tag:blogger.com,1999:blog-68750473909456949832024-03-14T07:48:35.608-04:00Platforms and NetworksInsights and Resources for Tech EntrepreneursTom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-6875047390945694983.post-42874839653555157972016-12-18T20:41:00.001-05:002016-12-18T21:36:02.412-05:00Sam Clemens, InsightSquared Co-Founder, on Product Management Processes<span style="font-family: inherit;"><a href="https://www.linkedin.com/in/sclemens" target="_blank">Sam Clemens</a> is co-founder and Chief Product Officer of InsightSquared, a Boston-based startup. Sam has been a frequent guest instructor in the Product Management 101 elective at Harvard Business School. My students and I have learned a lot about product leadership over the years from Sam. His insights on product management processes are nicely captured in this interview with Mike Fishbein for the podcast, "<a href="http://www.thisisproductmanagement.com/" target="_blank">This is Product Management</a>." Mike and Sam have graciously allowed me to republish this lightly edited transcript of their <a href="http://www.thisisproductmanagement.com/episodes/active-process-is-product-management" target="_blank">original interview</a>.</span><br />
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<span style="font-family: inherit; font-size: small;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;">“This is Product Management” host Mike Fishbein:</i></b><i style="mso-bidi-font-style: normal;"> On this episode, I’ll be speaking with
Samuel Clemens, co-founder and chief product officer at InsightSquared. A few weeks
ago we had Drift founder/CEO David Cancel on the show to talk about customer-driven
product teams and implementing a fluid product management environment. David previously
was the head of product at Hubspot, but before him, Samuel Clemens was Hubspot’s
product lead. The two share many beliefs, but have different views regarding
the purpose and implementation of process in product management. <o:p></o:p></i></span></div>
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<span style="font-family: inherit; font-size: small;"><b style="mso-bidi-font-weight: normal;">Clemens, 1:19:</b> My
topic is “Active Process is Good Product Management.” I’m picking something
potentially controversial here, since I know a lot of your previous guests have
been advocates against heavy process in product management. And truth be told,
I’m a process-light guy. Most of the time, I believe that process should be
introduced after having a bunch of smart, driven people figure out your first-ever
iterations. Indeed, you should stay away from them with any kind of process. So
the question becomes: What do you do <i style="mso-bidi-font-style: normal;">after</i>
those early iterations? <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">If you think back over the years of building things at your
company, how many customer visits have you done? How many mock-ups? How many
times have you pushed out a release? How many times have you triaged a bug? The
numbers are probably in the hundreds, if not thousands. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">If you do something that many times, you <i style="mso-bidi-font-style: normal;">will</i> develop a process. The question is
whether you’re an active or passive participant in developing that process. There
are some advantages to passive — reasons you’d want to let process develop
organically. But if you choose to be an active participant, you get the
opportunity to reinforce attributes that you’re looking for. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;">2:35, Host:</i></b><i style="mso-bidi-font-style: normal;"> How did you
get into tech in the first place and what has shaped your perspectives? <o:p></o:p></i></span></div>
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<span style="font-family: inherit; font-size: small;">I’m the child of two photographers. One was an artistic,
creative photographer; the other was very mathematical and logical. I think
having two ways of thinking about a problem—creative and logical; ideation and
testing—is useful to any product manager. Cycling back and forth is often key
to problem solving. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">As an undergrad, I was an applied math major, training to
become what we now call a data scientist. This is really just a fancy label for
‘here’s a toolbox for problem-solving.’ I chose to apply the tools to product
management. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">After college, I got into management consulting, but found
it unsatisfying. I’m a builder. So right away, I went into the first of five
start-ups — a freelance marketplace for services, which eventually merged with
O-Desk. My second startup was a word-of-mouth media firm that was acquired by a
British retailer. The third was a 3D modeling company called Models for Mars. At
my fourth startup, I ran product at Hubspot for a couple of years, and then
left to co-found a company called InsightSquared with two very good friends. InsightSquared
is now five-and-a-half years old.<o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">We’re a B2B software company that does sales analytics and
business intelligence for the non-Fortune 500. We are middle-growth stage with
about 160 people. On the R&D side, including engineering, product and design,
we probably have 40 or 45 employees. Besides leading product at InsightSquared,
I’m an entrepreneur-in-residence at Harvard Business School, and I do frequent
speaking engagements at HBS and MIT on product management, design, and product
marketing. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;">5:10, Host:</i></b><i style="mso-bidi-font-style: normal;"> What have
been the key lessons you learned about creating process? <o:p></o:p></i></span></div>
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<span style="font-family: inherit; font-size: small;">I often speak with entrepreneurs and managers about how to
implement agile development and related iterative product management practices.
They don’t get hung up on the theory—they’re bought into that—but rather, they
struggle with how to implement the theory to get a smooth-running machine.<o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">Over time I’ve identified seven actions that help teams
implement good product management processes. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">The first action is at the core of good product management:
You have to know your customer very well and in particular, gain this knowledge
through <b style="mso-bidi-font-weight: normal;">on-premises customer visits</b>.
<o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">I stress the on-premises part. You need to be at the
customer location to see the animal in their native habitat. If you’re on a
phone call with them showing a new mock-up via a screenshare, there are many
things that you’re not seeing. Most obviously, you’re not seeing their facial
expressions — whether they’re confused about something. If you’re careful, you may
be able to pick up hesitation in their vocal tone over the phone. You’re also
not seeing the white board in their office, covered with their brainstorming
notes, which might give you a sense for what really bothers them. You’re not
seeing the way that they relate to their peers. You’re missing all of that
context, and when it comes to really building an insightful product, that
context matters. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">You can’t just do surveys. You can’t just do phone calls.
You have to get out of the building and visit customers. So, one of the
processes for my product team is mandatory, once-a-month, on-premises customer
visits for all of my PMs. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">The second item on my list is <b style="mso-bidi-font-weight: normal;">tuning whatever processes you’ve chosen</b> for your engineering teams.
Common choices include kanban and scrum, but whatever you select, the key is to
really tune the process so that iterations flow easily and the process becomes
an enabler — and not a burden for your teams. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">A common question with scrum is cycle frequency: Should it
be seven days, two weeks, or four weeks? The answer matters. We ran one-week
cycles for the first year at InsightSquared. This eventually resulted in a
reactive approach and burnt-out PMs. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">One-week cycles resulted in a rushed product development experience.
We often didn’t have enough time to plan out more complex features — the type
you might build in your second year. So that’s why, starting in year two and
continuing today, we’ve been running two-week cycles. They still yield a sense
of urgency, but with less burn out. Four-week cycles are an option, too, but I
find that them to be better suited to a more mature company where projects are
longer and require more planning. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">Other choices include how you set up estimation so that it’s
easy, not painful. How do you prioritize and triage bugs? This makes a big
difference to your engineering team and to your customer success team. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">How do you demo software that you’ve built? We do a
once-a-month internal demo to the entire company. We make sure we describe the
business value of stuff that we’ve built. The audience includes our customer
success teams and our sales teams; they’ve taken an hour from their busy days,
so we had better show them something impressive.<o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">To summarize, whatever process you choose will have many
levers. It’s important to study those levers and really tune them, so when
you’re doing two hundred reps of the process, it’s smooth and it's an enabler
rather than a burden for your teams. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">10:10 – The third thing on my list is <b style="mso-bidi-font-weight: normal;">specifications</b>. Frequently, entrepreneurs will ask me: How do you
spec out what you will build? I actually have a “kill on sight” order on specs
in my company. I won’t allow them. I think the most dangerous thing about a
spec is that someone might actually build it. The problem is that a spec
represents a point-in-time view of what someone once believed about the product
— maybe three, six, or nine months ago. Today, that view is almost certainly
out of date. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">You’ve met a bunch of customers since then. You’ve had a
bunch of customer support cases. None of that is reflected in the spec. Also,
the product has progressed. New features have been built, introducing lots of
new interdependencies that the spec can’t possibly consider. And finally, no
matter how detailed the spec is, it can never anticipate all the questions that
might come up. I’ve seen such problems with specs over and over. My first two
startups used waterfall processes, with 14-page Word docs and all that.<o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">A spec can give you a false illusion of completeness. Rather
than harbor that illusion, I say, ‘Kill the spec.’ Replace it with a set of
conversations between the product manager and the engineers. When an engineer
starts a story, I prefer that they turn to the product manager, and they say,
“Hey, what are we doing with this feature?” The PM says “Ah, glad you asked. So
here’s why we’re doing this, here’s what we’re trying to do, here’s the
problem.” Now the engineer has context. Then engineer says, “So, there are a
couple of ways we can do this –approach A or B,” and the PM says “Considering the
pros and cons of each, I don’t think the pros for approach B would be relevant
for our customer, so let’s go with A.” <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">The engineer comes back the next day, and says, “Hey, you’ll
never guess what happened – when the count for variable X is zero, the whole
thing breaks.” And the PM says, “Wow, I never thought of that. Of the ways you
say we could handle that edge case, here’s the one that will pose the fewest
problems for our customers.”<span style="mso-spacerun: yes;"> </span>That kind
of exchange that would never be in a traditional PRD spec, yet it’s critical. An
ongoing conversation between the PM and engineer is the most reliable way I
know of to build quality product. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">12:40 – The fourth thing on my list is <b style="mso-bidi-font-weight: normal;">release frequency</b>. How often do you release software into
production? Four or five years ago, the answer might be once a month, or maybe
every two weeks at the end of a sprint. Essentially, this means you are in
batch mode. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">Instead of batching, you can set up your engineering process
as a <i style="mso-bidi-font-style: normal;">flow</i> in which you’re releasing new
features and product improvements as they are ready, multiple times per day —
dozens or even hundreds of times per day. The benefits from shifting from batch
to flow are immense. Boosting your release frequency enables a more iterative
approach to development. You can develop a module, have it gated and hidden,
push it out quickly, get customer feedback on it, and go back and keep
iterating to develop the next module. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">For the engineering team, there are other benefits. Your
most senior engineers don’t have to stay up until 2:00 am every two weeks,
trying to push out a mass of software. For your customer success team, not
pushing out a big chunk of code means that fewer bugs will crop up due to
interdependencies. Fixing such bugs usually requires roll-backs and other complicated
maneuvers. Instead, when each release involves a much smaller chunk of code, if
a bug happens, it’s easier to identify where that bug came from. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">14:37 – The fifth item on my list is to <b style="mso-bidi-font-weight: normal;">have everyone on the product team coding</b>, including both product
managers and designers. There are some steps that an engineering team needs to take
to enable PMs and their designers to code, so it takes some effort to do this.
I believe that this effort is worthwhile, because one of the highest impact
things you can change in a product is customer-facing copy. A typical process
for tweaking product copy might involve a product manager saying, “Every time I’m
with a customer, they find this page confusing. I believe that once they read the
headline, they have the wrong frame of mind for everything else on the screen.
I want to change that headline.” <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">They might go to an engineer on their team, and say, “Could
you change that headline?” The engineer will say, “Sure, no problem!” Then the
PM hits reload, and the new, longer headline is wrapping in a weird way. She
says, “Could you change it again, with this shorter headline?” The engineer
changes it, but now it’s not clear again, and so they go back and forth. After
a couple of rounds, the engineer feels like a typist, and the PM feels like an
ass for making the engineer feel that way. Next time, the PM chooses to avoid
that situation — to preserve team harmony, she’ll choose to live with an
inferior product. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">The friction to go from good to great is just too high. You
can decrease that friction if you enable your PMs and your designers to code, giving
them direct control over the last layer of detail. You get a productivity gain,
a motivational gain, and a quality gain. For designers, this can be even more
impactful. When you have designers who can code instead of handing off mocks,
they are less likely to suggest UX that is not implementable, and more likely
to suggest UX that is informed by the kind of cool things that you can do in
code these days. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">17:55 – The sixth thing on my list is <b style="mso-bidi-font-weight: normal;">testing</b>. This overlaps with the question of how to run betas. I
view testing as a many-layered onion. When you move out from the onion’s
center, you get tests with increasing fidelity, but also with increasing cost. At
the onion’s center, you have the cheapest possible test: simply asking a nearby
engineering team member: “Hey, can you look at this screen and tell me what you
think?” The cost for that is a few minutes. The fidelity may be okay, but it is
potentially questionable if your colleague doesn't have a true customer
perspective on the item in question. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">Slightly more expensive is going to your customer success
people, who are a proxy for the customer. <span style="font-family: inherit;">This takes maybe 5 minutes, and gets
you higher fidelity.</span></span><br />
<span style="font-family: inherit;">So then you can go outside to a beta customer, with whom you
have close relationships, increasing cost and fidelity. The cost is say, 2
hours. The benefit is that these are real customers, but a drawback is they are
</span><i style="font-family: inherit;">beta</i><span style="font-family: inherit;"> customers, so they’re not truly
representative of the entire set. They’re too bug-tolerant and they like new
software. So, you can go out another layer, and do a gated release to a subset
of one-tenth</span><span style="font-family: inherit;"> of your entire customer base. The cost to set up now is several
hours, because you have to manage a release.</span><br />
<span style="font-family: inherit;">So on and on you</span><span style="font-family: inherit;"> go, until the improvement is released
to your entire base. Even then, you are testing. You’re watching the
improvement being used and then tweaking and iterating it. Whenever you’re
releasing something, you should ask yourself: What uncertainty do we face with
this software? And for that type of uncertainty, what is the appropriate level
of testing?</span></div>
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<span style="font-family: inherit; font-size: small;">20:56 – The last item on my list is creating a <b style="mso-bidi-font-weight: normal;">roadmap</b>. I get lots of questions about
this from entrepreneurs and product managers at other companies. At
InsightSquared, we use a four-quarter roadmap, showing what we plan to build in
each of the next four quarters. Once a month, I revise the roadmap. It’s fully
transparent internally – available to the entire company. I ask salespeople to
tape it on their desks. I do regular lunch conversations open to anyone in the
company about items on the roadmap, and explain the trade-offs behind it. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">Levels of certainty decline as the quarters progress. For
the current quarter, maybe there’s an 80% chance that nothing will change by
the time we finish the quarter. But if you go four quarters out, there might be
a 20% chance. We may change how we’re selling things, how we’re marketing, our
understanding of customer needs, and so forth. We make sure that consumers of
the road map within the company know that it’s not all set in stone. They get a
feel for which pieces are more fluid, and which are more reliable. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: small;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;">22:42, Host:</i></b><i style="mso-bidi-font-style: normal;"> In Samuel’s
list of product management processes, he repeatedly emphasizes autonomous
product teams and a customer-centric perspective. It seems like he and product
leaders like David Cancel see eye-to-eye on this. Is that the case? <o:p></o:p></i></span></div>
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<span style="font-family: inherit; font-size: small;">23:00 – I’m not against customer-driven as a concept, I’m
against customer-driven as it’s interpreted and implemented by many product
management organizations. Many product leaders say, ‘Let’s be customer driven;
let’s have a team dedicated to improving engagement, to reduce the number of
customer support tickets. We will look at all the tickets that have come over
the last X months, then group them and force rank them according to which
customers have found most urgent. Then we’ll burn down that list. Oh, and let’s
put a metric on the team, so that they have to reduce the list from 20 down to
5. That’s our customer-driven approach.’ <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: small;">I have a major problem with that. When you interpret
customer-driven that way, you often miss the bigger picture. You end up with
incremental levels of product improvement. Fixing issues that your customers
are surfacing for you will indeed give you an improvement on each individual
issue, if you’re doing it right. But each individual issue is often part of a
bigger problem with flow in the product, so you really you shouldn’t be fixing
the 5 individual things. You should be rewriting the entire flow.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: small;">Or, imagine you have five different and very big problems with that
product; it’s a mess. In a ‘customer-driven’ process, you will never hear a
customer say, “That product, you really need to kill it.” And yet that’s
something that may need to do as a product manager: decide to not support a
product, so that you can focus more resources on something new. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: small;">Instead, I advocate for product managers taking a much more
active role in guiding the development of their product. Customer needs are
indeed an input, in fact, they are probably the most important input, but they
are not the only driver of what you’re developing. There are other inputs, like
competition and corporate strategy, the cost of things and sequencing. All of
these things need to get mixed into an active process of road mapping and planning,
instead of just saying ‘Hey, we’re customer driven. We’re gonna let the
customer drive this bus’. As a product manager, <i style="mso-bidi-font-style: normal;">you</i> need to drive the bus. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: small;">I do think the foundation is having a good understanding of
the customer. I like hiring product managers from the customer success team,
because they already understand customer needs at a very deep level <o:p></o:p></span></div>
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Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-91053928779496050742016-12-11T14:04:00.000-05:002016-12-11T14:04:36.753-05:003 Lessons I Learned from Hosting a Podcast<div class="MsoNormal">
<i>This guest post from my Harvard Business School student, MBA candidate <a href="https://www.linkedin.com/in/jennyjao" target="_blank">Jenny Jao</a>, describes a learning-by-doing project she completed for academic credit this semester. Jenny helped produce a podcast and hosted an episode.</i></div>
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<br /></div>
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I hijacked Tom’s blog to share with you a cool side project
I worked on this semester. <o:p></o:p></div>
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The whole concept of podcasting fascinates me. At its core,
it’s a low-touch forum to preserve and distribute content. It’s a way for
amateurs or the less technically savvy of us to chronicle interesting stories
and share them with friends, family and peers and contribute some small facet
to our collective learnings. <span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
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A unique opportunity surfaced this semester when I got to work
on <a href="http://nextviewventures.com/blog/category/traction-podcast/">Traction</a>,
a podcast produced by the seed stage venture capital firm <a href="http://nextviewventures.com/" target="_blank">NextView Ventures</a>. The show invites early-stage
entrepreneurs to discuss challenges they faced in the early innings of their
business and lessons they’ve learned along the way. <o:p></o:p></div>
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In short, I had a blast hosting a podcast. Listening to
myself afterward made the hair on my arms stick up straight, but the whole
process was a fresh learning experience that complemented and extended what I’d
learned in business school classrooms.<o:p></o:p></div>
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I credit much of my learning to <a href="https://www.linkedin.com/in/jayacunzo">Jay Acunzo</a>, with whom I worked
closely. Jay is host of Traction and is not only a veteran podcaster, but also a
media and content expert. <o:p></o:p></div>
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So what did I learn about podcasting?<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;">Most important thing is to keep the
listener from pressing "Pause." </b>Great podcasts keep the listener engaged –
but it’s certainly easier said than done. My approach was to keep things simple
and try to create something that I would want to listen to. This meant treating
the interview like a story, forgetting the microphone was there, and asking a
series of questions that made the guests more comfortable and eager to dive
into their tales. Stories are interesting and engaging when they are replete
with details. Out of these details, we tease out lessons that stay with us. <b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></div>
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<br /></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><b style="mso-bidi-font-weight: normal;">How I
phrase a question affects the response I get, and I have 3 shots at getting what
I want</b>. A question such as “What was it like raising your seed round?” can elicit
an elevated response, meaning guests may speak in broad, sweeping
generalities. You risk getting a cookie cutter answer that they’ve probably given
in a past interview. What is interesting about that? Not much, so if I get a
generic answer, I ask for an example to hopefully solicit more vivid details.
I’m searching for the story behind a particular pitch to a VC firm or the ride
back to the airport after a day of terrible meetings. If that fails, I would follow
up with a hypothetical sequence of events and ask the interviewee how they might react in that
particular situation. Luckily, I haven’t had to try this last tactic yet.<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><b style="mso-bidi-font-weight: normal;">Find your
angle</b>. There are dozens of tech podcasts, so how do I make this podcast or
this episode stand out? The goal is to not necessarily be better than
competitors, but to do things differently. We’ve been giving that advice to
entrepreneurs for years, and it works with podcasts, too. For example, Traction focuses on early stage challenges and attempts
to provide entrepreneurs with practical tactics. It’s not a heavily produced
show: an episode consists mostly of an unedited interview with little voiceover,
aside from the beginning and end. This approach preserves the conversational
nature of an interview.<o:p></o:p></div>
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There you have it: some lessons I’ve taken away from
my stint in podcasting. I can’t say that I’m now an expert, but I hope this sheds
some light from a host’s perspective, debunks some misperceptions of podcasting,
and encourages some of you to give it a go.<o:p></o:p></div>
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Check out my <a href="http://nextviewventures.com/blog/nextview-makes-atypical-startup-vc-podcast-traction/">first
podcast</a>, in which I interview Jay Acunzo about how he differentiates
Traction from other podcasts and how he manages guest interviews.<o:p></o:p></div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-424257684738339482016-06-05T11:35:00.002-04:002016-08-17T11:54:46.955-04:002001: A (Cyber) Space Odyssey<div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-left: 36pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">What I’ve said that turned out to be right will be considered obvious, and what was wrong will be humorous.</span></div>
<div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-left: 216pt; margin-top: 0pt; text-align: right; text-indent: 36pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">—Bill Gates,
</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The Road Ahead,</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> 1995 </span></div>
<div style="text-align: right;">
<b id="docs-internal-guid-50e6a98c-07f4-3ad9-f1b2-a59441961de0" style="font-weight: normal;"><br /></b></div>
<div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">In 2001, I wrote</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">a book explaining why accelerated growth strategies created value for some Internet companies and destroyed value for others. The book, </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap,</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> was poised for publication as I came up for promotion that year at Harvard Business School. However, in a reversal of the familiar prescription for scholars, my mentors told me, “If you publish, you might perish.” They were concerned that</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> Speed Trap</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> had been written in a hurry—a cruel irony, given its title and topic. I had confidence in the quality of my work, but not enough to bet my job. I canceled publication and forfeited my advance. It was painful to scuttle </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap,</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> but I don’t second guess my decision: I got promoted.</span><br />
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div>
<div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">I recently read </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> for the first time in many years, curious to see if its ideas had stood the test of time. I was surprised by the book’s sober tone. It has a morning-after hangover vibe: ”I guess last night was amazing, but I can’t remember it all; I must have blacked out. Now it hurts just to blink. Let’s never do that again.” </span><br />
<span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;"><br /></span>
<span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> shows how we thought about online opportunities one year after the dot com bubble burst. In retrospect, many of my thoughts about the Internet’s future evolution missed the mark. If you think history repeats itself, then these forecasting errors might be germane, since startup valuations and VC investments are once again declining. Reasoning that today’s tech entrepreneurs and investors might value a history lesson, I’ve published </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> as an ebook, which is downloadable for free in <a href="https://www.dropbox.com/s/2c04uyip4di5bjd/Speed%20Trap%2005%2031%2016%20-%20Thomas%20R.%20Eisenmann.epub?dl=0" target="_blank">ePub</a>, <a href="https://www.dropbox.com/s/c4ym5snncd5txad/Speed%20Trap%2005%2031%2016%20-%20Thomas%20R.%20Eisenmann.mobi?dl=0" target="_blank">Mobi</a> and <a href="https://www.dropbox.com/s/26gyc01x6e8pu0w/Speed%20Trap%2005%2031%2016%20-%20Thomas%20R.%20Eisenmann.pdf?dl=0" target="_blank">PDF</a> formats, and available in the <a href="http://itunes.apple.com/us/book/id1119231854" target="_blank">iBooks Store</a> for free and in the <a href="https://www.amazon.com/Speed-Trap-Rewards-Internet-Businesses-ebook/dp/B01GEMA05C" target="_blank">Kindle Store</a> for $0.99. </span><br />
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"><br /></span>
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">With the benefit of fifteen years worth of hindsight, it is evident that </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">, when looking ahead, had a profound status quo bias. The book did anticipate that broadband and wireless Internet access technologies would spread. Otherwise, </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> didn’t foresee major changes in how consumers and businesses would use the Internet. As a result, </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap’s</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> errors of omission are alarming. Here’s a sample what I didn’t see coming as I wrote the book in 2001: </span></div>
<b style="font-weight: normal;"><br /></b>
<br />
<ul style="margin-bottom: 0pt; margin-top: 0pt;">
<li dir="ltr" style="background-color: transparent; color: black; font-family: Arial; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Google’s dominance. </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> devotes just two paragraphs to Google, which, by 2001, already was the 15th largest U.S. website. Despite this traffic, Google’s ecosystem impact was still modest at the time. The company was still a year away from adopting the paid search model that would revolutionize digital marketing. </span></div>
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<li dir="ltr" style="background-color: transparent; color: black; font-family: Arial; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Apple’s iPod. </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> As I finished writing </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap, </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">the music industry was celebrating the shutdown of Napster, and the major labels were busy organizing their own download services. A few months later, like a bolt out of the blue, Apple launched the iPod and changed everything</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">.</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span></div>
</li>
<li dir="ltr" style="background-color: transparent; color: black; font-family: Arial; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Amazon’s Kindle. </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> speculates about whether Microsoft or Adobe would be better positioned to establish the dominant ebook standard. The possibility that the world’s biggest bookstore might eventually win that race hadn’t dawned on me. </span></div>
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<li dir="ltr" style="background-color: transparent; color: black; font-family: Arial; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Social networks.</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> We’d had hints of strong demand for social networking services, including AOL’s chat rooms and SixDegrees, a social networking site that peaked at 3.5 million members before failing in 2001. Despite these developments, I didn’t foresee the rapid rise of Friendster (founded in 2002), MySpace (2003), and Facebook (2004). </span></div>
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<li dir="ltr" style="background-color: transparent; color: black; font-family: Arial; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">User-generated content.</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> Although GeoCities had demonstrated the appeal of user-generated content during the late 1990s, </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> failed to anticipate that blogging and user-generated video would become mainstream phenomena within a few years.</span></div>
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</ul>
<b style="font-weight: normal;"><br /></b>
<br />
<div dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">
<span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Because it turned a blind eye to these </span><a href="https://en.wikipedia.org/wiki/Black_swan_theory" style="text-decoration: none;" target="_blank"><span style="background-color: transparent; color: #1155cc; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">black swans</span></a><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> and big trends, </span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: italic; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> assumed that market shares would remain stable in key online markets. For example, the book asserted that by 2001 online recruiting was a mature category, and predicted that Monster.com was unlikely to be usurped as its leader. By 2012, according to </span><a href="http://www.reuters.com/article/2012/05/11/us-monster-buyers-idUSBRE84A0ZJ20120511" style="text-decoration: none;" target="_blank"><span style="background-color: transparent; color: #1155cc; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Reuters</span></a><span style="background-color: transparent; color: black; font-family: "arial"; font-size: 14.666666666666666px; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">, Monster’s 23% U.S. market share lagged CareerBuilder’s 34%. LinkedIn, propelled by the social networking wave, had captured 16% of the market in 2012 and was poised for explosive growth.</span><br />
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"><br /></span>
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">Readers who are too young to recall the dot com crash might reasonably ask whether my interpretations in 2001 were idiosyncratic—perhaps because I was, as an academic, either excessively cautious or simply clueless. With respect to my understanding of Internet businesses, I’ll let </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap’s</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> content speak for itself. With respect to the book’s conservative tone, I do think I was reflecting the Zeitgeist. If you are skeptical, read Michael Lewis’s 2002 </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">New York Times Magazine </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">article, “</span><a href="http://www.nytimes.com/2002/10/27/magazine/in-defense-of-the-boom.html" style="line-height: 1.38; text-decoration: none;" target="_blank"><span style="color: #1155cc; font-family: "arial"; font-size: 14.6667px; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">In Defense of the Boom</span></a><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">.” Lewis writes, “The markets, having tasted skepticism, are beginning to overdose. The bust likes to think of itself as a radical departure from the boom, but it has in common with it one big thing: a mob mentality.” Likewise, the economist Charles Kindleberger, in his seminal 1978 book on the history of stock market bubbles,</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;"> </span><a href="https://www.amazon.com/Manias-Panics-Crashes-History-Financial-ebook/dp/B007OSIOWM" style="line-height: 1.38; text-decoration: none;" target="_blank"><span style="color: #1155cc; font-family: "arial"; font-size: 14.6667px; font-style: italic; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Manias, Panics and Crashes,</span></a><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> explains that after a bubble bursts—during what he calls the “revulsion” phase—most investors lose their appetite for risk taking. </span><br />
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"><br /></span>
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">Our collective conservatism in the immediate wake of the dot com crash might be seen as what management scholars call a </span><a href="http://webuser.bus.umich.edu/janedut/Issue%20Selling/Staw%20et%20al%20threadt%20rigidity.pdf" style="line-height: 1.38; text-decoration: none;" target="_blank"><span style="color: #1155cc; font-family: "arial"; font-size: 14.6667px; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">threat-rigidity response</span></a><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">. Individuals and organizations, when confronted with a severe threat, tend to constrict their information processing, focusing “tunnel-vision” attention on dominant rather than peripheral environmental cues. Threatened parties then tend to rely, in a rigid manner, on familiar responses to those cues—often with bad results. </span><br />
<span style="font-family: "arial"; font-size: 14.6667px; line-height: 1.38; white-space: pre-wrap;"><br /></span>
<span style="font-family: "arial"; font-size: 14.6667px; line-height: 1.38; white-space: pre-wrap;">If this premise seems plausible, then we should ask: Have recent declines in startup valuations and VC investments been big enough to elicit another threat-rigidity response? Probably not—at least not yet. But when bright shiny objects—akin to today’s virtual reality or Internet of Things—finally fail to attract investor interest, then we might posit that the cycle is reaching its trough. </span><br />
<span style="font-family: "arial"; font-size: 14.6667px; line-height: 1.38; white-space: pre-wrap;"><br /></span>
<span style="font-family: "arial"; font-size: 14.6667px; line-height: 1.38; white-space: pre-wrap;">So if, in the wake of a future sector crash, entrepreneurs and investors anticipate a sector-level threat-rigidity response, what should they do? In a severe downturn, entrepreneurs must, of course, cut costs and conserve capital. Dozens of VC blogs over the past few months have already offered this advice. VCs face a more difficult decision if they expect an industry-wide threat-rigidity response: When most peers are cautious and skeptical of radical new venture concepts, maybe it’s time to be a contrarian? </span><br />
<span style="font-family: "arial"; font-size: 14.6667px; line-height: 1.38; white-space: pre-wrap;"><br /></span>
<span style="font-family: "arial"; font-size: 14.6667px; line-height: 1.38; white-space: pre-wrap;">Likewise, during a bubble’s revulsion phase, established corporations face interesting opportunities to acquire valuable assets at firesale prices. One surprise from the early 2000s was how few corporations exploited this opportunity, despite having strong balance sheets. Only a handful of Internet startups were acquired by big incumbents during 2001: HotJobs by Yahoo, MP3.Com by Universal, and Peapod by Ahold. The pace of acquisitions didn’t really pick up until 2004.</span><br />
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"><br /></span>
<span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">If you read </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap, </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;">I hope you will find value. For Internet veterans, the book should rekindle nostalgic memories of startups that bring to mind my favorite line from the movie </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Blade Runner:</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> “The light that burns twice as bright burns half as long.” Remember Boo.com, Webvan, eToys, Pseudo.com, Pets.com, and Kozmo? Disney’s $790 million Go.com debacle? For tech entrepreneurs who may have been in middle school during the late 1990s, </span><span style="color: black; font-family: "arial"; font-size: 14.6667px; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Speed Trap</span><span style="color: black; font-family: "arial"; font-size: 14.6667px; vertical-align: baseline; white-space: pre-wrap;"> may provide some historical perspective on the origins of the business models upon which you are building, and some lessons for navigating a boom-bust cycle.</span></div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-67617614279473133132015-11-12T21:13:00.000-05:002015-11-12T21:13:13.964-05:00The Example Larry and Sergey Should Follow (It's not Buffett)<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: Guardian, serif;"><i>Originally published at <a href="https://hbr.org/2015/08/the-example-larry-and-sergey-should-follow-its-not-buffet" target="_blank">HBR.org</a><span id="goog_139247349"></span><span id="goog_139247350"></span><a href="https://www.blogger.com/"></a>.</i></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">Coverage of Google’s restructuring has focused
on the idea of Alphabet as a new kind of internet-era conglomerate. Optimists
compare the new entity to Warren Buffett’s Berkshire Hathaway; skeptics
point out that the conglomerate model seldom works.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">But there’s a better comparison than
Buffett: it’s John Malone, the <a href="http://time.com/3896532/john-malone-time-warner/"><span style="color: #0787b1; text-decoration: none; text-underline: none;">“mastermind”</span></a> who
built the cable TV powerhouse Liberty Media. Malone is a brilliant financial
engineer, who creates separate capital structures — each with a
unique stock — for his different lines of business. Liberty Media, Malone’s
holding company, owns a portion of the stock in each business. This approach
allows Malone to attract equity and debt investors whose preferences regarding
risk and payoff horizon match those of the business in question.<o:p></o:p></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">Having separate stocks also allows Malone to
place bets when he believes that one line of business is not
correctly valued by investors. If he thinks one of Liberty’s companies has
a rich valuation, he can sell more stock to outside investors at a
high price. Or, if investors are enthusiastic about a new business that
Liberty is incubating inside one of its existing companies, he can spin out
that business as a “newco” with its own stock. Conversely, if Malone thinks
that the market has undervalued one of the companies, Liberty can buy back
its shares.<o:p></o:p></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><a href="http://www.nytimes.com/1997/09/01/business/tci-prepares-for-yet-another-complex-spinoff.html"><span style="color: #0787b1; text-decoration: none; text-underline: none;">As</span></a><a href="http://www.nytimes.com/1997/09/01/business/tci-prepares-for-yet-another-complex-spinoff.html"><span style="color: #0787b1; text-decoration: none; text-underline: none;"> The </span></a><a href="http://www.nytimes.com/1997/09/01/business/tci-prepares-for-yet-another-complex-spinoff.html"><span style="color: #0787b1; text-decoration: none; text-underline: none;">New York Times
put it in 1997,</span></a> when describing the spinoff of TCI Ventures,
which provided innovative new broadband internet services:<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="color: #6f6f6f; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">For Mr. Malone, the spinoff is a way to get
more value from assets that he believes have been neglected by investors and
overshadowed by Tele-Communications’ prime business, the ownership of
cable systems with 14 million customers.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #6f6f6f; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">In this case, Malone traded investors some of
his shares in the core cable business for a bigger equity stake in risky new
ventures, which he thought the investors didn’t fully appreciate. Sound
familiar?<o:p></o:p></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">To be clear, Google has thus far given no
indication that it plans to create separate stocks. But its new structure would
making doing so much easier. As <a href="https://hbr.org/2015/08/why-google-became-alphabet"><span style="color: #0787b1; text-decoration: none; text-underline: none;">Todd</span></a><a href="https://hbr.org/2015/08/why-google-became-alphabet"><span style="color: #0787b1; text-decoration: none; text-underline: none;"> Zenger
wrote here earlier this week</span></a>, many investors want to buy stock in a
safer, maturing search advertising business without buying into Google’s
riskier moonshots. Alphabet promises to make the financial performance of its
companies more transparent, but the big change would be if some of these
companies traded under different stocks.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">At that point Alphabet could sell shares of
Google to more risk-averse investors; it could raise capital for its
self-driving cars from the same sort of people who are betting on Uber or
Tesla; it could seek funding for its renewable electricity projects from energy
financiers.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">A potential downside to this strategy is that
it would make it more difficult for the ad business to directly cross-subsidize
riskier tech investments. Formal contracts would be required for
transactions between the companies, and each side would need to be able to make
the case that a transaction was in the best interests of its respective
shareholders.<o:p></o:p></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="color: #222222; font-family: "Guardian","serif"; mso-bidi-font-family: "Times New Roman";">And there’s still the question of why a
holding company with full or partial stakes in a diverse set of somewhat
unrelated businesses can be expected to create value. We know from years
of academic research that on average, diversification into unrelated businesses
doesn’t create value for shareholders. Why should Alphabet be different?</span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: Guardian, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: Guardian, serif;">But Google’s founders seem more than happy to
challenge the conventional wisdom. “Google is not a conventional company,”
they </span><a href="http://googleblog.blogspot.com/2015/08/google-alphabet.html" style="font-family: Guardian, serif;"><span style="color: #0787b1; text-decoration: none; text-underline: none;">wrote</span></a><span style="color: #222222; font-family: Guardian, serif;"> in
their original founders’ letter. “We do not intend to become one.” Google’s
founders have strong views about where technology is going, and where it should
go, and they don’t seem that bothered if others disagree. Malone — also a
technology visionary — feels similarly; he’ll bet against the market when
he thinks that it is wrong. That’s something he has in common with Larry
and Sergey.</span></div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-89875192099191847362015-07-04T10:14:00.004-04:002015-10-26T12:38:17.445-04:00Resources for Getting Started With Data ScienceMany of my MBA students who pursue jobs in product management, on growth teams, or as founders want to build data analytics and data science skills.<br />
<br />
<a href="https://www.linkedin.com/pub/peter-jamieson/56/b68/729" target="_blank">Peter Jamieson</a>, a former student of mine who is now a data scientist at Pixability, a Boston-based video ad analytics startup, shared the following suggestions for getting started with data science:<br />
<br />
<div class="p1" style="margin-left: .5in;">
Here's a list of some of the resources that have been helpful for me as I've gotten up to speed in data science. </div>
<div class="p2">
<br /></div>
<div class="p1" style="margin-left: .5in;">
My go-to tool for working with data these days is Python. It can be tough to get everything you need to get started. Fortunately, <a href="https://store.continuum.io/cshop/anaconda/" target="_blank"><span class="s1">Anaconda</span></a> and <a href="https://www.enthought.com/products/epd/" target="_blank"><span class="s1">Enthought</span></a> both offer free distributions that are nearly plug-and-play. </div>
<div class="p2">
<br /></div>
<div class="p1" style="margin-left: .5in;">
IPython is a tool, included in those downloads, that (among other features) lets people manipulate snippets of code in their browser. <a href="http://ipython.org/ipython-doc/2/interactive/tutorial.html" target="_blank"><span class="s1">Becoming comfortable with launching and using IPython</span></a> notebooks helps you take a number of online courses and share code. </div>
<div class="p2">
<br /></div>
<div class="p1" style="margin-left: .5in;">
There is an incredible amount of content out there and it can be hard to sift through it all. I've picked some highlights, some of which are focused on business understanding, some on implementation. </div>
<div class="p2">
<br /></div>
<div class="p1" style="margin-left: .5in;">
<b>Books</b>:</div>
<ul><span class="s2">
<li style="margin-left: .5in;"><span class="s2"><a href="http://smile.amazon.com/gp/product/1449361323/ref=smi_ge_rl_rd_gw?ie=UTF8&redirect=true&sa-no-redirect=1" target="_blank"><span class="s3">Data Science for Business</span></a></span>: Some math but no programming; a good resource for getting started that provides business use cases.</li>
<li style="margin-left: .5in;"><span class="s2"><a href="http://smile.amazon.com/Data-Smart-Science-Transform-Information/dp/111866146X/ref=pd_bxgy_14_img_y" target="_blank"><span class="s3">DataSmart</span></a></span>: Implements popular data science models in Excel and contains an intro to R. I'd recommend this for people without a programming background who are just starting out.</li>
<li style="margin-left: .5in;">Here's a list of more <a href="http://www.quora.com/What-are-some-good-books-on-machine-learning" target="_blank"><span class="s1">advanced machine learning titles</span></a> from Quora -- very technical, not for the faint of heart.</li>
<li style="margin-left: .5in;"><span class="s2"><a href="http://www.wzchen.com/data-science-books" target="_blank"><span class="s3">Other (free) books</span></a></span> covering everything from coding to managing data science teams.</li>
</span></ul>
<span class="s2">
</span>
<br />
<ul class="ul1">
</ul>
<div class="p1" style="margin-left: .5in;">
<b>Blogs</b>:</div>
<ul>
<li style="margin-left: .5in;"><span class="s3"><a href="http://blog.yhathq.com/" target="_blank">The Yhat Blog</a> </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://blog.echen.me/" target="_blank">Edwin Chen's Blog</a> </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://fastml.com/" target="_blank">FastML</a></span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://www.walkingrandomly.com/" target="_blank">Walking Randomly</a> </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://blog.kaggle.com/" target="_blank">no free hunch</a> -- Kaggle's competition and data science blog </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://blog.revolutionanalytics.com/" target="_blank">Revolutions</a> -- Revolution Analytic's blog </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://www.datatau.com/" target="_blank">DataTau</a> </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://www.r-bloggers.com/" target="_blank">R-bloggers</a> </span></li>
<li style="margin-left: .5in;"><span class="s3"><a href="http://oktrends.okcupid.com/" target="_blank">OkTrends</a> -- </span><span class="s4">This one's mostly for </span>fun, but also illustrates an interesting business use for data science at the dating website OkCupid</li>
</ul>
<span class="s2">
</span>
<br />
<ul class="ul1">
</ul>
<div class="p1" style="margin-left: .5in;">
<b>Online Classes</b>:</div>
<ul><span class="s2">
<li style="margin-left: .5in;"><span class="s2"><a href="http://cs109.github.io/2014/" target="_blank"><span class="s3">Harvard's CS 109</span></a></span>: Great hands-on intro done in Python, for those with some programming experience.</li>
<li style="margin-left: .5in;"><span class="s2"><a href="http://www.codecademy.com/en/tracks/python" target="_blank"><span class="s3">Codecademy's Python Intro</span></a></span>: Good beginner course in the language.</li>
<li style="margin-left: .5in;"><span class="s2"><a href="https://www.coursera.org/learn/machine-learning/home/welcome" target="_blank"><span class="s3">Coursera's Intro to Machine Learning</span></a></span>: Done in Octave/Matlab, taught by Baidu's data science lead.</li>
<li style="margin-left: .5in;"><span class="s2"><a href="http://www.seas.harvard.edu/courses/cs281/" target="_blank"><span class="s3">Harvard's Advanced Machine Learning Class, CS281</span></a></span>: I haven't gotten too far into this yet. The course is quite technical; programming challenges can be addressed in a number of different languages.</li>
</span></ul>
<span class="s2">
</span>
<br />
<ul class="ul1">
</ul>
<div class="p1" style="margin-left: .5in;">
<b>Lectures/Powerpoints</b>:</div>
<ul><span class="s2">
<li style="margin-left: .5in;"><span class="s2"><a href="https://github.com/amueller/odscon-2015" target="_blank"><span class="s3">Slides and code samples from NYU researcher's presentation</span></a></span> on popular machine-learning package SciKit-Learn -- good for people with programming experience in Python who want more depth on a widely used tool.</li>
</span></ul>
<span class="s2">
</span>
<br />
<ul class="ul1">
</ul>
<div class="p1" style="margin-left: .5in;">
<b>Other Lists</b> -- places to look if you can't find what you want above:</div>
<ul>
<li style="margin-left: .5in;"><span class="s3"><a href="http://bostondatacommunity.org/onlinecourses/" target="_blank">Boston Data Community's</a> list of online courses </span></li>
<li style="margin-left: .5in;"><a href="http://datasciencemasters.org/" target="_blank">The Open Source Data Science Masters</a>, a full online curriculum </li>
</ul>
<ul class="ul1">
</ul>
<div>
<br />
Thanks to Peter for sharing this list. Readers: if you have items to add, please use the comments section.<br />
<br />
Addendum, Oct. 26, 2015: LearnDataSci.com has compiled a <a href="http://www.learndatasci.com/free-books/" target="_blank">list of free ebooks</a> about data science (thanks, Brendan!).</div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-63851418910817098862014-09-06T17:49:00.002-04:002014-09-06T17:50:35.374-04:00Failing Better<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjs4HKslg3haKJB5GT1dRsS55kW-NE68tiJ2QvnYnA0rAfBxyjsNhskjICL7WS0NztzsEbTLHJ2jWik7oCbI1jTM8-3CGAhvFQYXZoWRlMFkEN0vHVvSRvDIedFMTGgAQmeZNe4Jmh-7khx/s1600/DSC_0014.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjs4HKslg3haKJB5GT1dRsS55kW-NE68tiJ2QvnYnA0rAfBxyjsNhskjICL7WS0NztzsEbTLHJ2jWik7oCbI1jTM8-3CGAhvFQYXZoWRlMFkEN0vHVvSRvDIedFMTGgAQmeZNe4Jmh-7khx/s1600/DSC_0014.jpg" height="213" width="320" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">I recently kicked off a research project on entrepreneurial failure that I hope will result — in a year or so — in a book to be titled <i>False Start.</i> In tandem, with my colleague <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=122194" target="_blank">Shikhar Ghosh,</a> who has been studying the <a href="http://hbswk.hbs.edu/item/6591.html" target="_blank">causes and consequence of startup failure</a> for years, I plan to develop a new, case-based MBA elective on the topic.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">I've written before about how <a href="http://radar.oreilly.com/2013/07/head-games-ego-and-entrepreneurial-failure.html" target="_blank">entrepreneurs' egos</a> can contribute to their ventures' demise. As I kick off my new project, however, I feel motivated to share a personal reflection on failure. Last summer, I gave the commencement address at my high school alma mater, Padua Franciscan High School. I spoke about failure and what we can learn from it. Here's what I said:</span><br />
<span style="font-family: inherit;"><br /></span>
<br />
<div style="text-align: center;">
<span style="font-family: inherit;">* * *</span></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span>
<br />
<div class="MsoNormal">
<span style="font-family: inherit;">Hello, Class of 2013. Thank you for inviting me to your
graduation. And congratulations: you’ve got a lot to be proud of! But I’m not
here to celebrate your achievements. I want to talk about your failures — and
about how you can <i style="mso-bidi-font-style: normal;">fail better.</i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">You can fail better if you follow the example of
entrepreneurs. As Father Ted mentioned, I’m a professor at Harvard’s Business
School, where I teach entrepreneurship. The most important thing we teach is
that three out of four startups fail. Dreams are destroyed; it’s often heartbreaking.
