The Magic Sauce of TechStars NYC

TechStars is billed as the Harvard for entrepreneurs. We’re excited to be a part of the Spring 2013 program for our soon-to-be-announced software product.

Now that we’re nearing the end of the first month I thought I’d write about the people that make it such a great program.

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Eugene Chung is co-Managing Director of our class and the heir to the NYC franchise. I didn’t think I would like Eugene at first. During our interview process he was pretty abrasive and cold. I think it’s because his mind is constantly working and he’s close to a genius. Since the program started, Eugene instantly became one of my favorite people. When you get a drink with him and talk about Myers-Briggs, he can be really endearing. More than anything else, Eugene lives the program and really cares about the founders.

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Nicole Glaros is the other co-Managing Director and a Boulder agent on special assignment for this class. She’s run six or seven TechStars programs already so brings a ton of wisdom. It’s weird but I feel like she’s the motherly figure of the class. She’s also super direct carries a strong presence.

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One of the biggest benefits of the program is the weekly coaching we get from David Cohen, CEO of TechStars. I’ve been impressed with how he genuinely makes time for the teams, considering how big TechStars has become. My one interesting learning about David is that he’s way more intense in person than his online persona. If you get the chance to meet him, don’t let the above casual photo fool you, he will grill you about your business and want to understand it at a deep logical level.

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Bret Feld [sic], MD of Foundry Group and Co-Founder of TechStars, spent several days here last week. Bret is one of the most charismatic people on the planet. When you look at the marathons he runs and the boards he sits on, you think he’s like the real world Iron Man. Yet as a person he’s down to earth and engaging.

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Mark Solon, along with David Cohen, is a General Partner of TechStars (there are only two). I hadn’t heard of Mark before joining the program as he tends to keep a low profile. He’s one of the first investors in SendGrid, which will likely be TechStars’s first billion dollar company. Mark struck me as very intuitive and I think the above picture really captures that side of him. He’s also a pretty damn good photographer. It’s clear to me Mark and David make a great team.

Why Great Ideas Get Shot Down

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The idea that will change your business is not the first nor is it the most obvious. Otherwise building a business would be easy.

Even for the most brilliant founders, having their team understand their next crazy idea and getting alignment can sometimes be extremely difficult. While they are still successful, and build millions of dollars in value, the fear of missing out on a 10x or 100x opportunity is real.

For the rest of us, most of our ideas are shot down by our superiors or partners. Perhaps this is a good thing, or perhaps it destroys our creativity. Decision making often turns into a negotiation instead of a consistent process.

There’s a better way, if at first we understand why our well-intentioned discussions break down.

1. Personal Bias

We all have biases. These are actually healthy and good, unless we let them steer us too far. Product decisions must be made through an open-minded consideration of every alternative, and we must be willing to let our personal preference cede to the best thing for our customer. Demonstrating a consideration for alternatives, reasons why it won’t work, and that there is no agenda behind an idea, is the best way to get others to listen to your idea with an open mind.

2. Miscommunication

What we say is rarely what others hear. Some ideas get shot down just because they aren’t understood. Having something written down, discussing it, and re-writing it more clearly, is important to getting others to see from your perspective.

3. Ambiguity

When something is ambiguous, there are versions that people agree to and versions that they disagree to. Since so many ideas fail, we approach them with skepticism and want to mitigate the risk of the options we don’t like. So we want to throw away the whole proposal unless it is specific. For example, we might agree in principal, but disagree on the execution. Being specific is key to eliminating fear.

4. Resource Drain

An experiment that takes twenty-four hours is easier to agree to than one that takes two weeks. Explaining the how, and designing an experiment in a cleverly efficient way, is key to overcoming the perception that something is too difficult to even try. When it won’t take many resources and the downside is limited, people are more receptive even if they think probability of failure is high.

5. Fairness

Part of being a team is getting everyone’s voice heard. This is why most product discussion resort to a negotiation. A well-designed process designs for fairness in a way that adds to the process, rather than takes away from it.

