Head Games: Ego and Entrepreneurial Failure

This post was originally published at O'Reilly Programming

“Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”

—Samuel Beckett

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 “The Struggle,” that is, the emotional roller coaster of startup life. Paul DeJoe captures the ups and downs of being a startup CEO in a post reprinted in a book that I edited, Managing Startups: Best Blog Posts.

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 Reality Distortion Field 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 impostor syndrome. That’s why VC-turned-founder-coach Jerry Colonna named his blog The Monster in Your Head. In a recent interview 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: “The Dark Side of Entrepreneurship.”

Causes of Entrepreneurial Failure

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.

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 Fundamental Attribution Error.

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 18 reasons why startups fail; in her post, What Goes Wrong, reprinted in Managing Startups, Graham’s partner at Y Combinator, Jessica Livingston, warns founders that they must navigate a “tunnel full of monsters that kill.”

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?

In the spirit of “Five Whys” 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.

Ego-Driven Failure

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 hypothesizes 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.

Ambivalence. Steve Blank tells a tragic story of a founder failing from a lack of nerve. Entrepreneurs who are irresolute, weak-willed, and wavering can cause problems like these:

• They fail to recruit a great team because strong candidates can sense the founder’s ambivalence and know that resolve is required to lead a startup through its ups and downs.
• They pivot too quickly, 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 post from Blank republished in Managing Startups 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.”
• They scale prematurely, 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 My Startup Has 30 Days to Live, 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.”
• They stay in stealth mode too long, 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.
• They provoke cofounders disputes—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.”
• They throw in the towel without 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 says, “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 post republished in Managing Startups, that founders are likely to get “antsy” when they pursue a startup mostly to advance their career but lack personal passion for its mission.
•  They follow the herd, 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’ post-mortem of Formspring’s failure.
•  They take their eye off the ball. Mark Suster bemoans 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.

Obstinacy. Startups run by founders who are control freaks, headstrong, or arrogant often precipitate the same problems listed above, but in very different ways: 

• They fail to recruit a great team 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.
• They fail to pivot 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 zealots 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.
• They scale prematurely 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.”
• They stay in stealth mode too long. 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.”
• They provoke cofounder disputes by battling ceaselessly for dominance and control of their venture’s direction. 

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 “Big Five” set of stable personality traits: openness, agreeableness, extraversion, conscientiousness and neuroticism. Adeo Ressi’s Founder Institute 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 Bad Founder DNA: excuse-making, predatory aggressiveness, deceit, emotional instability, and narcissism. Founder Institute’s research confirms: it’s all in the head!

Failing Better

So, what should a founder to do to master the monsters in her head?

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.

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.

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 After-Action Review 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?

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 points out, you’ll be in a better position to learn from a big failure if you recognize that your emotional response to it may follow Kubler-Ross’s five stages of grief—denial, anger, bargaining, depression, and gradual, grudging acceptance.

Follow the advice 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 posts to learn more about depression and how to manage it.

Finally, follow the advice of David Tisch, and never lose sight of the ‘why.’ 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 points out, sometimes failure is your best option.

What Is Entrepreneurship?

This post was originally published at HBR.org.

What is 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.

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 Howard Stevenson, the godfather of entrepreneurship studies at HBS. According to Stevenson, entrepreneurship is the pursuit of opportunity beyond resources controlled.

“Pursuit” 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.

“Opportunity” 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.

“Beyond resources controlled” 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.

Because they are pursuing a novel opportunity while lacking access to required resources, entrepreneurs face considerable risk, which comes in four main types. Demand risk relates to prospective customers’ willingness to adopt the solution envisioned by the entrepreneur. Technology risk is high when engineering or scientific breakthroughs are required to bring a solution to fruition. Execution risk relates to the entrepreneur’s ability to attract employees and partners who can implement the venture’s plans. Financing risk 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.

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:

• Lean experimentation allows them to resolve risks quickly and with limited resource expenditure, by relying on a “minimum viable product,” that is, the smallest possible set of activities required to rigorously test a business model hypothesis.
• Staged investing 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.
• Partnering 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, entrepreneurs rent resources to keep costs variable and to avoid the big fixed outlays associated with resource ownership.
• “Storytelling” 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.

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 distinctive approach to managing 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.

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 advice to aspiring entrepreneurs: “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.”