But great entrepreneurs persevere, against the odds. For them, setbacks are
valuable. Figuring out what <i style="mso-bidi-font-style: normal;">won’t work</i>
puts an entrepreneur one step closer to a solution that <i style="mso-bidi-font-style: normal;">will work.</i> And when an entrepreneur finds a solution that works,
magic happens. They create something out of nothing. The best entrepreneurs
create something that makes a big difference in the world. Think of Thomas
Edison. Henry Ford. Steve Jobs. Oprah Winfrey. You can make a difference in the
world too, but only if you accept the risk of failure. And only if you learn
from failure. Only if you <i style="mso-bidi-font-style: normal;">fail better.</i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">It took me years to figure this out. I hope this talk
tonight gives you a head start down the same path of discovery. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">My education about failure started at Padua, when I had a
reptile brain like yours. Insulted? Don’t be. It’s a scientific fact: compared
to adults, teenagers rely more on their amygdala when responding to stimuli. The
amygdala is the primitive part of the brain that we share with reptiles. It controls
the fight-or-flight response. Adults, by contrast, are more likely to use their
frontal cortex, which controls reasoning and allows rational planning.<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-family: inherit;">So, graduates: until you turn 20, if you do something really
dumb, you can just blame it on your amygdala — on your reptile brain. Try this on
your parents if you dent the family car; I’m sure your father’s frontal
cortex will tell him that you’ve offered a perfectly reasonable excuse.<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-family: inherit;">My reptile brain was hard at work when I was at Padua.
During my senior year, it masterminded an epic fail. I was the starting catcher
on the varsity baseball team. Don’t be impressed. I may still have the lowest
batting average in Padua history. So, not surprisingly, about two-thirds of the
way through the season, with our team out of contention for league leadership, my
coach benched me and put our 2nd string catcher — a junior — into the starting
lineup. <o:p></o:p></span></div>
<div class="MsoNormal">
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<div class="MsoNormal">
<span style="font-family: inherit;">Now, our coach was the strong, silent type. He wasn’t big on
explanations or reassurance. He didn’t tell me why I was benched. You can
probably guess that he was thinking ahead to next year, and he wanted my
teammate to get more practice. But through the blind rage and deep shame that
surged through my reptile brain, I couldn’t see that. Fight, or flight? My
amygdala picked flight. I sulked through the game, and when we got back to the
locker room, I announced that I was quitting. My coach just shrugged, and my
teammates didn’t try to talk me out of it. They were probably dumbfounded by my
shocking immaturity and my self-centered behavior. No one on the team spoke to
me for months afterward, and I can’t blame them. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">It was a true failure of character. But it took me a while
to see it that way, and even longer to understand my mistake and learn from
it.<span style="mso-spacerun: yes;"> </span>Lance Armstrong, before his own
colossal failure of character was exposed, summed up the lesson well. He said,
“Pain is temporary. Quitting lasts forever.”<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Failure came into sharper focus for me years later when I started
studying entrepreneurs. I learned that running from failure, like I did at
Padua, is a common response. Our egos are easily bruised, so we often avoid
situations where we might fail. But the best entrepreneurs are different. They seek
out new challenges and view failure as a necessary part of the learning
process. <i style="mso-bidi-font-style: normal;">If you can’t fail, you can’t
learn. And if you can’t learn, you can’t improve.</i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Entrepreneurs fail, over and over. Steve Jobs, the founder
of Apple, is a great example. He was fired from Apple in 1985, just one year
after launching the original Macintosh computer. He said, “The focus of my
entire adult life was gone; it was devastating. I thought about running away
from Silicon Valley. But I still loved what I did. So I decided to start over.”
Over the next eleven years, in exodus from Apple, Jobs led Pixar to greatness.
He also launched another computer company that Apple eventually acquired. That
set the stage for Job’s triumphant return to Apple in 1996, and for the
dazzling iPhone that’s in your pocket.<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-family: inherit;">In 2001, I got a chance to put these lessons into practice —
and to atone for quitting Padua’s baseball team. I was up for promotion at
Harvard Business School. Like most universities, we have a “publish or perish” promotion
process. If you don’t publish compelling research, and plenty of it, you perish.
Promotion odds at my school are low: three out of four new professors
eventually get fired. So, I was facing the same odds of failure as a typical
entrepreneur. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">I thought I was in good shape. I was studying internet
companies, and a publisher had paid me a big advance for a book about this hot
new phenomenon. But the senior professors who reviewed a draft of my book and
my other work saw things differently. They said my research seemed like it was
done in a hurry; it had a lot of intellectual loose ends. That was ironic,
because my book was titled <i>Speed Trap. </i>The book analyzed mistakes that many internet
companies made by growing too fast. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">My boss told me that I wasn’t being fired — at least not
immediately. Instead, the School would put me on probation and give me two more
years to try to improve my research. But he added, “There are no guarantees
that this will work. You should think about whether you are cut out for this
job, and you should seriously consider leaving academia now. You’ve got plenty
of good opportunities in the real world.”<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">I was shell-shocked. You may be familiar with the five
stages of grief: denial, anger, bargaining, depression, and gradual, grudging
acceptance. We experience these stages when we confront impending death or some
other extreme, awful fate. The risk of getting fired after spending seven years
trying to reach my goal seemed truly terrible. So, I passed through the five stages of
grief. I lingered at anger. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">But I also recalled my regrets after quitting the Padua
baseball team. And like Steve Jobs, I knew that I still loved my work. I
resolved to not run from my failure this time. I would try to learn from my setback,
even though that would expose me to the risk of future failure. My book was
finished but not yet printed. I told my publisher to cancel my contract. I gave
them their money back, and I kissed goodbye to a year’s worth of work. I put my
head down and cranked out better research. I lived on edge for two years, but I
got promoted. The pain was temporary, but worth it.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">If you want to fail better, accepting risk is just half the
battle. The other half is learning from our mistakes. As Henry Ford said, “The
only real mistake is the one from which we learn nothing.”<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Learning from failure isn’t easy. Our brains are wired up to
see what we want to see. As a result, we often ignore signs of failure. And when
we acknowledge the signs, we often misdiagnose causes. We are prone to blaming
others or events outside of our control, rather than attributing failure to our
own shortcomings.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Because our brains conspire against us, learning from
failure requires discipline. The Army knows something about discipline, so it
shouldn’t surprise us that they do a great job with learning from failure.
After every engagement, an army unit runs what’s called an “After-Action
Review.” The team asks four simple questions: What was our objective? What
happened? Why did it happen? What do we do next?<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Great entrepreneurs are likewise disciplined about learning
from failure. They rely on the scientific method, formulating hypotheses about
their new business and structuring experiments to test those hypotheses. They expect
that many of these tests will fail. Thomas Edison knew this when he invented
the light bulb. He famously said, “I have not failed. I’ve just found 10,000
ways that won’t work.” <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">You don’t have to join the Army or launch a business to
learn from failure. You are about to enter the world’s best learning laboratory:
college. College is a safe place to fail — one that offers tremendous freedom
to experiment. This freedom will feel amazing after high school. At college,
you will be a blank slate. No one will have preconceptions about who you are or
what you can and cannot do. You can reinvent yourself. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Try new things at college. Experiment with different
courses. Different causes and clubs. Different kinds of friends. Different
jobs. But be disciplined about what you are learning. Approach these
experiments with hypotheses, and end them with an After-Action Review. Most
importantly, accept the fact that if you try new things, some of them won’t
fit. But some will, and if you try, you may find lifelong soulmates. You may find
your true calling, your way to make a difference in the world. As Steve Jobs
would say, a way to “put a dent in the universe.”<o:p></o:p></span></div>
<div class="MsoNormal">
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<span style="font-family: inherit;">So, Class of 2013, I hope you find great happiness and
success. But I hope you embrace failure, too, as a path to improvement. And I
hope you’ll live by the words of the playwright Samuel Beckett: <i style="mso-bidi-font-style: normal;">“Ever tried. Ever failed. No matter. Try
again. Fail again. Fail better.”</i></span><o:p></o:p></div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-23257204383477393212014-02-26T21:34:00.000-05:002014-02-26T21:34:05.698-05:00Tonight We're Going to Party Like It's 1999(originally published on March 27, 2011 on the <a href="http://launchingtechventures.blogspot.com/" target="_blank">Launching Tech Ventures</a> course blog)<br />
<br />
Are we in a new bubble, as <a href="http://steveblank.com/2011/03/18/new-rules-for-the-new-bubble/">Steve Blank</a> recently wrote, or do current high valuations for early- and late-stage consumer Internet companies reflect sound fundamentals, as argued by <a href="http://bhorowitz.com/2011/03/24/bubble-trouble-i-don%E2%80%99t-think-so/">Ben Horowitz</a>?<br />
<br />
From an academic's perspective, this is a difficult question, and I won't tackle it here. Instead, I'll share some data on the performance of Internet startups launched during in the late-1990s boom.<br />
<br />
The table below compares the <i><b>market value at the end of 2001</b></i>—the trough of the valuation cycle that began in the mid-1990s—to <i><b>total capital raised since inception</b></i> (private and public) for all 2,121 U.S-based Internet companies that had ever got funding from VCs or public markets (see appendix below for my definitions and methods). The firms had an aggregate market value of $99 billion at the end of 2001, and they had raised $85 billion of capital. This doesn't imply an attractive return for someone who invested pro rata in all rounds, especially if you consider the time value of money and the fact that investors had to share part of the $99 billion with company founders. But it's not a wipe-out, either.<br />
<br />
Of course, focusing on sector-level, aggregate results may mask serious problems with overinvestment in individual markets, for example, online pet supply retailing—where four rivals burned through over $500 million and all failed. Also, it's important to note that returns from individual companies were <i>very</i> skewed. As the table below indicates, only 139 (7%) of the 2,121 Internet companies completed an IPO. Among these public companies, only 37 had a market value at the end of 2001 that exceed the total capital they had raised historically. A full 42% of the sector's $99 billion in yearend 2001 market value was accounted for by just five companies: Amazon, eBay, E*Trade, Yahoo!, and WebMD.<br />
<br />
In summary, if the Internet sector had been subject to grossly excessive rates of entry and investment during the last bubble, as conventional wisdom holds, we would have expected a significant sector-level capital loss, rather than a shoulder shrug, "got-my-money-back" aggregate return. Conventional wisdom exaggerates the economic damage wrought by the late-1990s bubble. In considering the impact of valuation bubbles, it's important to separate stock market gains and losses—transfers of wealth between traders—from poor long-term returns on the capital invested directly in companies. It is also important not to conflate the high business failure rates that result from excessive rates of entry with the high failure rates we would normally expect to observe in new markets with “winners-take-most” potential and low entry barriers—like those targeted by many Internet companies. Given lottery-style payoffs, high rates of entry and failure are consistent with rational economic behavior.<br />
<br />
As a new bubble emerges around social media startups, we should expect to see similar performance patterns.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyCutma_7nrygdnIHUmite4GJPmSzOk-MdjgHCTilOkWm7Ge9z84A5EPMbOK6xhZKHhLCp1O84A6E0HOs4fVpg7lGnMrIIbASdJL0MNpIAKzyFi2ie-1SKau_suToz3F23swHzeU34NE6e/s1600/Aggregate+Yearend+2001+Enterprise+Value+versus+Total+Capital+Raised.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyCutma_7nrygdnIHUmite4GJPmSzOk-MdjgHCTilOkWm7Ge9z84A5EPMbOK6xhZKHhLCp1O84A6E0HOs4fVpg7lGnMrIIbASdJL0MNpIAKzyFi2ie-1SKau_suToz3F23swHzeU34NE6e/s640/Aggregate+Yearend+2001+Enterprise+Value+versus+Total+Capital+Raised.jpg" height="640" width="494" /></a></div>
<br />
APPENDIX<br />
<span class="Apple-style-span" style="font-family: inherit;"><b><br /></b></span>
<br />
<div>
<span class="Apple-style-span" style="font-family: inherit;"><b>Definitions.</b> The table above includes all U.S.-based Internet companies that raised capital from professional investors prior to 2002. Internet companies were defined as firms that relied on the Web as their principal channel for delivering products or services to consumers or businesses. This definition excludes: 1) companies that earned most of their revenue by providing professional services, software, or hardware to Internet companies; 2) firms that provided Internet access or hosting services; and 3) the online units of established, brick-and-mortar corporations. Professional investors were defined as venture capital firms (including corporate venture funds) and institutions that purchased public securities. Firms funded exclusively by angels or by strategic investments from non-Internet companies were excluded, although strategic investments were included in estimates of total capital raised by VC-backed firms.<br /><br /><b>Valuations. </b>Enterprise values were estimated as of December 31, 2001. Valuations for private Internet companies reflect only the market value of equity; few such firms had any debt. Enterprise values for public firms reflect the market value of their equity as of yearend 2001, plus the book value of any debt.<br /><br />For active, private Internet companies that raised funds sometime during 2001, yearend 2001 equity market value was assumed to equal 98% of total capital raised historically, based on average post-round valuations for funding transactions completed during the second half of 2001. For active private firms that did not raise funds during 2001, yearend 2001 equity market value was assumed to equal 49% of total capital raised historically, based on analysis of performance for VC funds launched during 1999.<br /><br />For merged firms, valuations reflect their contribution to the yearend 2001 market values of the companies that acquired them, rather than proceeds realized by the merged firms’ shareholders. </span>For mergers involving two Internet companies, the acquired company’s value is included in the acquiring company’s yearend 2001 market capitalization. Capital raised by the acquired company is added to the capital raised by the acquiring firm. </div>
<div>
<br /></div>
<div>
For acquisitions of Internet companies by non-Internet companies completed during 2001, yearend 2001 market value was assumed to equal announced merger transaction proceeds, which averaged 76% of total equity capital raised historically by the acquired companies. For such firms acquired prior to 2001, yearend 2001 market value was conservatively assumed to equal the total capital they raised historically. </div>
<div>
<br />
Source: Eisenmann, "Valuation bubbles and broadband deployment," C<span class="Apple-style-span" style="font-family: inherit;">h. </span><span class="Apple-style-span" style="line-height: 15px;">4 in</span><span class="Apple-style-span" style="line-height: 15px;"> </span><span class="Apple-style-span" style="line-height: 15px;"><i>The Broadband Explosion</i></span><span class="Apple-style-span" style="line-height: 15px;">, edited by Austin & Bradley, HBS Press, 2005</span><br />
<br />
<br /></div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-80747506245434321032014-02-25T23:21:00.004-05:002014-02-26T21:41:28.459-05:00No Regrets (Mostly): Reflections from HBS MBA '99 Entrepreneurs(originally published on March 28, 2011 on the <a href="http://launchingtechventures.blogspot.com/" target="_blank">Launching Tech Ventures</a> course blog)<br />
<br />
MBA students who are debating whether to launch a startup upon graduation often ask me, "What are the career consequences if my business fails? What do MBAs who founded failed firms do now? Do they regret their decision to launch a business right out of school?"<br />
<br />
We have plenty of experience with student entrepreneurship at HBS. Over the past 15 years, an average of 3-4% of students in each class of 900 HBS MBAs have founded firms upon graduation, and another 4-5% have joined startups in non-founder roles. [author's note, 2/26/14: the comparable statistics for the HBS MBA Class of 2013 were 7% founding and 4% joining startups.]<br />
<br />
At the dot com bubble's peak in 2000, 11% of our MBA class founded firms upon graduation. To determine whether we're in another bubble, I'll track this figure for the Class of 2011. Interest in entrepreneurship has been rising at HBS, but so far, it lags 1999/2000 levels.<br />
<br />
To respond to my students' questions, I assembled some data on career outcomes for a sample of a dozen MBAs who founded firms upon graduation in 1999 or 2000. I also asked these alums whether they had any regrets about their decision to follow an entrepreneurial path. Most of the startups in my sample failed. A pattern of highly skewed outcomes—with just a few big winners, a modest fraction of firms that earned back their investment, and many failures—is <a href="http://platformsandnetworks.blogspot.com/2014/02/tonight-were-going-to-party-like-its.html" target="_blank">just what we'd expect</a> from any portfolio of VC-backed tech startups.<br />
<br />
Specifically, in my sample, one firm is still a going concern; one was sold at a price that roughly yielded a breakeven return to early investors; two were sold at prices that returned only a small fraction of capital invested; and the rest were complete wipeouts. So, most of the alumni I contacted can comment from direct personal experience about the career consequences of startup failure.<br />
<br />
What are these alums doing now? One is still CEO of the firm he cofounded upon graduation. Three are serial entrepreneurs who have been successful—so far—with a second startup. Three are partners in VC firms. Two are presidents of medium-sized businesses, having stepped in as professional managers to replace founders. One is at Boston Consulting Group. One is planning to launch another startup after holding a senior marketing job in a public Internet company. One is searching for a role in a new venture after a hiatus to start a family. As a group, the alums are in impressive positions. Those whose first startups failed do not seem to have suffered negative career consequences.<br />
<br />
Do the alums regret their decisions to found firms upon graduation? Eight of nine who answered my email query said "no." Here's a sample of their comments:<br />
<br />
<ul>
<li>No: There is no substitute for the sense of pride and accomplishment that comes with starting a business. </li>
<li>No: But you need realism, an understanding of drawbacks and most importantly, to be passionately entrepreneurial. Starting a business is not for the timid. You need to be resilient, optimistic, able to deal with uncertainty, and strong-willed.</li>
<li>No: The lessons learned have applied to my subsequent businesses. Each has been less stressful, because the experience provides groundwork for doing a better job the next time.</li>
<li>No: Right after graduation is a great time to get start a business. You have amazing drive, focus and a smaller personal overhead. </li>
<li>No: I got to participate in every aspect of my company as a true general manager. I never would have that opportunity in a large, established company.</li>
<li>No: The Internet boom was a unique moment and I could not pass up that opportunity.</li>
</ul>
<br />
One alum did voice regrets:<br />
<blockquote>
Yes. But I have no regrets about launching another business later. For me, it was just a matter of timing. Coming out of HBS, I had blind spots. I was an engineer undergrad, and even after HBS, a couple years with McKinsey or on Wall Street would have made a world of difference in developing structured thinking and hardcore analytics. I also needed more experience in areas like partner selection and more maturity in dealing with negotiations and employees. These blind spots introduced founder risk and reduced the likelihood of our success. The smart investment would have been to spend 2-5 years doing other stuff, getting paid while addressing blind spots.</blockquote>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-89643290881098443132014-02-25T23:17:00.000-05:002014-02-25T23:22:49.273-05:00More Advice from HBS MBA '99 Entrepreneurs(originally published on March 28, 2011 on <a href="http://launchingtechventures.blogspot.com/" target="_blank">Launching Tech Ventures</a> course blog)<br />
<br />
I recently wrote some former students from the HBS MBA classes of 1999 and 2000, asking what advice they'd give to current students considering an entrepreneurial path. In a prior <a href="http://platformsandnetworks.blogspot.com/2014/02/no-regrets-mostly-reflections-from-hbs.html" target="_blank">post</a>, I shared their responses to the question, "Do you have any regrets about founding a firm upon graduation?" Below, I present their advice to current students.<br />
<br />
In 2000, <b>Rod Harl</b> co-founded GiftwareExchange, an online B2B marketplace that connected gift stores with product suppliers. The business never gained traction, and after several career twists and turns, Rod is now President of <a href="http://www.alene.com/">Alene Candles</a>, a business he and a partner purchased in 2008 that manufactures custom candles. Rod shared this advice:<br />
<blockquote>
Ample low-cost funding can compensate for founders’ weaknesses. In such periods I might endorse aggressively pursuing new businesses regardless of your experience or the quality of your idea. Playing musical chairs, you can make a lot of money. But outside those periods, entrepreneurship is about creating value for your customers before yourself.</blockquote>
<blockquote>
HBS doesn't teach about handling failures, which represent a very large proportion of outcomes. Be aware of the personal risks associated with starting a business. Many of my classmates attached themselves so strongly to their startups that it cost them their life savings, marriages, or years of their professional lives. This should not dissuade a true entrepreneur, but it is rarely discussed. </blockquote>
When <b>Guy Miasnik</b> co-founded <a href="http://www.athoc.com/">AtHoc</a> in 1999, the company provided a browser toolbar that presented alerts and updates from online content companies — akin to today's RSS. After some early pivots, AtHoc identified an attractive opportunity in emergency mass notification systems. Guy, still AtHoc's CEO, shared this advice about founding a firm:<br />
<blockquote>
The decision is not so much a matter of timing or financial upside. It is about the passion to create something new, to shape the world in ways you believe it should be, and to lead those around you — co-founders, investors, employees, customers, business partners, and media — to accept and adopt your vision. It is about incredibly positive thinking despite many rational negatives. It is about willingness to work extremely hard; to be relentless and persistent while still being flexible as you listen and learn.</blockquote>
<blockquote>
As you go down the entrepreneurial path, you should build skills in two areas. The first is sales. Getting a customer to buy your product means you’ve learned how to gain trust, convey value, and extract commitment. The second is product management. </blockquote>
<blockquote>
As you embark on this path, don’t forget your family. Your partner’s buy-in to an entrepreneurial life style is crucial, and your family will help you keep things in perspective in good times and bad.</blockquote>
In 1999, <b>Joel Silve</b>r launched SalesDriver.com, which provided incentive programs for sales reps. After Joel sold SalesDriver in 2001 to a larger marketing services firm, he served as President of Indigo Books & Music, a leading Canadian retail chain founded by other entrepreneurs in 1996. Joel offered this advice to current students:<br />
<blockquote>
Entrepreneurship is life changing. It is exhausting. Every decision is yours. There is no "down" time. It takes smarts and tenacity. It will test every relationship you have.</blockquote>
<blockquote>
Be conservative and raise more money than you think you need. </blockquote>
<blockquote>
Know your customer cold. Customer insight — not being first with technology — will carry you to success. </blockquote>
<blockquote>
You will meet a lot of smart people who will give you advice. Take it. But don't assume anybody, despite their pedigree, knows your business better than you do. </blockquote>
<blockquote>
You will attract people who want to be part of a great team and work really hard. That is the best currency you have.</blockquote>
<blockquote>
Dispense money from an eye dropper. Find the ugliest, cheapest space. Go to Goodwill for furniture. Use chipped coffee cups. You will gain investors’ respect. </blockquote>
<blockquote>
Just ship! Your first product needs to do one thing well, but it can suck in other ways. Version 2 will be good. Version 3 needs to be great</blockquote>
<br />
In 1999,<b> Nikitas Koutoupes</b>, co-founded eBricks.com, an online B2B marketplace for construction supplies which was absorbed through a series of mergers into Sword CTSpace. Nikitas, now a Managing Director at Insight Venture Partners, shared this advice: "Ambition and humility are not mutually exclusive. You don’t know what you don’t know, so hire well."<br />
<br />
In 1999, <b>Sasha Novakovich</b> co-founded GetConnected.com, which provided advice for consumers shopping for voice, internet access, and video services. GetConnected successfully morphed its business model from a destination site into a private label service for brick-and-mortar giants like BestBuy, then sold its technology to a rival after eight years in operation. Sasha, now planning her next move, said, "Make sure that you have the best possible founding team: people with relevant, non-overlapping skills and experiences, who you trust and respect. Make sure there is a clear reporting structure and division of responsibility. A great team can take an okay idea and turn it into something phenomenal. A weak team can kill a phenomenal opportunity."<br />
<br />
Returning to Argentina after graduation in 1999,<b> Alex Abad</b> co-founded Certant, which provided website development services. The firm failed in the recession that followed, and Alex is now the founder of Advanced Organic Materials. He said, "Entrepreneurship is a long and sometimes painful process. To succeed you need to have a passion. This has been the difference between my two startups. The second company I started is a chemical manufacturing company. I am a Chemical Engineer. Now, I enjoy everything I do."<br />
<div>
<br /></div>
<div>
In 2000, <b>Richard de Silva </b>co-founded Siteburst, which hosted and distributed online video for content companies. The service failed after online video emerged more slowly than expected, and Richard is now a partner at Highland Capital. He offered the following advice to aspiring MBA entrepreneurs: "It’s important to be honest with yourself. If you feel compelled to start a business because it seems fashionable or you have seen others having fun, you should join a young company or a fast-growing bigger company and develop functional expertise — until you feel compelled by a market need."<br />
<br />
One former student, who asked to remain <b>anonymous</b>, launched a failed consumer Internet venture that was truly ten years ahead of its time: a successful variant of his idea exists today. He offered this advice to current MBAs debating whether to launch a firm upon graduation:<br />
<blockquote>
Recruiters like to see big names on your resume: Google, Facebook, Amazon, eBay. Getting a job at these companies is a lot easier while you are at HBS than it will be after you graduate. Today these companies are courting you. A year from now you may be explaining what you ‘learned’ from your failed startup experience. </blockquote>
<blockquote>
Back in the web 1.0 era, the goal was to raise a huge first round and spend it quickly, acquiring users via large portal deals and banner ads. In the web 2.0 era, <i>product</i> is marketing. Now, with low technology costs, the goal is to do a lean start-up and get breakout user traction before raising serious VC money. After all, great products sell themselves, right? Just look at foursquare and Twitter. It’s easy!</blockquote>
<blockquote>
In fact, one could argue that it is harder today than it was back in 1999. Back then, you had a fighting chance to get to scale using your VC war chest. Today, you’re expected to have product pixie dust that magically spawns a million users through spontaneous virality based on your insanely great product. </blockquote>
<blockquote>
So what would I do if I were graduating this year? Taking these two points together, I would take a job at Facebook, and do my start-up on the side. At Facebook — or Twitter or Zynga or a similar company — you will learn about product management, and you will meet the developers and UX people you’ll need to know if your start-up takes off. You can build your business at night and on the weekends, and see if it gets traction. And if it doesn’t take off, so what? You work at Facebook. You’re a stud. When you are ready to move on, recruiters will be calling you, and magically you’re on the HR buy side again!</blockquote>
<blockquote>
To be clear, I’m not saying don’t start your business. Life is short. I’m just saying you should think about doing it in this less risky way.</blockquote>
Finally, <b>Craig Carroll</b> co-founded eGrad, which provided on online channel for established brands to market goods and services to college graduates. After morphing eGrad's model and selling the company to a larger student marketing firm, Craig is now founder and CEO of Rezolve Group, which provides services that help families secure financial aid for college. Craig shared this advice:<br />
<blockquote>
As a founder, you don’t have much control over exit timing. You take on responsibilities to investors, employees, and clients. If things aren’t going well or you aren’t enjoying it, you just can’t just extricate yourself. Understand the ramifications for your personal and family life. </blockquote>
<blockquote>
There are real benefits to being entrepreneurial when you are young. It is easier to deal with the stresses while you still have energy and no children. Sure, you may be less experienced, but energy, optimism and a touch of naivety can more than make up for that.</blockquote>
<blockquote>
There is no formal career path. You truly make your own destiny, but I have seen many friends struggle with the transition from a failed venture and the uncertainty of “What do I do next?” </blockquote>
<blockquote>
The best entrepreneurs have an indomitable spirit and are resilient in the face of adversity. Every new venture really is a rollercoaster of successes and setbacks that test your emotional fortitude. Aspiring entrepreneurs need to ask themselves if their personality and mental strength is really suited to this.</blockquote>
<blockquote>
The HBS definition of entrepreneurship as “the pursuit of opportunities beyond resources currently controlled” is more than just a platitude. For me, it sums up perfectly what I do day-to-day. You need to be inventive, creative, opportunistic, persuasive because you rarely have enough resources. Embracing this definition helps me in my role.<br />
<div>
<br /></div>
</blockquote>
</div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-28211302285639676712014-02-15T10:50:00.001-05:002014-02-15T17:41:55.173-05:00Startup Management 101: World's Longest Syllabus I've compiled lists of blog posts, articles, and books that offer insights and practical advice about various startup functions, including <a href="http://platformsandnetworks.blogspot.com/p/resources-guidance.html" target="_blank">product design</a>, <a href="http://platformsandnetworks.blogspot.com/p/resources-product-management.html" target="_blank">product management</a>, <a href="http://platformsandnetworks.blogspot.com/p/business-development.html" target="_blank">business development</a>, <a href="http://platformsandnetworks.blogspot.com/p/marketing.html" target="_blank">marketing</a>, and <a href="http://platformsandnetworks.blogspot.com/p/sales.html" target="_blank">sales</a>. In addition, I've aggregated readings on <a href="http://platformsandnetworks.blogspot.com/p/resources-lean-startup.html" target="_blank">lean startup logic and methods</a> and key factors for success with the <a href="http://platformsandnetworks.blogspot.com/p/saas-model.html" target="_blank">SaaS business model</a>.<br />
<br />
The catalyst for creating these lists was an MBA elective course, <a href="http://www.hbs.edu/coursecatalog/1755.html" target="_blank">Launching Tech Ventures</a>, which Flybridge Capital GP/HBS Senior Lecturer <a href="http://bostonvcblog.typepad.com/" target="_blank">Jeff Bussgang</a> and I co-teach. The course focuses on functional management challenges in early- and later-stage tech startups. We assign lots of readings by entrepreneurs and investors. Instead of a final exam, students complete a <a href="http://launchingtechventures.blogspot.com/search/label/LTV2012" target="_blank">"learning-by-doing" project</a> which applies one of the tools/techniques used by startup managers, for example, customer discovery interviews, A/B tests, or usability tests. The lists I've compiled contain terrific guidance for our students. Thanks to all who've contributed their insights!<br />
<br />
<br />Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-79670738151899515912014-01-03T18:27:00.001-05:002014-01-24T07:00:27.044-05:00Managing Startups: Best Blog Posts of 2013 <span style="font-family: inherit;">Here's my compilation of 2013's best posts and books about managing startups. I assembled similar lists at the end of <a href="http://platformsandnetworks.blogspot.com/2012/12/managing-startups-best-posts-of-2012.html" target="_blank">2012</a>, <a href="http://platformsandnetworks.blogspot.com/2011/12/managing-startups-best-posts-of-2011.html" target="_blank">2011</a>, </span><a href="http://platformsandnetworks.blogspot.com/2011/01/launching-tech-ventures-part-iv.html" style="font-family: inherit;" target="_blank">2010</a><span style="font-family: inherit;"> and </span><a href="http://platformsandnetworks.blogspot.com/2009/11/compilation-of-webs-best-advice-for.html" style="font-family: inherit;" target="_blank">2009</a><span style="font-family: inherit;">. Many thanks to all of the authors! Thanks as well to O'Rielly Media for publishing my 2012 compilation as a <a href="http://www.amazon.com/Managing-Startups-Best-Blog-Posts/dp/1449367879/" target="_blank">book</a> -- and for joining me in donating all profits to Endeavor Global.</span><br />
