to. Tweak it until they say, "I would use that.
• Listen to how they describe things: "If you said it like this, I would use that."
• Get a 16-year-old to look at the product
• Like MySpace, does not emphasize Meebo marketing itself: "We want someone to send a message out inviting a friend to Meebo. We want this to happen through an actual person, not through our product."

CommunityNext Take-Aways: PBWiki

David Weekly, Founder and CEO of PBWiki

• Make it as easy as possible for people to put their unique information on your service
  
• Provide users/contributors with tools to share that information with others
• Let other people interact with/change the information that the user/contributor has shared
• Provide the user/contributor with updates on when his information has changed
• The web has matured: the relationships between 2 data objects was web 1.0 (hyperlinks); the relationships between 2 people was web 2.0 (social networks, UGC, sharing)
• But we still need a lot of maturity wrt relationships between people and data
• One fundamental need: How do I get alerts when information is changing?
• RSS helps, but it doesn't take care of filtering
• Facebook mini-feed is a step in that direction

CommunityNext Take-aways: MySpace and RockYou

Attended the CommunityNext conference today in Sunnyvale. Here are some of my key take-aways:

Jason Feffer, 3rd employee at MySpace

• 2 kinds of MySpace page creators: exhibitionists and marketers
• People like to be exhibitionists
• MySpace provided tools for these exhibitionists to bring other people in
• People would invite others to check out their MySpace page
• Only 1 year after launch did they think to give people their own URL
• 1 exhibitionist brings 5K-10K voyeurs
• Other type of creator: marketer
• Bands started to market themselves using MySpace

• MySpace became a tool for people to brand themselves
• It wasn't "come look at MySpace." It was "come look at me."
• They didn't stress MySpace--users infected others with themselves.

• "MySpace became a utility for people to infect others, and then we branded that utility."
• Brand was really important to MySpace--turned down opportunity to be promoted by a party in Vegas ("If we throw a party, it's our brand, it's our party, not someone else's"). Stayed in LA to project the brand of being media/entertainment company (not tech).

• MySpace was totally user focused. They hired people who used MySpace, who were part of the MySpace crowd.

• Jason's new venture: Sodahead. Way for people to create polls and embed rich media (videos, photos, etc.). It becomes a way for people to express themselves in polls.
• Created a polling widget that you can put on MySpace. Users can register for Sodahead directly from within MySpace.
• Marketing strategy--attach the poll to celebrities, leaders.
• Celebrity creates a poll, fans embed it within their MySpace pages

• Other MySpace marketing learnings: demi-celebrities were early users, they brought many other users with them. Get the hardcore users that attract others.
• YouTube, Photobucket were successful widget examples--people saw them at MySpace, wanted to use as well.
• Niche vertical targeting at MySpace--focus on vertical ("inch wide, mile deep")

Jia Shen, CTO and Founder, Rock You

Rock You is all about self-expression widgets
~14% penetration on MySpace, ~25% penetration on Facebook
43M uniques, 450K widgets/day; slideshows (100K/day)
14 people--never did any marketing

• The premise: you don't want to look like everyone else; you want to stand out, look cool
• Leverages people's desire to accessorize
• Self-expression (earrings, sticker on backpack)
• Rock You's first widget, slideshow, was created because there was no easy slideshow app created for the average user
• Existing method was very cumbersome, required some technical knowledge

Understand your user

• Know demographic (for Rock You, it's young non-technical female who wants to accessorize)
• Do market research (get magazines, hang out online [MySpace], see how people talk and interact)
• Do user studies--interview high school students every day

What's the use case

• Replace something existing (slideshow replaced existing marquee HTML process)
• Benefit of replacing something existing--users "totally get it"
• Study the MySpace page: 3 components
• About, interests, comments
• About--something really personalized, people spend average of 30 min creating slideshows
• Interests--not going to spend a lot of time, quickly create items (Flixster, quizzes)
• Comments--quick creation, have to be small (Rock You's "glitter text"--5-sec creation process)

Viral channels

• MySpace
• User bulletins
• In page profile: "That looks cool, how do I get my own?" Make the call to action obvious to the user. Users embedded a slideshow--was really cool, other users could create their own.
• Facebook
• Minifeed: in-profile experience less important; little icon must look really good. Call to action should be in the mini-feed.
• Invite: send to people who will actually convert over.

Founders at Work: Yahoo, del.icio.us

Take-aways from Tim Brady, 1st non-founding employee of Yahoo:

• Directory button on Netscape linked to Yahoo (for free)--"That was big. It sent our traffic through the roof."
• (Echos of Reid Hoffman's talk: in consumer web, it's distribution, distribution, distribution)
• (Distribution was how Excite got big)
• Thought of themselves as a media company, believed they could outsource search because "it was going to be a leapfrogging game. No one is ever going to be able to get so far ahead that we'd ever be in strategic risk of kingmaking a full-text search engine."
• Advice to someone founding a startup: "Know yourself. Try to do as much thinking up front as to what your breaking points are... Before I joined, I knew where the line was, when I would quit, at what point, and so when I was in the game, it never crossed my mind. I also knew why I was involved, what motivated me, and I didn't spend a lot of time perseverating on that stuff."

Take aways from Paul Graham, founder of Viaweb

• 2nd start-up after 1st one went nowhere: "We spent a lot of time trying to convince these people to use something they didn't want."
• 1st web-based software--"I was excited, because it meant we could start a company without having to learn Windows."
• Started Viaweb in July '95, had first demo in early August.
• "We felt like we had to have five or six customers to launch. And for these first customers, we basically would do whatever they said in order to get them as customers. We gave them the software for free for as long as they wanted. We built their sites ourselves."
• "If you're writing applications for end users, you have to remember that you're writing for an audience that has been traumatized by bad experiences. We worked hard to make Viaweb as easy as it could possibly be, and we had this confidence-building online demo where we walked people through using the software. That was what got us all the users... The other thing was, we had good graphic design. Our secret weapon was that we know that e-commerce was really about graphic design, not transaction processing."
• "It's never a deal till the money's in the bank... Before we ultimately got bought by Yahoo, we probably had nine or ten different acquirers that we were talking to, and things always went wrong for one reason or another."
• On raising money: "The advice I would give is to avoid it. I would say spend as little as you can, because every dollar of the investors' money you get will be taken out of your ass... The way not to have to raise money is not to spend money. Do everything as cheaply as you can."
• Advice for startup founder: "Make something people want. If you make something users want, they will be happy, and you can translate that happiness into money."