Why Entrepreneurs Hate Working at Big Companies

When compared to the stereotypical corporate persona, entrepreneurs are stoic individuals. They work out of basements and garages and hire their friends and family when no one else will work for them. Many go without pay for months, if not years, through ups-and-downs, for the chance at making something out of nothing.

Considering this level of determination, why do they often quit a year into being acquired by a larger company, or why would they never consider working for another corporation in the first place? Corporate politics and bureaucracy are just another obstacle that can be learned and overcome. In fact, they’re relatively insignificant compared to the adversities entrepreneurs have to otherwise overcome. Considering the fact that entrepreneurs can leverage greater resources and a networks inside a company, why does the thought of that make them sick?

The answer is compensation. Not that big companies don’t compensate them enough, but that the compensation structure is not aligned with an entrepreneur’s world view.

Entrepreneurs are not motivated by money (except for a god-like amount), but compensation informs perception. Entrepreneurs look for up-side and the ability to arbitrage the system. Even though the potential for an exponential outcome is slim, entrepreneurs are overconfident in their chances. An entrepreneur’s ideal situation is closer to a less than one percent chance to rule the world and a ninety-nine percent chance to be broke.

So when entrepreneurs say they hate working for big companies, it’s not because they can’t deal with the obstacles. It’s because they perceive the best case scenario as being a waste of time. They see a better opportunity outside the system.

If enterprise innovation is to succeed as a new paradigm in corporate America, big companies need to develop new rules of entrepreneurial compensation. This means giving employees significant potential upside, while paying them minimum wage (if anything at all). There’s a special kind of motivation that entrepreneurs get from taking the money of the world’s most influential people, and betting their entire careers on a two year period.

Even Google, for all it’s innovative DNA, let the founders of Instagram, Pinterest, Twitter, & Foursquare, walk out their door. If it’s happening to Google, it’s happening to every big company.

Three Enterprise Innovation Strategies

There’s three strategies big companies should use to innovate:

  1. Acquire Startups
  2. Invest in Startups
  3. Build Startups Internally

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The difference is the level of control and momentum the company will afford.

Building internal startups is incredibly difficult—it takes a lot of energy an effort to get started but is likely the strategy that has the most long-term potential. Companies traditionally overspend on this option significantly. But now that new research is emerging around Lean Startup, this option is becoming viable and cost-effective for the first time.

The success rate of startup acquisitions is historically very low while the cost of acquiring a successful company is very high. Cisco is actually known for being highly successful at the acquisition process (claimed 70% success). Usually the problem is around keeping the original entrepreneurs engaged either through compensation or access to resources. For example, Dennis Crowley (foursquare founder) famously left Google after he couldn’t get the engineering resources he wanted for the company they bought from him.

Funding external startups is the third & final strategy. This option is lower cost but also lower upside (lack of control). It’s a way to get access to inside information on technology trends and be in a privileged place for strategic partnerships. For this reason Microsoft invested in Facebook and Rakuten recently invested in Pinterest. It’s also a good option when a startup is not willing to be acquired.

A Product is the Sum of its Behavioral Hooks

Today I attended Nir Eyal’s Hooked Workshop in Boston. I follow his blog but hadn’t had the time to think carefully about his ideas until now.

Overall, the experience really changed my thinking on a few things.

The Hooked Method is about intentionally embedding a series of behavioral loops in a product to increase user engagement and ultimately achieve Product/Market Fit. I think of it like a natural step after the Concierge Method. It’s ideal for when you’re starting to code the work you’ve previously done manually and are looking at the product holistically.

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Essentially, if you look at each instance where a user engages with a product as a hook, it becomes intuitively obvious why certain things don’t work. Whether intentional or not, every great product follows this pattern.

ie. Facebook

Internal Trigger -> Feeling Lonely

External Trigger -> Email Notification

Action -> Click thru to Facebook

Variable Reward -> What’s in my feed? How many notifications do I have?