<span style="font-family: inherit;"><br /></span>
A special hat tip to <a href="https://twitter.com/wmougayar" target="_blank">William Mougayar</a>, who launched <a href="http://startupmanagement.org/">StartupManagement.org</a> this year to aggregate insights and advice from entrepreneurs and investors. In addition to the SUM website -- through which I found many posts listed below -- William publishes a terrific email newsletter that curates the week's best posts.<br />
<span style="font-family: inherit;"><br /></span>Apologies to authors whose work I've omitted. <span style="font-family: inherit;">Please use comments below to suggest additional posts. </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Happy New Year!</span><br />
<br />
<div>
<b><br /></b></div>
<b>Marketplace Models</b><br />
<br />
2013 featured an unusually large number of insightful posts about management challenges with different tech startup business models, so I've divided those posts by model type, starting with marketplaces:<br />
<div>
<ul>
<li>a16z GP/former OpenTable CEO Jeff Jordan discusses challenges confronting tech companies with a local focus and how successful "<a href="http://jeff.a16z.com/2013/12/19/local-heroes-the-public-companies-of-tomorrow/" target="_blank">local heroes</a>" manage to scale rapidly</li>
<li>Kleiner Perkins EiR and former senior Google and eBay exec Stephanie Tilenius looks at key factors for success with <a href="http://www.forbes.com/sites/ciocentral/2013/10/03/the-new-curated-consumer-marketplace-model-10-criteria-for-success/" target="_blank">curated consumer marketplaces</a> such as Uber and RelayRides</li>
<li>Author Sangeet Choudary also analyzes network mobilization challenges for <a href="http://platformed.info/marketplace-rake-own-the-transaction-like-saas/" target="_blank">services marketplaces</a>, with focus on professional services.</li>
<li>MuckerLab's William Hsu looks at <a href="http://pando.com/2013/07/26/marketplace-value-creation-and-capture/" target="_blank">how marketplaces create and capture value</a></li>
<li>Julia Hanna explains my colleague Andrei Hagiu's research on the difference between <a href="http://hbswk.hbs.edu/item/7121.html" target="_blank">multi-sided platforms</a> and traditional retailers.</li>
</ul>
<div>
<b>Models That Leverage Dominant Platforms</b></div>
<ul>
<li>Sangeet Choudary discusses how to manage startup growth strategies that <a href="https://medium.com/startups-and-things/fbced00417e6" target="_blank">piggyback</a> upon an existing dominant platform, used by AirBnB, PayPal, etc. </li>
<li>Jason Calacanis gives the opposite side of the argument, advising entrepreneurs to <a href="http://blog.launch.co/blog/advice-for-building-a-startup-inside-someone-elses-ecosystem.html" target="_blank">NOT try to build businesses within dominant ecosystems</a></li>
<li>Entrepreneur/investor Sim Simeonov expands upon the <a href="http://blog.simeonov.com/2013/03/05/platform-risk-anti-pattern/" target="_blank">risk of platform dependency</a></li>
</ul>
<div>
<b>SaaS Models</b></div>
<ul>
<li>Matrix GP David Skok provides an <a href="http://www.forentrepreneurs.com/saas-metrics-2/" target="_blank">overview of key SaaS metrics</a>, discusses the link between <a href="http://www.forentrepreneurs.com/customer-success/" target="_blank">customer service/satisfaction and churn</a> in SaaS businesses, and presents results of Pacific Crest's <a href="http://www.forentrepreneurs.com/2013-saas-survey/" target="_blank">annual SaaS survey</a></li>
<li>Dave Kellogg of Host Analytics provides an in-depth discussion of how to estimate and interpret <a href="http://kellblog.com/2013/12/01/the-customer-acquisition-cost-cac-ratio-another-subtle-saas-metric/" target="_blank">Customer Acquisition Cost in a SaaS business</a></li>
<li>Jason Cohen, founder of Smart Bear Software, probes methods for <a href="http://blog.asmartbear.com/ltv-cancellations-metric.html" target="_blank">estimating attrition rates</a> when calculating SaaS lifetime customer value and analyzes <a href="http://blog.asmartbear.com/unprofitable-saas-business-model.html" target="_blank">factors that can reduce profitability</a> in SaaS businesses</li>
<li>Lars Lofgren of KISSmetrics offers a <a href="http://andrewchen.co/2013/05/06/the-critical-metrics-for-each-stage-of-your-saas-business-guest-post-by-lars-lofgren-of-kissmetrics/" target="_blank">primer on SaaS metrics</a></li>
<li>Redpoint VC Tomasz Tunguz <a href="http://tomtunguz.com/saas-spend-allocation-benchmarks/" target="_blank">analyzes</a> expense categories in publicly-traded SaaS companies and also examines <a href="http://tomtunguz.com/magic-numbers/" target="_blank">sales efficiency</a></li>
<li>Serial entrepreneur Ben Sesser analyzes the <a href="http://pando.com/2013/05/21/memo-to-this-years-yc-class-its-damn-hard-to-build-an-enterprise-company/" target="_blank">odds of building a successful SaaS startup</a></li>
<li>Jason Lemkin of Storm Ventures asks what SaaS price point is too low to <a href="http://saastr.com/2013/08/15/smb-sales-reps-how-low-can-you-and-your-acv-go/" target="_blank">support an inside sales team</a>?</li>
<li>KISSmetrics published analysis of <a href="http://blog.kissmetrics.com/saas-operating-metrics/" target="_blank">SaaS operating metrics</a> from OpenView Venture Partners</li>
</ul>
<div>
<b>Enterprise Software Models</b></div>
<div>
<ul>
<li>David Barrett, founder/CEO of Expensify, examines <a href="http://techcrunch.com/2013/02/02/the-secret-history-they-dont-teach-in-the-enterprise-old-school/" target="_blank">new approaches</a> that are disrupting sales and marketing in enterprise software</li>
<li>Upfront Ventures GP Mark Suster looks at the upside of pursuing <a href="http://www.bothsidesofthetable.com/2013/03/19/one-of-the-biggest-mistakes-enterprise-startups-make/" target="_blank">early professional services revenue</a> for an enterprise software company, then examines some of the <a href="http://www.bothsidesofthetable.com/2013/03/21/how-to-make-sure-professional-services-dont-take-over-your-software-company/" target="_blank">risks</a> of rely on such revenue</li>
</ul>
</div>
<b>Online Retail Models</b><br />
<ul>
<li>Jeff Jordan asks, "<a href="http://jeff.a16z.com/2013/10/25/so-you-want-to-compete-against-amazon/" target="_blank">So, You Want to Compete Against Amazon?</a>"</li>
<li>Atlas GP Fred Destin looks at <a href="http://freddestin.com/2013/02/ecommerce-is-a-slog-whats-your-angle.html" target="_blank">key success factors in ecommerce</a></li>
</ul>
<b>Other Business Model Issues</b><br />
<ul>
<li>a16z GP and serial entrepreneur Chris Dixon discusses challenges/opportunities with tech <a href="http://cdixon.org/2013/04/30/hardware-startups/" target="_blank">hardware startups</a></li>
<li>Fred Destin asks when <a href="http://freddestin.com/2013/11/snapchat-revenues-debate.html" target="_blank">early monetization</a> is important to a tech startup, using Snapchat as an example; Greylock's Josh Elman on the <a href="https://medium.com/i-m-h-o/a5890c2c2cc0" target="_blank">same issue</a></li>
<li>Ben Thompson (Stratechery blog), using Apple as an case study, concludes that Clay Christensen's theory of <a href="http://stratechery.com/2013/clayton-christensen-got-wrong/" target="_blank">low-end disruption</a> does not apply in consumer markets</li>
<li>Entreprenuer/investor/advisor Brian Balfour on how the emergence of <a href="http://brian%20balfour%20on%20how%20the%20emergence%20of%20new%20distribution%20channels%20drive/" target="_blank">new distribution channels opens ecosystem niches</a> for new ventures</li>
<li>In "<a href="http://blog.simeonov.com/2013/04/17/anatomy-of-an-online-ad/" target="_blank">The Anatomy of an Online Ad</a>," Sim Simeonov describes, step by step, the role of different service providers in the delivery and tracking of online ads </li>
</ul>
<b>Early-Stage Business Model Validation/Customer Development/Lean Startup Approaches/User-Centered Design Research</b><br />
<div>
<ul>
<li>Steve Blank's "<a href="http://steveblank.com/2013/05/06/free-reprints-of-why-the-lean-startup-changes-everything/" target="_blank">Why the Lean Startup Changes Everything</a>" was the cover story of the May 2013 issue of <i>Harvard Business Review</i></li>
<li>Brant Cooper and Patrick Vlaskovits published an overview of customer development and lean startup methods in their book, <a href="http://www.amazon.com/The-Lean-Entrepreneur-Visionaries-Products/dp/111829534X" target="_blank"><i>The Lean Entrepreneur</i></a></li>
<li>Laura Klein published a book, <i><a href="http://www.amazon.com/UX-Lean-Startups-Experience-Research/dp/1449334911" target="_blank">UX for Lean Startups</a>, </i>that provides an overview of user-centered design research techniques for validating demand in early-stage tech startups</li>
<li>Eric Ries and his colleagues have released <a href="http://www.youtube.com/user/leanstartupconf/videos?view=0&shelf_id=1&sort=dd" target="_blank">video from Lean Startup Conference 2013</a> on a YouTube channel</li>
<li>Steve Blank emphasizes that "<a href="http://steveblank.com/2013/07/22/an-mvp-is-not-a-cheaper-product-its-about-smart-learning/" target="_blank">An MVP Is Not a Cheaper Product, It's About Smart Learning</a>"</li>
<li>Justin Wilcox on <a href="http://customerdevlabs.com/2013/11/05/how-i-interview-customers/" target="_blank">interviewing potential customers</a> to understand their needs</li>
<li>Entrepreneur Jason Evanish outlines <a href="http://jasonevanish.com/2013/08/11/95-ways-to-find-your-first-customers-for-customer-development-or-your-first-sale/" target="_blank">ways to recruit customer development interviewees</a></li>
<li>Brian Balfour on <a href="http://brianbalfour.com/post/69706679577/product-market-fit" target="_blank">indicators of product-market fit</a>; William Mougayar on why <a href="http://startupmanagement.org/2013/08/23/productmarket-fit-is-a-continuum/" target="_blank">achieving product-market fit should be viewed as a gradual process</a>, not a single event</li>
<li>Michael Herman, co-founder of Real Python, describes <a href="https://segment.io/academy/the-newest-lean-startup-tool-is-kickstarter/" target="_blank">ways to use Kickstarter</a> to validate demand for a new venture</li>
<li>Vin Vacanti on how Yipit used a <a href="http://viniciusvacanti.com/2013/05/07/the-manual-first-startup/" target="_blank">manual MVP</a> to validate demand (i.e., by substituting humans for as-yet-unbuilt algorithms)</li>
<li>Ellie Cachette's <a href="http://www.slideshare.net/ecachette/journey-to-product-market-fit-16953581" target="_blank">case study</a> of hypothesis testing that led ConsumerBell to product-market fit</li>
<li>Max Wessell and James Allworth of the HBS Forum for Growth and Innovation consider the <a href="http://blogs.hbr.org/2013/05/in-big-companies-lean-is-only/" target="_blank">applicability of lean startup methods in big companies</a></li>
<li>Informly founder Dan Norris offers a <a href="http://thedannorris.com/is-startup-validation-bullshit/" target="_blank">skeptical view of demand validation techniques</a> and argues that reliable MVPs are difficult to execute; Dharmesh Shah on <a href="http://onstartups.com/tabid/3339/bid/93678/Early-Evidence-Is-Often-Too-Early-And-Not-Really-Evidence.aspx" target="_blank">why early evidence is often too early and not really evidence</a></li>
<li>John Zeratsky of Google Ventures presents a <a href="http://www.designstaff.org/articles/research-guide-2012-07-17.html" target="_blank">compilation of resources</a> useful for user-centered design research</li>
</ul>
<b>Marketing Post Product-Market Fit: Demand Generation and Optimization</b></div>
</div>
<div>
<ul>
<li>Alistair Croll and Benjamin Yoskovitz published <a href="http://www.amazon.com/Lean-Analytics-Better-Startup-Faster/dp/1449335675" target="_blank"><i>Lean Analytics</i></a>, a book which reviews key performance metrics for various tech startup business models </li>
<li>Qualaroo CEO Sean Ellis helped launch <a href="http://growthhackers.com/">GrowthHackers.com</a> this year, a community for exchanging articles and insights about accelerating tech startup customer acquisition. The site published several detailed case studies of demand generation efforts, including Ellis's analysis of <a href="http://growthhackers.com/companies/belly/" target="_blank">Belly Card</a>; Full Stack Marketing co-founder Morgan Brown's studies of <a href="http://growthhackers.com/companies/upworthy/" target="_blank">Upworthy</a>, <a href="http://growthhackers.com/companies/hubspot/" target="_blank">Hubspot</a>, <a href="http://growthhackers.com/companies/evernote/" target="_blank">Evernote</a>, and <a href="http://growthhackers.com/companies/uber/" target="_blank">Uber</a>; and analyses of <a href="http://growthhackers.com/companies/square/" target="_blank">Square</a> and <a href="http://growthhackers.com/companies/snapchat/" target="_blank">Snapchat</a> by Qualaroo's Everette Taylor. These posts are terrific -- you could build an entire MBA class on startup marketing around them. To the team at GrowthHackers.com, on behalf of e'ship educators everywhere: thank you!</li>
<li>The concept of "growth hacking" is examined by <a href="http://onstartups.com/tabid/3339/bid/101283/The-Growth-Hacker-s-Dilemma-Process-vs-Tactics.aspx" target="_blank">Bronson Taylor</a> and in an ebook by GrowthHacker.tv's <a href="http://share.growthhacker.tv/?u=8d8302" target="_blank">Taylor and Neil Patel</a></li>
<li>Posts on A/B testing and conversion rate optimization -- mostly from the Unbounce blog (HT: William Mouyagar!) -- by <a href="http://unbounce.com/a-b-testing/how-a-single-a-b-test-increased-conversions/" target="_blank">Dustin Sparks</a>; <a href="http://unbounce.com/landing-page-examples/successful-landing-page-headlines/" target="_blank">Eric Sloan</a>; <a href="http://drjasondavis.com/2013/09/12/eight-ways-youve-misconfigured-your-ab-test/" target="_blank">Jason Davis</a>; <a href="http://unbounce.com/landing-pages/sweet-science-of-landing-page-practices-and-why-they-work/" target="_blank">Greg Digneo</a>; <a href="https://medium.com/designing-for-results/aadbe3465dc4" target="_blank">Samuel Hulick</a>; <a href="http://unbounce.com/email-marketing/increase-your-email-opt-ins-and-subscribers/" target="_blank">Michael Zipursky</a>; <a href="http://unbounce.com/conversion-rate-optimization/what-every-conversion-rate-optimization-strategy-is-missing/" target="_blank">Pratik Dholakiya</a>; <a href="http://unbounce.com/landing-pages/fix-your-landing-page-mistakes/" target="_blank">Peep Laja</a>; <a href="http://www.stavros.io/posts/pitfalls-b-testing/?new" target="_blank">Stavros Korokithakis</a>; Eric Sloan <a href="http://unbounce.com/landing-page-examples/get-a-roasting/" target="_blank">again</a>; <a href="http://unbounce.com/conversion-rate-optimization/best-practices-debunked/" target="_blank">Gregory Ciotti</a>; <a href="http://blog.kissmetrics.com/what-converting-websites-do/" target="_blank">Zach Bulygo and Sean Work</a>; <a href="http://visualwebsiteoptimizer.com/split-testing-blog/seven-ab-testing-mistakes-to-stop-in-2013/" target="_blank">Siddharth Deswal</a>; and <a href="http://blog.optimizely.com/2013/04/30/71-things-to-ab-test/" target="_blank">Robin Johnson</a></li>
<li>KISSmetrics' Zach Bulygo presents <a href="http://blog.kissmetrics.com/100-conversion-optimization-case-studies/" target="_blank">100 case studies of conversion rate optimization</a>; Qualaroo offers a 12-chapter <a href="https://qualaroo.com/beginners-guide-to-cro/" target="_blank">beginners' guide to conversion rate optimization</a></li>
<li>Posts on inbound/content marketing by entrepreneur <a href="http://www.steamfeed.com/five-content-marketing-growth-hacks-enterprise-startups/" target="_blank">Ross Simmonds</a>; <a href="http://unbounce.com/content-marketing/blog-mistakes-cost-your-business-new-leads/" target="_blank">Henneke Duistermaat</a></li>
<li>Bustle.com founder/CEO Bryan Goldberg lists the <a href="http://pando.com/2013/12/17/the-top-20-most-viral-companies-of-the-decade-and-how-they-ultimately-performed/" target="_blank">20 most viral startups of the decade</a> and tracks their long-term performance</li>
<li>Simon Schmid on elements of <a href="http://uxdesign.smashingmagazine.com/2013/10/14/strategies-design-marketing-campaigns/" target="_blank">effective marketing campaigns</a></li>
<li>Rival IQ's Danielle Prager on how to <a href="http://unbounce.com/social-media/research-your-competitors-social-media-strategy-and-then-borrow-their-best-ideas/" target="_blank">analyze rivals' social media tactics</a></li>
<li>Onboardly's Shanelle Mullin offers a <a href="http://blog.kissmetrics.com/startup-analytics/" target="_blank">beginner's guide to startup marketing analytics</a></li>
<li>Brian Balfour on how to <a href="http://brianbalfour.com/post/63581380690/customer-acquisition" target="_blank">build customer acquisition skills</a></li>
<li>Google digital marketing evangelist Avinash Kaushik presents a <a href="http://www.kaushik.net/avinash/see-think-do-content-marketing-measurement-business-framework/" target="_blank">comprehensive marketing analytics framework</a></li>
<li>Orbit Media's Andy Crestodina on <a href="http://unbounce.com/conversion-rate-optimization/psychology-of-social-proof/" target="_blank">how to build trust</a> in an online business</li>
<li>Post on marketing mobile apps by <a href="http://appdevelopermagazine.com/743/2013/10/2/App-Marketing-101%3b-Crush-the-Competition-and-Rule-the-App-Store//" target="_blank">Matt Palmer</a></li>
<li>William Mougayar covers the what/why/how of <a href="http://startupmanagement.org/2013/09/11/the-only-5-types-of-messaging-you-need/" target="_blank">positioning statements</a></li>
</ul>
<div>
<div>
<b>PR Strategy</b></div>
<div>
<ul>
<li>Posts on effective PR tactics and trends in PR by <a href="http://venturebeat.com/2013/07/19/5-reasons-your-startup-is-failing-at-pr/" target="_blank">Jennifer Jacobson</a>; <a href="http://venturebeat.com/2013/12/28/startups-can-no-longer-count-on-traditional-pr-heres-why/" target="_blank">Vanessa Camones</a>; <a href="http://moz.com/blog/8-step-plan-to-get-pr-driven-links" target="_blank">Jess Champion</a>; <a href="http://venturefizz.com/blog/startup%E2%80%99s-crash-course-public-relations-101?utm_campaign=Feed%3A+StartupManagement+%28Startup+Management%29&utm_medium=feed&utm_source=feedburner" target="_blank">Aimee Gindin</a>; <a href="http://www.startup-marketing.com/deconstructing-pr-advice-from-a-former-venturebeat-writer/" target="_blank">Conrad Egusa</a>; and <a href="http://blog.hubspot.com/marketing/pr-isnt-working-fix-it-ht" target="_blank">Katie Burke</a></li>
<li><a href="http://firstround.com/article/why-most-startups-dont-get-press" target="_blank">Brooke Hammerling</a> of Brew Media Relations interviewed by First Round Review</li>
<li>Mark Suster on why startups <a href="http://www.bothsidesofthetable.com/2013/02/02/how-should-you-best-launch-your-product-at-sxsw/" target="_blank">should not launch at major tech events</a> like SXSW</li>
</ul>
</div>
</div>
<div>
<div>
<div style="font-weight: bold;">
<b>Sales and Sales Management</b></div>
<div>
<div>
<ul>
<li>Ben Horowitz on <a href="http://bhorowitz.com/2013/04/15/through-the-looking-glass-hiring-sales-people/" target="_blank">hiring salespeople</a></li>
<li>Flybridge GP (and my HBS colleague) Jeff Bussgang on the <a href="http://bostonvcblog.typepad.com/vc/2013/07/scaling-sales-from-craft-to-machine.html" target="_blank">challenge of scaling different types of sales models</a></li>
<li>Entrepreneur/investor James Altucher offers advice on <a href="http://techcrunch.com/2013/12/21/the-ultimate-cheat-sheet-for-selling-anything/" target="_blank">personal selling</a></li>
<li>Mark Suster on <a href="http://www.bothsidesofthetable.com/2013/12/17/how-to-shorten-your-sales-cycle-and-avoid-wasting-time/" target="_blank">how to shorten sales cycles</a>; how to deal with <a href="http://www.bothsidesofthetable.com/2013/04/15/how-to-sell-your-roadmap-without-selling-your-soul/" target="_blank">large accounts' demands</a> for product customization; how to <a href="http://www.bothsidesofthetable.com/2013/06/30/the-one-key-person-that-will-help-you-improve-sales/" target="_blank">find a champion</a> to refine your product and sales process; and the <a href="http://www.bothsidesofthetable.com/2013/06/20/to-sell-anything-you-need-to-know-what-makes-you-unique/" target="_blank">importance of a Unique Selling Proposition</a></li>
<li>HubSpot co-founder/CEO Brian Halligan on <a href="http://blog.hubspot.com/marketing/how-to-do-inbound-sales-slideshare-hspr" target="_blank">how to manage inbound sales</a> </li>
<li>Google Ventures' Joe Kraus on how to <a href="http://joekraus.com/for-every-stage-there-is-a-salesperson" target="_blank">match different types of salespeople to requirements</a> at different stages of a startup's evolution</li>
<li>Jason Lemkin on how to quickly <a href="http://saastr.com/2013/11/06/if-your-vp-sales-isnt-going-to-work-out-youll-know-in-30-days/" target="_blank">assess a new Sales VP's performance</a> and whether your VP Sales should <a href="http://saastr.com/2013/08/12/should-your-vp-sales-start-off-as-a-player-coach/" target="_blank">start as a "player/coach"</a></li>
<li>ElasticSales co-founder Steli Efti on how the basics of <a href="http://pando.com/2013/02/06/how-to-create-a-sales-process/" target="_blank">creating a sales process</a> at a startup</li>
<li>Aaron Ross of Predictable Revenue offers a primer on <a href="http://predictablerevenue.com/triple" target="_blank">sales pipeline management</a></li>
<li>Entrepreneur Mark Birch examines <a href="http://birch.co/post/67467077485/sales-for-startups-not-all-leads-are-equal" target="_blank">conversion rates for different sources of sales leads</a></li>
<li>Bob Marsh, founder/CEO of LevelEleven, on the <a href="http://www.inc.com/bob-marsh/what-changed-in-sales-is-sales-manager.html" target="_blank">changing role of the sales manager</a></li>
<li>USC's Steve Martin on the <a href="http://blogs.hbr.org/2013/11/the-trend-that-is-changing-sales/" target="_blank">growing importance of inside sales</a></li>
</ul>
</div>
</div>
<div>
<div style="font-weight: bold;">
<b>Product Design</b></div>
<br />
<ul>
<li>Cliff Kuang of <i>Fast Company</i> presents a list of <a href="http://www.fastcompany.com/1292961/30-most-important-books-product-designers" target="_blank">30 essential books for product designers</a>; Artsy's Robert Lenne has curated a list of <a href="http://robertlenne.com/requiredreading/" target="_blank">required readings for product designers</a></li>
<li>VentureBeat's J. O'Dell does a roundup of the <a href="http://venturebeat.com/2013/12/26/the-10-best-design-trends-of-2013/" target="_blank">10 best design trends of 2013</a></li>
<li>Google Venture's Jake Knapp on <a href="http://www.designstaff.org/articles/rules-for-design-critiques-2013-10-10.html" target="_blank">how to run an effective design critique</a></li>
<li>Userium's <a href="http://userium.com/" target="_blank">usability checklist</a> (HT: Tristan Kromer)</li>
</ul>
<br />
<div style="font-weight: bold;">
<b>Product Management</b></div>
<br />
<ul>
<li>Facebook's Julie Zhuo has written a trio of posts on how to work with <a href="https://medium.com/the-year-of-the-looking-glass/3e852d5eccf5" target="_blank">product managers</a>, <a href="https://medium.com/the-year-of-the-looking-glass/6c975dede146" target="_blank">designers</a>, and <a href="https://medium.com/the-year-of-the-looking-glass/a3163ff1eced" target="_blank">engineers</a> -- in each case, from the perspective of one of the other disciplines (Julie has worked in all three); Jonathan Barronville describes <a href="https://medium.com/p/266acb772b4b" target="_blank">what it's like to be a "junior" developer</a>; Brian de Haaff <a href="http://blog.aha.io/index.php/hey-product-managers-stop-pissing-off-the-engineers/" target="_blank">advises product managers on how to avoid annoying/alienating engineers</a></li>
<li>Josh Elman explains the <a href="https://medium.com/what-i-learned-building/63c09a43d0ec" target="_blank">product manager role</a></li>
<li>David Auerbach explains why <a href="http://www.slate.com/articles/technology/bitwise/2013/12/marissa_mayer_product_manager_a_new_better_kind_of_ceo.html" target="_blank">CEOs should adopt the product manager's mindset</a>, using Marissa Mayer as an example</li>
<li>SVPG's Marty Cagan calls for <a href="http://www.svpg.com/the-end-of-requirements/" target="_blank">replacing product requirements</a> with a focus on: 1) met vs. unrealized customer needs; and 2) customer- vs. technology-inspired solutions; Jared Spool seconds the call, saying <a href="http://www.uie.com/articles/requirements_gathering/" target="_blank">requirements gathering should be replaced with hypothesis testing</a></li>
<li>Henrik Kniberg of Spotify explains <a href="http://dl.dropboxusercontent.com/u/1018963/Articles/HowSpotifyBuildsProducts.pdf" target="_blank">how the company builds products</a></li>
<li>Aaron Schildkrout, co-founder/co-CEO of HowAboutWe presents a seven-part series on <a href="http://www.fastcolabs.com/3015920/open-company/unblocked-a-guide-to-making-things-people-love-part-1" target="_blank">product development philosophy and process</a></li>
<li>Steven Sinofsky, a former senior Microsoft executive, has written a series of posts on <a href="http://blog.learningbyshipping.com/2013/01/28/balancing-tradeoffs-across-different-customers/" target="_blank">product development processes</a></li>
<li>Dan Milstein, co-founder of Hut 8 Labs, comments on <a href="http://onstartups.com/tabid/3339/bid/97052/How-To-Survive-a-Ground-Up-Rewrite-Without-Losing-Your-Sanity.aspx" target="_blank">how to survive a ground-up rewrite</a></li>
<li>Niniane Wang of Minted offers perspective on <a href="http://gigaom.com/2013/02/02/what-i-learned-at-google-and-microsoft-about-building-better-products/" target="_blank">how to build great products</a></li>
<li>Gojko Adzic presents a case study of using the <a href="http://gojko.net/2013/09/01/how-we-solved-our-1-product-management-problem/" target="_blank">Attribute Component Capability Matrix</a> to guide exploratory testing and control the risk of software updates, resulting in a big performance boost</li>
<li>Lean Startup Conference's Lisa Regan interviews Xanadu's Mariya Yao on how to manage <a href="http://www.startuplessonslearned.com/2013/10/rapid-iteration-for-mobile-app.html" target="_blank">rapid iterative development processes for mobile apps</a></li>
<li>Laura Klein recommends designing a <a href="http://usersknow.blogspot.com/2013/10/stop-making-users-explore.html" target="_blank">gradual onboarding process for new users</a> rather than asking them to explore a product's full feature set from the outset; she discusses <a href="http://usersknow.blogspot.com/2013/01/to-kill-or-not-to-kill.html" target="_blank">when to kill a product/feature</a></li>
<li>Legend's Nathan Barry offers <a href="http://nathanbarry.com/wireframing-web-application/" target="_blank">tips on wireframing</a></li>
<li>First Round Review interviews Pivotal Labs' Edward Hieatt on how to decide <a href="http://firstround.com/article/11-When-a-new-feature-is-coded-who-decides-that-its-ready-to-go-live" target="_blank">when a feature is ready to go live</a> and Yammer's Kris Gale on <a href="http://firstround.com/article/The-one-cost-engineers-and-product-managers-dont-consider" target="_blank">how features create complexity cost in engineering</a></li>
<li>Phil Sharp of UserTesting.com recounts <a href="http://moz.com/blog/5-lessons-learned-from-100000-usability-studies" target="_blank">lessons learned from 100,000 usability studies</a></li>
<li>Brian de Haaff of Aha! describes factors that can lead to an <a href="http://blog.aha.io/index.php/the-engineering-death-spiral/" target="_blank">engineering "death spiral"</a> -- an inability to deliver a great product -- and what to do about them</li>
</ul>
</div>
</div>
<b>Business Development</b></div>
</div>
<div>
<ul>
<li>Entrepreneur Elad Gil discusses <a href="http://blog.eladgil.com/2013/02/hiring-great-business-people-is-hard.html" target="_blank">attributes of good bus dev professionals</a> and how to hire them</li>
<li>Brian Balfour provides a "how to" guide for consumer startups seeking to identify and negotiate <a href="http://brianbalfour.com/post/60293339476/complete-guide-growing-consumer-startup-partnerships" target="_blank">B2B2C partnership</a> opportunities</li>
<li>Holger Luedorf of foursquare presents <a href="http://www.avc.com/a_vc/2013/01/guest-post-startup-business-development-101.html" target="_blank">Startup Business Development 101</a>, offering advice on how to prioritize and manage partnerships</li>
</ul>
<div style="font-weight: bold;">
Scaling</div>
<div>
<ul>
<li>Michael Skok, GP at Northbridge Venture Partners, on how to think about <a href="http://www.linkedin.com/today/post/article/20130716152658-1893586-scaling-your-startup-the-deliberator-s-dozen" target="_blank">optimal pace</a> when scaling</li>
<li>Erin Griffith of pandodaily on <a href="http://pando.com/2013/08/19/how-to-avoid-breaking-your-company-as-it-grows/" target="_blank">management challenges when scaling</a> </li>
</ul>
</div>
<b>Funding Issues</b></div>
<div>
<ul>
<li>Cowboy Ventures' Aileen Lee generated a flurry of commentary with her <a href="http://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/" target="_blank">post on Unicorn exits</a> (>$1 billion), including posts from <a href="http://www.cbinsights.com/blog/trends/billion-dollar-exit-venture-capital" target="_blank">CB Insights</a> and <a href="http://www.avc.com/a_vc/2013/11/the-billion-dollar-valuation-club.html" target="_blank">Fred Wilson</a></li>
<li>Y Combinator's Paul Graham on <a href="http://paulgraham.com/fr.html" target="_blank">fundraising</a>, <a href="http://www.paulgraham.com/invtrend.html" target="_blank">startup investing trends</a>, and <a href="http://www.paulgraham.com/herd.html" target="_blank">investor herd dynamics</a></li>
<li>Fred Wilson on <a href="http://www.avc.com/a_vc/2013/06/valuation-vs-ownership.html" target="_blank">tradeoffs between valuation and % equity ownership</a></li>
<li>Eric Paley of Founder Collective describes<a href="http://epaley.com/2013/11/12/vaporizing-vc-interest/" target="_blank"> how/why an investor's interest can fade</a></li>
<li>Reflections on the <a href="http://robgo.org/2013/03/19/the-fate-of-seed-vcs/" target="_blank">future of VC seed funds</a> and advice for <a href="http://robgo.org/2013/02/27/advice-for-entrepreneurs-in-accelerator-programs/" target="_blank">entrepreneurs in accelerators</a> from NextView Ventures' Rob Go</li>
<li>Mark Suster on the <a href="http://www.bothsidesofthetable.com/2013/05/04/importance-proprietary-dealflow/" target="_blank">importance of proprietary deal flow for early-stage VCs</a>, the risks from setting valuation too high then subsequently <a href="http://www.bothsidesofthetable.com/2013/05/05/the-damaging-psychology-of-down-rounds/" target="_blank">suffering a down round</a>, and <a href="http://www.bothsidesofthetable.com/2013/01/26/should-startups-announce-their-funding/" target="_blank">whether startups should announce their funding rounds</a></li>
<li>Jason Calacanis on how seed-stage entrepreneurs should position themselves to <a href="http://blog.launch.co/blog/the-series-a-crunch-survivors-guide.html" target="_blank">survive a Series A crunch</a>; CB Insights analyzes the <a href="http://www.cbinsights.com/blog/trends/seed-venture-capital-funds" target="_blank">impact of the crunch on Seed VCs</a></li>
<li>Flybridge GP (and my HBS colleague) Jeff Bussgang on <a href="http://www.slideshare.net/bussgang/hls-class-4-1013" target="_blank">how to raise your first round</a>; Yipit co-founder/CEO on <a href="http://viniciusvacanti.com/2013/04/16/lessons-learned-raising-6-million/" target="_blank">lessons learned from raising Series A</a></li>
<li>Aaron Hall, founder/CEO of Boatbound, offers a primer for <a href="http://thehalltruth.co/post/50580698481/a-primer-for-fundraising-on-angellist" target="_blank">raising funds on AngelList</a></li>
<li>BuysideFX co-founder/CEO Ty Danco and HubSpot co-founder Dharmesh Shah give guidance on h<a href="http://onstartups.com/tabid/3339/bid/98311/The-Why-and-How-Of-Updating-Your-Angel-Investors.aspx" target="_blank">ow to update angel investors</a></li>
<li>Bonobos founder/CEO Andy Dunn points out venture capitalists' shortcomings in his "<a href="https://medium.com/what-i-learned-building/e17153fde5f1" target="_blank">Dear Dumb VC</a>" post</li>
<li>Steve Blank exhorts entrepreneurs to remember that <a href="http://steveblank.com/2013/06/11/fund-raising-is-a-means-not-an-end/" target="_blank">fundraising is a means to an end</a>, and to carefully consider when it makes sense to take outside capital</li>
<li>Erin Griffith of pandodaily analyzes the <a href="http://pando.com/2013/08/28/this-chart-shows-the-future-of-venture-capital/" target="_blank">history and future of venture capital</a>; Sarah Lacy <a href="http://pando.com/2013/08/30/a-rare-defense-of-venture-capital-classic/" target="_blank">expands on the theme</a></li>
<li>Griffith explains <a href="http://pando.com/2013/10/15/steve-blank-explains-why-accelerators-should-mimic-moneyball/" target="_blank">Steve Blank's thinking</a> about why accelerators should abandon demo days and focus instead on hypothesis testing results</li>
<li>Charlie O'Donnell examines the <a href="http://www.thisisgoingtobebig.com/blog/2013/3/1/the-role-of-angel-groups-going-forward.html" target="_blank">future role of angel groups</a> and offers <a href="http://www.thisisgoingtobebig.com/blog/2013/7/8/why-being-a-vc-sucks-advice-to-anyone-who-wants-to-get-into.html" target="_blank">advice for aspiring VCs</a> and describes the job's downsides</li>
</ul>
<b>Pitching</b></div>
<div>
<div>
<br />
<ul>
<li>Pitch deck <a href="https://2lr.bunkr.me/p/f4c4e1b1759931c0b2e310b8981fedd9" target="_blank">template</a> from Jean de La Rochebrochard; Dashboard also <a href="https://dashboard.io/blog/how-to-pitch-investors-introducing-the-startup-pitch-breakdown" target="_blank">breaks down the startup pitch</a></li>
<li>Charlie O'Donnell on why you <a href="http://www.thisisgoingtobebig.com/blog/2013/10/31/dont-send-the-deck.html" target="_blank">shouldn't email your pitch deck</a> before a first meeting with a potential investor</li>
<li>Reid Hoffman on what he <a href="http://reidhoffman.org/what-i-wish-i-knew-before-pitching-linkedin-to-vcs/" target="_blank">wished he knew before pitching</a> LinkedIn to VCs and his annotated LinkedIn <a href="http://reidhoffman.org/linkedin-pitch-to-greylock/" target="_blank">pitch deck</a></li>
<li>Paul Graham on <a href="http://www.paulgraham.com/convince.html" target="_blank">how to convince investors</a></li>
<li>Brad Feld on <a href="http://www.feld.com/wp/archives/2013/09/getting-your-demos-right.html" target="_blank">how to do effective product demos</a></li>
</ul>
<br />
<b>Founding Process</b></div>
<div>
<ul>
<li>FounderDating co-founder/CEO Jessica Alter provides advice to <a href="http://onstartups.com/tabid/3339/bid/104056/A-Tech-Founder-s-Guide-To-Picking-A-Non-Tech-Founder.aspx" target="_blank">technical founders seeking a non-technical co-founder</a> and describes the <a href="http://onstartups.com/tabid/3339/bid/97391/3-Biggest-Mistakes-When-Choosing-a-Cofounder.aspx" target="_blank">three biggest mistakes</a> entrepreneurs make when looking for a co-founder</li>
<li>LaunchBit co-founder/CEO Elizabeth Yin on the challenge of <a href="http://andrewchen.co/2013/06/25/why-you-cant-find-a-technical-co-founder-guest-post/" target="_blank">finding a technical co-founder</a>; part II of her post presents <a href="http://andrewchen.co/2013/09/25/case-studies-from-why-you-cant-find-a-technical-co-founder/" target="_blank">case studies of founding teams</a></li>
</ul>
<div>
<b>Company Culture, Organizational Structure and Other HR Issues</b></div>
</div>
<div>
<ul>
<li>Dharmesh Shah <a href="http://onstartups.com/tabid/3339/bid/97200/Does-HubSpot-Walk-The-Talk-On-Its-Culture-Code.aspx" target="_blank">evaluates</a>, item by item, the extent to which HubSpot lives up to its own <a href="http://onstartups.com/tabid/3339/bid/96107/Culture-Code-Creating-A-Company-YOU-Love.aspx" target="_blank">culture code</a></li>
<li>Advice from Mark Suster on <a href="http://www.bothsidesofthetable.com/2013/02/06/how-to-configure-your-startup-team/" target="_blank">configuring an early-stage startup team</a></li>
<li>Andy Rachleff, Wealthfront CEO, gives guidance on <a href="http://firstround.com/article/The-Right-Way-to-Grant-Equity-to-Your-Employees" target="_blank">how to make equity awards </a>to startup employees; James Smith, attorney at LaBarge Weinstein, on the <a href="http://www.techvibes.com/blog/startup-equity-2013-11-13" target="_blank">same topic</a>; Wealthfront also offers a <a href="https://www.wealthfront.com/tools/startup-salary-equity-compensation" target="_blank">tool</a> for calculating average salary and equity levels by position, company size, and region</li>
</ul>
<b>Recruiting: General Issues</b><br />
<ul>