Take-aways from Joshua Schachter, founder of del.icio.us

• del.icio.us began as something Schachter built for himself--he needed a way to organize his collection of 20,000 bookmarks, and he hit on the idea of "tagging" them with brief text phrases to help him find links later
• For the first several years, Schachter worked on del.icio.us and other projects, like Memepool and GeoURL, while working as a quantitative analyst at Morgan Stanley. But all the while, del.icio.us was growing. By November 2004, a year after its release, it had 30,000 users
• Tried several different start-up ideas before del.icio.us worked
• Chose not to leave Morgan Stanley for a while because "the economics didn't make sense. It still made sense to keep the day job."
• Worked in many small increments: "I could be done for the day in 15 minutes. So if I could get one thing done a day, I was happy... So it moved pretty slowly. I worked on it for years."
• Why did del.icio.us succeed when many previous others failed: "First of all, because it was not a venture to start. I was building a product and that's it... I think in general being overcapitalized is a path to failure. The VCs want you to spend... I think the competitors had disappeared by then. The tagging thing was probably essential."
• On the invention of tagging: "There was no point at which I said, 'I'm inventing this wonderful new thing.' I just sort of realized that I had evolved my own filing system, and it worked for me. I'd used it for a long time before del.icio.us even showed up. This was the codification of that practice."
• On designing new features: "I think people ask for features--they want to do something, but they don't say, 'I want to do that something.' They translate it into some feature that typically they've seen somewhere else and ask for that instead... It turns out there's some better way to do that. So, stuff that people ask for, I tend to try and dig to the root cause, before reducing to practice."
• "Constraints breed creativity." (referring to having only 15 minutes/day to work on del.icio.us)
  

Principles of Influence: Robert Cialdini

Great (though a little dated) blog post on Robert Cialdini's principles of influence.

Key take-aways:

• Reciprocation. People are more willing to comply with requests (for favors, services, information, concessions, etc.) from those who have provided such things first.

• Commitment/Consistency. People are more willing to be moved in a particular direction if they see it as consistent with an existing commitment.

• Authority. People are more willing to follow the directions or recommendations of a communicator to whom they attribute relevant authority or expertise.

• Social Validation. People are more willing to take a recommended action if they see evidence that many others, especially similar others, are taking it.

• Scarcity. People find objects and opportunities more attractive to the degree that they are scarce, rare, or dwindling in availability.

• Liking/Friendship. People prefer to say yes to those they know and like.

How much funding does a startup need?

Great post from Marc Andreesen's blog: How much funding is too little? Too much?

Key take-aways:

How much money do you need in theory?

• Need enough money to get to PMF (product-market fit)
• Once you're past PMF, then you need enough money to fully exploit the opportunity

Risks of taking too little money

• May have unexpected setbacks (product release slips, competitor emerges, major customer loss, etc.)
• Funding window may not be open when you need money (startups from late '90s who raised money--like TellMe and OpenTable--are still around today, while their competitors ran out of cash)
  
• Global shock (e.g. terrorist attack)
  

Risks of taking too much money

• Dilution, loss of control
• Liquidation preference--raises the bar for how successful the company has to be
• Cultural corrosion

Cultural corrosion:

• Hiring too many people--slows everything down, makes it much harder to react and change
• Lazy mgmt culture
• Engineering team bloat
• Lack of focus on customers and products--easier to be completely focused on customers and products when you don't have a lot of money in the bank and you worry about the doors closing imminently
  
• Too many salespeople too soon--outselling a product that isn't quite ready yet, that hasn't achieved PMF--alienating early adopters and making it much harder to win them back when product is ready
• Product schedule slippage--what's the urgency? We have all this cash! Creating a golden opportunity for a smaller, scrappier competitor to emerge
  

Founders at Work: Blogger

Take-aways from interview with Evan Williams, founder of Blogger

• Evan Williams started Blogger by solving a personal problem: wrote his own script to turn his personal website into a blog.
• "The idea that I could have a thought and I could type in a form and it would be on my website in a matter of seconds completely transformed the experience. It was one of those things that, by automating the process, completely morphed what it was I was doing. If I could have a thought and then put it on my site, then obviously I am going to potentially do that much more and it is a stream for communication of a whole different type."
• "We took the script I wrote to publish my site, and we made an internal site where we could do the same thing."
  
• He learned from his first startup that it's important to focus--concentrate your efforts
• "One of the big lessons from my first company was to focus. After my first company died, I did an inventory of the projects I had worked on in the last year. There were something like 30 projects that I had started on and had not finished. My total weakness was not focusing on things."
• Blogger was initially designed for geeks. "It wasn't a mass consumer product... It didn't explode at first because it was fairly technical... You had to know a bunch of stuff, but things that you would know if you were a web geek."
• Blogger was not a technological breakthrough. "It wasn't based on any new technology. But that made sense to me because it was not that the technology was new, it was that we had figured out this medium, at least one of the native forms of what the Web was good for. It was about freshness and about frequency, and it was about the democratization of media and giving power to every body and the universal desire for personal expression and the attraction to a real, compelling personal voice."
• Started to run out of money in Jan. 2001 (almost 2 years after launching). Appealed to users of the product to send money to keep it running. They had such passionate users that they were able to raise $17,000.
  
• Everyone in the company left except for Evan. They went from $50K/month in payroll to $0.
  