Commitment -> Comment someone else’s post

External Trigger -> Notification that someone commented back

Action -> Visit site

Variable Reward -> Did he say something nice about me?

etc.

The epiphany for me was when I realized not just that this design pattern is good or ideal, but that it’s the only design pattern. Infact, a product is not its functionality, it’s its behavior hook. If the hook is interrupted, the use of the product ends.

I’m Hiring a Founder Apprentice

Want to change the world? Want to meet the top investors and startup folk in NYC?

I’m looking for a hungry student or recent grad to help with the crazy growth we’ll be going through in the next 3 months.

This position is an exercise in operations/organization and relationship building. You’ll be scheduling meetings and doing research on specific people in the tech sector that I’ll be meeting with, trying to figure out what makes them tick and looking for ways to add value.

You’ll get to build a crazy rolodex while experiencing startup life first-hand.

If you’re interested, figure out how to get an email to me with why you’re interested and more info on your background.

Disruptive Infrastructure

I’ve thought a lot about how I can empower everyone to have the job of innovator here at Lean Startup Machine.

Lean Startup methodologies and the decreasing cost of failure are causing the time we have to seize market opportunities to approach zero. Therefore, it’s even more important to enable an adaptive workforce.

This boils down to two things: creating a disruptive culture and a disruptive infrastructure to enable that culture. I’ll start by explaining the latter.

Disruptive Infrastructure are the processes that enable someone who has an idea to act on it, to attain resources & permissions, while safe-guarding existing business models from risk. It also includes compensating that person appropriately for the value she is bringing the company.

Many people leave Google to start startups, rather than build them internally, because the right disruptive infrastructure is not in place. Infact, Instagram, Twitter, Foursquare, and Pinterest were all started by ex-Googlers. This is a huge lost opportunity, and will become more and more common in other companies as the entrepreneurial path goes mainstream outside of Silicon Valley.

The simplest form of disruptive infrastructure today is a venture-fund that invests in and supports the startups of a company’s alumni (but is not limited to them). This form of infrastructure compensates the entrepreneurs based on the fair-market value of the startup funding market.

But there’s a middle ground. One where the company can share more of the financial risk with employees and add more resources than a venture fund. This would be in exchange for more ownership and control.

A Proposal for a Disruptive Infrastructure

1. Enable employees to act on ideas

  • Give all employees a number of innovation days every year that they can take at any time
  • They could also use these days to attend emerging tech conferences like CES or SXSW, or take classes on learning to code, build hardware, or design web interfaces
  • Every employee should be trained on Lean Startup
  • Employees can earn more innovation days by validating new ideas

2. Enable employees to acquire resources

  • A directory to easily find team members and advisors with similar interests and ideas
  • Approval to look for help outside the company

3. Enable employees to acquire permissions

  • Permissions should be given automatically, without approval needed
  • Clear success criteria should be defined for each stage of the product

4. Safe-guard existing business models

  • Before taking any innovation days, employees must be able to answer the question, “Who will take over my role if I take on an innovation project full-time?”
  • The transition of human resources needs to be as effortless and guilt-free as possible
  • When startups start to gain traction, separate them from the company. Put them in a local co-working space or separate office

5. Compensate employees properly

  • When a project gains traction, employees should be given the ability to choose a reduced salary in exchange for significant equity in the new project
  • There should be a minimum amount of risk the employee is willing to take in order for an idea to pass to the next stage, as the business has more case studies, this bar can increase

One of the keys to a successful infrastructure is one that is clear and transparent, and employees can count on that it will be honored. No one will stick around or take a risk if they don’t trust their employer.

I will cover the second essential part of this, the Disruptive Culture, in a follow-up post.

(This is experimental content for my upcoming book, Build Measure Learn)

Iteration vs. Experimentation

I see a lot of people get confused about what it means to iterate.

The definition of iterate is “to perform or utter repeatedly.” In Lean Startup, it means trying the same experiment again with the hopes of better execution.