<li>Rob Ousbey, COO at Distilled, describes effective tactics for <a href="http://moz.com/blog/inbound-tactics-make-hiring-easier-and-more-fun" target="_blank">inbound recruiting</a></li>
<li>Advice on startup recruiting from <a href="http://onstartups.com/tabid/3339/bid/97729/5-Startup-Hiring-Mistakes-That-Can-Crush-Your-Culture.aspx" target="_blank">Dharmesh Shah</a> and <a href="http://blog.samaltman.com/how-to-hire" target="_blank">Sam Altman</a>; <a href="http://www.linkedin.com/today/post/article/20130513133713-658789-12-unconventional-interview-entrepreneurs-should-ask?_mSplash=1" target="_blank">unconventional interview questions</a> from Shah; <a href="http://www.cindyalvarez.com/learning/good-interviewing-doesnt-just-happen" target="_blank">interviewing guidelines</a> from KISSmetrics' Cindy Alvarez; </li>
<li>Robby Grossman on <a href="http://rob.by/2013/negotiating-your-startup-job-offer/" target="_blank">how to negotiate your startup job offer</a></li>
<li>Courtesy of Business Insider, the <a href="http://www.businessinsider.com/a-how-to-hire-deck-by-greylock-partners-2013-7#-2" target="_blank">deck</a> that Greylock VP-Talent Dan Portillo uses to advice portfolio company CEOs on recruiting </li>
<li>Videos of entrepreneurs/investors discussing startup recruiting: Dropbox's <a href="http://techcrunch.com/2013/06/24/dropboxs-drew-houston-and-sequoias-bryan-schreier-on-how-to-recruit-and-retain-top-talent/" target="_blank">Drew Houston and Sequoia's Bryan Schreier</a>; Union Square Ventures' <a href="http://www.avc.com/a_vc/2013/10/video-of-the-week-albert-wenger-on-startup-recruiting.html" target="_blank">Albert Wenger</a></li>
</ul>
<b>Recruiting Engineers</b><br />
<br />
There's lots of great content online about how to recruit developers, so I've given this topic its own category<br />
<ul>
<li>Advice on recruiting engineers from <a href="http://techcrunch.com/2013/12/21/how-to-hire-more-engineers-in-less-time-2/" target="_blank">Bryan Schreier</a>, Young Entrepreneur Council's <a href="http://venturebeat.com/2013/10/15/why-your-tech-startup-cant-hire-engineers-and-how-to-fix-it/" target="_blank">Matt Mickiewicz</a>, developer <a href="http://tomblomfield.com/post/61760552398/startup-series-part-1-interviewing-engineers" target="_blank">Tom Blomfield</a>, and former Amazon VP <a href="http://firstround.com/article/The-anatomy-of-the-perfect-technical-interview-from-a-former-Amazon-VP" target="_blank">Neil Roseman</a> (interviewed by First Round Review)</li>
<li>FounderFuel shares General Assembly's <a href="http://founderfuel.com/how-to-hire-a-developer/" target="_blank">flowchart</a> on developer recruiting</li>
<li>DaedTech's Erik Dietrich on how to create an environment that <a href="http://www.daedtech.com/how-to-keep-your-best-programmers" target="_blank">helps retain great developers</a></li>
<li>First Round Review interviews tech recruiters Michael Morell and Ali Behnam on <a href="http://firstround.com/article/What-You-Want-in-a-VP-Eng-from-the-Recruiters-Behind-Twitter-and-LinkedIn" target="_blank">how to hire a VP Engineering</a></li>
<li>Derek Andersen of Startup Grind <a href="http://techcrunch.com/2013/01/12/hiring-great-engineers-kleiner-perkins-mike-abbott-explains-how/" target="_blank">interviews Kleiner Perkins' Mike Abbott</a> about recruiting engineers</li>
</ul>
<b>Board Management</b></div>
</div>
<div>
<ul>
<li>Brad Feld and Mahendra Ramsignhani published their book, <i><a href="http://www.amazon.com/Startup-Boards-Getting-Board-Directors/dp/1118443667/" target="_blank">Startup Boards</a>; </i>Feld shares thoughts on <a href="http://www.feld.com/wp/archives/2013/01/the-best-approach-to-a-board-package.html" target="_blank">how to assemble an effective briefing package</a> for a board meeting</li>
<li>Steve Blank on <a href="http://steveblank.com/2013/07/09/dont-give-away-your-board-seats/" target="_blank">when/how to grant board seats</a></li>
</ul>
<b>Startup Mentors</b><br />
<ul>
<li>Brant Cooper on how to be a <a href="http://market-by-numbers.com/2013/09/top-5-ways-mentor/" target="_blank">good startup mentor</a>; Michael Skok on the <a href="http://blogs.wsj.com/accelerators/2013/05/24/michael-skok-the-best-ones-have-no-answers/" target="_blank">same theme</a>; Entrepreneur/consultant Sramana Mitra on the <a href="http://www.sramanamitra.com/2013/12/12/mentoring-startups-ten-lessons-we-have-learned/" target="_blank">same theme</a></li>
<li>Fred Wilson of Union Square Ventures on <a href="http://www.avc.com/a_vc/2013/07/mentorinvestor-whiplash.html" target="_blank">mentor whiplash</a>; Brad Feld on its <a href="http://www.feld.com/wp/archives/2013/07/the-positive-benefit-of-mentor-whiplash.html" target="_blank">benefits</a> and how it manifests itself with <a href="http://www.feld.com/wp/archives/2013/06/mentor-whiplash-about-early-board-members.html" target="_blank">early board members</a></li>
<li>Phin Barnes on how/when/why to use investors as "<a href="http://www.sneakerheadvc.com/2013/10/15/to-get-the-most-out-of-your-investors-turn-them-into-rubber-ducks/" target="_blank">rubber ducks</a>" to talk through problems</li>
<li>Brooklyn Bridge Ventures' Charlie O'Donnell on <a href="http://www.thisisgoingtobebig.com/blog/2013/7/24/how-to-make-the-most-of-an-accelerator-office-hours.html" target="_blank">making the most of accelerator office hours</a></li>
</ul>
<b>Startup Failure</b></div>
<div>
<div>
<ul>
<li>First-person startup post-mortems included a series of posts from the anonymous blogger at <a href="http://mystartuphas30daystolive.tumblr.com/" target="_blank">MyStartupHas30DaysToLive</a>; Teamometer's <a href="http://www.sergioschuler.com/startup-lessons-learned-from-my-failed-startup/" target="_blank">Sergio Schuler</a>; Makeshift's <a href="http://writing.makeshift.io/pieces/things-we-learnt-trying-and-failing-to-build-an-e-commerce-platform-for-selling-digital-goods" target="_blank">Nick Marsh</a>; @Sonar's <a href="https://medium.com/best-thing-i-found-online-today/72c6f8bec7df" target="_blank">Brett Martin</a>; Flud's <a href="http://techcrunch.com/2013/09/22/why-startups-fail-a-postmortem-for-social-newsreader-flud-and-what-to-take-from-sonars-demise/" target="_blank">Rip Empson</a>; Rakasheets' <a href="http://www.ironconversions.com/blog/Post/My-product-failed" target="_blank">Joshua Harms</a>; Investopresto's <a href="http://www.nextbigwhat.com/startup-lessons-from-investopresto-297/" target="_blank">Ashwini Anand</a>; Formspring's <a href="http://blog.capwatkins.com/formspring-a-postmortem" target="_blank">Cap Watkins</a>; and Bullhorn's <a href="http://blogs.hbr.org/2013/05/for-entrepreneurs-failure-isnt/" target="_blank">Art Papas</a></li>
<li>a16z's Ben Horowitz on the startup failure induced by the "<a href="http://bhorowitz.com/2013/08/12/why-founders-fail-the-product-ceo-paradox/" target="_blank">Product CEO Paradox</a>," i.e., an initially product-focused founder disengaging from the product</li>
<li>Brad Feld argues that <a href="http://blogs.wsj.com/accelerators/2013/05/16/brad-feld-sometimes-failure-is-your-best-option/" target="_blank">sometimes failure is your best option</a></li>
<li>Fred Wilson describes two scenarios <a href="http://www.avc.com/a_vc/2013/03/when-things-dont-work-out.html" target="_blank">when things don't work out</a>: slogging it out, and hitting the wall</li>
<li>Sim Simeonov has been periodically publishing posts on various root causes of startup failure, which he calls "<a href="http://blog.simeonov.com/2013/03/04/ignorance-anti-pattern/" target="_blank">anti-patterns</a>"</li>
<li>Steve Blank riffs on the Kubler-Ross stages of grief model to describe an entrepreneur's likely emotional <a href="http://steveblank.com/2013/02/26/failure-and-redemption/" target="_blank">reactions to failure</a></li>
<li>My post on <a href="http://www.forbes.com/sites/oreillymedia/2013/07/27/ego-and-startup-failure/" target="_blank">ego and entrepreneurial failure</a></li>
<li>Henry Blodget analyzes Y Combinator data to assess <a href="http://www.businessinsider.com/startup-odds-of-success-2013-5" target="_blank">startup failure odds</a></li>
<li>Jason Freedman offers tips on <a href="http://blog.42floors.com/startups-die/" target="_blank">how to fail "elegantly,"</a> i.e., keeping one's reputation/relationships intact</li>
<li>Entrepreneur Sumon Sadhu on <a href="http://www.sumonsadhu.com/post/42815785374/the-seven-signs-of-startup-dysfunction" target="_blank">seven signs of startup dysfunction</a></li>
</ul>
</div>
<div>
<div>
<b>Exiting By Selling Your Company</b></div>
<div>
<ul>
<li>a16z GP and IronPort founder/CEO Scott Weiss offers a <a href="http://scott.a16z.com/2013/02/06/the-i-just-got-bought-by-a-big-company-survival-guide/" target="_blank">survival guide</a> for entrepreneurs who sell their startup to a big corporation</li>
<li>Mark Suster on the <a href="http://www.bothsidesofthetable.com/2013/05/13/the-corrosive-downside-of-acquihires/" target="_blank">corrosive aspects of acquihires</a></li>
</ul>
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<b>The Startup Mindset and Coping with Startup Pressures</b></div>
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<li><i><a href="http://www.amazon.com/Startup-Life-Surviving-Relationship-Entrepreneur/dp/1118443640/" target="_blank">Startup Life</a>,</i> a book by Brad Feld and Amy Batchelor offers advice for coping with the pressures that entrepreneurial career can put on friends/family relationships</li>
<li>Phin Barnes of First Round Capital on founders' fears and "<a href="http://www.sneakerheadvc.com/2013/10/22/the-monster-under-the-bed-founder-fear-and-gaps-in-emotional-volume/" target="_blank">The Monster Under the Bed</a>"; entrepreneur/investor Semil Shah on <a href="http://blog.semilshah.com/2013/11/23/startup-risk-and-fear/" target="_blank">similar themes</a></li>
<li>Chris Dixon expands on Balaji Srinivasan's concept of the "<a href="http://cdixon.org/2013/08/04/the-idea-maze/" target="_blank">idea maze</a>" -- a metaphor for the choices a founder must make in the face of uncertainty and incomplete information</li>
<li>Jessica Bruder of Inc. Magazine on the <a href="http://www.inc.com/magazine/201309/jessica-bruder/psychological-price-of-entrepreneurship.html" target="_blank">psychological price of entrepreneurship</a></li>
<li>Mark Suster on the <a href="http://www.linkedin.com/today/post/article/20130811043537-130311-the-importance-of-realism-in-startups" target="_blank">importance of realism in startups</a></li>
<li>Paul Graham on the benefits in early-stage startups of "<a href="http://paulgraham.com/ds.html" target="_blank">doing things that don't scale</a>" -- especially when acquiring a new venture's first customers</li>
<li>Investor David Tisch on the importance of "<a href="http://blogs.wsj.com/accelerators/2013/05/15/david-tisch-never-lose-sight-of-the-why/" target="_blank">not losing sight of why</a>," that is, of an entrepreneur keeping her motivations for launching a business in perspective</li>
<li>Entrepreneur Gilad Avidan on "<a href="https://speakerdeck.com/giladvdn/ten-things-about-being-a-founder-i-wish-i-knew-two-years-ago" target="_blank">Ten Things I Wish I Knew About Being a Founder Two Years Ago</a>"</li>
<li>Programmer/investor Alex Payne offers <a href="https://al3x.net/2013/05/23/letter-to-a-young-programmer.html" target="_blank">advice to a young programmer considering a startup</a></li>
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<b>Books for First-Time Entrepreneurs, Covering the Startup Process End-to-End</b></div>
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<ul>
<li>MIT's Bill Aulet published <i><a href="http://www.amazon.com/Disciplined-Entrepreneurship-Steps-Successful-Startup/dp/1118692284" target="_blank">Disciplined Entrepreneurship</a></i>, a step-by-step guide for 1st-time founders</li>
<li>Matt Blumberg published <i><a href="http://www.amazon.com/Startup-CEO-Scaling-Business-Website/dp/1118548361" target="_blank">Startup CEO</a></i>, a book which offers advice for 1st-time CEOs of tech startups</li>
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<b>Advice for MBAs and Others Aspiring to Join Tech Startups</b></div>
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<li>Jeff Bussgang analyzes the <a href="http://bostonvcblog.typepad.com/vc/2013/11/unicorns-and-mbas.html" target="_blank">prevalence of MBAs in leadership roles at "unicorns"</a> -- $1B+ tech company exits</li>
<li>Bussgang offers <a href="http://bostonvcblog.typepad.com/vc/2013/04/abc-abc.html" target="_blank">advice </a>for MBAs seeking jobs in tech startups. I <a href="http://www.linkedin.com/today/post/article/20130924100744-23608072-how-i-hire-what-mbas-should-know-about-startup-jobs" target="_blank">expand</a> on this theme and survey HBS MBAs who took Harvard's introductory computer science course on the <a href="http://blogs.hbr.org/2013/09/should-mbas-learn-to-code/" target="_blank">payoff from learning to code</a></li>
<li>Sim Simeonov on <a href="http://bostinno.streetwise.co/all-series/10-killer-reasons-to-join-a-startup-and-debunking-3-myths-on-why-you-shouldn%E2%80%99t/" target="_blank">reasons to join</a> a startup</li>
<li>Steve Blank shares <a href="http://steveblank.com/2013/08/12/how-to-get-meetings-with-people-too-busy-to-see-you/" target="_blank">advice to entrepreneurs and job seekers on how to connect</a> with busy people; Charlie O'Donnell on how to craft a <a href="http://www.thisisgoingtobebig.com/blog/2013/8/8/the-forwardable-intro.html" target="_blank">forwardable request for an introduction</a></li>
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Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-35113389534785347682013-10-14T15:34:00.002-04:002014-09-18T15:37:47.559-04:00Critique of PM101 Market Requirements DocumentsStudents in the Harvard Business School MBA elective course Product Management 101 (PM101) submitted Market Requirements Documents (MRDs) for their software applications last week. I thought a summary of the strengths and weaknesses of this work might be helpful not only to the students, but also to new PMs and first-time founders who lack experience evaluating market requirements.<br />
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I've described PM101 in an <a href="http://platformsandnetworks.blogspot.com/2012/12/product-management-101_29.html" target="_blank">earlier post</a>. In brief, we use a learning-by-doing approach to teach students who've never worked as product managers the basics of that role (course description <a href="http://www.hbs.edu/coursecatalog/6701.html" target="_blank">here</a>; syllabus <a href="https://sites.google.com/site/hbspm101/home/2014-15-sessions" target="_blank">here</a>). Students specify functionality for a software application, then oversee its development and launch. This year, two-thirds of PM101 students are working on their own startup ideas; the balance are building apps that will be used only by the HBS community.<br />
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Product professionals and entrepreneurs who embrace agile development methods might dismiss the notion of writing an MRD — even a <a href="https://docs.google.com/document/d/18K08A7IQmHAcuDMiEK7rSk4BmMcAJhgXtnafZmLIZA0/edit#" target="_blank">light-weight version</a> like the one we assign — as "old school." We do bring seasoned PMs to class to explain agile's merits, but we also believe that students' understanding of agile is enhanced by experiencing waterfall techniques first-hand. Also, our students spend only one day per week on their project, which makes it impractical for them to serve as product owner on an agile team. Finally, requiring written MRDs and PRDs makes it easier for instructors and over fifty <a href="http://www.businesswire.com/news/home/20130930005108/en/Boston-Product-Management-Association-Harvard-Business-School" target="_blank">volunteer mentors</a> from the Boston Product Management Association to provide feedback.<br />
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So, what patterns emerge from the MRDs?<br />
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<ul>
<li><b>Problem vs. Solution Focus.</b> Students were asked to prove the existence of a critical mass of potential customers with strong unmet needs that might be satisfied through a new application or online service. In their MRDs, most students avoided premature lock-in on a single, specific solution. They followed the design discipline of first exploring customer needs in depth, thus improving the odds of generating differentiated solutions.</li>
<li><b>Research Methods.</b> Only a modest fraction of the MRDs provided detailed descriptions of research methods employed. I accept blame for this, since I didn't include a research methods section in the MRD outline. But MRD authors should be aware that it is difficult for readers to assess the validity of claims about customer needs without understanding the quality of data behind those claims.</li>
<li><b>Customer Interviews. </b>Most students did a good job of summarizing what they learned from one-on-one interviews with prospective users. It's more difficult to discern whether the students followed interviewing best practices described in assigned <a href="https://sites.google.com/site/hbspm101/home/2014-15-sessions/02-the-mrd" target="_blank">readings</a>, since only a handful submitted interview guides/protocols along with their MRDs. Next year, we'll insist that such guides be included in a research methods appendix to the MRD.</li>
<li><b>Focus Groups.</b> Only one student conducted a focus group. This research technique has well-known limitations, but focus groups can generate powerful insights with products that have strong emotional, status, or lifestyle associations. With such products, a comment from one focus group participant can trigger responses from others that might not be forthcoming in a one-on-one interview. </li>
<li><b>Surveys.</b> In class, we emphasize that: 1) surveys should be used to explore associations between prospective customers' beliefs and behaviors, and to document the prevalence of unmet needs in a population; and 2) these objectives can only met through surveys <i>after</i> a researcher has gained a deep understanding of customer needs through interviews, ethnography, and other qualitative methods. This message — along with a strong admonition to avoid biased (e.g., "leading the witness") survey questions — evidently hit the mark, because most of the students' surveys were reasonably well designed. However, not many surveys were systematic about including questions that measured both the <i>strength of respondents' needs</i> (i.e., how important is attribute X to you?) and perceptions of the <i>degree to which existing solutions satisfy those needs. </i>This combination of questions can be very helpful in identifying customers segments with distinct needs, and in estimating the size of those segments.</li>
<li><b>Personas and Use Cases. </b>Students were exposed to <a href="http://www.cindyalvarez.com/best-practices/you-need-personas" target="_blank">personas</a> in class; they made good use of them in their MRDs, especially in identifying use cases for their application.</li>
<li><b>Competitor Research. </b>Not surprisingly, given MBAs' penchant for analysis, most MRDs included strong sections describing the strengths and limitations of existing solutions. With rare exceptions, however, students did not conduct usability research with rival products, missing a learning opportunity.</li>
<li><b>Market Size Estimation.</b> Likewise, most students did a good job gauging the size of the potential market for their application. There was some confusion about whether this exercise should end with an estimate of the Total Addressable Market (TAM) or with a rough sales forecast reflecting projected share of the TAM. Obviously, projecting market share so early in the product development process entails lots of guesswork. But even an informed guess can provide helpful guidance on whether the envisioned product can plausibly generated enough sales to warrant further development. Only one student analyzed the magnitude of switching costs that would be incurred by customers adopting a new solution. Such analysis can significantly improve the quality of market share projections.</li>
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Students will submit their Product Requirement Documents in early December. I'll report back then on lessons from that exercise and also on what we've learned about the design and delivery of a learning-by-doing course like PM101.</div>
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Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-66319446732339491072013-09-26T23:23:00.000-04:002013-09-26T23:23:02.587-04:00Advice for MBAs Seeking Startup Jobs<div style="color: #333333; font-family: Helvetica, Arial, sans-serif; font-size: 15px; line-height: 20px; margin-bottom: 1em; margin-top: 1em;">
This post was originally published at <a href="http://www.linkedin.com/today/post/article/20130924100744-23608072-how-i-hire-what-mbas-should-know-about-startup-jobs" target="_blank">LinkedIn</a>.</div>
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Searching for a job with a startup can be frustrating and confusing for MBAs, especially when compared with the “tried-and-true” process of recruiting with big companies who visit campus. In turn, MBAs who seek employment with startups aggravate entrepreneurs by making an alarming array of mistakes. The good news: it isn’t difficult to avoid these errors.</div>
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Below, I report findings from focus groups with 26 HBS MBA alumni running venture capital-backed startups in San Francisco and New York City. My colleagues from the HBS Rock Center for Entrepreneurship and I asked the founders what current students could do to better position themselves to get jobs in their startups. It’s fair to ask whether the interview findings apply in other geographies and entrepreneurial settings. I believe that they do.</div>
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<strong>Problem: Poor First Impressions. </strong>Startups usually rely on employees’ personal networks to source candidates, rather than online job sites or campus career services offices. To improve the odds that they’ll be referred when a startup is hiring, MBAs cast a wide net, reaching out to as many people as possible who can influence recruiting decisions.</div>
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Aggressive networking is crucial with a startup job search, but you can spread yourself too thinly. Overextended, you’ll lack the time to prepare properly for initial meetings, and as a result, you may make a poor first impression. Startup CEOs complain about MBAs who ask them for information that is readily available from a Google search, such as “Can you tell me about your business model?” or “How are you funded?” Founders of consumer-facing startups will be disappointed if you’ve never used their products. They’ll be annoyed if you haven’t checked their website to determine whether positions are open in the function you’ve targeted. Finally, entrepreneurs will lose interest quickly if you aren’t up to speed on sector trends—say, if you profess interest in social networking platforms but lack an informed response to a question like, “What do you think of Facebook’s changes to Instagram’s terms of service?”</div>
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<strong>Solution: Screen Targets, Focus Your “Ask,” and Do Your Homework! </strong>You’ll have more time to prepare for initial meetings if you waste less time pursuing jobs with the wrong startups. I won’t describe approaches for screening startups here, but venture capitalists <a data-mce-href="http://genuinevc.com/archives/2011/2/3/how-to-find-the-perfect-startup-job-part-i-start-with-when.html" href="http://genuinevc.com/archives/2011/2/3/how-to-find-the-perfect-startup-job-part-i-start-with-when.html" style="color: #006699; outline: medium;" target="_blank">David Beisel</a> and <a data-mce-href="http://bostonvcblog.typepad.com/vc/2013/04/abc-abc.html" href="http://bostonvcblog.typepad.com/vc/2013/04/abc-abc.html" style="color: #006699; outline: medium;" target="_blank">Jeff Bussgang</a> and serial entrepreneur <a data-mce-href="http://bostinno.streetwise.co/all-series/the-geeks-guide-to-finding-the-best-startups/" href="http://bostinno.streetwise.co/all-series/the-geeks-guide-to-finding-the-best-startups/" style="color: #006699; outline: medium;" target="_blank">Simeon Simeonov</a> have written great posts on that topic.</div>
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Having narrowed your target set, make sure you approach people in ways that capture their attention and demonstrate networking savvy, for example, crafting requests for introductions that are readily forwarded, as VC <a data-mce-href="http://www.thisisgoingtobebig.com/blog/2013/8/8/the-forwardable-intro.html" href="http://www.thisisgoingtobebig.com/blog/2013/8/8/the-forwardable-intro.html" style="color: #006699; outline: medium;" target="_blank">Charlie O’Donnell</a> recommends. If you ask for a meeting via email, make sure that your message is short and presents a specific objective, as suggested by <a data-mce-href="http://passivepanda.com/how-email" href="http://passivepanda.com/how-email" style="color: #006699; outline: medium;" target="_blank">James Clear</a>. Busy founders may deflect a vague request, such as “Can we have coffee to chat about careers in your space?” They are more likely to agree to meet if you say, “I understand that you are building a BD team. I’d love to be part of it.” Asking for a short meeting—say, 10 minutes—is also more likely to succeed, and short meetings can stretch into long ones if you engage your audience.</div>
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<strong>Problem: Not Understanding Startups. </strong>In positioning themselves for startup jobs, MBAs often fail to convey that they understand what’s required of startup employees. This raises doubts about whether candidates have been thoughtful about their motivations for seeking a startup job. Perhaps they are simply following the MBA herd chasing fashionable startup careers? Every hire on a small team is a high stakes event, so founders need to ensure that new employees bring:</div>
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<li><em>Tolerance for ambiguity and for lack of structure, </em>in particular, around roles and career paths. The founder of an early-stage startup may need to tell a candidate, “You could be in this role for two weeks or two years. We just can’t say.” Employees must be flexible and be willing to pitch in to do whatever needs to be done.</li>
<li><em>Independence and a “can do/will do” attitude.</em> Early-stage startups often lack processes and routines. In contrast to business-as-usual in big corporations, nothing happens in startups unless someone <em>makes</em> it happen. A founder needs to surround herself with team members who can identify problems and take charge of fixing them, without requiring lots of direction.</li>
<li><em>Resilience and passion.</em> Startups encounter inevitable bumps as they try to build something new in the face of severe resource constraints. Rolling with the punches is easier for employees who are passionate about a startup’s mission or about the space in which it operates.</li>
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<strong>Solution: Know Thyself and Show You “Get It.” </strong>Reflecting on your motivations and aspirations is a crucial first step for any job search, but it is especially important with startups because founders focus so much on candidates’ attitudes. Your MBA program’s career services office can coach you through a self-assessment process that helps gauge your fit with a startup career.</div>
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If you lack prior startup experience, you can still communicate that you understand startup priorities in many ways. A creative approach when initiating contact with a startup can project passion. My former student Jeanne Hwang did this by launching a clever <a data-mce-href="http://jeanneforpinterest.tumblr.com/post/60397771561/so-what-became-of-the-jeanne-for-pinterest" href="http://jeanneforpinterest.tumblr.com/post/60397771561/so-what-became-of-the-jeanne-for-pinterest" style="color: #006699; outline: medium;" target="_blank">social media campaign</a> to get the attention of managers at Pinterest. Likewise, a candidate seeking a community manager position at Ridejoy created a boisterous <a data-mce-href="http://www.thedailymuse.com/job-search/best-resume-ever-how-to-woo-a-start-up/" href="http://www.thedailymuse.com/job-search/best-resume-ever-how-to-woo-a-start-up/" style="color: #006699; outline: medium;" target="_blank">video</a> that captured her enthusiasm and qualifications.</div>
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<strong>Problem: Not Showing How You’ll Add Value.</strong> MBAs routinely fail to demonstrate how they can immediately add value in a startup. They emphasize the same generic strengths that they’d cite in an interview with a consulting firm, for example, “I’m smart, analytical, hard working, and a superb team player. Point me at any problem and I’ll deliver great results.” From a founder, this is likely to engender the response: “That’s cool, but what can you actually DO?” As one entrepreneur said, “I do value an MBAs’ analytical skills and their ability to troubleshoot strategy problems. But focusing too much of the recruiting conversation on strategy or asking for a strategy/biz dev job in a 5-10 person startup shows a lack of understanding of our most urgent priorities.”</div>
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Founders also complained that MBAs show little interest in or ability for sales roles. One entrepreneur said, “In a startup, you are selling ALL of the time: to customers, partners, prospective employees, and investors. A startup does better if more of its employees are able and willing to sell. MBAs’ classroom training encourages a dispassionate, analytical perspective. That’s not what sales is about, so MBAs need to unlearn certain attitudes to succeed in startups.”</div>
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<strong>Solution: Bring a Solution!</strong> Charlie O’Donnell suggests that you <a data-mce-href="http://www.thisisgoingtobebig.com/blog/2011/12/5/reverse-engineering-a-career.html" href="http://www.thisisgoingtobebig.com/blog/2011/12/5/reverse-engineering-a-career.html" style="color: #006699; outline: medium;" target="_blank">reverse engineer</a> the requirements for the startup job you are pursuing, and then systematically address any gaps in your skills inventory. For example, business development managers are expected to have a deep understanding of ecosystem trends and participants. Blogging is one way to show that you have such knowledge. Similarly, as I’ve argued elsewhere, MBAs seeking product management jobs can significantly enhance their marketability by <a data-mce-href="http://blogs.hbr.org/hbsfaculty/2013/09/should-mbas-learn-to-code.html" href="http://blogs.hbr.org/hbsfaculty/2013/09/should-mbas-learn-to-code.html" style="color: #006699; outline: medium;" target="_blank">learning to code</a>. Doing such work for academic credit is a perfect way to kill two birds with one stone: building job-relevant skills and perspective while completing your MBA.</div>
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Founders are in strong agreement about the best way for candidates to make a strong impression: they should propose a bold idea for improving performance —one that is germane to the position they are seeking. For a biz dev role, for example, this might entail making a case for a specific partnership, along with an assessment of pros and cons for each side and potential deal terms. A PM candidate might offer a proposal for how the startup could reorganize its site navigation, based on analysis of competitors’ products.</div>
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You may be thinking, “Isn’t my proposal likely to be off target?” Indeed, founders said that 90% of the time, such proposals had already been considered and rejected, or were fatally flawed in some way. But they maintained that receiving the pitch demonstrated that the candidate was a self-starter; showed that she could sell; gave a sense for what the candidate knew and could do; and crucially, showed how she reacted on the fly when told that her idea wouldn’t work. Did the candidate listen well, and adapt the plan in intelligent ways? Did he become too argumentative and defensive? Was he too quick to abandon his idea? Balancing bold and creative ideas with a willingness to listen demonstrates a killer combination of passion, confidence, and humility.</div>
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<strong>Problem: Unreasonable Expectations. </strong>MBAs make a couple of other mistakes when seeking startup jobs, which can attributed to flawed expectations about entrepreneurial careers and startup recruiting.</div>
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First, they worry too much about not having a full-time job by April or May as they are completing their degree. Startups can’t plan their manpower needs with precision, so they tend to commit to hiring someone at most a couple of months before that individual begins work. If a startup wants you, they typically want you NOW. That means you’ll probably spend the final weeks of your MBA program hunting for a job, while your peers who accepted corporate or consulting gigs months ago are planning summer vacations. It can be depressing to tell them, “I’m still looking for a job.” But these are the natural rhythms of the long startup recruiting season, which starts early in the school year with lots of networking to build relationships and credibility and may not end until after graduation. If you understand and accept this, you’ll feel less pressure.</div>
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Second, MBAs often expect too much seniority and have unrealistic expectations about becoming a general manager quickly—especially in later stage startups. For example, a founder in a startup with 300 employees complained about a candidate who wanted to know, “How much exposure will I get to the board?” Founders acknowledged that some degree of ego and impatience are valuable traits in employees—after all, pursuing risky opportunity when resources are scarce does require self-confidence. But the best candidates are self aware, able to modulate their egos, and always focused on how they can contribute, rather than what they can extract from a new job.</div>
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Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-54624471459822846602013-08-30T10:15:00.000-04:002013-08-30T11:10:42.463-04:00Should MBAs Learn to Code?<div class="MsoNormal">
<i><span style="font-family: inherit;">by Tom Eisenmann</span></i></div>
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<span style="font-family: inherit;"><o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">“Should I learn to code?” <o:p></o:p></span></div>
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<span style="font-family: inherit;">MBAs who lack programming skills often ask this question when
they pursue careers in technology companies. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Bloggers like Yipit co-founder <a href="http://viniciusvacanti.com/2013/07/30/why-you-will-never-learn-to-code/">Vin
Vacanti</a> have shared views on the payoff from learning to code, as have
several students at Harvard Business School, including <a href="http://www.hinnovates.org/2012/why-mbas-should-learn-computer-science-reflections-on-cs50/">Dana
Hork</a>, <a href="http://launchingtechventures.blogspot.com/2013/02/what-does-it-mean-to-be-technical.html">Matt
Boys</a>, and <a href="http://launchingtechventures.blogspot.com/2012/03/5-steps-for-mbas-learning-to-code.html">Matt
Thurmond</a>.<o:p></o:p></span></div>
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<span style="font-family: inherit;">I thought it’d be helpful to supplement bloggers’
perspectives with some survey data. I received responses from 24 of the 41 HBS students
who enrolled over the past two years in <a href="https://www.cs50.net/">CS50</a>,
the introductory computer science course at Harvard College.</span><o:p></o:p></div>
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<br /></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEio5WZryxmdUu7cp_UhqriL3Dk1KF2mUmpV3aycr1CKpCPnciu9PH5rgfUj0lsdDKvruv9JN75iBaxN3MbZXu4VMFJbFwyrn8iMxcYcTZVbx1135KGvDQJ2PX-3eWWnZRt56npu_IRFw8ij/s1600/CS50+chart.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="384" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEio5WZryxmdUu7cp_UhqriL3Dk1KF2mUmpV3aycr1CKpCPnciu9PH5rgfUj0lsdDKvruv9JN75iBaxN3MbZXu4VMFJbFwyrn8iMxcYcTZVbx1135KGvDQJ2PX-3eWWnZRt56npu_IRFw8ij/s640/CS50+chart.jpg" width="640" /></a></div>
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<div class="MsoNormal">
<span style="font-family: inherit;">My survey didn’t ask for comments on the quality of CS50 itself.