• Stick to your guns: "One of the things that kills great things so often is compromise--letting people talk you out of what your gut is telling you. Not that I don't value people's input, but you have to have the strength to ignore it sometimes, too. If you feel really strongly, there might be something to that, and if you see something that other people don't see, it could be because it's that powerful and different. If everyone agrees, it's probably because you're not doing anything original." Reminds me of Reid Hoffman's advice: make accurate contrarian bets.
• Roll with the punches. Sometimes things that seem bad are actually a blessing in disguise. "Luck comes in many forms--and often looks bad at first. I always look back on the deals that we didn't do and the things that didn't work out, and realize what seemed like a bummer at the time was really lucky. Like the early acquisition opportunities. These obviously would have been really bad, as opposed to what happened later. Through that whole experience that's one of the biggest things I've taken away: if you have some plan and it doesn't go that way, roll with it. There's not way to know if it's good or bad until later, if ever."
• Simplicity is key. "I was surprised by the success of something so simple. That's a mantra for many people in the technology world--simplicity. But what we built wasn't that amazing. It was the idea of putting a couple of things together and being able to establish a lead by doing something really, really simple. How far you can get on a simply idea is amazing. I have a tendency to add more and more--the ideas always get too big to implement before they even get off the ground. Simplicity is powerful."

Marc Andreesen's Blog: Startup advice

I just discovered Marc Andreesen's blog. There are a number of interesting posts here about doing your own startup. One post was about what VCs look for when they invest in a company. The second was about how to get to know VCs. And the third was about the most important thing for a startup.

What do VCs look for in a company?

• Founder risk - right founding team for the opportunity?
• Market risk - is there really a market for this?
• Competition risk - are there too many startups/incumbents in this space? Is this startup sufficiently differentiated?
• Timing risk - too early for this? Too late?
• Financing risk - how much total capital will be required? How certain are we?
• Marketing risk - will this startup be able to cut through the noise? How much does it cost to acquire a customer?
• Distribution risk - are there certain distribution partners required? How will it get them?
  
• Technology risk - Can the product be built? Does it require fancy, new, unproven technology? Is it dependent on some other tech breakthrough?
  
• Product risk - can this team build the product?
• Hiring risk - what positions does the startup need to fill into order to execute this plan?
  
• Location risk - is the team not located in Silicon Valley?

How to get to know VCs?

• VCs work through referrals
• Work at a VC-backed startup, kick butt, get promoted, and network all the way

What is the only thing that matters for a startup?

• Out of team, product, and market--it's market.
• A great market (with lots of potential customers) pulls product out of the startup
• There's a concept called Product-Market Fit (PMF)--being in a good market with a product that can satisfy that market
• If you're Before PMF (BPMF), focus obsessively on getting to PMF. Most startups fail because they can't get to PMF before they run out of cash.

Notes from Reid Hoffman talk at Stanford

Just listened to an archive of Reid Hoffman's talk at Stanford a few months ago. The link to the talk is here.

Key take-aways:

• Think of entrepreneurship like investing. In investing, there are 2 strategies: (1) portfolio diversification/risk mitigation, and (2) accurate contrarian theories. Entrepreneurship is like investment approach #2. If it's conventional wisdom, probably not a good start-up idea.
  
• Test your hypotheses as quickly as you can. Work as if you're going to succeed, but get to your failure points as quickly as possible. Sequence it so that you test the biggest risks as early as possible.
• 2 reasons for this: (1) Don't want to waste your time. If you could have found something out in 1 year that would have led you to abandon your idea, but you waited until year 3 to test it, then you've wasted 2 years. (2) There's a market readiness and luck factor to all startups. Sometimes you're going to be lucky, sometimes you're going to be wrong. If your time cycle for testing out new ideas is long, you won't have as many chances over a career to be lucky.
  
• Success in entrepreneurship is solving the easiest, simplest problem that's valuable--not necessarily by coming up with the most elegant solution to a very difficult problem (especially if it's not valuable)
• On competition: Best scenario, do something where there are no competitors. Second best scenario, do something where there are slothful competitors (like banking). Don't go after an aggressive, smart, incumbent competitor head on.
  

Founders at Work - Excite

Excite founder Joe Kraus

• Excite started as a group of friends from Stanford who wanted to start a company--but didn't know what they wanted to start
• The idea went through some iterations--CD-ROM search to web search
• "All of the pivotal things [in the company] were unintentional... The intentional things were rarely pivotal in those early days, but the being persistent, following-your-nose thing made a big difference."
• Getting the Netscape "search" button was a major tipping point for Excite. They bid $3M for the contract (which they didn't have--that only had $1M--but Vinod Khosla said they could raise the rest). And they lost. But Vinod told the team not to quit.
  
• Re Netscape: " We did all this stuff; we called them constantly; we just basically acted like the bidding wasn't over. And made a total pain in the ass of ourselves... Then luck struck: MCI couldn't deliver its service to Netscape on time... I can tell you that, had we given up, we never would have gotten this deal back. And without that deal, I don't think Excite would have had its run at all."
• "The persistence part is the part I like. It's actually not fun when it's happening, but you know it makes a difference because 99.9 percent of the people give up. And Vinod gave me that lesson in spades. I think I would have given up with Netscape. I wouldn't have known what to do. I wouldn't have had the chutzpah to say, 'No, we haven't lost, we're still negotiating, aren't we?' And treating it as if I didn't hear their 'no.'"
  
• Key take-away: Persistence pays.
  
• Excite was #17 in a 17-horse race when they launched in oct. '95. But by end of '96, they were #2 in the portal game. They did it because they set that as a goal--and the company rallied around it.
  

Founders at work - PayPal and Hotmail

Started reading "Founders at Work." Here are some of the key take-aways from the 1st 2 chapters.

Paypal founder Max Levchin

• Paypal iterated through 6 different ideas/business plans. (1) They started with enterprise security on Palm Pilots. No traction with customers. (2) Then they went to consumer security on Palm Pilots. No traction with customers. (3) Then storing wallet information (e.g. credit card number) on Palm Pilots. No traction with customers. (4) Then storing all of your passwords (protected by master password) on your Palm Pilot. Some small interest, but no real traction. But getting more useful. (5) Then, store money on Palm Pilots. A lot more interest, lot more useful. But mostly still the geek crowd. Created a companion website to the Palm Pilot application. Realized that a lot of people were trying to use the website for transactions, growth of that was much more than Palm Pilots. People from eBay were contacting them and asking to put Paypal logo on their site. (6) Optimized website experience, shut down the Palm Pilot app.
  
• Key lesson: be willing to iterate your idea a lot. Keep testing with real customers. Each iteration should be more interesting and useful to customers.
  