Trying a new experiment is not iterating. Iterations by definition, are within the same experiment.

Why iterate?

When an experiment fails to meet the Minimum Success Criterion, the only way you could have a false negative is if you did not execute properly. You may have not asked the right questions in your interviews, or you may have been interrupted midway through the experiment. Perhaps there was some other bias in your execution or you just want to try again and see if you will get the same result.

How do we represent iterations on the Validation Board?

We don’t have a box for it. Essentially, if an experiment fails, you can just run it again under the same constraints of your original Minimum Success Criterion. Remember, the MSC must have an upper bound, whether it be the number of people you talk to, or the amount of time you have to reach the goal.

An Experiment is an Iteration, but an Iteration is not always an Experiment

When Product/Market Fit Doesn’t Matter

1. The Market Isn’t Big Enough

Not much you can do here.

2. Competitors have a head-start & control resources

If competitors have a lock-in on resources regarding distribution, it doesn’t matter if you have product/market fit.

3. Someone else can build a 10x better product

If you’re one of the first products in the market, be careful of other people simplifying what you’ve done and releasing it to your audience.

4. Someone else can reach a core & influential audience before you

If you don’t grow fast enough, someone else could leverage a tangential audience and essentially be there first. It’s a lot harder to acquire a customer once they have any solution.

Can anyone think of other examples?

Methodology Soup Doesn’t Taste Good

Listen… at the end of the day which tool you use I don’t care. What matters is that you actually take action. Everything else is second.

There are universal truths:

  • Build the minimum you need to learn
  • Write shit down to get everyone on the same page
  • Be open to change and letting yourself be wrong
  • Actually keep track of what you did/said and measure against that

If you want to use these then use the Validation Board… otherwise stop this insanity.

Sound business is however unlike warfare or sports in that one company’s success does not require its rivals to fail. Unlike competition in sports, every company can choose to invent its own game. As Joan Magretta points out, a better analogy than war or sports is the performing arts. There can be many good singers or actors—each outstanding and successful in a distinctive way. Each finds and creates an audience. The more good performers there are, the more audiences grow and the arts flourish.

Enlightening Analogy

http://www.forbes.com/sites/stevedenning/2012/11/20/what-killed-michael-porters-monitor-group-the-one-force-that-really-matters/2/

Always Check References

As a young startup CEO, the most important lesson I’ve learned is to check references.

Learning to judge character, and spot red flags, is something that can only be learned from experience.

It’s never black & white, there’s a line in the gray area you have to draw for yourself.

As they say, “Good judgement comes from experience, experience comes from bad judgement.”

That said, checking references is the best way to get information and make a better decision.

  1. A simple, “how did this person perform at the job.” is all you need
  2. Asking about strengths/weaknesses can allow the other person to be politically correct
  3. Never hire someone who doesn’t tell the truth about why they left a job

Normal people don’t work at early-stage startups, they have normal jobs where they get paid a salary. At a startup, you’re asking people to take a risk and work for sweat equity.

Sometimes, you need to take what you can get, but you should be cognizant of what constitutes a red flag. In the long run, you’ll learn from the bad decisions you make.

How to Learn Anything

  1. Understand it
  2. Repeat what you learned, teach others, synthesize it
  3. Practice it (safe environment)
  4. Analyze your practice
  5. Execute it without thinking (flow)

You want to stay in #5 with brief check-ins at #4

Always Look for Conflicting Thought

Why don’t skunkworks work?

Because they create the wrong culture of innovation in a company. That innovation is for smart people and that is has to be done in private.

OR

They don’t have a way to measure the success of all the bets they are placing.

Strategy vs Environment

Innovation happens it happens by accident. Give a couple smart engineers a little time and money and innovation will take care of itself if engineers love working there.

Superficial disagreements usually have a common truth. Or one opinion suffers from a bias or lack of perspective.

http://bcove.me/4q7p2ypo

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