The course is widely acclaimed; my colleague <a href="http://cs.harvard.edu/malan/about/">David Malan</a> has grown its enrollment
five-fold to 715 students over the six years he has served as lead instructor.
Rather, my goal with the survey was to learn whether MBAs saw this well
designed and rigorous course as a good investment of their time, given their
career objectives and other course options. The tradeoffs are tricky: survey
respondents reported spending an average of 16.3 hours per week on CS50—perhaps
2-3x more time than they would spend on an MBA elective that yielded equivalent
academic credit.<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-family: inherit;">So, was it worth it? Of the 18 survey respondents who
founded a startup, joined an existing startup, or went to work for a big tech
company upon graduation, 83% answered “yes” to the question, “On reflection,
was taking CS50 worth it for you?” and 17% said “not sure.” Of these 18
respondents, none said that taking CS50 was not worth it. By contrast, of the six
respondents who pursued jobs outside of the tech sector—say, in consulting or
private equity—only two said CS50 was a worthwhile investment; three said it
was not; and one was not sure.</span></div>
<h3>
<b style="mso-bidi-font-weight: normal;"><br /></b></h3>
<h3>
<b style="mso-bidi-font-weight: normal;">Benefits</b></h3>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Respondents cited several benefits from taking CS50.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><b style="mso-bidi-font-weight: normal;">Writing Software.</b>
Respondents differed in their assessments of their current ability to
contribute working code on the job, based on their CS50 learning. Several said
they regularly do so, for example:</span><span style="font-family: inherit; text-indent: -0.25in;"> </span></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="font-family: inherit; text-indent: -0.25in;">Kyle Watkins, who joined an existing startup,
said he has “used CS50 skills to create a half dozen VBA programs that will likely
save the startup I'm working for tens of thousands of dollars."</span></li>
<li><span style="font-family: inherit; text-indent: -0.25in;">Michael Belkin, who founded his own startup,
said, “After taking CS50, I was able to build an MVP that would have cost at
least $40K to outsource. And it was better, because I understood all the small
details that drive a user's experience. After HBS, I became one of the lead
developers at my startup, which has saved the company several hundred thousand
dollars.”</span><span style="font-family: inherit;"> </span></li>
</ul>
<div class="MsoNormal">
<span style="font-family: inherit;"><b style="mso-bidi-font-weight: normal;">Communicating with
Developers.</b> Other respondents, especially those employed in large tech
companies, said they couldn’t really write production software, but felt more
confident in their ability to discuss technical issues with developers as a
result of taking CS50. For example:</span></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="font-family: inherit; text-indent: -0.25in;">Jon Einkauf, a product manager for Amazon AWS,
said, “I work with developers on my team every day to define and build new
features. In addition, the users of my product are developers and data
scientists. Taking CS50 gave me a glimpse of what it's like to be a developer —
to get excited about complex computer science problems, to get frustrated when
you hit a bug. It taught me enough about software development that I don't feel
lost in my current job. I can ask intelligent questions, I can push back on the
developers when necessary, and I am confident that I could teach myself anything
else I need to learn."</span></li>
<li><span style="font-family: inherit; text-indent: -0.25in;">Luke Langford, who joined Zynga as a product
manager upon graduation, said that CS 50 “gave me a working knowledge and
confidence to be able to review code. PMs at Zynga don't often work in code,
but there were several times when I was able to diagnose issues and help the
engineers identify why certain algorithms that calculated scores were
wrong.</span><span style="font-family: inherit; text-indent: -0.25in;"> </span><span style="font-family: inherit; text-indent: -0.25in;">Pre-CS50, I wouldn't have been
able to do that.”</span></li>
</ul>
<div class="MsoNormal">
<span style="font-family: inherit;"><b style="mso-bidi-font-weight: normal;">Recruiting.</b>
Several respondents mentioned that their CS50 experience had helped persuade
recruiters that they were committed to a career in technology. As one anonymous
respondent reported, “I wanted to get a job at a tech startup and ended up as a
product manager at one of NYC's hottest tech startups. The founder, who is a CS
PhD, was really impressed that I'd learned to code.<span style="mso-spacerun: yes;"> </span>I think it made a difference in getting the
offer.”</span></div>
<h3>
<b style="mso-bidi-font-weight: normal;"><br /></b></h3>
<h3>
<b style="mso-bidi-font-weight: normal;">Costs</b></h3>
<div class="MsoNormal">
<br />
The benefits from CS50 came at a considerable cost, however,
in terms of workload. In addition to lectures and section meetings, the course
has weekly problem sets, two mid-terms exams, and a final project that requires
students to design and build an application.<o:p></o:p></div>
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<br /></div>
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Beyond the heavy workload, respondents who were less
sanguine about the payoff from CS50 often cited its use of C to teach
fundamentals such as functions, loops and arrays, rather than a more modern
programming language. While acknowledging that C is well suited for this
purpose, these students would have preferred more focus on languages used in
web development (e.g., JavaScript, HTML, and PHP), which are covered in the
last one-third of CS50’s syllabus. Likewise, some students said they understood
why certain “academic” concepts (e.g., algorithm run times, security) were covered
in an introductory CS course, but they did not view such concepts as salient to
their “just learn to code” personal priorities.</div>
<h3>
<b style="mso-bidi-font-weight: normal;"><br /></b></h3>
<h3>
<b style="mso-bidi-font-weight: normal;">Advice</b></h3>
<div class="MsoNormal">
<br />
I asked respondents for advice on how MBAs who enroll in
CS50 can get the most out of the course.</div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="text-indent: -0.25in;">An anonymous respondent said, “Go to office
hours Monday night; it’s the least busy night, so you have the best chance of
getting lots of TA help. Get to know the undergrads: they are fabulous! Build
something for your final project that you're passionate about, and use a
language that’s relevant to your career plans.”</span></li>
<li><span style="text-indent: -0.25in;">Einkauf added, “You need to really commit to
it.</span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">If you just watch the lecture videos,
complete most of the problem sets, and build a basic final project, you can get
a decent grade—but you'll only get a fraction of the possible value.</span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">You should plan to attend your section
meetings, set aside plenty of time for the problem sets, really invest in the
final project, get to know the other students, go to the hackathon, etc.”</span></li>
<li><span style="text-indent: -0.25in;">Vincent Ho-Tin-Noe advised, “The class is very
easy for 2-3 weeks, and then it just gets crazy. Don't be caught off-guard.
Start working on your problem sets as soon as you get them to gauge the amount
of time you'll need. Don't start 2 days before the deadline; you won't be able
to manage your workload otherwise, even with all-nighters. Also, make sure to
watch the lectures live or within 24 hours online. Don't try to catch up on
lectures and short videos all at once, right before starting your problem set,
or you'll get swamped. Watch all the videos, including problem set walkthroughs
and shorts, if you want to get the most out of the class. Finally, make sure to
attend sections. They're extremely useful, and bonding with your teaching
fellow will definitely be helpful.”</span></li>
</ul>
<div class="MsoNormal">
Many respondents acknowledged that there are online options
for learning to code that would not require as big a time commitment as CS50.
However, they saw a graded course for academic credit as good way to ensure
they would actually get the work done. An anonymous respondent said, “I knew
that I would never learn programming if I didn't have something—a problem set
or test—to keep me accountable every week. I don't want to generalize, but I
highly doubt that most HBS people after doing their cases/travel/socializing
are going to set aside time to consistently do Codecademy or Treehouse every
week.” <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Justin Ekins added, “You can learn everything in this course
online, but, let's face it, you're not going to force yourself to do that. And
you won't get the depth of knowledge that CS50 will provide. It's an
outstanding course, and it's incredibly well taught. I'd recommend taking it
and then spending J term [three weeks in January when regular HBS classes do
not meet] with Stanford's online CS193P, which will get you to the point of
building iPhone apps.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Sixteen of the survey respondents are happy to be contacted
by current HBS students who have questions about taking CS50. You can email me
to get their contact info.<o:p></o:p></div>
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Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-43745869570489291862013-07-09T23:07:00.000-04:002013-07-09T23:07:01.533-04:00Head Games: Ego and Entrepreneurial Failure<div class="MsoNormal">
This post was originally published at <a href="http://programming.oreilly.com/2013/07/head-games-ego-and-entrepreneurial-failure.html">O'Reilly Programming</a></div>
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<br /></div>
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<br /></div>
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<i><b>“Ever tried. Ever failed. No matter. Try again. Fail again.
Fail better.”</b></i></div>
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<i><b><o:p></o:p></b></i></div>
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<i><b>—Samuel Beckett</b></i><o:p></o:p></div>
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<br /></div>
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Entrepreneurial success hinges in large part on a founder’s
mastery of psychology. This requires the ability to manage one’s responses to what
Ben Horowitz calls “<a href="http://bhorowitz.com/2012/06/15/the-struggle/">The
Struggle</a>,” that is, the emotional roller coaster of startup life. Paul
DeJoe captures the ups and downs of being a startup CEO in a <a href="http://onstartups.com/tabid/3339/bid/85060/What-It-s-Like-To-Be-The-CEO-Revelations-and-Reflections.aspx">post</a>
reprinted in a book that I edited, <a href="http://www.amazon.com/dp/1449367879/"><i>Managing
Startups: Best Blog Posts</i></a>.</div>
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<o:p></o:p></div>
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<br /></div>
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It’s all in a founder’s head: the drive to build something
great; the resilience to dust yourself off when you repeatedly get knocked
down; the passion powering a <a href="http://en.wikipedia.org/wiki/Reality_distortion_field">Reality Distortion
Field</a> that mesmerizes potential teammates, investors, and partners. But
inside a founder’s head may also be delusional arrogance; an overly impulsive
“ready-fire-aim” bias for action; a preoccupation with control; fear of failure;
and self-doubt fueling the <a href="http://en.wikipedia.org/wiki/Impostor_syndrome">impostor syndrome</a>. That’s
why VC-turned-founder-coach Jerry Colonna named his blog <a href="http://www.themonsterinyourhead.com/">The Monster in Your Head</a>. In a
recent <a href="http://thisweekinstartups.com/thisweekin-startups/jerry-colonna-independent-lifebusiness-coach-former-vc/">interview</a>
with Jason Calacanis, Colonna does a nice job of summarizing some of the
psychological challenges confronting entrepreneurs. So does a classic article
by the psychoanalyst Manfred Kets de Vries: “<a href="http://hbr.org/1985/11/the-dark-side-of-entrepreneurship/ar/1">The Dark
Side of Entrepreneurship</a>.” <o:p></o:p></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;">Causes of
Entrepreneurial Failure<o:p></o:p></b></div>
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<br /></div>
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If entrepreneurial success hinges on a founder’s mastery of
psychology, it stands to reason that a founder’s flawed ego is often the root
cause of startup failure.<o:p></o:p></div>
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<br /></div>
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Categorizing causes of entrepreneurial failure is tricky.
Asking entrepreneurs why their venture failed doesn’t always yield reliable
answers. To bolster our fragile egos, we credit our successes to our own
brilliance and skill, and we attribute our failures to the shortcomings of
others or to events outside our control. This pattern is so deeply ingrained
that psychologists have labeled it the <a href="http://en.wikipedia.org/wiki/Fundamental_attribution_error">Fundamental
Attribution Error</a>.<o:p></o:p></div>
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<br /></div>
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Furthermore, just as a living organism might die for many
reasons—for example, hunger, predation, or illness—startup failure has diverse
causes. Paul Graham cites <a href="http://www.paulgraham.com/startupmistakes.html">18 reasons</a> why
startups fail; in her post, <a href="http://www.foundersatwork.com/1/post/2012/10/what-goes-wrong.html">What Goes
Wrong</a>, reprinted in <i style="mso-bidi-font-style: normal;">Managing Startups</i>,
Graham’s partner at Y Combinator, Jessica Livingston, warns founders that they
must navigate a “tunnel full of monsters that kill.” <o:p></o:p></div>
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<br /></div>
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Finally, explanations for startup failure are often linked
in a complex chain of causality. Running out of capital is often the proximate
cause of death. But this implies that an entrepreneur couldn’t raise more
funds. Why? Because the venture had little traction. Why? Because the team was
slow to market with an inferior product, relative to rivals. Why? <o:p></o:p></div>
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<br /></div>
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In the spirit of “<a href="http://en.wikipedia.org/wiki/5_Whys">Five Whys</a>” analysis, one should
continue probing until the root cause for failure is revealed. Digging deeper
often reveals that startup failures have ego problems at their core.<o:p></o:p></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;">Ego-Driven Failure<o:p></o:p></b></div>
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<br /></div>
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At the risk of oversimplifying, the ego issues that can
derail an early-stage startup come in two broad groupings. Some founders are
ambivalent about their vision or their level of commitment to their venture. Others
are headstrong—too confident about their vision and their ability to lead. In
fact, Peter Thiel <a href="http://blakemasters.com/post/24578683805/peter-thiels-cs183-startup-class-18-notes-essay">hypothesizes</a>
that plotting founders along such a spectrum would yield an inverted normal
distribution—one that is fat at both tails, rather than in the middle. <o:p></o:p></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;">Ambivalence.</b> Steve
Blank tells a <a href="http://steveblank.com/2011/11/30/youll-be-dead-soon-carpe-diem/">tragic
story</a> of a founder failing from a lack of nerve. Entrepreneurs who are
irresolute, weak-willed, and wavering can cause problems like these:<o:p></o:p></div>
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</div>
<ul>
<li><b style="text-indent: -0.25in;"><i>They fail to recruit a great team</i></b><span style="text-indent: -0.25in;">
because strong candidates can sense the founder’s ambivalence and know that
resolve is required to lead a startup through its ups and downs.</span></li>
<li><b style="text-indent: -0.25in;"><i>They pivot too quickly,</i></b><span style="text-indent: -0.25in;"> never
devoting enough effort to any one opportunity to refine their offering and gain
traction. Some founders get bored easily and rapidly cycle through new ideas. Others
are overly compliant: they lack the strength to say “no” to team members,
investors, or customers who suggest different course corrections. Another </span><a href="http://steveblank.com/2012/08/27/vision-versus-hallucination-founders-and-pivots/" style="text-indent: -0.25in;">post</a><span style="text-indent: -0.25in;">
from Blank republished in </span><i style="text-indent: -0.25in;">Managing
Startups</i><span style="text-indent: -0.25in;"> describes Yuri, an indecisive entrepreneur who shifted strategy
constantly because he was unable to distinguish between vision and
hallucination and was thus “buffeted by the realities of his burn rate, declining
bank account, and depressing comments from customers.” His team “was afraid to
make a decision, because they couldn’t guess what Yuri wanted to do that week.”</span></li>
<li><b style="text-indent: -0.25in;"><i>They scale prematurely,</i></b><span style="text-indent: -0.25in;"> burning
through their capital before they have achieved product-market fit, because
they are unwilling to resist pressure from investors who urge them to “swing
for the fences.” The anonymous author of the new blog </span><a href="http://mystartuphas30daystolive.tumblr.com/post/54097344851/entrepreneurs-not-investors-kill-startups" style="text-indent: -0.25in;"><i>My Startup Has 30 Days to Live</i></a><i style="text-indent: -0.25in;">,</i><span style="text-indent: -0.25in;"> a moving real-time account of the
pressures, doubts and personal costs confronting a struggling startup’s
founder, acknowledges making this mistake: “I had the power to reject these
suggestions, at the risk of being labeled as un-coachable… These men never put
a gun to my head, never threatened me into making the decisions I did. I just
didn’t challenge them.”</span></li>
<li><b style="text-indent: -0.25in;"><i>They stay in stealth mode too long,</i></b><span style="text-indent: -0.25in;">
missing a window of opportunity or launch a flawed product due to a lack of
early customer feedback. As Paul Graham points out, such procrastination
sometimes stems from a fear of being judged.</span></li>
<li><b style="text-indent: -0.25in;"><i>They provoke cofounders disputes</i></b><span style="text-indent: -0.25in;">—especially
when, in Livingston’s words, a cofounder’s irresolute behavior raises questions
about whether he is “trustworthy or works hard enough or is competent.”</span></li>
<li><b style="text-indent: -0.25in;"><i>They throw in the towel </i></b><span style="text-indent: -0.25in;">without</span><b style="text-indent: -0.25in;"> </b><span style="text-indent: -0.25in;">putting up much of a fight, because
they lack, in Livingston’s view, the drive and determination “to overcome the
sheer variety of problems you face in a startup” or they are “immobilized by
sadness when things go wrong.” As Jason Cohen </span><a href="http://blog.asmartbear.com/startups-emotionally-draining.html" style="text-indent: -0.25in;">says</a><span style="text-indent: -0.25in;">,
“It’s so easy to stop. There are so many reasons to stop. And that—stopping—is
how most little startups actually fail.” Andrew Montalenti adds, in a </span><a href="http://www.pixelmonkey.org/2012/10/03/why-startups-die" style="text-indent: -0.25in;">post</a><span style="text-indent: -0.25in;">
republished in </span><i style="text-indent: -0.25in;">Managing Startups,</i><span style="text-indent: -0.25in;"> that
founders are likely to get “antsy” when they pursue a startup mostly to advance
their career but lack personal passion for its mission.</span></li>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><b style="text-indent: -0.25in;"><i>They follow the herd, </i></b><span style="text-indent: -0.25in;">perhaps
because they are insecure about their ability to set direction. Such founders often
pursue derivative ideas or copy rivals’ features, as in Cap Watkins’ </span><a href="http://blog.capwatkins.com/formspring-a-postmortem" style="text-indent: -0.25in;">post-mortem</a><span style="text-indent: -0.25in;"> of
Formspring’s failure.</span></li>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><b style="text-indent: -0.25in;"><i>They take their eye off the ball. </i></b><span style="text-indent: -0.25in;">Mark
Suster </span><a href="http://www.bothsidesofthetable.com/2010/10/13/be-careful-not-to-become-a-conference-ho/" style="text-indent: -0.25in;">bemoans</a><span style="text-indent: -0.25in;">
entrepreneurs who crave the limelight and lack the discipline to say “no” to
offers to speak at conferences. Livingston warns founders to avoid
distractions—in particular, conversations with corporate development executives
who want to learn about a startup but have no real intention of pursuing a
deal.</span></li>
</ul>
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<b style="mso-bidi-font-weight: normal;"><br /></b></div>
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<b style="mso-bidi-font-weight: normal;">Obstinacy.</b>
Startups run by founders who are control freaks, headstrong, or arrogant often
precipitate the same problems listed above, but in very different ways:<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l1 level1 lfo2; text-indent: -.25in;">
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<ul>
<li><b style="text-indent: -0.25in;"><i>They fail to recruit a great team</i></b><span style="text-indent: -0.25in;"> because
they don’t recognize their own shortcomings or they are unwilling to delegate.
According to Kets de Vries, they also may be prone to driving away talented
colleagues by scapegoating or by viewing employees in extreme terms, putting
some on a pedestal while vilifying others.</span></li>
<li><b style="text-indent: -0.25in;"><i>They fail to pivot</i></b><span style="text-indent: -0.25in;"> because, in some
cases, an overconfident entrepreneur simply cannot comprehend that customers might
be rejecting their product. Or, they may be cocksure that the path that led to
success in their last venture will prove true again. In still other instances,
founders who Steve Duplessie describes as </span><a href="http://www.esg-global.com/blogs/fail-factors-why-startups-die-the-zealot/" style="text-indent: -0.25in;">zealots</a><span style="text-indent: -0.25in;">
may be loath to pivot away from a vision to which they are fervently
committed—even if sticking with the startup’s original plan puts the venture in
peril. This risk is compounded when an entrepreneur relies on a Steve
Jobs-style “reality distortion field”—using personal charisma and riveting
rhetoric to inspire people to go to extremes to achieve a startup’s vision.
When a vision is sold this way, it is especially difficult to subsequently admit
that it might have been flawed.</span></li>
<li><b style="text-indent: -0.25in;"><i>They scale prematurely </i></b><span style="text-indent: -0.25in;">due to
overconfidence or an impatient drive to see their vision become a reality. Kets
de Vries says such founders often defend against anxiety by “turning to action
as an antidote.”</span></li>
<li><b style="text-indent: -0.25in;"><i>They stay in stealth mode too long.</i></b><span style="text-indent: -0.25in;">
In some cases their founder, with a vision burning so brightly, feels no need
to secure early market feedback. In other instances a founder’s perfectionism
prevents a team from “launching early and often.”</span></li>
<li><b style="text-indent: -0.25in;"><i>They provoke cofounder disputes </i></b><span style="text-indent: -0.25in;">by</span><b style="text-indent: -0.25in;"><i> </i></b><span style="text-indent: -0.25in;">battling
ceaselessly for dominance and control of their venture’s direction.</span> </li>
</ul>
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There’s no science behind my characterization of founders’
egos as lying somewhere on a spectrum that ranges from ambivalent to obstinate.
I’m sure this one-dimensional view makes trained psychologists cringe, because
it ignores a mountain of research pointing to a “<a href="http://en.wikipedia.org/wiki/Big_Five_personality_traits">Big Five</a>”
set of stable personality traits: openness, agreeableness, extraversion, conscientiousness
and neuroticism. Adeo Ressi’s <a href="http://fi.co/">Founder Institute</a>
draws on such research in the admissions test for its training program. Based
on analysis of responses from over 15,000 aspiring entrepreneurs, the test
sheds light both on the traits of successful founders and the attributes of <a href="http://fi.co/posts/958">Bad Founder DNA</a>: excuse-making, predatory
aggressiveness, deceit, emotional instability, and narcissism. Founder
Institute’s research confirms: it’s all in the head!<o:p></o:p></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;">Failing Better<o:p></o:p></b></div>
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<br /></div>
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So, what should a founder to do to master the monsters in
her head?<o:p></o:p></div>
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<br /></div>
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Self-reflection is the starting point. What motivates you? How
do you respond to pressure and uncertainty? For some, therapy with a
professional psychologist will put this in focus. For others, a startup coach
like Colonna can provide helpful guidance, as can a good mentor. Regardless of
where you seek such counsel: ask for help, tell the truth, and listen.<o:p></o:p></div>
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<br /></div>
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If you are thrashing around and pivoting too quickly, follow
Steve Blank’s advice to Yuri: sit on any new insights for 72 hours, and
brainstorm them with someone you trust.<o:p></o:p></div>
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<br /></div>
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Build the discipline of debriefing to learn from your
startup’s failures. Discerning the causes of small setbacks may help you stave off
big ones. The U.S. Army’s <a href="http://en.wikipedia.org/wiki/After_action_review">After-Action Review</a>
process provides a template. With an AAR, a team asks four simple questions:
What was our objective? What happened? Why did it happen? What do we do next? <o:p></o:p></div>
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In conducting post-mortems, however, be on guard for the
Fundamental Attribution Error, that is, a tendency to blame failure on events
outside your control. Also, as Blank <a href="http://steveblank.com/2013/02/26/failure-and-redemption/">points out</a>,
you’ll be in a better position to learn from a big failure if you recognize
that your emotional response to it may follow <a href="http://en.wikipedia.org/wiki/K%C3%BCbler-Ross_model">Kubler-Ross’s five
stages of grief</a>—denial, anger, bargaining, depression, and gradual,
grudging acceptance.<o:p></o:p></div>
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Follow the <a href="http://spencerfry.com/startups-stress-and-depression">advice</a> of
Spencer Fry and find healthy ways to relieve stress. Recognize that such stress
puts entrepreneurs at increased risk for depression. If you believe that you or
someone you work with may be depressed, seek treatment NOW. And read Brad
Feld’s <a href="http://www.feld.com/wp/archives/tag/depression">posts</a> to
learn more about depression and how to manage it.</div>
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Finally, follow the advice of David Tisch, and <a href="http://blogs.wsj.com/accelerators/2013/05/15/david-tisch-never-lose-sight-of-the-why/">never
lose sight of the ‘why.’</a> Tisch advises founders to constantly ask whether
they are still on the path that originally motivated them to launch a startup,
for example, the desire to disrupt an industry, to build a great company, or
simply to be independent. If not, Tisch says, it’s time to wind things up. As
Brad Feld <a href="http://blogs.wsj.com/accelerators/2013/05/16/brad-feld-sometimes-failure-is-your-best-option/">points
out</a>, sometimes failure is your best option.<o:p></o:p></div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-17604650825326585692013-01-12T15:28:00.000-05:002013-01-12T15:28:03.963-05:00What Is Entrepreneurship?
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<br />
<div class="MsoNormal">
<span style="font-family: inherit;"><i>This post was originally published at <a href="http://blogs.hbr.org/hbsfaculty/2013/01/what-is-entrepreneurship.html">HBR.org</a>.</i></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;">What
<i>is</i> entrepreneurship? You probably
think that the answer is obvious, and that only an academic would bother to ask
this question. As a professor, I suppose I am guilty of mincing words. But like
the terms “strategy” and “business model,” the word “entrepreneurship” is
elastic. For some, it refers to venture capital-backed startups and their kin;
for others, to any small business. For some, “corporate entrepreneurship” is a
rallying cry; for others, an oxymoron.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;">The
history of the word “entrepreneurship” is fascinating and scholars have indeed
parsed its meaning. I’ll spare you the results, and focus instead on the
definition we use at Harvard Business School. It was formulated by Professor <a href="http://www.amazon.com/Howards-Gift-Uncommon-Wisdom-Inspire/dp/1250004241/">Howard Stevenson</a>, the godfather of
entrepreneurship studies at HBS. According to Stevenson, <i>entrepreneurship is the pursuit of opportunity beyond resources
controlled.</i></span></div>
<div class="MsoNormal">
<i><span style="font-family: inherit;"><br /></span></i></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><i><b>“Pursuit”</b></i> implies a singular,
relentless focus. Entrepreneurs often perceive a short window of opportunity.
They need to show tangible progress to attract resources, and the mere passage
of time consumes limited cash balances. Consequently, entrepreneurs have a
sense of urgency that is seldom seen in established companies, where any
opportunity is part of a portfolio and resources are more readily available. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><i><b>“Opportunity”</b> </i>implies an offering that is
novel in one or more of four ways. The opportunity may entail: 1) pioneering a
truly innovative product; 2) devising a new business model; 3) creating a
better or cheaper version of an existing product; or 4) targeting an existing
product to new sets of customers. These opportunity types are not mutually
exclusive. For example, a new venture might employ a new business model for an
innovative product. Likewise, the list above is not the collectively exhaustive
set of opportunities available to organizations. Many profit improvement
opportunities are not novel—and thus are not entrepreneurial—for example,
raising a product’s price or, once a firm has a scalable sales strategy, hiring
more reps. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><i><b>“Beyond resources
controlled”</b></i>
implies resource constraints. At a new venture’s outset, its founders control
only their own human, social, and financial capital. Many entrepreneurs bootstrap:
they keep expenditures to a bare minimum while investing only their own time
and, as necessary, their personal funds. In some cases, this is adequate to
bring a new venture to the point where it becomes self-sustaining from
internally generated cash flow. With most high-potential ventures, however,
founders must mobilize more resources than they control personally: the venture
eventually will require production facilities, distribution channels, working
capital, and so forth. </span><span style="font-size: x-small;"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Because
they are pursuing a novel opportunity while lacking access to required
resources, entrepreneurs face considerable risk, which comes in four main types.