• Core competency became fraud detection--that's what let them beat the competition over time.
• "Try to have a good cofounder. I think it's all about people, and, if you are doing it completely alone, it's really hard."
• "The hallmark of a really good entrepreneur is that you're not really going to build one specific company. The goal... is you realize one day that you can't really work for anyone else. You have to start your own thing. It almost doesn't matter what that thing is. We had 6 different business plan changes, and then the last one was PayPal."

Hotmail founder Sabeer Bhatia

• Built Hotmail initially on nights/weekends
• Started with the idea for personal database of information, morphed into web-based email
• Killer idea emerged because they were trying to solve a personal email exchange problem for themselves--they could access email only from 2 places (home, work). And at work, they couldn't access personal email accounts.
• Pitched the personal database idea to VCs, because they were afraid of someone stealing the idea for web-based email
• Didn't listen when VCs told them, "You're too young, you don't have enough experience, you're hardware guys not software guys."
• "You have got to own the customer... OK if you don't monetize them right up front. Eventually you will be able to. But having that customer base and being able to tap into that customer base and upsell them on services, or advertise--you can always make money off them." (Note: see Google!)
• "Don't try to change user behavior dramatically. If you are expecting people to dramatically change the way they do things, it's not going to happen. Try to make it such that it's a small change, yet an important one."
• Genesis of the idea: "That's when it occurred to us. 'Wait a minute, we can access any website in the world through a web browser. If we made email available through the web browser, that would solve our problem.' And then it occurred to us, 'If that would solve our problem, it would solve the problems of many others.' We didn't know how many others, but email was something that everyone used."
  

Made to Stick: Unexpected (2)

You've got to make your message unexpected. In addition to getting engagement (surprise), how do you create interest?

• Mystery--start with a thought-provoking question, build suspense
• Curiosity in Hollywood screenplays--"Curiosity is the intellectual need to answer questions and close open patterns. Story plays to this universal desire by doing the opposite, posing questions and opening situations." The audience wonders what will happen next? How will this turn out?
• "Gap theory" of curiosity--we are compelled to fill knowledge gaps. Shift thinking from "what information do I need to convey?" to "what questions do I want my audience to ask?"

Made to Stick - Unexpected

2 questions: How do I get people's attention? How do I keep people's attention?

Make your message unexpected.

Surprise gets our attention. Interest keeps our attention.

We're hard-wired so that surprise jolts us to attention. Our mental models have failed to predict what just happened. Surprise can make us think: Why was I surprised? What's the underlying cause? What are some other possibilities? How do I avoid surprises in the future? Surprises make us want to find the answer, to resolve the question of why were were surprised.

Some caveats--the surprise can't be a gimmick. It has to reinforce our core message, otherwise it just turns people off.

Second point: if it's just a perplexing surprise, it might end up just being frustrating to the consumer. It's got to be a surprise where the consumer gets some insight. "To be surprising, an event can't be predictable. Surprise is the opposite of predictability. But, to be satisfying, the surprise must be 'post-dictable.' The twist makes sense after you think about it, but it's not something you would have seen coming."

If you want your ideas to be stickier, break people's mental models in an unexpected way, but allow them to fix it so that it makes sense afterwards. Easiest way to do that is to have your surprise be in the service of your core message.

Here's a suggested process from the book:

1. Determine what your core message is.

2. Figure out what's counterintuitive--what are the unexpected implications of your core message? Why isn't it already happening naturally?

3. Communicate your message in a way that breaks the audience's "guessing machine" along the critical, counterintuitive dimension.

Made to Stick - Simplicity (schemas)

How do you make something complex into a simple idea that can be communicated? One technique is to leverage schemas, or mental models, that people already have in their heads.

How do you describe a "pomelo" to someone? You could go into a detailed description of how it's a large citrus fruit with a yellow, thick rind, that tastes anywhere from spicy-sweet to tangy and tart, depending on ripeness. Or you could just say it's a supersized grapefruit with a soft and thick rind. In the second example, you're leveraging the schema that we all have of a grapefruit. It's so much easier for us to grasp this new concept. We already have associations with a grapefruit, and now this concept of pomelo will inherit these associations.

People that pitch movies in Hollywood often use schemas to communicate their ideas quickly and effectively. "Speed" was pitched as "Die Hard on a bus." "13 going on 30" was pitched as "Big for girls." "Alien" was pitched as "Jaws on a spaceship."

Persuasive online copywriting techniques

Saw 2 interesting vids on YouTube today:





They recommended 3 techniques for making your online copywriting more persuasive:

Suessing:

• Engage the right-brain, then go after the rational left-brain
• Writing in meter (“melts in your mouth, not in your hand”; “Winston tastes good like a cigarette should”)
• Invent words that the reader intuitively understand the meaning of
• Use meter
• Use verbs

Frosting:

• Replace common, predictable phrases with unexpected, colorful ones

Franking:

• Choose a revealing angle—put your reader on the scene (e.g. Everest ad for Rolex)
• Select your details carefully—include only what’s interesting, and barely that
• Put the “known” underwater—never tell the reader something he already knows or can figure out himself

Clear use for these when you're writing copy as sales collateral for your website, but can possibly also be applied to regular copywriting on a consumer app website.

Test with at most 5 users

There's an interesting post from back in 2000 on Jacob Nielsen's site here. He makes a good case for why you don't need to do usability testing with any more than 5 users. This graph is illustrative, but shows how the learning from usability testing has diminishing returns.

I spoke with John Briggs, the first product manager at Yahoo, and he had mentioned that you only need to be 70% right before you ship (and iterate in the field to get to 100%). He also mentioned that you can learn everything you need to learn to get to 70% by talking to 3 users. So 2 independent expert sources are saying almost the same thing here.

Made to Stick - Simplicity

The 1st chapter in "Made to Stick" by Chip Heath and Dan Heath talks about one of the key elements of making a message stick: simplicity.

Simplicity: find the core of the idea.

Some of the ideas mentioned in this chapter:

Commander's Intent (CI): In the military, it's "a crisp, plain-talk statement that appears at the top of every order, specifying the plan's goal, and the desired end-state of an operation."