<b><i>Demand risk</i> </b>relates to prospective
customers’ willingness to adopt the solution envisioned by the entrepreneur. <i><b>Technology risk</b></i> is high when engineering
or scientific breakthroughs are required to bring a solution to fruition. <i><b>Execution risk</b> </i>relates to the
entrepreneur’s ability to attract employees and partners who can implement the
venture’s plans. <i><b>Financing risk</b></i>
relates to whether external capital will be available on reasonable terms. The
entrepreneur’s task is to manage this uncertainty, while recognizing that certain
risks cannot be influenced by their actions. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Entrepreneurs face a
Catch-22. On the one hand, it can be difficult to reduce risk without
resources. For example, outside capital may be required to develop and market a
product and thereby demonstrate that technical and market risks are limited. On
the other hand, it can be difficult to persuade resource owners to commit to a
venture when risk is still high. Entrepreneurs employ four tactics in coping
with this Catch-22:</span></div>
<div class="BulletList">
</div>
<ul>
<li><i style="font-family: inherit;"><b>Lean experimentation</b></i><span style="font-family: inherit;"><b> </b>allows them to resolve
risks quickly and with limited resource expenditure, by relying on a “</span><a href="http://www.startuplessonslearned.com/2009/08/minimum-viable-product-guide.html" style="font-family: inherit;">minimum viable product</a><span style="font-family: inherit;">,” that is, the smallest
possible set of activities required to rigorously test a business model
hypothesis.</span></li>
<li><i style="font-family: inherit;"><b>Staged investing</b> </i><span style="font-family: inherit;">allows entrepreneurs to
address risks sequentially, expending only the resources required to meet a
given milestone—before committing the resources needed to achieve the next
milestone.</span></li>
<li><i style="font-family: inherit;"><b>Partnering</b></i><span style="font-family: inherit;"> allows entrepreneurs to
leverage another organization’s resources and thereby shifts risks to parties
better able/more willing to bear them. In a variation of this tactic</span><span style="font-family: inherit;">, entrepreneurs </span><i style="font-family: inherit;">rent</i><span style="font-family: inherit;">
resources to keep costs variable and to avoid the big fixed outlays associated
with resource ownership.</span></li>
<li><i style="font-family: inherit;"><b>“Storytelling”</b></i><span style="font-family: inherit;"> by entrepreneurs—conjuring
a vision of a better world that could be brought about by their venture—can
encourage resource owners to downplay risks and in the process commit more
resources than they would if they had not been inspired. Steve Jobs, for
example, was famous for his mesmerizing “reality distortion field,” through
which he impelled employees, partners, and investors to go to extraordinary
lengths to help fulfill his dreams.</span></li>
</ul>
<br />
<div class="MsoNormal">
<span style="font-family: inherit;">So,
does Stevenson’s definition of entrepreneurship matter, in practical terms? I’d
argue that it does, for two reasons. First, it sees entrepreneurship as a <i>distinctive approach to managing</i> rather
than a specific stage in an organization’s life cycle (i.e., startup), a
specific role for an individual (i.e., founder), or a constellation of
personality attributes (e.g., predisposition for risk taking; preference for
independence). In this view, entrepreneurs can be found in many different types
of organizations, including large corporations. That should be encouraging if
you believe that entrepreneurship is an engine of global economic development
and a force for positive change in society.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;">Second,
the definition provides a guidepost for entrepreneurial action; it points to
tactics entrepreneurs can take to manage risk and mobilize resources. One of my
former students put it well when asked to give <a href="http://launchingtechventures.blogspot.com/2011/03/more-advice-from-class-of-1999-mba.html">advice to aspiring
entrepreneurs</a></span><span style="font-family: inherit;">:
“For me, ‘pursuing opportunity beyond resources controlled’ sums up perfectly
what I do day-to-day. You need to be inventive, creative, opportunistic, and persuasive,
because you rarely have enough resources. Embracing this definition helps me in
my role.”</span><span style="font-size: x-small;"><o:p></o:p></span></div>
<!--EndFragment-->Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-21340428022651652582012-12-30T21:59:00.000-05:002013-02-24T21:33:10.224-05:00Managing Startups: Best Posts of 2012<br />
<span style="font-family: inherit;">Here's my compilation of 2012's best posts about managing startups. I assembled similar lists at the end of <a href="http://platformsandnetworks.blogspot.com/2011/12/managing-startups-best-posts-of-2011.html" target="_blank">2011</a>, </span><a href="http://platformsandnetworks.blogspot.com/2011/01/launching-tech-ventures-part-iv.html" style="font-family: inherit;" target="_blank">2010</a><span style="font-family: inherit;"> and </span><a href="http://platformsandnetworks.blogspot.com/2009/11/compilation-of-webs-best-advice-for.html" style="font-family: inherit;" target="_blank">2009</a><span style="font-family: inherit;">. Many thanks to all of the authors. The generosity of the startup community is amazing, and these insights are invaluable to those of us who teach and coach aspiring entrepreneurs.</span><br />
<span style="font-family: inherit;"><br /></span>
Apologies to authors whose work I've omitted. <span style="font-family: inherit;">Please use comments below to suggest additional posts. Happy New Year!</span><br />
<div>
<b><br /></b></div>
<b>Lean Startup</b><br />
<ul>
<li>David Aycan of IDEO on the value of <a href="http://blogs.hbr.org/cs/2012/05/dont_let_the_minimum_win_over.html" target="_blank">prototyping multiple MVPs</a> in parallel.</li>
<li>Vin Vacanti on <a href="http://viniciusvacanti.com/2012/04/02/how-we-fooled-ourselves-into-delaying-our-startups-launch/" target="_blank">excuses</a> that kept Yipit from launching early.</li>
<li>Entrepreneur Graeham Douglas on lean techniques for <a href="http://graehamdouglas.wordpress.com/2012/11/15/lean-prototyping-for-hardware/" target="_blank">rapid prototyping of physical products</a>.</li>
<li>Emre Sokullu of GROU.PS on software that is well suited for <a href="http://techcrunch.com/2012/07/13/how-to-create-a-minimum-viable-product/" target="_blank">building MVPs</a>.</li>
<li>Ben Yoskovitz of GoInstant on the value of focusing on "<a href="http://www.instigatorblog.com/how-many-metrics/2012/08/14/" target="_blank">one metric that matters</a>."</li>
<li>Ash Maurya published his book, <a href="http://www.amazon.com/Running-Lean-Iterate-Works-Series/dp/1449305172/" target="_blank">Running Lean</a>; he describes the <a href="http://www.ashmaurya.com/2012/06/the-lean-stack-part-2/" target="_blank">Lean Stack</a> -- tools for managing hypothesis testing -- in a two-part post.</li>
<li>Joel Spolsky on the costs of different types of <a href="http://www.joelonsoftware.com/items/2012/07/09.html" target="_blank">software inventory</a>.</li>
<li>Glenn Kelman of Redfin on how <a href="http://techcrunch.com/2012/12/31/the-maximum-beautiful-product/" target="_blank">running lean without deep product conviction</a> can lead entrepreneurs to pivot too quickly and build mediocre products.</li>
<li>Dan Milstein of Wingu in a <a href="http://www.youtube.com/watch?v=vFIf2ATkFlY" target="_blank">video</a> from the 2012 Lean Startup Conference on conducting a "5 Whys" session.</li>
<li>Trevor Owens of Lean Startup Machine on <a href="http://blog.leanstartupmachine.com/2012/10/how-to-get-out-of-the-building-with-the-validation-board" target="_blank">different approaches for validating assumptions</a>.</li>
<li>A <a href="http://blog.leanstartupmachine.com/2012/12/4500-in-90-minutes-with-lean-startup-methodologies" target="_blank">video</a> from the Lean Startup Conference of Lean Startup Machine SF 2012 winner, Chef's Table, discussing their pivots and hypothesis tests.</li>
<li>Other <a href="http://www.youtube.com/user/StartupLessonsLearne" target="_blank">videos</a> from Eric Ries's Lean Startup Conference.</li>
</ul>
<div>
<b>Business Models</b></div>
<div>
<ul>
<li><a href="http://abovethecrowd.com/2012/11/13/all-markets-are-not-created-equal-10-factors-to-consider-when-evaluating-digital-marketplaces/" target="_blank">Bill Gurley</a> of Benchmark, <a href="http://genuinevc.com/archives/2012/1/23/start-your-marketplace-engines.html" target="_blank">David Beisel</a> of NextView Ventures, and <a href="http://techcrunch.com/2012/08/19/how-to-structure-a-marketplace/" target="_blank">Seth Rothman</a> of Greylock on key factors for success in building online marketplaces.</li>
<li>Fred Wilson of Union Square Ventures on revenue models for <a href="http://www.avc.com/a_vc/2012/12/mba-mondays-revenue-models-commerce.html" target="_blank">online commerce</a> sites.</li>
<li>Rishi Shah of Digioh on <a href="http://onstartups.com/tabid/3339/bid/84427/Freemium-Pricing-for-SaaS-Optimizing-Paid-Conversion-Upgrades.aspx" target="_blank">optimizing freemium pricing for SaaS</a>; David Skok of Matrix Partners on <a href="http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/" target="_blank">why churn matters</a> so much with SaaS models.</li>
<li>M. Wensing presents a taxonomy of different types of <a href="http://wensing.tumblr.com/post/25167979206/the-anatomy-of-profitable-freemium" target="_blank">freemium offers</a>.</li>
<li>Entrepreneur/angel investor Brian Balfour on <a href="http://brianbalfour.com/post/25027886124/the-network-affect-solving-chicken-or-the-egg" target="_blank">solving the chicken & egg problem</a> with network effects businesses; Sangeet Choudary writes about platforms and network effects, e.g., the impact or <a href="http://platformed.info/reverse-network-effects-why-scale-may-be-the-biggest-threat-facing-todays-social-networks/" target="_blank">reverse network effects</a> on social media.</li>
<li>Tristan Kromer shows <a href="http://grasshopperherder.com/business-model-canvas-for-puppies-part-i/" target="_blank">how to use a business model canvas</a> based on "Puppies-as-a-Service" as an example.</li>
</ul>
<div>
<b>Customer Discovery and Validation</b></div>
</div>
<div>
<ul>
<li>Cindy Alvarez on applying customer development techniques with <a href="http://www.cindyalvarez.com/lean/all-customers-are-not-created-equal-part-2" target="_blank">different types of customers</a> and on <a href="http://www.cindyalvarez.com/best-practices/you-shouldnt-use-a-survey-if" target="_blank">when to NOT use surveys</a>.</li>
<li>Laura Klein on <a href="http://usersknow.blogspot.com/2012/12/a-perfect-use-for-personas.html" target="_blank">how to use personas</a>, how to <a href="http://usersknow.blogspot.com/2012/03/fucking-ship-it-already-just-not-to.html" target="_blank">overcome reservations about shipping</a> an early product version, and the importance of <a href="http://usersknow.blogspot.com/2012/01/stop-validating-your-product.html" target="_blank">validating a problem, not a product</a>.</li>
<li>Brent Chudoba on <a href="http://www.forentrepreneurs.com/surveys/" target="_blank">using surveys</a> to validate pricing, messaging, and other key decisions.</li>
</ul>
<b>Marketing: Demand Generation and Optimization</b></div>
<div>
<ul>
<li>Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on <a href="http://blakemasters.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay" target="_blank">distribution, marketing and sales</a>.</li>
<li>Rob Go of NextView Ventures succinctly summarizes <a href="http://robgo.org/2012/10/08/very-basic-startup-marketing/" target="_blank">marketing fundamentals</a> and their relevance for startups.</li>
<li>Renee Warren of Onboardly offers comprehensive coverage of marketing basics in KISSmetrics' "<a href="http://blog.kissmetrics.com/ultimate-guide-startup-marketing/" target="_blank">Ultimate Guide to Startup Marketing</a>."</li>
<li>Sean Work of KISSmetrics and Zach Bulygo describe best practices of <a href="http://blog.kissmetrics.com/what-converting-websites-do/" target="_blank">high-converting websites</a>.</li>
<li>David Skok of Matrix Partners on adapting marketing and sales tactics to stages of the <a href="http://www.forentrepreneurs.com/buying-cycle-and-triggers/" target="_blank">customer buying cycle</a>.</li>
<li>Entrepreneur/angel investor Brian Balfour offers tips for <a href="http://onstartups.com/tabid/3339/bid/82788/Building-It-Is-Not-Enough-5-Practical-Tips-On-User-Acquisition.aspx" target="_blank">testing user acquisition methods</a>.</li>
<li>Eric Siu offers tips for <a href="http://searchenginewatch.com/article/2223888/23-Tips-on-How-to-AB-Test-Like-a-Badass" target="_blank">structuring A/B tests</a>; Lance Kidwell on the <a href="http://muddylemon.com/2012/04/ab-multivariate-testing-for-landing-pages/" target="_blank">same topic</a> with specific application to landing pages.</li>
<li>Tyler King offers tips for <a href="http://www.lessannoyingcrm.com/articles/259/How_I_monetized_a_blog_in_30_days:_what_worked_and_what_didnt" target="_blank">monetizing a blog</a>.</li>
<li>John Koetsier shares pointers for <a href="http://venturebeat.com/2012/05/30/marketing-your-new-app-ios-android/" target="_blank">marketing a mobile app</a>.</li>
</ul>
<div>
<br />
<div>
<div>
<b>Sales and Sales Management</b></div>
<div>
<ul>
<li>Bootstrapper Robert Graham offers advice on <a href="http://www.ashmaurya.com/2012/08/cold-emailing/" target="_blank">cold calling early customers</a> via email.</li>
<li>Steve Blank on the challenges of <a href="http://steveblank.com/2012/08/17/at-times-not-losing-is-as-important-as-winning/" target="_blank">closing a complex B2B sale</a> with multiple decision influencers; Mark Suster of GRP Partners on the <a href="http://www.bothsidesofthetable.com/2012/02/26/everybody-wants-their-pound-of-flesh-how-to-negotiate-with-buyers/" target="_blank">same topic</a>.</li>
<li>David Skok provides a <a href="http://www.forentrepreneurs.com/metrics-and-compensation-for-saas-inside-sales/" target="_blank">link</a> to a Bridge Group report on metrics and compensation data for SaaS inside sales.</li>
<li>Mark Suster on <a href="http://www.bothsidesofthetable.com/2012/03/31/some-thoughts-about-selling-at-startups/" target="_blank">when to hire sales people</a> in an early-stage startup and how to choose them.</li>
<li>Mark Roberge of HubSpot on how to <a href="http://blogs.hbr.org/cs/2012/07/the_science_of_building_a_scal.html" target="_blank">use analytics to build a scalable sales team</a>.</li>
<li>Brent Adamson et al. on how/why the best sales reps <a href="http://blogs.hbr.org/cs/2012/07/the_best_sales_reps_avoid_talk.html" target="_blank">avoid "talkers"</a> who superficially show enthusiasm but are unable/unwilling to mobilize organizational support for a purchase.</li>
</ul>
<div>
<b>Viral Marketing</b></div>
</div>
<div>
<ul>
<li>Rahul Vohra of Rapportive on <a href="http://www.linkedin.com/today/post/article/20121011190820-18876785-how-to-model-viral-growth-simple-loss" target="_blank">modeling viral growth</a>.</li>
<li>Vin Vacanti of Yipit on <a href="http://viniciusvacanti.com/2012/02/27/9-ways-to-make-your-startup-grow-virally/" target="_blank">ways to drive virality</a>.</li>
</ul>
</div>
<div>
<b>PR Strategy</b></div>
<div>
<ul>
<li>Susanna Gebauer of exploreB2B on <a href="http://onstartups.com/tabid/3339/bid/93468/Our-PR-Stinks-Here-s-What-Your-Startup-Can-Learn-From-It.aspx" target="_blank">managing PR</a>.</li>
<li>Leo Widrich of Buffer on <a href="http://leostartsup.com/2012/05/7-steps-to-get-press-coverage-for-your-startup/" target="_blank">how to get press coverage</a>.</li>
<li>Chris Dixon offers tips on <a href="http://cdixon.org/2012/03/01/some-tips-on-interacting-with-the-press/" target="_blank">interacting with the press</a>.</li>
</ul>
<div>
</div>
</div>
<b>Branding/Naming a Startup</b></div>
<div>
<ul>
<li>Cezary Pietrzak offers <a href="http://mashable.com/2012/10/04/startup-naming/" target="_blank">tips on naming</a> a startup; Andrus Purde of Achoo on the same <a href="http://gigaom.com/europe/naming-your-startup-here-are-five-things-to-remember/" target="_blank">topic</a>.</li>
<li>Robert Laing presents a case study of <a href="http://robertlaing.com/2012/12/30/rebranding-your-startup/" target="_blank">rebranding</a> his startup, Gengo.</li>
<li>Mike Troiano offers <a href="http://onstartups.com/tabid/3339/bid/76648/Startup-Branding-A-Practical-Guide-for-Entrepreneurs.aspx" target="_blank">startup branding tips</a>.</li>
</ul>
<div style="font-weight: bold;">
<b>Product Management/Product Design</b></div>
<div>
<ul>
<li>Laura Klein on dealing with customers' aversion to f<a href="http://usersknow.blogspot.com/2012/05/sometimes-its-not-change-they-hate.html" target="_blank">eature/interface changes</a>.</li>
<li>Cindy Alvarez on <a href="http://www.cindyalvarez.com/testing/what-you-willwont-learn-from-usability-testing" target="_blank">what you will/won't learn from usability testing</a>.</li>
<li>Martina Lauchengco of Silicon Valley Product Group on the role of <a href="http://www.svpg.com/product-marketing-contribution/" target="_blank">product marketing</a>.</li>
<li>Marty Cagan of SVPG on<a href="http://www.svpg.com/time-boxing-product-discovery/" target="_blank"> time-boxed product discovery</a> and on <a href="http://www.svpg.com/continuous-discovery/" target="_blank">continuous product discovery</a> as a natural extension of continuous software deployment.</li>
<li>Cagan on the difference between <a href="http://www.svpg.com/product-management-then-and-now/" target="_blank">old and new school</a> product management, and on the difference between <a href="http://www.svpg.com/live-data-prototypes-vs-production/" target="_blank">live-data prototypes</a> and production software.</li>
<li>Adam Nash of Greylock on the responsibilities of <a href="http://blog.adamnash.com/2011/12/16/be-a-great-product-leader/" target="_blank">great product leaders</a>.</li>
<li>Eric Ries on the <a href="http://www.linkedin.com/today/post/article/20121211155158-2157554-the-product-manager-s-lament?_mSplash=1" target="_blank">product manager's lament</a> with waterfall software development.</li>
<li>Jacques Murphy on the challenges of <a href="http://www.pragmaticmarketing.com//resources/Creating-Product-Management-at-a-Startup?p=0" target="_blank">introducing product management to a startup</a>.</li>
<li>Ben Yoskovitz on the <a href="http://www.instigatorblog.com/the-role-of-product-managers/2012/06/08/" target="_blank">product manager's role</a>.</li>
<li>Andrew Chen on Square's concept of product leaders as "<a href="http://andrewchen.co/2012/08/10/why-companies-should-have-product-editors-not-product-managers/" target="_blank">product editors</a>."</li>
<li>Jayson DeMers of AudienceBloom on <a href="http://venturebeat.com/2012/06/13/5-outsourcing-mistakes-that-will-kill-your-startup/" target="_blank">outsourcing pitfalls</a>.</li>
</ul>
</div>
<div style="font-weight: bold;">
<b><br /></b></div>
<b>Business Development</b></div>
</div>
</div>
<div>
<ul>
<li>John O'Farrell of a16z describes how quality trumps quantity and clarity regarding mutual objectives is crucial in doing business development deals, using Opsware's transformative distribution agreement with Cisco as a <a href="http://john.a16z.com/2012/03/01/who-you-gonna-call-partnering-with-goliath-a-tale-of-two-announcements/" target="_blank">case study</a>.</li>
</ul>
<div style="font-weight: bold;">
Scaling</div>
<div>
<ul>
<li>Jeff Bussgang of Flybridge Capital (and my colleague at HBS) on <a href="http://bostonvcblog.typepad.com/vc/2012/01/scaling-is-hard.html" target="_blank">scaling challenges</a>; see also Jeff's case studies of scaling at <a href="http://bostonvcblog.typepad.com/vc/2012/08/tripadvisor-is-to-travel-reviews-what-kleenex-is-to-tissues-henry-harteveldt-forrester-tripadvisor-may-be-o.html" target="_blank">TripAdvisor</a>, <a href="http://bostonvcblog.typepad.com/vc/2012/08/scaling-is-hard-case-study-akamai.html" target="_blank">Akamai</a>, and <a href="http://bostonvcblog.typepad.com/vc/2012/09/scaling-is-hard-case-study-athenahealth.html" target="_blank">athenahealth</a>.</li>
<li>Paul Graham of Y Combinator on why <a href="http://paulgraham.com/growth.html" target="_blank">startup = growth</a>, and a <a href="http://www.bothsidesofthetable.com/2012/09/22/is-going-for-rapid-growth-always-good-arent-startups-so-much-more/" target="_blank">response</a> from Mark Suster.</li>
<li>Jeff Jordan of a16z on <a href="http://jeff.a16z.com/2012/01/18/a-recipe-for-growth-adding-layers-to-the-cake/" target="_blank">how eBay managed growth</a>.</li>
</ul>
</div>
<div style="font-weight: bold;">
<b><br /></b></div>
<b>Funding Strategy</b></div>
<div>
<ul>
<li>Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on the <a href="http://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay" target="_blank">motives/methods of venture capitalists</a>.</li>
<li>Jeff Bussgang of Flybridge Capital on <a href="http://bostonvcblog.typepad.com/vc/2012/04/activist-seeds-the-latest-trend-in-seed-investing.html" target="_blank">passive vs. active VC seed</a> investors.</li>
<li>Rob Go of NextView Ventures on <a href="http://robgo.org/2012/11/30/micro-vcs-and-super-angels-two-years-later-looking-back-and-some-predictions-for-the-future/" target="_blank">trends impacting seed funds</a> and why VCs have a <a href="http://robgo.org/2012/07/09/why-do-vcs-have-ownership-targets-and-why-20/" target="_blank">20% equity ownership target</a>. </li>
<li>Rob's partner David Beisel on <a href="http://genuinevc.com/archives/2012/07/10/how-to-evaluate-firms-for-a-seed-vc-syndicate.html" target="_blank">how to select investors in a seed </a>VC syndicate and on the motives of different <a href="http://genuinevc.com/archives/2012/2/12/a-choir-of-angel-investors-sing-different-parts.html" target="_blank">types of angel investors</a>.</li>
<li>Mark Suster of GRP Partners offers a <a href="http://www.bothsidesofthetable.com/2012/01/16/how-to-develop-your-fund-raising-strategy/" target="_blank">primer on fundraising</a>, discusses when investors in the same round should get <a href="http://www.bothsidesofthetable.com/2012/09/08/should-investors-in-the-same-round-of-financing-ever-get-different-prices/" target="_blank">different share prices</a>, and reviews the <a href="http://www.bothsidesofthetable.com/2012/09/05/the-truth-about-convertible-debt-at-startups-and-the-hidden-terms-you-didnt-understand/" target="_blank">pros/cons of convertible debt</a></li>
<li>Suster on <a href="http://www.bothsidesofthetable.com/2011/09/25/why-super-pro-rata-rights-are-not-a-good-deal-for-entrepreneurs/" target="_blank">super pro rata rights</a>; Beisel on the same <a href="http://genuinevc.com/archives/2012/1/10/super-pro-rata-rights-arent-super.html" target="_blank">topic</a>.</li>
<li>Attorney Scott Edward Walker offers a <a href="http://techcrunch.com/2012/05/13/convertible-note-seed-financings-part-3/" target="_blank">primer on convertible note terms</a>.</li>
<li>Dave Balter of BzzAgent offers <a href="http://onstartups.com/tabid/3339/bid/86685/Shorter-Flights-at-Lower-Heights-The-Right-Way-To-Angel-Invest.aspx" target="_blank">advice for angel investors</a>.</li>
<li>Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on <a href="http://blakemasters.com/post/22271192791/peter-thiels-cs183-startup-class-8-notes-essay" target="_blank">how to pitch VCs</a>.</li>
<li>Anth Georgides offers tips for first-time entrepreneurs <a href="http://techcrunch.com/2012/10/14/one-founders-perspective-on-how-to-raise-a-seed-round/">negotiating with VCs</a>.</li>
</ul>
</div>
<div>
<div>
<b>Founding Process</b></div>
<div>
<ul>
<li>My colleague Noam Wasserman published his book, <a href="http://www.amazon.com/The-Founders-Dilemmas-Anticipating-Entrepreneurship/dp/0691149135/" target="_blank">The Founder's Dilemmas</a>, that describes tradeoffs that founders confront when deciding when/with whom to found, how to split equity, how to divide roles, etc.</li>
<li>Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on the importance on <a href="http://blakemasters.com/post/21742864570/peter-thiels-cs183-startup-class-6-notes-essay" target="_blank">early founding decisions</a>.</li>
<li>Charlie O'Donnell of Brooklyn Bridge Ventures on <a href="http://www.thisisgoingtobebig.com/blog/2012/10/23/questions-you-and-your-co-founder-need-to-have-answered-befo.html" target="_blank">questions that co-founders must address</a> ASAP and the concept of the "<a href="http://www.thisisgoingtobebig.com/blog/2012/8/22/minimum-viable-team.html" target="_blank">minimum viable team</a>," i.e., the smallest set of skills needed to get traction in an early-stage startup.</li>
</ul>
<div>
<b>Company Culture, Organizational Structure, Recruiting and Other HR Issues</b></div>
</div>
<div>
<ul>
<li>Ben Horowitz of a16z on the concept of <a href="http://bhorowitz.com/2012/01/19/management-debt/" target="_blank">"management debt"</a> (i.e., bad people decisions with long-term consequences -- the HR equivalent of technical debt) and on how accountability separates <a href="http://bhorowitz.com/2012/08/18/a-good-place-to-work/" target="_blank">good companies</a> from bad ones.</li>
<li>Horowitz on how to integrate "<a href="http://bhorowitz.com/2012/12/05/old-people/" target="_blank">old people</a>" (i.e., senior executives from big companies) into a startup.</li>
<li>Bijan Sabet of Spark Capital on the risk of <a href="http://bijansabet.com/post/14450855011/getting-promoted-too-quickly" target="_blank">promoting managers too quickly</a>.</li>
<li>Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on <a href="http://blakemasters.com/post/21437840885/peter-thiels-cs183-startup-class-5-notes-essay" target="_blank">company culture</a>: where it comes from/why it is important.</li>
<li>Horowitz on <a href="http://bhorowitz.com/2012/12/18/programming-your-culture/" target="_blank">building company culture</a>.</li>
<li>David Beisel of NextView Ventures on the importance of <a href="http://genuinevc.com/archives/2012/1/17/your-office-space-is-the-face-of-your-startup.html" target="_blank">office space</a> configuration in building a startup.</li>
<li>Tips on hiring developers from <a href="http://onstartups.com/tabid/3339/bid/92633/Recruiting-Developers-Create-An-Awesome-Candidate-Experience.aspx" target="_blank">Dharmesh Shah</a> of HubSpot; <a href="http://onstartups.com/tabid/3339/bid/87890/Startups-Stop-Trying-To-Hire-Ninja-Rockstar-Engineers.aspx" target="_blank">Avi Flombaum</a> of the Flatiron School; <a href="http://onstartups.com/tabid/3339/bid/92130/How-To-Hire-Hackers-A-Realistic-Guide-For-Startups.aspx" target="_blank">Iris Shoor</a> of Takipi; and a great <a href="http://www.quora.com/What-are-some-of-the-better-carrots-used-to-attract-top-engineering-talent-in-Silicon-Valley-besides-equity-and-salary" target="_blank">Quora</a> thread.</li>
<li>Recruiting best practices discussed by <a href="http://www.avc.com/a_vc/2012/06/mba-mondays-best-hiring-practices.html" target="_blank">Fred Wilson</a> of USV; <a href="http://www.thisisgoingtobebig.com/blog/2012/7/16/hire-today-or-gone-tomorrow-how-your-startup-is-getting-lapp.html" target="_blank">Charlie O-Donnell</a> of Brooklyn Bridge Ventures; <a href="http://www.instigatorblog.com/how-to-design-successful-interview-process/2012/04/02/" target="_blank">Ben Yoskovitz</a> of GoInstant; and <a href="http://genuinevc.com/archives/2011/9/30/snake-oil-startup-recruiting.html" target="_blank">David Beisel</a>. </li>
<li>Chad Dickerson of Etsy on the link between <a href="http://www.avc.com/a_vc/2012/07/mba-mondays-guest-post-from-chad-dickerson.html" target="_blank">recruiting and company culture</a>.</li>
<li>Thoughts on firing employees from <a href="http://cdixon.org/2012/06/19/firing/" target="_blank">Chris Dixon</a> and <a href="http://www.avc.com/a_vc/2012/07/mba-mondays-asking-an-employee-to-leave-the-company.html" target="_blank">Fred Wilson</a>.</li>
</ul>
<div>
<b>Board Management</b></div>
</div>
</div>
<div>
<ul>
<li>Fred Wilson of USV on <a href="http://www.avc.com/a_vc/2012/03/the-board-of-directors-selecting-electing-evolving.html" target="_blank">managing startup boards</a>.</li>
<li>Mark Suster of GRP Partners on the <a href="http://www.bothsidesofthetable.com/2012/08/16/rethinking-board-observers-the-role-of-the-silent-observer/" target="_blank">board observer</a> role.</li>
</ul>
<b>Startup Failure</b></div>
<div>
<ul>
<li>Jessica Livingston of Y Combinator analyzes <a href="http://www.foundersatwork.com/1/post/2012/10/what-goes-wrong.html" target="_blank">reasons why startups fail</a>, as does <a href="http://thenextweb.com/entrepreneur/2012/10/03/why-startups-die/" target="_blank">Andrew Montalenti</a> of Parse.ly. </li>
<li>Startup Genome <a href="http://www.businessinsider.com/why-startups-fail-infographic-2012-6" target="_blank">infographic</a> on causes of startup failure.</li>
<li>Michael O. Church on the <a href="http://michaelochurch.wordpress.com/2012/04/08/fail-fast-is-not-an-excuse-for-being-a-moron-a-flake-or-a-scumbag/" target="_blank">ethics of "failing fast."</a></li>
</ul>
<div>
<div>
<b>Exiting By Selling Your Company</b></div>
<div>
<ul>
<li>Chris Dixon of a16z on the <a href="http://cdixon.org/2012/10/18/the-economic-logic-behind-tech-and-talent-acquisitions/" target="_blank">economic logic</a> behind talent acquisitions: when/why "make vs. buy" decisions favor buying; he also offers these <a href="http://cdixon.org/2012/09/10/notes-on-the-acquisition-process/" target="_blank">notes on the acquisition process</a>.</li>
<li>John O'Farrell of a16z on <a href="http://john.a16z.com/2012/05/30/knowing-where-the-exits-are/" target="_blank">deciding when to sell</a>.</li>
<li>Tobias Peggs on <a href="http://www.pehub.com/174589/what-expect-big-company-how-leave-it-gracefully/" target="_blank">what life is like inside a big company</a> after an entrepreneur sells.</li>
</ul>
</div>
<div>
</div>
<b>The Startup Mindset and Coping with Startup Pressures</b></div>
</div>
<div>
<ul>
<li>Paul DeJoe of Ecquire on <a href="http://onstartups.com/tabid/3339/bid/85060/What-It-s-Like-To-Be-The-CEO-Revelations-and-Reflections.aspx" target="_blank">managing the pressure</a> that comes with being a startup CEO.</li>
<li>Steve Blank on why it matters <a href="http://steveblank.com/2012/10/21/how-we-fight-cofounders-in-love-and-war/" target="_blank">how co-founders fight</a>.</li>
<li>Blake Masters' summaries of Peter Thiel's Stanford CS183 lectures on the <a href="http://blakemasters.com/post/23435743973/peter-thiels-cs183-startup-class-13-notes-essay" target="_blank">role of luck</a> in startup success and on "<a href="http://blakemasters.com/post/24578683805/peter-thiels-cs183-startup-class-18-notes-essay" target="_blank">founder as victim, founder as god</a>." Fascinating stuff! </li>
<li>Steve Blank on the challenge of distinguishing between <a href="http://steveblank.com/2012/08/27/vision-versus-hallucination-founders-and-pivots/" target="_blank">vision and hallucination</a> in charting a startup's course.</li>
<li>Andrew Chen on dealing with the "<a href="http://andrewchen.co/2012/09/10/after-the-techcrunch-bump-life-in-the-trough-of-sorrow/" target="_blank">trough of sorrow</a>" following a big bump in traffic after a TechCrunch story.</li>
<li>Paul Graham of Y Combinator on "<a href="http://www.paulgraham.com/swan.html" target="_blank">black swan farming</a>," i.e., coping with the facts that: 1) the vast majority of returns are concentrated in a few startups, and 2) the most successful startups often don't look very good at the outset/</li>
<li>Graham on <a href="http://www.paulgraham.com/startupideas.html" target="_blank">how to get startup ideas</a> and on generating/coping with <a href="http://www.paulgraham.com/ambitious.html" target="_blank">frighteningly ambitious startup ideas</a>.</li>
<li>50 startup <a href="http://jamesmaskell.co.uk/2012/startup-lessons/" target="_blank">lessons learned</a> by James Maskell, founder of Vinetrade; <a href="http://viniciusvacanti.com/2012/08/06/advice-i-wish-i-could-have-given-myself-5-years-ago/" target="_blank">startup lessons learned</a> by Vin Vacanti.</li>
<li>Andreas Klinger of LOOKK on how/why founders lie to keep doing things in their <a href="http://klinger.io/post/36585126176/the-founders-lie-about-comfort-zones" target="_blank">comfort zones</a></li>
<li>Serial entrepreneur/angel investor Jason Calacanis on the <a href="http://blog.launch.co/blog/the-only-two-questions-founders-need-to-answer.html" target="_blank">two biggest questions</a> founders need to ask: Will customers recommend my product, and will they remember it?</li>
<li>Investor James Altucher on how to <a href="http://techcrunch.com/2011/12/29/how-to-survive-your-first-year-as-an-entrepreneur/" target="_blank">survive your 1st year</a> as founder/CEO.</li>
<li>Chris Dixon: once you take outside money, the <a href="http://cdixon.org/2012/02/25/once-you-take-money-the-clock-starts-ticking/" target="_blank">clock starts ticking</a>.</li>
<li>Jason Calacanis with advice for seed-stage entrepreneurs facing the "<a href="http://blog.launch.co/blog/the-series-a-crunch-survivors-guide.html" target="_blank">Series A Crunch</a>" [Jason wrote this on Jan. 2, 2013, so it doesn't officially qualify for this "Best of 2012" -- but the advice is just too good and too important to wait a full year before including it next year's compilation!]</li>
</ul>
<div>
<b>Management Advice, Not Elsewhere Classified</b></div>
<div>
<ul>
<li>Mark Suster of GRP Partners on why you should <a href="http://www.bothsidesofthetable.com/2012/03/10/never-negotiate-piecemeal-heres-why/" target="_blank">never negotiate one deal point at a time</a>.</li>
<li>Entrepreneur Karl Treier on preparing a startup of <a href="http://onstartups.com/tabid/3339/bid/78757/Selling-or-Funding-A-Startup-Tips-On-Surviving-Technical-Due-Diligence.aspx" target="_blank">technical due diligence</a> (e.g., questions about scalability, disaster recovery, etc.)</li>
<li>Ben Horowitz of a16z on how/why a CEO should deliver effective <a href="http://bhorowitz.com/2012/10/17/making-yourself-a-ceo/" target="_blank">feedback</a>.</li>
</ul>
<div>
</div>
</div>
<div>
<b>Career Advice (Especially for MBAs)</b></div>
<ul>
<li>David Beisel of NextView Ventures offers <a href="http://genuinevc.com/archives/2012/09/13/playbook-for-incoming-mbas-to-start-a-company-out-of-school.html" target="_blank">advice for incoming MBAs</a> who want to launch a startup upon graduation.</li>
<li>Andy Rachleff of Wealthfront provides data on <a href="https://blog.wealthfront.com/startup-employee-equity-compensation/" target="_blank">startup compensation</a> levels and advice on negotiating pay packages.</li>
<li>Entrepreneur Bryan Goldberg offers advice on <a href="http://pandodaily.com/2012/11/21/go-west-young-mba-important-rules-for-building-wealth-in-san-francisco/" target="_blank">building personal wealth in Silicon Valley</a> startups.</li>
<li>From Naysawn Naderi, the <a href="http://naysawn.com/hey-entrepreneur-please-dont-get-an-mba/" target="_blank">case against</a> aspiring entrepreneurs pursuing an MBA, and a <a href="http://gozman.wordpress.com/2012/10/11/hey-entrepreneur-please-get-an-mba/" target="_blank">counter-argument</a> from Mike Gozzo.</li>
<li>Reflections from entrepreneur Ryan Allis on <a href="http://www.ryanallis.com/what-hbs-is-teaching-this-tech-entrepreneur/" target="_blank">what he's learning at business school</a>.</li>
<li>A personal account from Michelle Wetzler on <a href="http://blog.keen.io/post/26096112831/why-i-left-consulting-and-joined-a-startup" target="_blank">why she left consulting for a startup</a> job.</li>
</ul>
<b>Startup Hubs</b><br />
<div>
<ul>
<li>Brad Feld of Foundry Group and TechStars has published the book <a href="http://www.amazon.com/Startup-Communities-Building-Entrepreneurial-Ecosystem/dp/1118441540/" target="_blank">Startup Communities</a>, a guide to building an entrepreneurial ecosystem.</li>
</ul>
<b>Tools for Entrepreneurs</b></div>
</div>
<div>
<ul>
<li>Beyond Steve Blank's <a href="http://www.amazon.com/Startup-Owners-Manual-Step---Step/dp/0984999302/" target="_blank">Startup Owner's Manual</a>, a book he co-authored with Bob Dorf, here is a <a href="http://steveblank.com/2012/11/27/open-source-entrepreneurship/" target="_blank">list</a> of the fantastic resources Steve has made available to the startup community -- mostly for free.</li>
</ul>
</div>
<div>
</div>
Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-57407745417238768812012-12-29T21:31:00.001-05:002013-01-19T15:02:33.745-05:00Product Management 101<br />
<span style="font-family: inherit;">This fall </span>at Harvard Business School<span style="font-family: inherit;">, we launched </span><i style="font-family: inherit;">Product Management 101,</i><span style="font-family: inherit;"> a course</span><span style="font-family: inherit;"> for academic credit that uses a "learning-by-doing" approach to </span><span style="font-family: inherit;">build basic PM skills, rather than the classic HBS case method approach. I describe our course design below with the hope that colleagues at other universities will adapt and improve it.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">First, a nod to the two MBA candidates who proposed, designed and oversaw PM 101: <a href="https://plus.google.com/100546585426184150901/posts" target="_blank">Prem Ramaswami</a> and <a href="https://twitter.com/ranakash" target="_blank">Rana Kashyap</a>. The course has many moving parts, and Rana and Prem kept them in smooth motion.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><b>Motivation. </b>As I've written in a <a href="http://hbr.org/product/the-product-manager/an/812105-PDF-ENG?" target="_blank">course note</a> co-authored with <a href="http://bostonvcblog.typepad.com/" target="_blank">Jeff Bussgang</a> and <a href="http://robgo.org/" target="_blank">Rob Go</a>, product manager is a fantastic entry-level general management position for MBAs.<b> </b>Every year, dozens of HBS graduates seek PM jobs. They face a Catch-22, though, because these jobs typically require prior PM experience. Many students have such experience, acquired either before </span>or<span style="font-family: inherit;"> -- via summer internships or working on their own startups -- during </span>business school<span style="font-family: inherit;">. The Catch-22 is most acute for career switchers who decide to pursue a PM position midway through their MBA -- too late to gain experience through a summer job. PM 101 was designed for these students.</span><br />
<br />
<span style="font-family: inherit;"><b>Fall Semester.</b> Our goal was to give students hands-on practice specifying and managing the development of a real application. We identified concepts for websites and </span>smartphone apps that might benefit the HBS community, but were unlikely to ever be developed by student entrepreneurs (not enough profit potential) or by the school's own IT unit (too far down their priority list). Examples included a better online campus map; a mobile app for sharing taxis; and a site for scheduling professors' office hours.<br />
<br />
Each of fourteen students was assigned an app and a faculty adviser who provided periodic coaching. After a spending a couple of weeks assessing customer requirements, students delivered a <a href="https://docs.google.com/document/d/18K08A7IQmHAcuDMiEK7rSk4BmMcAJhgXtnafZmLIZA0/edit#" target="_blank">Market Requirements Document</a> and, based on their assessment of demand, a recommendation on whether to proceed. After discussing the MRDs, we killed a few apps; students who were working on them were teamed with a classmate on a surviving application.<br />
<br />
Students spent the next several weeks specifying their application's functionality and preparing a <a href="https://docs.google.com/document/d/1hNS5gx-Vi4V2k3I9yHTZY7l-B-QGdd6ldBLmdtsvvQQ/edit#" target="_blank">Product Requirements Document</a>. At the end of the semester, students presented their PRDs to each other and to a panel of faculty advisers, HBS IT managers, and Student Association officers. We voted on which apps should proceed into development. Six of the original fourteen applications were still live after this process. Students whose products were not advanced could join another team.<br />
<span style="font-family: inherit;"><b><br /></b></span>
<span style="font-family: inherit;"><b>Winter Semester. </b></span><span style="font-family: inherit;">For each app moving forward, HBS has allocated $5-8K to be spent on development. Next semester, student teams will select and supervise an outsourced engineering team. Following launch, we expect students to: 1) stress test the application and fix bugs; and 2) collect and interpret data needed to enhance features. </span>Software launched as a result of PM 101 will be owned by HBS, but the school may transfer the IP to our Student Association and/or release it as open source software.<br />
<br />
<span style="font-family: inherit;"><b>Workshops. </b>In addition to the MRD and PRD checkpoint sessions mentioned above, every two weeks we met as a group with outside experts -- seasoned product leaders and designers -- who gave presentations on key product management skills and tools. At these workshops, students got feedback on their work-in-process from each other and from the experts. Pre-class readings and session assignments are listed on our <a href="https://sites.google.com/site/hbspm101/home/sessions" target="_blank">course site</a>. Session topics included:</span><br />
<br />
<ul>
<li>What does a PM do and who do they work with at different stages of the product life cycle? What are the attributes of successful and unsuccessful PMs?</li>
<li>What is a Market Requirements Document and why might a PM be asked to complete one? What techniques do PMs use to understand customer needs and validate demand for a product?</li>
<li>What is a Product Requirements Document? Why do some tech companies use them while others do not?</li>
<li>What approaches (e.g., project planning software, face-to-face meetings, etc.) do PMs use to track progress and coordinate their team's efforts?</li>
<li>How should a PM approach wireframing? What do they need to know about UX design? </li>
<li>What does a PM need to know about cloud technology? Database architectures?</li>
</ul>
<br />
We'll continue these workshops next term, for example, devoting sessions to how PMs work with engineers and to post-launch analytics.<br />
<br />
<b>Lessons Learned. </b>At the end of the semester, we asked the students to blog on lessons they learned about the PM role. One <a href="http://hbs-pm-101.blogspot.com/2012/12/my-take-on-pm-experience-anonymous.html" target="_blank">wrote</a> about how difficult it was to find definitive metrics to evaluate a product idea at its very early stages, and how killing her idea led her to reconsider her personal standards for success and adding value in an organization. Another <a href="http://hbs-pm-101.blogspot.com/2012/12/what-i-learned-from-pm101.html" target="_blank">wrote</a> about learning that being a PM entails not being a "nice guy" -- rejecting colleagues' feature suggestions because the PM has to make some tough calls. A third <a href="http://hbs-pm-101.blogspot.com/2013/01/looking-to-become-pm-as-non-technical.html">wrote</a> about the challenges of becoming a PM as an MBA without strong coding skills.<br />
<br />
<b>Improvement Ideas.</b> As with any first iteration, we see lots of ways to improve PM 101. With our workshops, for example, we spent too much time having experts present and not enough time having them react to students' work-in-process. We also should have spent more time having students critique each others' work, as design school students do.<br />
<br />
A shortcoming of the course, in the <a href="http://hbs-pm-101.blogspot.com/2013/01/whats-typical-pm-role.html" target="_blank">words</a> of one of the few students who had prior PM experience, is that<span style="font-family: inherit;"> "<span style="background-color: white; color: #333333; line-height: 19px;">Unfortunately, it's difficult for PM101 to give students a clear understanding of the often-hurried timeframe, constant pivots, and complexities of people management." Working just a few hours per week, and not as part of a bigger team, doesn't capture the essence of the role.</span></span><br />
<br />
Another big question is what to do about agile. We recognize that MRDs and PRDs are seen as "old school" by product professionals who favor agile processes. Our readings and many of our speakers discussed agile development, so students gained some understanding of its methods and precepts. But our course design, with its reliance on upfront specification followed by outsourced development, would make it difficult to actually employ agile processes -- as would the fact that our student PMs, who take four other courses, are expected to spend only 5-10 hours per week on PM 101. Ultimately, we concluded that students would gain a deeper appreciation of agile's advantages if they understood how and why to create a PRD.<br />
<br />
A final question is how to scale the course. So far, our fourteen students have learned a lot, but next year, we'd like to at least double enrollment, given strong demand for the course and the big fixed cost of organizing it. An obvious problem with scaling is the subsidy required to fund outsourced software development. Prem has floated the idea of shifting the course focus away from apps that benefit our school's community to software developed for not-for-profits. In that scenario, we might find a foundation willing to underwrite development expenses.<br />
<br />
I hope that readers who see solutions to the scaling question and other ways to improve the course will share their ideas here.<br />
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Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-23446428049193063972011-12-29T15:23:00.000-05:002012-01-03T18:14:20.478-05:00Managing Startups: Best Posts of 2011<span style="font-family: inherit;"><br />
Here's my compilation of 2011's best posts about managing startups. I assembled similar lists at the end of </span><a href="http://platformsandnetworks.blogspot.com/2011/01/launching-tech-ventures-part-iv.html" style="font-family: inherit;" target="_blank">2010</a><span style="font-family: inherit;"> and </span><a href="http://platformsandnetworks.blogspot.com/2009/11/compilation-of-webs-best-advice-for.html" style="font-family: inherit;" target="_blank">2009</a><span style="font-family: inherit;">. Please use comments to suggest additional posts. Happy New Year!</span><br />
<b></b><br />
<div>
<b><b><br />
</b></b></div>
<b>Lean Startup</b><br />
<ul>
<li>Eric Ries's book, <a href="http://www.amazon.com/Lean-Startup-Entrepreneurs-Continuous-Innovation/dp/0307887898/" target="_blank">The Lean Startup</a>, is a must-read for entrepreneurs.</li>
<li>Elad Gil outlines the pros and cons of staying in <a href="http://blog.eladgil.com/2011/04/is-stealth-mode-stupid.html" target="_blank">stealth mode</a>.</li>
<li>Andrew Chen unpacks the concept of <a href="http://andrewchenblog.com/2011/05/28/when-has-a-consumer-startup-hit-productmarket-fit/" target="_blank">product-market fit</a>.</li>
<li>The <a href="http://blog.startupcompass.co/pages/startup-genome-report-extra-on-premature-scal" target="_blank">Startup Genome Project </a>presents research on thousands of startups in a pair of reports. Be sure to read their report on premature scaling, the leading cause of startup failure.</li>
</ul>
<div>
<b>Business Models</b></div>
<div>
<ul>
<li>Alex Osterwalder, coauthor of <a href="http://www.amazon.com/Business-Model-Generation-Visionaries-Challengers/dp/0470876417/" target="_blank">Business Model Generation</a>, which introduces the business model canvas widely used by entrepreneurs, lists <a href="http://thebln.com/2011/09/8-essential-questions-you-need-to-ask-about-your-business-model-guest-blog-by-alex-osterwalder/" target="_blank">eight questions </a>you should ask about your business model.</li>
<li>David Skok analyzes key factors for success with the <a href="http://www.forentrepreneurs.com/customer-engagement/" target="_blank">SaaS model</a>.</li>
<li>Mark Suster gives <a href="http://techcrunch.com/2011/06/13/tech-giant-eats-your-lunch/" target="_blank">advice</a> for startups with applications that face a substitution threat from in-house versions developed by big platforms.</li>
<li>My <a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html" target="_blank">10-part series on business model analysis</a> covers a range of topics.</li>
</ul>
<div>
<b>Naming a Startup</b></div>
</div>
<div>
<ul>
<li><a href="http://www.avc.com/a_vc/2011/04/finding-and-buying-a-domain-name.html" target="_blank">Fred Wilson</a> and <a href="http://venturebeat.com/2011/01/19/9-mutable-suggestions-of-startup-naming/" target="_blank">Dharmesh Shah</a> each offer advice on how to name a startup.</li>
</ul>
<div>
<b>Customer Discovery and Validation</b></div>
</div>
<div>
<ul>
<li>Laura Klein describes five fast/cheap/easy approaches to <a href="http://usersknow.blogspot.com/2011/12/tiny-tests-user-research-you-can-do-now.html" target="_blank">user research</a> and usability testing.</li>
<li>Josh Porter of HubSpot explains why <a href="http://blog.hubspot.com/blog/tabid/6307/bid/20569/Why-A-B-Testing-isn-t-just-about-Small-Changes.aspx" target="_blank">A/B testing shouldn't be limited to small changes</a>.</li>
<li>Brant Cooper reviews <a href="http://market-by-numbers.com/2011/02/customer-development-biases/" target="_blank">biases</a> that managers from different functions bring to the customer development process.</li>
<li>Rob Walling on ways to <a href="http://onstartups.com/tabid/3339/bid/43774/The-5-Minute-Guide-To-Cheap-Startup-Advertising.aspx" target="_blank">use inexpensive advertising</a> to improve a site and learn about visitors.</li>
<li>This infographic from FormStack (via Boston Innovation) analyzes the anatomy of a <a href="http://bostinno.com/2011/07/18/the-anatomy-of-a-perfect-landing-page-infographic/" target="_blank">perfect landing page</a>.</li>
<li>Ben Yoskovitz describes how and why to use the "<a href="http://www.instigatorblog.com/day-in-the-life/2011/04/26/" target="_blank">day in a customer's life</a>" technique.</li>
<li>Elizabeth Yin offers advice on <a href="http://blog.launchbit.com/how-to-find-and-interview-potential-customers" target="_blank">how to find and interview potential customers</a>.</li>
<li>Three posts by Cindy Alvarez: 1) on how to cope with the fact that research respondents' answer to "<a href="http://www.cindyalvarez.com/learning/you-need-to-make-wanting-no-longer-free" target="_blank">Do you want...?</a>" is always "Yes!"; 2) how and why to use <a href="http://www.cindyalvarez.com/best-practices/you-need-personas" target="_blank">personas</a> in product development; and 3) "<a href="http://www.cindyalvarez.com/roundups/10-things-ive-learned" target="_blank">10 Things I've Learned</a>" about customer development.</li>
</ul>
<div>
<b>Metrics</b></div>
</div>
<div>
<ul>
<li>Mark Suster reflects on how and why startups should use <a href="http://www.bothsidesofthetable.com/2011/04/04/how-startups-can-use-metrics-to-drive-success/" target="_blank">metrics</a>.</li>
<li>Fred Wilson describes <a href="http://www.avc.com/a_vc/2011/07/301010.html" target="_blank">conversion metric targets</a> for social media companies.</li>
<li>Presentation by Cindy Alvarez of KISSmetrics on <a href="http://assets.en.oreilly.com/1/event/57/But%20How%20Am%20I%20Doing%20Compared%20to%20Other%20Companies_%20Presentation.pdf" target="_blank">conversion rate benchmarks</a> for different types of web businesses (big download, but worth the wait!).</li>
<li>Andrew Chen collects <a href="http://andrewchenblog.com/2011/01/26/retention-metrics-roundup-of-articles-and-links/" target="_blank">retention rate metrics</a> from several sources.</li>
<li>Avinash Kaushik on<a href="http://www.kaushik.net/avinash/best-web-metrics-kpis-small-medium-large-business/" target="_blank"> key metrics</a> for small, medium-sized, and large ecommerce sites.</li>
</ul>
<div>
<b>Demand Generation and Optimization</b></div>
</div>
<div>
<ul>
<li><a href="http://www.avc.com/a_vc/2011/02/marketing.html" target="_blank">Fred Wilson</a> and <a href="http://www.bothsidesofthetable.com/2011/06/27/10-lessons-for-managing-marketing-at-an-early-stage-startup/" target="_blank">Mark Suster</a> each offer general advice on startup marketing.</li>
<li>Cindy Alvarez on how to analyze reasons for <a href="http://blog.kissmetrics.com/why-visitors-arent-signing-up/" target="_blank">low signup rates</a>.</li>
<li>Avinash Kaushik offers three techniques for <a href="http://www.kaushik.net/avinash/web-data-analyses-techniques-analysis-ninjas/" target="_blank">analyzing website conversion rates</a> and describes why and how marketers should use <a href="http://www.kaushik.net/avinash/controlled-experiments-measuring-incrementality/" target="_blank">controlled experiments</a>.</li>
<li>Mixergy's Andrew Warner interviews Miguel Hernandez on <a href="http://mixergy.com/miguel-hernandez-grumo-interview/" target="_blank">how to produce videos</a> that drive customer acquisition (scroll down for podcast transcript).</li>
<li>Akshay Arabolu offers a great <a href="http://howtolaunchastartup.com/2011/06/20/21-must-read-resources-for-start-up-marketing/" target="_blank">compilation</a> of posts on startup marketing.</li>
</ul>
<div>
<b>PR Strategy</b></div>
</div>
<div>
<ul>
<li>Mark Suster on <a href="http://www.bothsidesofthetable.com/2011/01/23/how-to-use-pr-firms-at-startups/" target="_blank">how startups should use PR</a>.</li>
<li><a href="http://www.joelonsoftware.com/items/2011/09/15.html" target="_blank">Joel Spolsky</a> and <a href="http://www.thisisgoingtobebig.com/blog/2011/3/17/the-myth-of-sxsw-why-the-conference-was-is-and-always-will-b.html" target="_blank">Charlie O'Donnell</a> each discuss the pros and cons of launching at a conference like SXSW.</li>
<li>Erica Swallow offers <a href="http://mashable.com/2011/10/10/pr-startups/" target="_blank">10 tips for managing startup PR</a>.</li>
</ul>
<div>
<b>Viral Marketing</b></div>
</div>
<div>
<ul>
<li>Mark Suster interviews Buzzfeed's Jon Steinberg, discussing strategies for <a href="http://www.bothsidesofthetable.com/2011/04/11/here-are-10-tips-from-buzzfeed-to-make-your-content-go-viral/" target="_blank">building website virality</a>.</li>
<li>A presentation by David Skok on the <a href="http://www.forentrepreneurs.com/the-science-behind-viral-marketing/" target="_blank">science behind viral marketing</a>.</li>
<li>Sharad Goel on <a href="http://messymatters.com/viral/" target="_blank">why virality is more rare</a> than one might expect.</li>
</ul>
<div>
<b>Sales Management</b></div>
</div>
<div>
<ul>
<li>David Skok discusses <a href="http://www.forentrepreneurs.com/build-trusted-relationships/" target="_blank">how to build trusted sales relationships</a> and interviews HubSpot VP-Sales Mark Roberge on <a href="http://www.forentrepreneurs.com/hubspot-saas-inside-sales/" target="_blank">SaaS sales best practices</a>.</li>
<li>Mark Suster reflects on<a href="http://www.bothsidesofthetable.com/2011/02/05/improving-sales-the-excuse-departement-is-closed/" target="_blank"> excuses offered by startup salespeople</a> and interviews Vince Thompson and Mo Ali, who discuss <a href="http://www.bothsidesofthetable.com/2011/09/30/tips-to-help-you-think-about-sales-at-your-startup/" target="_blank">startup sales best practices</a>.</li>
<li>Steve Blank on the often contentious <a href="http://steveblank.com/2011/08/05/bonfire-of-the-vanities/" target="_blank">relationship between sales and marketing</a> in startups.</li>
<li>Michael Woloszynowicz on <a href="http://www.w2lessons.com/2011/03/infinite-scope-creep-sales-development.html" target="_blank">managing the risk of feature creep</a> when sales offers input during the customer development process.</li>
</ul>
<div>
<b>Business Development</b></div>
</div>
<div>
<ul>
<li>Chris Dixon on the <a href="http://cdixon.org/2011/11/28/business-development-the-goldilocks-principle/" target="_blank">Goldilocks Principle</a> of business development, that is, how a big company may view partnership opportunities with a startup that is "too hot" vs. "too cold" vs. "just right."</li>
<li>Fred Wilson on how an <a href="http://www.avc.com/a_vc/2011/08/users-first-brands-second.html" target="_blank">orientation toward users versus brand</a>s should drive business development and other priorities at a startup.</li>
<li>Curtis Smolar on the legality of <a href="http://venturebeat.com/2011/05/30/how-legal-is-content-scraping/" target="_blank">content scraping</a>.</li>
</ul>
<div>
<b>Funding Strategy</b></div>
</div>
<div>
<ul>
<li>In <a href="http://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalist/dp/0470929820/" target="_blank">Venture Deals,</a> Brad Feld and Jason Mendelson offer a terrific, in-depth explanation of term sheets, funding strategy, VC motivations, etc.</li>
<li>Fred Wilson discusses <a href="http://www.avc.com/a_vc/2011/08/financing-options-working-capital-financing.html" target="_blank">working capital financing</a> and <a href="http://www.avc.com/a_vc/2011/06/financing-options-customers.html" target="_blank">customer financing</a>.</li>
<li>Dan Weinreb discusses the <a href="http://onstartups.com/tabid/3339/bid/57145/Seed-Funding-and-Angel-Groups-The-Fast-and-The-Furious.aspx" target="_blank">pros and cons of working with angel groups</a> in seed rounds.</li>
<li>Ty Danco reviews reasons <a href="http://onstartups.com/tabid/3339/bid/61147/5-Reasons-An-Angel-Investor-Will-Walk-From-Your-Deal.aspx" target="_blank">why an angel will walk away</a> from a funding opportunity.</li>
<li><a href="http://www.launch.is/blog/how-much-money-should-a-startup-have-in-the-bank.html" target="_blank">Jason Calacanis</a> and <a href="http://www.avc.com/a_vc/2011/07/how-much-money-to-raise.html" target="_blank">Fred Wilson</a> each discuss how much money a startup should raise.</li>
<li><a href="http://www.ventureblog.com/2011/09/just-say-no-to-capped-convertible-notes.html" target="_blank">David Hornik</a> and <a href="http://www.avc.com/a_vc/2011/07/financing-options-convertible-debt.html" target="_blank">Fred Wilson</a> each discuss the pros and cons of convertible notes.</li>
<li><a href="http://techcrunch.com/2011/06/05/why-startups-should-raise-money-at-the-top-end-of-normal/" target="_blank">Mark Suster</a> and <a href="http://www.avc.com/a_vc/2011/08/pricing-a-follow-on-venture-investment.html" target="_blank">Fred Wilson</a> each discuss strategy for pricing follow-on rounds.</li>
<li>Chris Dixon on best practices for raising <a href="http://cdixon.org/2011/06/09/notes-on-raising-seed-financing/" target="_blank">a seed round</a> and <a href="http://cdixon.org/2011/05/04/best-practices-for-raising-a-vc-round/" target="_blank"> a VC round</a>.</li>
<li>David Beisel discusses the importance of having <a href="http://genuinevc.com/archives/2011/10/18/optimizing-series-a-fundraising-aroundpartnership-buy-in.html" target="_blank">VC partner buy-in</a> for a Series A round.</li>
</ul>
</div>
<div>
<b>Pitching</b></div>
<div>
<ul>
<li>Mark Suster offers <a href="http://www.bothsidesofthetable.com/2011/05/15/quick-practical-tactical-tips-for-presentations/" target="_blank">practical presentation tips</a>, a primer on <a href="http://www.bothsidesofthetable.com/2011/01/11/going-to-raise-vc-heres-a-primer-on-process-people-deck/" target="_blank">how to pitch to VCs</a>, and thoughts on how/why to <a href="http://www.bothsidesofthetable.com/2011/01/13/how-to-handle-a-vc-presentation-with-no-deck/" target="_blank">pitch without a deck</a>.</li>
<li>Matt Rosoff summarizes a panel with five VCs describing <a href="http://www.businessinsider.com/five-vcs-explain-what-they-really-think-about-your-pitches-2011-6" target="_blank">best practices for pitching</a>.</li>
<li>Brendan Baker on <a href="http://www.quora.com/Brendan-Baker/Posts/Startups-How-to-Communicate-Traction-to-Investors" target="_blank">how to communicate traction to investors</a>.</li>
<li>Jason Baptiste on <a href="http://onstartups.com/tabid/3339/bid/48317/13-Ways-To-Pull-Off-A-Killer-Demo-Day-Presentation.aspx" target="_blank">best practices for demo day pitches</a>, and Jason Cooper on the <a href="http://jordancooper.wordpress.com/2011/04/18/the-downside-of-demo-day/" target="_blank">downside of demo days</a>.</li>
<li>Robin Wauters/TechCrunch describes Adeo Ressi's <a href="http://techcrunch.com/2011/12/30/startups-give-us-your-best-one-sentence-pitch/" target="_blank">one-sentence approach for pitching</a> a startup; a <a href="http://fi.co/posts/476" target="_blank">list of pitching resources</a> from Ressi's Founder Institute.</li>
</ul>
<div>
<b>Are We in a Bubble?</b></div>
</div>
<div>
<ul>
<li>Commentary on startup valuations and whether we are in a bubble from <a href="http://www.startuplessonslearned.com/2011/08/winter-is-coming.html" target="_blank">Eric Ries</a>, <a href="http://steveblank.com/2011/03/18/new-rules-for-the-new-bubble/" target="_blank">Steve Blank</a>, <a href="http://www.businessinsider.com/what-we-are-seeing-2011-10" target="_blank">Fred Wilson</a>, <a href="http://techcrunch.com/2011/06/18/mark-suster-raise-money-now-so-when-the-partys-over-youre-sitting-pretty/" target="_blank">Mark Suster</a> (via Alexia Tsotsis), <a href="http://techcrunch.com/2011/04/24/were-in-the-middle-of-a-terrible-blubble/" target="_blank">Mike Arrington</a>, <a href="http://www.kevenlin.com/entry/are-we-in-a-bubble-empirical-data-from-crunchbase" target="_blank">Keven Lin</a> (analysis of Crunchbase data), <a href="http://paidcontent.org/article/419-is-the-second-dotcom-bubble-underway-ten-telltale-signs/" target="_blank">Dominic Rushe</a>/paidcontent, <a href="http://www.xconomy.com/national/2011/08/12/theres-an-incubator-bubble-and-it-will-pop/" target="_blank">Wade Roush</a>/Xconomy, and KISSmetrics/FeeFighers (<a href="http://mashable.com/2011/07/13/bubble-infographic/" target="_blank">infographic</a> via Jolie O'Dell/Mashable).</li>
<li>Errant on the logic behind <a href="http://www.errant.me.uk/blog/2011/03/color-is-in-a-bubble-all-of-its-own/" target="_blank">Color's high valuation</a>.</li>
</ul>
<div>
<b>Founder Issues</b></div>
<div>
<ul>
<li>Brad Feld on <a href="http://www.feld.com/wp/archives/2011/07/finance-fridays-getting-started-allocating-equity-and-founders-investment.html" target="_blank">founders agreements and equity splits</a> and on the <a href="http://www.feld.com/wp/archives/2011/09/introducing-the-cap-table-and-hiring-the-cto.html" target="_blank">cap table impact of hiring a CTO</a>.</li>
<li>Mark Suster on <a href="http://www.bothsidesofthetable.com/2011/09/12/why-your-startup-doesnt-need-a-coo/" target="_blank">why a startup doesn't need a COO</a> and why the <a href="http://www.bothsidesofthetable.com/2011/05/09/the-co-founder-mythology/" target="_blank">advantages of having a cofounder are often overstated</a>.</li>
<li>Fred Wilson on the strengths and weakness of <a href="http://www.avc.com/a_vc/2011/05/first-time-vs-serial-entrepreneurs.html" target="_blank">1st-time vs. serial entrepreneurs</a>.</li>
</ul>
<div>
<b>Recruiting and HR Policy Issues</b></div>
</div>
<div>
<ul>
<li>Jeff Bussgang on why <a href="http://bostonvcblog.typepad.com/vc/2011/07/why-you-should-eliminate-titles-at-start-ups.html" target="_blank">early-stage startups should avoid titles</a>.</li>
<li>Cindy Alvarez on how startups can <a href="http://www.cindyalvarez.com/best-practices/hiring-the-right-big-company-people-for-startups" target="_blank">hire the right "big company" employees</a>.</li>
<li>Brian Balfour on <a href="http://brianbalfour.com/post/6795230198/startup-hiring-process-keys" target="_blank">startup hiring best practices</a>.</li>
<li>Michael Woloszynowicz on how non-technical managers should give <a href="http://www.w2lessons.com/2011/05/giving-developers-feedback-without.html" target="_blank">feedback to developers</a>.</li>
</ul>
<div>
<b>Board Management</b></div>
</div>
</div>
<div>
<ul>
<li>Steve Blank offers a radical proposal for <a href="http://steveblank.com/2011/06/01/why-board-meetings-suck-%E2%80%93-part-1-of-2/" target="_blank">reinventing the startup board meeting</a>.</li>
<li>Jeff Bussgang summarizes <a href="http://bostonvcblog.typepad.com/vc/2011/04/board-meetings-vs-bored-meetings.html" target="_blank">best practices for running a startup board meeting</a>.</li>
</ul>
<div>
<b>Management Advice, Not Elsewhere Classified</b></div>
</div>
<div>
<ul>
<li>David Beisel on <a href="http://genuinevc.com/archives/2011/6/28/giving-due-diligence-calls-their-due.html" target="_blank">how to do due diligence calls</a> for recruiting, biz dev, fund raising, etc.</li>
<li>Mark Suster on the value of <a href="http://www.bothsidesofthetable.com/2011/07/19/dont-cede-control-why-you-need-to-cut-out-middle-men-in-negotiations/" target="_blank">cutting out middle-men</a> in different types of startup negotiations.</li>
<li>Ben Horowitz advises startup managers on how to <a href="http://bhorowitz.com/2011/07/20/when-employees-misinterpret-managers/" target="_blank">avoid being misinterpreted by employees</a>.</li>
<li><a href="http://techcrunch.com/2011/06/12/9-important-things-sell-startup/" target="_blank">James Altucher</a> and <a href="http://bhorowitz.com/2011/01/19/should-you-sell-your-company/" target="_blank">Ben Horowitz</a> each give advice to startup CEOs on the decision to sell their company.</li>
<li>A 4-part series from John O'Farrell giving advice to startups on <a href="http://john.a16z.com/2011/08/25/building-the-global-startup-part-3-assigning-ownership-and-achieving-commitment/" target="_blank">going global</a>.</li>
<li>Fred Wilson on <a href="http://www.avc.com/a_vc/2011/12/burn-rates-how-much.html" target="_blank">target burn rates at different stages</a> in a startup's life cycle.</li>
<li>Jason Cohen on <a href="http://blog.asmartbear.com/startup-money.html" target="_blank">startup problems that cannot be solved with money</a>.</li>
</ul>
<div>
<b>Startup Failure</b></div>
</div>
<div>
<ul>
<li>Analysis by ChubbyBrain of the <a href="http://www.chubbybrain.com/blog/top-reasons-startups-fail-analyzing-startup-failure-post-mortem/" target="_blank">top 20 reasons for startup failure</a>.</li>
<li>Rid Empson/TechCrunch description of <a href="http://techcrunch.com/2011/09/01/a-deeper-look-at-blackboxs-data-on-startup-failure-and-its-top-cause-premature-scaling-infographic/" target="_blank">Startup Genome research on premature scalin</a>g as the leading cause of startup failure (scroll down for infographic).</li>
<li>Quora thread on <a href="http://www.quora.com/Startup-Failure/Why-do-startups-fail#ans115753" target="_blank">why startups fail</a>.</li>
<li>Thoughtful <a href="http://christacy.blogspot.com/2011/09/what-i-learned-from-onetruefan.html" target="_blank">post-mortem</a> from former head of biz dev for OneTrueFan.</li>
<li>Vin Vacanti offers advice on <a href="http://viniciusvacanti.com/2011/12/12/when-do-you-throw-in-the-towel-on-your-struggling-project/" target="_blank">when to shut down a startup</a>.</li>
</ul>
<div>
<b>The Startup Mindset and Coping with Emotional Pressures</b></div>
</div>
<div>
<ul>
<li>Ben Horowitz gives advice to startup CEOs on <a href="http://techcrunch.com/2011/03/31/what%E2%80%99s-the-most-difficult-ceo-skill-managing-your-own-psychology/" target="_blank">managing their own psychology</a> and the <a href="http://tech.fortune.cnn.com/2011/08/05/ben-horowitz-there%E2%80%99s-a-fine-line-between-fear-and-courage/" target="_blank">fine line between fear and courage when making difficult decisions</a>. </li>
<li>Steve Blank on why <a href="http://venturebeat.com/2011/07/27/entrepreneurship-is-an-art-not-a-job/" target="_blank">entrepreneurs are like artists</a> and how aspiring entrepreneurs can fail from <a href="http://steveblank.com/2011/11/30/youll-be-dead-soon-carpe-diem/" target="_blank">lack of nerve</a>.</li>
<li>Dharmesh Shah on <a href="http://onstartups.com/tabid/3339/bid/34265/Sleepless-In-Startupville-23-Questions-That-Keep-Entrepreneurs-Up.aspx" target="_blank">23 questions that keep entrepreneurs up at night</a>.</li>
<li>Jason Cohen on what to do when the <a href="http://blog.asmartbear.com/startups-emotionally-draining.html" target="_blank">emotional pressure of founding</a> a firm makes you want to throw in the towel; Spencer Fry on <a href="http://spencerfry.com/startups-stress-and-depression" target="_blank">coping with this pressure</a>.</li>
<li>James Altucher offers <a href="http://www.businessinsider.com/the-100-rules-for-being-an-entrepreneur-2011-4" target="_blank">100 rules for being an entrepreneur</a>.</li>
</ul>
<div>
<b>Career Planning Issues</b></div>
<ul>
<li>Charlie O'Donnell on <a href="http://www.thisisgoingtobebig.com/blog/2011/12/5/reverse-engineering-a-career.html" target="_blank">how to switch careers and join a startup</a>.</li>
<li>Randall Bennett on <a href="http://thestartupfoundry.com/2011/07/07/hopelessly-perfect-why-its-smart-to-work-at-a-no-shot-startup/" target="_blank">what you can gain from working at a startup with low survival odds</a>.</li>
<li>Simeon Simeonov offers <a href="http://bostinno.com/all-series/10-killer-reasons-to-join-a-startup-and-debunking-3-myths-on-why-you-shouldn%E2%80%99t/" target="_blank">10 reasons to join a startup</a> and gives practical advice on <a href="http://bostinno.com/all-series/the-geeks-guide-to-finding-the-best-startups/" target="_blank">how to find the right startup position</a>.</li>
<li>A 3-part series by David Beisel on <span id="goog_2006603674"></span><a href="http://genuinevc.com/archives/2011/2/9/how-to-find-the-perfect-startup-job-part-iii-selecting-the-r.html" target="_blank">how to find the perfect startup job</a><span id="goog_2006603675"></span>.</li>
<li>Jason Cohen on <a href="http://blog.asmartbear.com/start-blogging.html" target="_blank">why it's important for entrepreneurs to blog</a>, and how to get started.</li>
<li>Brad Feld shares the TechStars <a href="http://www.feld.com/wp/archives/2011/08/the-techstars-mentor-manifesto.html" target="_blank">Mentor Manifesto</a>: great advice for anyone coaching startups.</li>
<li>Rob Go on the <a href="http://robgo.org/2011/12/04/so-you-want-to-be-a-vc/" target="_blank">downside of a career in venture capital</a>.</li>
<li>Alex Krupp: "<a href="http://alexkrupp.typepad.com/sensemaking/2011/04/how-i-got-into-yc-as-a-non-technical-single-founder.html" target="_blank">How I got into Y Combinator as a Non-Technical, Single Founder</a>."</li>
</ul>
<div>
<b>Tools for Entrepreneurs</b></div>
</div>
<div>
<ul>
<li>Lists of tools for startups from <a href="http://steveblank.com/tools-and-blogs-for-entrepreneurs/" target="_blank">Steve Blank</a>, <a href="http://startupweekend.org/resources/" target="_blank">Startup Weekend</a>, <a href="http://startuptools.pbworks.com/w/page/17974963/FrontPage" target="_blank">PBworks</a>, <a href="http://www.nashcoding.com/2011/05/31/building-a-startup-12-priceless-tools-for-launching-your-mvp/" target="_blank">NashCoding</a>, <a href="http://list.ly/list/9E-tools-and-services-for-a-lean-startup" target="_blank">Shyam Subramanyan/List.ly</a>, and <a href="http://jaretmanuel.com/hackerville" target="_blank">Jaret Manuel</a>.</li>
<li>List of <a href="http://www.idealware.org/articles/fgt_online_surveys.php" target="_blank">online survey tools</a> from Eric Leland/ideaware.</li>
<li>List of <a href="http://mashable.com/2011/05/14/dev-design-resources-2/" target="_blank">resources for designers and developers</a> from Brian Hernandez.</li>
<li>A guide to <a href="http://writings.withoutfriction.com/the-complete-guide-for-starting-iphone-and-io" target="_blank">getting started with iOS development</a> from withoutfriction.</li>
</ul>
</div>
<div>
<br /></div>
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<br /></div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-70741713246596765362011-08-01T21:43:00.006-04:002011-12-29T17:18:27.767-05:00Business Model Analysis, Part 10: Getting Started<div style="background-color: transparent;">
<span id="internal-source-marker_0.16649267124012113" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br />
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<div style="background-color: transparent;">
<span id="internal-source-marker_0.16649267124012113" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This post is part of a series on business model analysis for entrepreneurs. The</span><a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">first post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> in the series presents a comprehensive list (available as a downloadable </span><a href="http://dl.dropbox.com/u/9037692/Business%20Model%20Questions.pdf"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">PDF</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">) of issues entrepreneurs should consider when designing a business model. Others posts in the series delve into specific issues; this one aims to provide some practical advice for entrepreneurs as they get started with business model analysis.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">
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<div style="background-color: transparent;">
<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px; white-space: pre-wrap;"> </span></span><span class="Apple-style-span" style="font-family: Arial; font-size: 16px; font-weight: bold; white-space: pre-wrap;">Why Bother?</span><br />
<span class="Apple-style-span" style="font-family: Arial; font-size: 16px; font-weight: bold; white-space: pre-wrap;"> </span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Since the list in Part 1 of this series includes four dozen questions, entrepreneurs may see business model analysis as a daunting task and an unwelcome distraction at their venture’s outset. They may prefer to conduct a few interviews with prospective customers, then start building, in order to learn by doing in an improvised manner.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Eric Ries explains the dangers of this “Just Do It!” approach in his book, </span><a href="http://www.amazon.com/Lean-Startup-Entrepreneurs-Continuous-Innovation/dp/0307887898/"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">The Lean Startup,</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> and I won’t repeat his arguments here. However, if the sheer length of the list of questions above is a deterrent, entrepreneurs should keep this in mind: due to serial interdependence between the questions—some cannot be considered until others are addressed first—it is not possible, necessary, or even desirable to answer all of the questions immediately and simultaneously. In the spirit of the lean startup, business model analysis is an iterative and ongoing process.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Most entrepreneurs begin the process with an insight about an unmet need and a potential solution for that problem. They explore the opportunity through customer discovery interviews, and use early feedback to refine their concept. Until their idea settles down, it makes no sense to push for deep understanding of pricing options, customer acquisition costs, working capital requirements, etc.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">While entrepreneurs should avoid over-investing in detailed analysis of downstream topics, at some point early in the process of evaluating an opportunity, they should make a quick pass through all of the questions. Their goal should be to articulate hypotheses for as many questions as possible, and to gauge their team’s confidence that these hypotheses are on target. Back-of-the-envelope economics are adequate at this stage.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This quick but comprehensive scan is intended to ensure that the entrepreneur has not ignored any important business model elements. Likewise, the scan should surface potential “deal-breaker” issues early—in particular, any lack of internal consistency between business model elements—and to stimulate a search for ways to address them. For example, based on the initial scan a team might conclude: “We envision a complex new product that would probably best be sold through a face-to-face demonstration, but our ballpark unit economics suggest we cannot afford a direct sales force.”</span><br />
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></h4>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Write It Down!</span></h4>
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<span class="Apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></span><br />
<span class="Apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">When conducting this first pass through the business model questions, entrepreneurs should write down their hypotheses, along with the key assumptions behind them. As their model evolves, entrepreneurs should adhere to this “write it down!” discipline. They should consider displaying a summary of their model as an </span></span><span class="Apple-style-span"><a href="http://www.atlassian.com/wallboards/information-radiators.jsp"><span style="color: #000099; font-family: Arial; font-size: 11pt; vertical-align: baseline; white-space: pre-wrap;">information radiator</span></a></span><span class="Apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">—a prominent visual display that can be readily referenced and amended by team members—like the wall displays that many teams use to track the status of programming projects or progress with their product roadmap. For example, a wall-mounted white board could depict a business model “canvas,” following the approach suggested in Alex Osterwalder’s book, </span></span><span class="Apple-style-span"><a href="http://www.amazon.com/Business-Model-Generation-Visionaries-Challengers/dp/0470876417/"><span style="color: #000099; font-family: Arial; font-size: 11pt; font-style: italic; vertical-align: baseline; white-space: pre-wrap;">Business Model Generation</span></a></span><span class="Apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt; font-style: italic; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">. </span></span><span class="Apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">For some terrific examples of Osterwalder’s canvas in action, see the </span></span><span class="Apple-style-span"><a href="http://steveblank.com/2011/05/10/the-lean-launchpad-at-stanford-%E2%80%93-the-final-presentations/"><span style="color: #000099; font-family: Arial; font-size: 11pt; vertical-align: baseline; white-space: pre-wrap;">presentations</span></a></span><span class="Apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> done by Steve Blank’s students in his Lean LaunchPad course at Stanford. </span></span></div>
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Using the information radiator approach, members can affix different-colored Post-It notes in the cells of the canvas, showing the status of hypotheses for each business model question, for example: 1) green = the hypothesis has been validated through a decisive test; 2) yellow = a test that could validate the hypothesis has been identified, but not yet executed; 3) blue = a hypothesis has been advanced, but not a way to test it; and 4) pink = the question is important, it is too early to offer a hypothesis. As the team makes progress, pink notes will be replaced with blue ones, blue will be replaced with yellow, clusters of notes representing competing hypotheses about a single question will be pruned, etc. And, when the team makes a pivot—that is, when it changes its business model in significant ways due to a failure to validate a key hypothesis—large swaths of the board may revert from green notes back to yellow, blue, or pink ones.</span></div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-19064222568709104452011-07-30T16:16:00.003-04:002011-08-04T10:58:17.586-04:00Business Model Analysis, Part 9: Outsourcing<div style="background-color: transparent;"><br />
<div style="background-color: transparent;"><span id="internal-source-marker_0.32928023068234324" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This post is part of a series on business model analysis for entrepreneurs. The</span><a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">first post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> in the series presents a comprehensive list of issues </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">(available as a downloadable </span><a href="http://dl.dropbox.com/u/9037692/Business%20Model%20Questions.pdf"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">PDF</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">)</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> entrepreneurs should consider when designing a business model. Others delve into specific issues; this one looks at factors that determine whether a startup </span><span id="internal-source-marker_0.012127517256885767" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">should keep key activities in-house, versus outsourcing them. </span><br />
<span id="internal-source-marker_0.012127517256885767" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The key word in the last sentence is "key." Serial entrepreneur <a href="http://altgate.com/blog/2010/09/outsourcing-for-startups.html">Furqan Nazeeri</a> has argued that startups, because they are resource constrained, should outsource </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>all</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> activities that do not contribute to long term, sustainable competitive advantage. VC <a href="http://www.avc.com/a_vc/2010/09/outsourcing.html">Fred Wilson</a> generally agrees, and notes that startups often make the mistake of outsourcing product development due to a lack of in-house skill, but in doing so they sacrifice the crucial ability to iterate the product designs (a point echoed by <a href="http://techcrunch.com/2010/04/17/should-tech-startups-outsource-product-development/">Vivek Wadhwa</a>). Wilson also says that startups often outsource customer service due to perceived cost savings, but in doing so they forfeit valuable customer feedback. <br />