Finding the core=stripping an idea down to its most critical essence. You not only have to weed out the superfluous and the tangential, but also the things that are really important, but just aren't the most important idea. The value of the CI is its singularity.

In journalism, reporters know not to bury the lead. The first sentence of the article, called the lead, contains the most essential elements of the story. After the lead, information is presented in decreasing order of importance. This is known as the "inverted pyramid" structure. This is great for readers. No matter what the reader's attention span--whether just reading the lead or the entire article--the inverted pyramid maximizes the information gleaned. Finding the core--writing the lead--creates forced prioritization. If you can only send one line before the line is cut, what do you send?

Great simple ideas have an elegance and a utility that makes them function a lot like proverbs. Short sentences (compact) drawn from long experiences (core).

Different content models on the Internet

There are 3 major content models on the Internet:
1. Pure-play content
2. Pure-play platform/community
3. Hybrid

On one extreme, you have the pure-play content sites. These include websites such as "CNN.com," "NYtimes.com," etc. These are destination sites that own proprietary content--the content is the main reason why people visit the site. Product functionality is secondary to the content. The website has enough functionality to meet the minimum acceptable standards, but is not known for product innovation.

On the other extreme, you have the pure-play platform/community sites. These are applications that enable users to find content in some way. For example, Google (pure-play platform) lets you search the web to find the content that you're looking for. Stumbleupon lets you discover new content through its community rating of websites and videos. Digg also lets you discover (news, video) content by its community of users that scours the web and then filters the most interesting stuff for you. These sites are all about their platforms and their communities. They don't typically own any proprietary content, but they piggyback on the good content that's already available out there on the web.

In the middle are websites that are in between pure-play content and platform/community sites. Youtube, MySpace and Flickr sit here. These sites own rich proprietary content (typically in the form of UGC), but also innovated to create compelling new product features. Their products, in addition to their content, are an integral part of the consumer experience. They built significant communities around their content.

Many of the pure-play platform/community sites also own content, but it's typically in the form of metadata (comments, votes, etc.) rather than rich, original content.

Of course, very few websites are on the extreme of pure-play content or pure-play platform/community. But it's interesting to use as a framework to think about how sites differ along these extremes.

Aside from content models, there are other models for the Internet, most notably e-commerce/marketplaces (e.g. EBay, Amazon, PayPal, Craigslist), communication (Hotmail, Gmail, AIM), infrastructure/tools (Photobucket, Rapidshare, Mapquest). It's possible that some sites (e.g. Yahoo) combine several different models under the "portal" umbrella.

If you look at the top 30 US sites on Alexa, you can make the following observations:

• No standalone communication businesses (all absorbed by portals, part of social networks); communication businesses are among the highest-trafficked properties on the web, though not necessarily as monetizable as search; as such, they are "loss-leaders" for the portals/social networks
• No pure-play content sites in the top 15 (CNN is the highest at #16)
• No infrastructure/tool sites in the top 15 (Megaupload is highest at #19)
• Of the top 10, 4 are pure-play platform/communities (Yahoo, Google, MSN, Windows Live); 4 are hybrids (MySpace, YouTube, Facebook, Wikipedia); and 2 are e-commerce/ marketplaces (Ebay, Craigslist)

The results are not really surprising. The sites that are the most trafficked are the ones that leverage the power of the Internet. It is interesting, though, that none of the top 15 sites are pure-play content sites.

The type of content sites that do make it into the top 30: news (CNN, NYTimes), weather (weather.com), movies (IMDB)

The Elements of User Experience (I)

Started a new book, The Elements of User Experience. The author has a great framework for how to think about designing a website.

First, he asserts that there are 2 ways to think about the web: (1) as a software interface, (2) as a hypertext system. With software interface, the designer is concerned mostly with tasks. We can consider the website as a tool or set of tools that the user employs to accomplish one or more tasks. For example, search/browse, upload a file, etc. With the hypertext model, the designer is concerned with information. What information or content does the site offer, and what does it mean to its users?

You can then break down the website design into discrete levels, including:

• Strategy
• Scope
• Structure
• Skeleton
• Surface

WRT strategy, there are 2 elements that span both views of the website as a SW interface as well as a hypertext system:

1. User needs: goals for the site that come from users
2. Site objectives: our own objectives for the site

WRT scope, there are functional specifications for the SW interface view, and content requirements for the hypertext view.

WRT structure, interaction design defines how the system behaves in response to a user (SW interface view). Information architecture is the arrangement of content elements within the information space (hypertext view).

WRT skeleton, information design affects the presentaion of information in a way that indicates understanding (applies to both SW interface, and hypertest views). Interface design arranges the interface elements to enable users to interact with the functionality of the system. The interface for an information space is its navigation design.

Finally, the surface, which is concerned mostly with visual design, or the look of the finished product.

4 Approaches for User-Centered Design

From "Designing for Interaction" by Dan Saffer





1. User-centered design (UCD)


2. Activity-centered design


3. Systems design


4. Genius design

1. User-centered design





Focuses on user needs and goals


Goals are really important in UCD; designers focus on what the user ultimately wants to accomplish


Designer then determines the tasks necessary to achieve those goals, but with the users' needs and preferences always in mind


Designers involve users in every stage of the project; user data is the determining factor in making design decisions


Pros: Gets designers to focus on needs and goals of users, rather than their own preferences ("You are not the user")


Cons: May result in a product that is too narrowly focused; also, may be designed for the wrong set of users





2. Activity-centered design





Focuses on the tasks and activities that need to be accomplished


Typically functional products (e.g. appliances, cars) use activity-centered design


Activities are made up of tasks; each task is a moment in the life of an activity


Ex. Decide to buy a new game; decide what game to buy; decide where to buy it; get directions to store; go to store; enter store; find game in store; buy game; leave store; go home.


Designers observe and interview users for insights about their behavior more than their goals. The activity, not the people doing the activity, guides the design.


Pros: Gets designers to focus on the behavior of users


Cons: By fixating on tasks, designers won't look for solutions for the problem as a whole





3. Systems design





Focuses on the components of a system


Structured, rigorous design methodology


Uses an established arrangement of components to create design solutions


Users are de-emphasized in favor of context; focus on the whole context of use, not just individual objects or devices


Pros: eliminates guesswork and fuzziness of other approaches, provides a clear roadmap for designers to follow; useful for seeing the big picture, a holistic view of the project


Cons: rigorous and time-consuming





4. Genius design





Relies almost solely on the wisdom and experience of the designer to make design decisions


Designers use their best judgment as to what users want and then design the product based on that judgment


Apple computer does most of its design this way (e.g. iPod)


Best practiced by experienced designers


Pros: fast, easy, personal way to work; may allow designers to think more broadly and innovatively


Cons: may miss user needs and result in an un-usable product

Lessons from YouTube's success

I recently watched a video by Jawed Karim, the 3rd co-founder of YouTube. The video is called "YouTube: From concept to hypergrowth."



In the video, Jawed discusses his observations on why YouTube was successful. Some key points from the presentation are below.

There have been a handful of disruptive web2.0 applications over the years:

• LiveJournal (1999): allowed easy use/creation of blogs
• Hot or Not (2000): anyone can upload or download user-generated photo content; matched take-off of digital cameras.
• Wikipedia (2001): large-scale social collaboration can achieve order. People are willing to donate their free time
• Friendster (2003): not the first social network, but the first one to catch on. Not based on email addresses, so better. It commoditized social networking.
• Del.icio.us (2003): Remote bookmarking, so you can access them from different computers. Popularized concept of tagging
• Flickr (2004): Combined del.icio.us and photo sharing into a new product; before this, people shared photos within private networks; Flickr enabled people to share in public, using tags to search

When YouTube was started in early 2005, it was very difficult to watch, share, and discover videos on the Internet. The state of video viewing in 2004 was you went to a directory that listed a bunch of video files. You had no description or thumbnail for each one of those videos. You didn't know how these videos related to other videos. There was no way for people to connect over these videos. When you tried to download a video, you were forced to wait (buffering...) or had to download codecs, many of which didn't work for you. You couldn't see what was in the video until you downloaded it and started watching it. In other words, a very difficult experience.

So how did the site grow? When it was first launched in April 2005, nobody uploaded videos other than the founding team. They tried to email all their friends and get them to use it (which was the only marketing that HotorNot ever did). That didn't work. They put up a posting on Craiglist in LA to get cute girls to upload videos of themselves. They offered $100 to any cute girl that would upload 10 videos. That didn't work. They wrote to a bunch of reporters from Wired magazine asking for coverage. That didn't work. So what did they do?

They decided to revamp the site. They added a bunch of features to enable the product to promote itself.

1. Related videos: encouraged users to explore more videos on the site. Once they found a clip they liked, they could watch additional related clips

2. Easy sharing: made it extremely simple for users, with one click, to share videos with their friends. That way, their friends wouldn't get spammed by YouTube, but by their friends themselves.

3. Encouraged users' social interaction: find other users' favorites

4. Added external video player: allowed anyone to put a video on their site. This was probably the most popular feature. It extended YouTube's reach beyond its own site. Most notably, on MySpace.

The YouTube team noticed that every 2 weeks, there would be a "blockbuster" video that would drive a lot of traffic (thru sharing and WOM) to the site. As the usage grew, the frequency of these "blockbusters" increased to the point where it became multiple hits a day.

Another important lesson: YouTube let the community drive the site. They couldn't anticipate everything that the community wanted to do with the site. But they responded. For example, they created a feature that allowed people to post video responses (rather than just text comments) to videos.

Finally, they rewarded the users that made their project possible (similar to Threadless). They gave away an iPod every day in Nov. 2005 in order to stimulate video uploads.

3 phases of a start-up (2)

We met with Randy Komissar from Kleiner Perkins last week. He gave us a lot of valuable advice about the 3 phases of a start-up.

Phase 1: demonstrate the value
Phase 2: demonstrate options for scaling
Phase 3: execute

Phase 2: demonstrate options for scaling

If phase 1 was all about demonstrating the value proposition for a handful of customers, phase 2 is all about demonstrating that this value proposition can scale across many, many customers (or across multiple products with the same customers).

For any company, there are 2 ways it can scale: either you scale across customers, or you scale across products. To scale across customers, you would need to demonstrate that your product can be sold to multiple customer segments (e.g. geographies, vertical industries, etc.). You would need to establish reference customers in each target segment and build a pipeline of potential deals. To scale across products, you would need to show that your existing product has line extensions that appeal to your existing customers. In either case, you're still not necessarily generating a lot of revenue yet. But you're creating the perception that customers are lined up to buy from you.

In general, what are the "pre-conditions" of an opportunity that make it likely to scale?

1. Homogeneity of customer needs: If every sale requires custom development, the business will not scale easily. On the other hand, if customer needs transcend segment differences, it means that you should be able to scale across customers.

2. No special/scarce resources required to make or sell the product: I evaluated a start-up company in the semiconductor services space for acquisition by a larger company. The start-up provided a useful and valuable service to its customers. However, the service was so complex that it could only be sold by 2 of the company's employees (the CEO and CTO). These 2 people were the only ones who understood the service well enough to convince customers to buy. Needless to say, the company did not grow very quickly.

3. Platform that will accommodate product extensions: This is Google's strategy with building the "Googleplex"--the computing infrastructure that consists of a number of custom-built, self-aware computer clusters across the world. Google believes that its Googleplex will be the platform that enables rapid, low-cost deployment of applications to customers--a significant advantage over competitors who use off-the-shelf computing equipment. Of course, first Google needs to develop another "killer app" other than the search and Adwords platform. But, once they find the other killer app, the Googleplex will be the platform that enables product extensions.

3 Phases of a Start-up

We met with Randy Komissar from Kleiner Perkins last week. He gave us a lot of valuable advice about the 3 phases of a start-up.

• Phase 1: demonstrate the value
• Phase 2: demonstrate options for scaling
• Phase 3: execute

Phase 1: demonstrate the value

In this phase, the start-up is trying to show investors that it has developed something valuable to customers. This phase is marked by a set of iterative tests designed to support or refute hypotheses about the business. Suppose I have an idea for a new business. That idea is really a hypothesis--that whatever I develop will be valuable to customers. I should come up with a prototype that I can begin testing with customers to validate that hypothesis.