<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px; white-space: pre-wrap;">Another consideration in deciding whether to outsource key activities is the prospect of asymmetry in bargaining between a startup and powerful partners. HubSpot's <a href="http://onstartups.com/tabid/3339/bid/6889/Advice-On-Partnering-With-The-Big-and-Powerful-Don-t.aspx">Dharmesh Shah</a> has warned about the many risks that a startup confronts when negotiating with big companies. Serial entrepreneur and VC <a href="http://pmarca-archive.posterous.com/the-pmarca-guide-to-startups-part-5-the-moby">Marc Andreesen</a> has likened dealing with big companies to the long, frustrating, and harrowing pursuit of Moby Dick. </span></span></span></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px; white-space: pre-wrap;"> </span></span></span></span></div></div><div style="background-color: transparent;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">I won't try to expand on those insights here. Rather, I'll focus on the microeconomics of in-house vs. outsource decisions, which, in economists' parlance, are choices about </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>vertical integration</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">. According to Yale Professor </span><a href="http://www.amazon.com/Economic-Institutions-Capitalism-Oliver-Williamson/dp/068486374X/"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Oliver Williamson</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">, there are economic advantages to completing transactions between two units within a vertically integrated company—rather than between two independent firms—when the transactions entail </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>high levels of uncertainty</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">, </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>small numbers bargaining, </i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">and </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>asset specificity.</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> With transactions between independent firms, uncertainty makes it difficult to draft a contract that specifies each party’s obligations under any contingency that might arise. Absent a complete contract, the parties periodically will need to renegotiate transaction terms. If either party is subject to “small numbers bargaining,” that is, if it has few potential transaction partners, then that party may be vulnerable to hold-up when it renegotiates. Finally, if either party’s assets are tailored for a specific transaction type and cannot be redeployed into other uses, then failing to complete a crucial transaction—for example, securing an input required for production—may lead to bankruptcy with little liquidation value.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Startups frequently face the conditions that encourage vertical integration. By definition, they confront high levels of uncertainty. Also, when they target new markets with radical innovations, startups may require access to idiosyncratic assets controlled by only a few potential partners.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">However, vertical integration poses challenges for resource-constrained startups, because it often requires major investments. </span><a href="http://hbr.org/product/steven-carpenter-at-cake-financial/an/811041-PDF-ENG?Ntt=cake%2520financial"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Cake Financial</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">, a service that gave investment advice to consumers based on analysis of their online stock trades, illustrates this dilemma. Cake’s founder had a choice between building software that could extract a customer’s trading data (with their permission) from their online brokerage accounts, or licensing access to the data from a firm that had already developed similar software. Concerned about that firm’s fees and whether it would be responsive to a small startup’s needs, Cake’s founder chose to build the software. This consumed most of the $9 million in venture capital that Cake had raised, and put the startup in a precarious position when demand for its service was slow to emerge and then capital markets slammed shut during the 2008 global economic crisis.</span></div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-11939604066339479232011-07-29T08:29:00.001-04:002011-08-04T10:58:35.719-04:00Business Model Analysis, Part 8: Crossing the Chasm<div style="background-color: transparent;"><span id="internal-source-marker_0.4675448522903025" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<div style="background-color: transparent; font-family: Times; font-size: medium; white-space: normal;"><span id="internal-source-marker_0.4675448522903025" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><span id="internal-source-marker_0.3774391745682806" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span></span></div><div style="background-color: transparent;"><div style="font-family: Times; font-size: medium; white-space: normal;"><span id="internal-source-marker_0.4675448522903025" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><span id="internal-source-marker_0.3774391745682806" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This post is part of a series on business model analysis for entrepreneurs. The</span><a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">first post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> in the series presents a comprehensive list of issues</span></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">(available as a downloadable </span><a href="http://dl.dropbox.com/u/9037692/Business%20Model%20Questions.pdf"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">PDF</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">) </span><span class="Apple-style-span" style="font-family: Arial; font-size: 15px; white-space: pre-wrap;">entrepreneurs should consider when designing a business model. Others delve into specific issues; this one provides an overview of Geoffrey Moore's concept of crossing the chasm.</span></div></div><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">In his classic <a href="http://www.amazon.com/Crossing-Chasm-Geoffrey-Moore/dp/0060517123/">book</a> on hi-tech marketing, Moore observed that customer adoption of revolutionary new technology products follows a predictable life cycle. Early adopters, according to Moore, are visionaries seeking breakthroughs; they can imagine the new product’s benefits before they have been proven. Because they are tech-savvy, early adopters can self-assemble complementary hardware, software, and services needed to use the new product, and can cope with its inevitable initial bugs. In the next stage of the product life cycle, the early majority—a much larger group—are pragmatists who will only buy a standardized product that has clearly proven benefits. They demand a “whole product solution”—an easy-to-use, reliable bundle of all necessary hardware, software, and services—supported by a reputable firm.</span></div><div style="background-color: transparent;"><span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px; white-space: pre-wrap;"><br />
</span></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><img height="227" src="https://lh5.googleusercontent.com/tq7LUOGRukPE67gUzxqqgLxHhVbs4AhRglXt-FVI6LuVjhGHRG9DbYucWMiD4gXfBJElFHrbL-SDPRSE8zHpavQWBn6oXevefAYx4uTZRtp_t8Mqxg" width="400" /><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 8pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Moore observed that peer-to-peer references are crucial in driving technology purchase decisions. However, early adopters are not considered to be credible references by the early majority: there is a chasm separating the two groups because they rely upon such different purchasing criteria. As a result, new products that are successful with early adopters often stall when startups try to sell them to the early majority.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Moore’s prescription for crossing the chasm is to target a single segment within the early majority; to engineer a whole product solution with clear benefits for this segment; and to overwhelm the segment with an integrated, intensive marketing campaign. From this beachhead, the firm can then leverage referrals to capture other early majority market segments. Moore likens this strategy to World War II’s D-Day, when the Allies landed a massive force at Normandy as the first step in their invasion of Europe.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Most startups targeting fundamentally new markets will not encounter the chasm until they are a few years old; in the meantime, they will be busy cultivating early adopters. Consequently, seed-stage ventures can probably ignore the chasm risk as Steve Blank points out in </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i><a href="http://www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705/">Four Steps to the Epiphany</a></i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">. However, a “D-Day” strategy requires plenty of planning, so entrepreneurs should begin to watch for the chasm as their startup matures.</span></div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-22847893291472794402011-07-28T10:58:00.002-04:002011-12-29T17:19:12.421-05:00Business Model Analysis, Part 7: Bundling<div style="background-color: transparent;">
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span id="internal-source-marker_0.3774391745682806" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span id="internal-source-marker_0.3774391745682806" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This post is part of a series on business model analysis for entrepreneurs. The</span><a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html" style="white-space: normal;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">first post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> in the series presents a comprehensive list of issues</span></span></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">(available as a downloadable </span><a href="http://dl.dropbox.com/u/9037692/Business%20Model%20Questions.pdf"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">PDF</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">)</span><span class="Apple-style-span" style="font-family: Arial; font-size: 15px; white-space: pre-wrap;"> entrepreneurs should consider when designing a business model. Others delve into specific issues; this one provides an overview of bundling.</span><br />
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Bundling entails selling, in a single transaction, two or more items that could conceivably be sold separately. A printed newspaper, for example, is a bundle of news stories, classified ads, comics, obituaries, stock tables, sports scores, etc. Microsoft Office bundles several productivity applications in a software suite.</span></span></span><br />
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The ubiquity of bundling is not an accident: the strategy can provide significant benefits, including superior surplus extraction (i.e., capturing a greater share of customers’ willingness to pay), economies of scope, product design improvements, and strategic advantages.</span></span></span><br />
<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">However, pursuing a bundling strategy can be challenging for a resource-constrained startup Most early-stage ventures strain their capabilities to develop and sell a single product, so bundling multiple products from the outset may not be an option. Nevertheless, entrepreneurs should keep the potential benefits from bundling in mind as they design their business models and plan for future product launches. </span></span></span><br />
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">These benefits include :</span></span></span></div>
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<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Surplus Extraction. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Economists define </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">consumer surplus</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> as the difference between a customer’s willingness-to-pay (WTP) for a product and its price. When a firm offers the same price to all customers (i.e., when it does not engage in price discrimination via negotiated pricing, auctions, etc.), bundling two or more products may allow the firm to extract a larger share of total available consumer surplus — and earn higher profits — than it would from selling the items separately. To illustrate this potential benefit, consider an example with two customers, Jack and Jill, and two products, A and B, each sold by the same monopolist. A and B both have zero marginal cost (as with many information goods), and the firm must offer a single price for each product to all customers. Jack’s maximum WTP is $10 for A and $4 for B. Jill’s maximum WTP is the reverse: $4 for A and $10 for B. If the firm sells A and B separately for $4 each, it will sell one unit of each product to both customers and earn total profits of $16. By pricing each product at $10, it will sell one unit of A to Jack and one unit of B to Jill and earn profits of $20. However, if the firm offers an A+B bundle for $14, it will sell the bundle to both customers and earn profits of $28. Bundling is more likely to increase profits in this way when: 1) the marginal cost of bundled items is low or zero; and 2) the correlation of consumers’ valuations for individual items is weak. Weak correlation means that when customers evaluate the items in a bundle, they don't all have the same favorites. Real world examples of surplus extraction through bundling abound. Some HBO subscribers, for example, value its recent theatrical films highly; others love its original series (e.g., </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>True Blood, Entourage</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">); still others are drawn to HBO's boxing matches or concerts. This varied programming mix allows customers with very different preferences to each justify paying a $10 monthly subscription fee.</span></span></span></li>
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<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Economies of Scope. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Compared to selling items separately, bundling can also reduce a firm’s costs. Firms can realize economies of scope in customer acquisition activities because they can sell the bundle with a single marketing message, rather than two separate ads or two sales calls for two distinct products. Likewise, economies of scope in production are available when integrated designs leverage shared components (e.g., a single screen and battery when combining a cell phone and MP3 player).</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Product Design. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Integrated designs may also yield quality advantages through simplification of interfaces, as with Google’s use of a common password across all of its applications and its integration of Gmail into its search service.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Strategic Advantages. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Under certain conditions (described in this academic </span><a href="http://www.hbs.edu/research/pdf/07-104.pdf" style="font-style: normal;"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">paper</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">), bundling may allow a company that monopolizes a market for one product (call it "A") to profitably leverage its way into the market for a crucial complement to A (call it "B") which previously was supplied only by independent companies. Products are complements when they are frequently or always consumed in tandem (e.g., browsers and PCs; beer and pizza). By offering </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>only</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> an A+B bundle (i.e., "tying" A and B and not allowing customers to buy A separately), the market A monopolist forecloses access to its customers, denying standalone suppliers of B the opportunity to sell to them. The resulting reduction in revenue weakens the standalone suppliers of B and may even force them to exit the market. Of course, such a strategy can run afoul of antitrust law, as Microsoft discovered when it tied the Internet Explorer browser to its monopoly Windows operating system.</span></li>
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</div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-54500964103233992652011-07-27T08:58:00.001-04:002012-01-16T15:11:27.267-05:00Business Model Analysis, Part 6: LTV and CAC<div style="text-align: justify;">
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<span id="internal-source-marker_0.517268278170377" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
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<span id="internal-source-marker_0.517268278170377" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><span id="internal-source-marker_0.7476158365607262" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This post is part of a series on business model analysis for entrepreneurs. The</span><a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">first post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> in the series presents a comprehensive list of issues</span></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">(available as a downloadable </span><a href="http://dl.dropbox.com/u/9037692/Business%20Model%20Questions.pdf"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">PDF</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">)</span><span class="Apple-style-span" style="font-family: Arial; font-size: 15px; white-space: pre-wrap;"> entrepreneurs should consider when designing a business model. Others delve into specific issues; this one provides an overview of customer lifetime value (LTV) and customer acquisition cost (CAC) calculations, and how they are used in startups.</span></div>
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<span id="internal-source-marker_0.517268278170377" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">As they decide whether to <a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-4-racing.html">race for scale</a>, startups face a function that relates their long-term payoff—the net present value of future cash flows earned as a result of acquiring new customers during the current period—to their level of current-period investment in customer acquisition. Entrepreneurs cannot observe this function directly; they must estimate its shape based on customer and competitor responses to the firm’s initial marketing efforts and historical information for similar products. Early in a product’s life cycle, with limited data available, these estimates will be imprecise, so entrepreneurs should be wary of overconfidence biases that may lead them to overinvest in growth.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The function relating long-term returns to current-period investments in customer acquisition will have an inverted “U” shape. Up to some point—I* in the figure below—increasing investments should boost a firm’s net present value (NPV), but at a diminishing rate as the cost of acquiring each additional customer rises. Beyond the value-maximizing point, I*, it costs more to acquire additional customers than they are worth. Put another way, if you race too hard, or not hard enough, you will hurt your long-term returns.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Net present value per new customer—that is, customer lifetime value (LTV) minus customer acquisition cost (CAC)—may decline with investment levels for four reasons:</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
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<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Broadening Beyond the Firm’s Natural Market Segments.</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> Most products have attributes — features, service quality, brand image, etc. — that match the needs of some customer segments better than others. When racing for scale, a firm may target prospects outside of the customer segments that find its product most appealing. Large price reductions or promotional expenditures may be required to convert these prospects into buyers.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Prematurely Soliciting Mainstream Customers. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Mainstream customers often defer purchases until early adopters have “tested the water” and can verify that a product has an attractive value proposition. If mainstream prospects are solicited prematurely, conversion rates may be low unless inducements are offered.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Pricing and Promotional Battles.</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> Aggressive moves to capture share may precipitate pricing and promotional battles with competitors.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Scalability Constraints. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The operational strains of rapid growth may degrade product or service quality. This can hurt solicitation conversion rates and raise acquisition costs per new customer. The resulting damage to the firm’s reputation can also put downward pressure on pricing and customer retention rates, further reducing the payoff from racing.</span></li>
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<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
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<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">NPV Impact of Customer Acquisition Investments</span></div>
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><img height="275" src="https://lh3.googleusercontent.com/-M80N6ZmP-u6Vm3-u9ysdzx24hmyEJfkIDj4eiLSMPBICzYffKB1m6geQCkdCLY9TX_dCQarq7XTIxRQBvP45NS4FTc_tpV7M62ABAo3dhw9XGho79g" width="400" /><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></div>
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<div style="background-color: transparent; clear: left; float: left; margin-bottom: 1em; margin-right: 1em;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The ratio of customer lifetime value (LTV) to customer acquisition cost (CAC) is a useful measure of the productivity of customer acquisition efforts. LTV equals the discounted present value of variable contribution—revenues minus variable costs—earned over the life of a typical customer’s relationship with a company. LTV does not deduct customer acquisition costs (CAC). Unless a firm exhibits viral growth or increasing returns to scale (scenarios discussed below), CAC = LTV is the most that a company can profitably afford to invest to acquire a new customer. </span><br />
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></h4>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Calculating LTV and CAC</span></h4>
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<span style="font-family: Arial; font-size: 11pt; font-weight: normal; white-space: pre-wrap;">Calculating a firm’s maximum customer acquisition cost (CAC) based on the average lifetime value (LTV) of a customer involves four steps:</span></h4>
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Step 1: Determine contribution per customer. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Variable contribution equals revenue earned less all variable costs incurred in serving a customer in a given year, excluding marketing costs related to customer acquisition. A back-of-the-envelope approach for calculating the average contribution per customer—usually sufficient for providing a rough “reality check” on a business model—simply subtracts a company’s total variable cost from its revenue for the most recent period, then divides the remainder by the average number of customers served during that period.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">A more sophisticated approach recognizes that 1) contribution per customer may vary substantially for different customer segments, and 2) the annual contribution per customer is likely to change over the life of a customer relationship. With respect to the latter point, a company may be able to increase its prices over time. Also, the company should be able to collect information about the customer’s preferences and may be able to use that information to cross-sell related products. Finally, over time, variable costs incurred in serving a customer tend to decline as a percentage of revenues for two reasons. First, experienced customers tend to generate fewer customer service inquiries because they “know the ropes.” Second, as a company grows, it typically can improve its operational efficiency and realize volume discounts in procurement.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Step 2: Determine customer life. T</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">o calculate the average length of a customer relationship, one can employ the formula 1/x, where “x” is the annual customer churn rate, that is, the percentage of customers that terminate their relationship with a company from year to year. So, if a company retains 70% of its customers each year, then the average customer life is 1/0.3 = 3.33 years. Of course, the average length of a customer relationship may vary widely for different customer segments.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Step 3: Calculate LTV. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">The annual cash flows per customer calculated in Step 1 are discounted to their present value, using the number of years for the duration of a customer relationship calculated in Step 2.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Step 4: Calculate CAC. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">A back-of-the-envelope approach for calculating the average cost of acquiring a new customer takes total sales and marketing expense incurred during a period, then 1) subtracts any costs related to retention and usage stimulation efforts targeted at existing customers (e.g., time spent by sales reps calling on existing accounts, rather than prospecting for new customers); and 2) divides by the total number of new customers acquired during the period.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">As with the other inputs described above, average customer acquisition costs will vary considerably by customer segment. Likewise, different acquisition methods may have very different costs. Each method will be subject to decreasing returns during a given period as available prospects in the most attractive segments are converted into purchasers and the company is then forced to target prospects for whom the product is less compelling. For this reason, companies employ cohort analysis: they measure the productivity of their marketing efforts—and optimize their efforts accordingly—by tracking, over time, the LTV and CAC of “vintages” of new customers acquired during a given period through different marketing methods.</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Step 5: Compare LTV and CAC. I</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">n theory, for any given new customer, a company can afford to increase CAC up to the point that CAC = LTV for that customer. Of course, if CAC = LTV for </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>every</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> new customer that a company acquired, it would not generate enough contribution to cover its fixed costs. For this reason, many companies employ a target LTV/CAC ratio. For many software-as-a-service businesses, for example, the target ratio is 3:1.</span><br />
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></h4>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Calculating LTV and CAC with Virality and Network Effects</span></h4>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div>
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">When calculating LTV and CAC for businesses that exhibit virality and/or strong network effects, complications may arise:</span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<ul>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Virality.</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> The maximum amount that a firm can afford spend to acquire a customer through paid marketing methods should take <a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-5-virality.html">viral growth</a> opportunities into account. In theory, in calculating the value of a “seed” customer, one should reflect the LTV of every additional customer who will be subsequently acquired due to free, viral mechanisms that are put in motion by the seed. This could conceivably involve a chain of viral acquisitions that stretches for many years into the future. In practice, it is more conservative to credit the seed customer with only one year’s worth of viral acquisitions. A straightforward way to do this is to multiple the LTV directly generated by the seed customer by the 1.0 + V, where V is the viral coefficient for a new customer of that cohort type.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Network Effects Generate Value for Other Customers. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">When a business exhibits increasing returns to scale due to network effects or scale economies in production, acquiring a customer in the current period increases future cash flows from other customers. In calculating LTV, this incremental value should be added to the present value of future cash flows derived directly from a new customer, as illustrated in the technical appendix to <a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-2.html">Part 2</a> of this series.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Variable Costs Depend on Network Density. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">When networks have a spatial component, the physical proximity of customers may be an important factor in determining variable costs. For example, an online grocery service can achieve much lower delivery costs per customer when a driver’s stops are just a few minutes apart. Hence, to calculate contribution margins accurately, managers need a reliable forecast for network density.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Two-Sided Networks. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Two-sided networks have two distinct user groups whose respective members consistently play the same role in transactions, for example, cardholders and merchants in American Express’s credit card network; job seekers and recruiters in Monster.com’s online recruitment network. To mobilize a two-sided network, platform providers must attract users to </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>both</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> sides—typically simultaneously.</span></li>
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<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: circle; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">In this context, LTV calculations can become very complicated; explaining their mechanics is beyond the scope of this post. In fact, marketing scholars have only recently begun to develop statistical models that can be used to estimate LTV in two-sided networks; my colleague Sunil Gupta has done some <a href="http://hbr.org/2008/11/what-is-a-free-customer-worth/ar/1">pioneering work</a> on this front. Consistent with the previous point, these models factor the impact on future cash flows from Side B users in estimating the value of additional Side A users, and vice versa.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; list-style-type: circle; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">In most companies serving two-sided networks, distinct organizational units will be charged with marketing to the separate sides; these units must coordinate their plans to ensure that overall marketing spending is optimized. In particular, it is important to avoid double counting the profit increase attributable to network effects when separate organizational units each calculate LTV for their respective sides. Complicating matters further, certain marketing programs will impact user acquisition rates on </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>both</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> sides (for example, Monster.com’s Olympic sponsorships, which built awareness among both recruiters and job seekers). Managers must determine how to allocate these expenses across the two sides when calculating CAC.</span></li>
</ul>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">For more on LTV and CAC analysis, see F. Reichheld, </span><a href="http://www.amazon.com/Loyalty-Effect-Hidden-Profits-Lasting/dp/1578516870/"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">The Loyalty Effect</span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">;</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> Blattberg et al., </span><a href="http://www.amazon.com/Customer-Equity-Building-Managing-Relationships/dp/0875847641/"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Customer Equity: Building and Managing Relationships as Valuable Assets</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">; Blattberg & Deighton, “</span><a href="http://hbr.org/1996/07/manage-marketing-by-the-customer-equity-test/ar/1"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Manage Marketing by the Customer Equity Test</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">”; and </span><a href="http://www.forentrepreneurs.com/startup-killer/"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">posts</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> by David Skok of Matrix Partners.</span></div>
</div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.comtag:blogger.com,1999:blog-6875047390945694983.post-32987860255852359862011-07-26T09:29:00.001-04:002011-12-29T17:22:04.052-05:00Business Model Analysis, Part 5: Virality<div style="background-color: transparent;">
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<span id="internal-source-marker_0.7476158365607262" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">This post is part of a series on business model analysis for entrepreneurs. The</span><a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-1-key.html"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">first post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> in the series presents a comprehensive list of issues</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">(available as a downloadable </span><a href="http://dl.dropbox.com/u/9037692/Business%20Model%20Questions.pdf"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">PDF</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">)</span><span class="Apple-style-span" style="font-family: Arial; font-size: 15px; white-space: pre-wrap;"> entrepreneurs should consider when designing a business model. Others delve into specific issues; this one provides an overview of viral customer acquisition dynamics.</span></div>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> </span></div>
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<span id="internal-source-marker_0.4942682213149965" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">A product grows virally when its use spreads through direct, customer-to-customer transmission. Viral growth occurs through four different mechanisms listed below. With the exception of incentives, these mechanisms do not entail any marketing expenditures, so business models that harness strong viral growth can be </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><i>very</i></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> attractive.</span></div>
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<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Direct Network Effects. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">To function properly, some products must be used jointly by two or more parties. These products are said to exhibit </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">direct network effects</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">, because their users interact directly. For example, early versions of <a href="http://hbr.org/product/skype/an/806165-PDF-ENG?">Skype</a> required both a call originator and recipient to use Skype software. When one party who already has such a product wishes to interact with another who does not, the first party can contact the second party to suggest that they acquire the product.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Word-of-Mouth. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Even if they do not enjoy direct network effects, products can spread virally when a happy customer recommends them to another party, as when a satisfied diner suggests a restaurant to a friend.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Casual Contact. </span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Like the common cold, some products can spread virally through casual customer-to-customer contact. For example, the free, web-based email service Hotmail grew explosively in 1996 after its founders added a link at the bottom of users’ emails that simply said, “Get your free email at Hotmail.”</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Incentives.</span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"> Many companies structure incentives that encourage their existing customers to recruit new customers, for example, MCI’s 1990s “Friends-and-Family” plan, which offered reduced long distance rates for calls between MCI customers in a circle of up to twenty members.</span></li>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Virality and <a href="http://platformsandnetworks.blogspot.com/2011/07/business-model-analysis-part-2.html">network effects</a> are often conflated and confused, so the distinction between them warrants clarification. It should be clear from the list of mechanisms above that not all products that spread virally exhibit network effects. Likewise, not all users of products with network effects are acquired through viral, customer-to-customer transmission mechanisms. Specifically:</span></div>
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<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">A new user of a product with direct network effects might sign up based on press coverage or advertising, then discover parties with whom they can interact after using the product. This pattern was evident in the rapid growth of <a href="http://hbr.org/product/myspace/an/708499-PDF-ENG">MySpace</a>, <a href="http://hbr.org/product/linden-lab-crossing-the-chasm/an/809147-PDF-ENG">Second Life</a>, <a href="http://hbr.org/product/twitter/an/710455-PDF-ENG?">Twitter</a>, and the question-and-answer service Quora.</span></li>
<li style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; list-style-type: disc; text-decoration: none; vertical-align: baseline;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Direct network effects are distinguished from indirect network effects in a <a href="http://hbr.org/2006/10/strategies-for-two-sided-markets/ar/1">two-sided network</a>, in which growth in one side’s user base (e.g., Android phone owners) attracts more users to the other side (e.g., Android application developers), and vice versa. With indirect network effects, the mechanism of attraction is the aggregation of a larger base of users, rather than contact between individual users.</span></li>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Many startups combine more than one viral mechanism in their go-to-market plan. <a href="http://hbr.org/product/dropbox-it-just-works/an/811065-PDF-ENG">Dropbox</a>, for example: 1) harnessed a direct network effect when users employed the service to collaborate on documents; 2) benefited from word-of-mouth referrals from loyal customers; 3) acquired customers through casual contact when users emailed links that allowed recipients to download (without installing Dropbox) files stored in the sender’s public folder on Dropbox; and 4) offered a two-way “user-get-user” bonus, that gave both the inviter and recipient an additional 250MB of free storage.</span></div>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></h4>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Viral Coefficient</span></h4>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div>
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<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">A firm’s viral coefficient is calculated as the number of additional customers subsequently acquired through viral mechanisms for every new customer initially acquired. Startups that rely heavily on viral growth should track their viral coefficient overall and by customer cohort—that is, for each “vintage” of new customers acquired during a given period through different types of marketing program employed by the firm. </span><span class="Apple-style-span" style="font-family: Arial; font-size: 15px; white-space: pre-wrap;">As shown by the table below, a viral coefficient greater that 1.0 yields self-sustaining growth from an initial “seed”—that is, a batch of new customers acquired in period 1. In the table, we assume that a seed group of 1,000 new customers each purchase one unit of a firm’s product in year 1. These seed customers do not repurchase the product, but through viral means, they attract some additional customers who purchase in year 2, who in turn attract some more customers in year 3, and so forth.</span></div>
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<tr style="height: 0px;"><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Number of New Customers</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span></td></tr>
<tr style="height: 0px;"><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Viral Coefficient</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br class="kix-line-break" /></span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Year 1</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br class="kix-line-break" /></span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Year 2</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br class="kix-line-break" /></span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Year 3</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br class="kix-line-break" /></span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Year 4</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"><br class="kix-line-break" /></span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">Year 5</span></div>
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<tr style="height: 0px;"><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">0.3</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">300</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">90</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">27</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">8</span></div>
</td></tr>
<tr style="height: 0px;"><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1.0</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td></tr>
<tr style="height: 0px;"><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: bold; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1.3</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,000</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,300</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">1,690</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">2,197</span></div>
</td><td style="border-bottom-color: rgb(170, 170, 170); border-bottom-style: dotted; border-bottom-width: 1px; border-left-color: rgb(170, 170, 170); border-left-style: dotted; border-left-width: 1px; border-right-color: rgb(170, 170, 170); border-right-style: dotted; border-right-width: 1px; border-top-color: rgb(170, 170, 170); border-top-style: dotted; border-top-width: 1px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: top;"><div dir="ltr" style="margin-bottom: 0pt; margin-top: 0pt; text-align: center;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 12pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">2,856</span></div>
</td></tr>
</tbody></table>
</div>
<br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">When modeling viral growth dynamics for customer relationships that have a multi-year life, it is important to be specific about whether the viral coefficient should only be applied in year 1, or in each year. In some contexts, new customers are likely to quickly exhaust word-of-mouth recommendations or other viral mechanisms (e.g., opportunities to leverage “member-get-member” bonuses). </span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;"></span><br />
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">David Skok of Matrix Partners discusses viral coefficients in depth in this </span><a href="http://www.forentrepreneurs.com/lessons-learnt-viral-marketing/" style="font-family: Times;"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">post</span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">, and Adam Penenberg’s book </span><a href="http://www.amazon.com/Viral-Loop-Facebook-Businesses-Themselves/dp/1401323499/" style="font-family: Times;"><span style="background-color: transparent; color: #000099; font-family: Arial; font-size: 11pt; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: underline; vertical-align: baseline; white-space: pre-wrap;">Viral Loop </span></a><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline; white-space: pre-wrap;">provides many examples of viral customer acquisition.</span></div>Tom Eisenmannhttp://www.blogger.com/profile/14369031799958348690noreply@blogger.com