The name of the game in this phase is to learn by getting real customer feedback as early and as often as possible. I run a series of iterative experiments where I test my hypotheses with customers. Each time I learn something from a customer, I should refine and tune my hypotheses. And my "business experiment" should be designed such that I am testing the core, fundamental elements of my new business idea as early as possible. That way, I learn early whether my idea, at its core, actually has value or is simply a waste of time. Over time, I can get into testing details of the idea (such as specific product features).

It matters less whether my hypotheses are right or wrong. What's more important is that I have hypotheses, and that I have the strength of character to accept real world feedback that supports--or refutes--my hypotheses. I want to fail early, fail often, and most importantly, fail inexpensively. Failure at this stage is really good. It means I've learned something and probably avoided costs. I want the feedback from customers that they dislike a planned product feature well before I sink costs into actually developing that feature.

You should strive to test your hypotheses in a "smart" way. You should brainstorm a list of potential hypotheses, and test them in order of likely success. This requires judgment, of course, but you can improve your chances of having good judgment by synthesizing input from experts and customers. By testing them in order of likely success (rather than randomly), you improve your chances of hitting on the right solution early (without burning through too many iterations, too much time, and too much money).

During this phase, I have the challenge of doing as many iterative experiments as possible, and tuning the hypotheses of my start-up idea, as cheaply as possible. That means that I should always be thinking, "What's the cheapest way for me to get the feedback that will tell me whether my hypothesis is right or wrong?" So I should defer committing resources--which means deferring hiring people and even building the product--until I know whether the hypothesis justifies the commitment of those resources. Try to engage potential employees on a contract basis rather than commit to hiring them during this phase. Build very lightweight prototypes of products to test with customers, until you've gotten feedback that justifies the commitment of development time and resources to the product.

You sort of know when you're ready to exit this phase of start-up development. You've been testing and iterating your product idea with multiple customers. You've now developed a pretty valuable prototype or product, and gotten a handful of customers very excited about your new product idea. You may have engaged a couple of customers to participate in a trial with your product. You haen't really generated significant revenue yet--in fact, you may not have any revenue at all. But you have some excited reference customers. Will blog about Phase 2 next time.

Musings from 37 Signals

I've been reading the online book Getting Real by 37 signals. It's a quick, easy read and it contains a lot of interesting lessons about product development in the new web 2.0 world. Here are some of the interesting take-aways:

1. Keep yourself as agile as possible so that you can adapt to the external environment quickly.

That means don't build too much into your product. Don't commit resources unless you must. Fail early, fail often, fail inexpensively. Failure in a startup is the only way you'll learn. You've got to keep your costs to change very low. Being small provides you an advantage over larger competitors--you are more nimble, you can change much more quickly.

"Less mass lets you change direction quickly. You can react and evolve. You can focus on the good ideas and drop the bad ones. You can listen and respond to your customers. You can integrate new technologies now instead of later."

"Nimble, agile, less-mass businesses can quickly change their entire business model, product, feature set, and marketing message. They can make mistakes and fix them quickly. They can change their priorities, product mix, and focus. And, most importantly, they can change their minds."

"Change is your best friend. The more expensive it is to make a change, the less likely you'll make it. And if your competitors can change faster than you, you're at a huge disadvantage. If change gets too expensive, you're dead."

"What might take a big team in a huge organization weeks to change may only take a day in a small, lean organization. That advantage is priceless. Cheap and fast changes are small's secret weapon."

The book discusses the concept of emergence--"unforseen occurrence." Emergence requires the lack of complex rules.

"The harder we tighten things down, the less room there is for a creative, emergent solution. Whether it's locking down requirements before they are well understood or prematurely optimizing code, or inventing complex navigation and workflow scenarios before letting end users play with the system, the result is the same: an overly complicated, stupid system instead of a clean, elegant system that harnesses emergence. Keep it small. Keep it simple. Let it happen."

2. Constraints (lack of time, money, people) are good.

Constraints drive innovation ("Necessity is the mother of invention"), force you to clarify your priorities and focus on the most important things. Similarly, 37 Signals advises us to flex scope, but not time or budget. Getting something out the door--even if it's not everything that we want--is better than being perpetually in development.

3. Keep the product simple.

Every feature added has a price. Make new features prove their value before being added.

4. Use an iterative development approach.

"Don't expect to get it right the first time. Let the app grow and speak to you. Let it morph and evolve. With web-based software there's no need to ship perfection. Design screens, use them, analyze them, and then start over again."

"Instead of banking on getting everything right upfront, the iterative process lets you continue to make informed decisions as you go along. Plus, you'll get an active app up and running quicker since you're not striving for perfection right out the gate. The result is real feedback and real guidance on what requires your attention."

"You don't need to aim for perfection on the first try if you know it's just going to be done again later anyway. Knowing that you're going to revisit issues is a great motivator to just get ideas out there to see if they'll fly."

5. Hire less, hire later, and try people out before you commit to hiring them.

You would be surprised with how much you can get done with fewer people. "Whenever Jack Welch, former ceo of ge, used to fire someone, he didn't immediately hire a replacement. He wanted to see how long he could get along without that person and that position."

"A single good programmer working on a single task has no coordination or communication overhead. Five programmers working on the same task must coordinate and communicate. That takes a lot of time."

Kick the tires before you commit to bringing someone on. "Work with prospective employees on a test-first basis. It's one thing to look at a portfolio, resume, code example, or previous work. It's another thing to actually work with someone. Whenever possible, take potential new team members out for a 'test drive.'"

Don't Make Me Think (4) - Home page

• According to Krug, there are several things that a homepage must accommodate:

1. Site identity and mission (homepage must tell me what site this is and what it's for)

2. Site hierarchy (overview of what the site has to offer, including content--"What can I find here?"--and features--"What can I do here")

3. Search (most sites need to have prominently displayed search box on homepage)

4. Content promos (spotlight the newest, best, or most popular pieces of content, like top stories and hot deals)

5. Feature promos (invite me to explore additional sections of the site or try out new features)

6. Timely content (if site depends on me coming back often, home page needs to have content that gets updated frequently)

7. Short cuts (most frequently requested pieces of content may deserve their own links)

8. Registration (links for new users to register, old ones to sign in, and welcome message if I'm already signed in)

See the example of YouTube's homepage:

Don't Make Me Think (3) - The Trunk Test

Another cool idea from Steve Krug's book: The Trunk Test.

"Imagine that you've been blindfolded and locked in the trunk of a car, then driven around for a while and dumped on a page somewhere deep in the bowels of a Web site. If the page is well designed, when your vision clears you should be able to answer these questions without hesitation: What site is this? (Site ID) What page am I on? (Page name) What are the major sections of this site? (Sections) What are my options at this level? (Local navigation) Where am I in the scheme of things? ('You are here' indicators--breadcrumbs) How can I search? (Search)"

1. Choose a page anywhere in the site at random, and print it.

2. Hold it at arm's length or squint so you can't really study it closely.

3. As quickly as possible, try to find and circle the following:

• Site ID
• Page name
• Sections
• Local navigation
• "You are here" indicators
• Search

Don't Make Me Think (2)

Still reading from "Don't Make Me Think." The chapter I'm reading now, called "Street Signs and Breadcrumbs," discusses some of the conventions that websites use to improve usability.

One convention is the use of persistent navigation to tell the user where he (or she) is in the website. There are 5 things that belong in every site's persistent navigation:

1. Site ID

2. A way home

3. A way to search

4. Utilities

5. Sections

See the home page from Flickr--shows each of these elements in practice.

Sections are the primary navigation of the site. The top level of the site's hierarchy.

Following is a glance from YouTube, shows 4 out of 5 elements:

Some consumer media lessons

Over the past 2 months, I've spend some time with experts from the consumer media industry, including folks who have done programming at MTV, Discovery Channel, F/X, etc. Here are some of the lessons I have learned from spending time with these experts:

• You have to be relevant. Relevance comes from making things "local" in space and time.
• You can present a national or international news story, but it's more relevant if you can tell me how it affects me or my community (or even makes me think about how it affects me/my community).
• You've got to present current information, create the perception that things are "live," that this is happening now. If you can do that, you're raised the urgency and you can get me to pay more attention. Many tricks for doing that: put the date and time, show a ticking clock, show feeds/crawls of information.
• Don't just re-broadcast content that's already available elsewhere. Consumers will seek you out if you provide compelling content that they can't find anywhere else.
• In addition to original content, media organizations can provide value with editorial role--if you get syndicated content, filter it, package it, put your spin on it, do something to make it yours (and different from what people can get elsewhere).
• Consumers like lists. Give me the top 5 or top 10 things to do.
• Everything you present has to have some value for the consumer to get them to pay attention. Even branding/interstitials can and should be used as content (e.g. MTV).

More to follow...

Netflix, Google, and fast iterations

Another interesting post at UIE: http://www.uie.com/articles/fast_iterations/

"We make a lot of this stuff up as we go along," the lead designer said. Everyone in the group laughed until he continued, "I'm serious. We don't assume anything works and we don't like to make predictions without real-world tests. Predictions color our thinking. So, we continually make this up as we go along, keeping what works and throwing away what doesn't. We've found that about 90% of it doesn't work." - Lead designer, Netflix

"In the case of the Toolbar Beta, several of the key features (custom buttons, shared bookmarks) were prototyped in less than a week. In fact, during the brainstorming phase, we tried out about five times as many key features -- many of which we discarded after a week of prototyping. Since only 1 in every 5 to 10 ideas work out, the strategy of constraining how quickly ideas must be proven allows us to try out more ideas faster, increasing our odds of success." - Marissa Mayer, Google

Fast prototyping, getting real user reactions--these are the hallmarks of Netflix and Google's design approaches.

The benefits of fast iteration:

• Fail fast--don't waste time on things that won't work
• More experimentation--try out a wider range of things
• Fact-based--let real user data/reactions to prototypes, rather than opinions/arguments, guide the decision-making
• Create customer loyalty--users feel that they are co-creating the product when they see rapid iterations, lots of things being tried with their input

5-second test

Here is an idea to test whether people quickly understand what your website is about. See the full article at http://www.uie.com/articles/five_second_test/:

Show users a full content page for 5 seconds to get their initial impressions
1. Show users a content page. Once the users views it for 5 seconds, cover it up or change the window
2. Ask them to write down everything they can remember about the page
3. Ask them questions like, "What is the most important information on this page?" or "How would you go about completing task XYZ?"

You can understand how clear/concise your page was, whether users understood the primary purpose of the page, whether users recalled the critical information, etc.

The 5-second test can be done quickly/cheaply using paper prototypes, however, it's best for pages where there's a single primary purpose (rather than a homepage, where there might be multiple purposes).

Don't Make Me Think (1)

I've started reading a new book about website usability: "Don't Make Me Think" by Steve Krug.

You can find the book here: http://www.amazon.com/Dont-Make-Me-Think-Usability/dp/0789723107?tag2=gp04-20

The book discusses how to optimize website design to enable users to breeze through the navigation, without having to think. Here are some of the good lessons/take-aways from the book:

1. When you're creating a website, your job is to get rid of the questions that users face when they look at a page. ("Where should I start? Why did they call it that? Can I click on that? Why did they put there there? What is this?") Everything should be obvious to the user--what the site's purpose is, what they should do, etc.

2. People don't usually read web pages--they scan them. They tend to focus on words and phrases that seem to match the task at hand, or their current/ongoing personal interests. There are some trigger words that are hardwired, such as "sex," "sale," "free," and our own name.

3. Design pages for scanning by following 4 simple rules:

• Create a clear visual hierarchy on each page: the more important something is, the more prominent it is; things that are related logically are related visually; things are "nested" visually to show what's part of what
• Break up pages into clearly defined areas: glancing around, users should be able to tell, "Things I can do on this site! Links to today's top stories! Products this company sells! Navigation to the rest of the site!"
• Make it obvious what's clickable
• Keep the noise down to a dull roar: eschew business and background noise; simplicity is good

4. Get rid of half of the words on each page, then get rid of half of what's left.