Managing Startups: Best Posts of 2012

Here's my compilation of 2012's best posts about managing startups. I assembled similar lists at the end of 2011, 2010 and 2009. 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.

Apologies to authors whose work I've omitted. Please use comments below to suggest additional posts. Happy New Year!

Lean Startup

• David Aycan of IDEO on the value of prototyping multiple MVPs in parallel.
• Vin Vacanti on excuses that kept Yipit from launching early.
• Entrepreneur Graeham Douglas on lean techniques for rapid prototyping of physical products.
• Emre Sokullu of GROU.PS on software that is well suited for building MVPs.
• Ben Yoskovitz of GoInstant on the value of focusing on "one metric that matters."
• Ash Maurya published his book, Running Lean; he describes the Lean Stack -- tools for managing hypothesis testing -- in a two-part post.
• Joel Spolsky on the costs of different types of software inventory.
• Glenn Kelman of Redfin on how running lean without deep product conviction can lead entrepreneurs to pivot too quickly and build mediocre products.
• Dan Milstein of Wingu in a video from the 2012 Lean Startup Conference on conducting a "5 Whys" session.
• Trevor Owens of Lean Startup Machine on different approaches for validating assumptions.
• A video from the Lean Startup Conference of Lean Startup Machine SF 2012 winner, Chef's Table, discussing their pivots and hypothesis tests.
• Other videos from Eric Ries's Lean Startup Conference.

Business Models

• Bill Gurley of Benchmark, David Beisel of NextView Ventures, and Seth Rothman of Greylock on key factors for success in building online marketplaces.
• Fred Wilson of Union Square Ventures on revenue models for online commerce sites.
• Rishi Shah of Digioh on optimizing freemium pricing for SaaS; David Skok of Matrix Partners on why churn matters so much with SaaS models.
• M. Wensing presents a taxonomy of different types of freemium offers.
• Entrepreneur/angel investor Brian Balfour on solving the chicken & egg problem with network effects businesses; Sangeet Choudary writes about platforms and network effects, e.g., the impact or reverse network effects on social media.
• Tristan Kromer shows how to use a business model canvas based on "Puppies-as-a-Service" as an example.

Customer Discovery and Validation

• Cindy Alvarez on applying customer development techniques with different types of customers and on when to NOT use surveys.
• Laura Klein on how to use personas, how to overcome reservations about shipping an early product version, and the importance of validating a problem, not a product.
• Brent Chudoba on using surveys to validate pricing, messaging, and other key decisions.

Marketing: Demand Generation and Optimization

• Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on distribution, marketing and sales.
• Rob Go of NextView Ventures succinctly summarizes marketing fundamentals and their relevance for startups.
• Renee Warren of Onboardly offers comprehensive coverage of marketing basics in KISSmetrics' "Ultimate Guide to Startup Marketing."
• Sean Work of KISSmetrics and Zach Bulygo describe best practices of high-converting websites.
• David Skok of Matrix Partners on adapting marketing and sales tactics to stages of the customer buying cycle.
• Entrepreneur/angel investor Brian Balfour offers tips for testing user acquisition methods.
• Eric Siu offers tips for structuring A/B tests; Lance Kidwell on the same topic with specific application to landing pages.
• Tyler King offers tips for monetizing a blog.
• John Koetsier shares pointers for marketing a mobile app.

Sales and Sales Management

• Bootstrapper Robert Graham offers advice on cold calling early customers via email.
• Steve Blank on the challenges of closing a complex B2B sale with multiple decision influencers; Mark Suster of GRP Partners on the same topic.
• David Skok provides a link to a Bridge Group report on metrics and compensation data for SaaS inside sales.
• Mark Suster on when to hire sales people in an early-stage startup and how to choose them.
• Mark Roberge of HubSpot on how to use analytics to build a scalable sales team.
• Brent Adamson et al. on how/why the best sales reps avoid "talkers" who superficially show enthusiasm but are unable/unwilling to mobilize organizational support for a purchase.

Viral Marketing

• Rahul Vohra of Rapportive on modeling viral growth.
• Vin Vacanti of Yipit on ways to drive virality.

PR Strategy

• Susanna Gebauer of exploreB2B on managing PR.
• Leo Widrich of Buffer on how to get press coverage.
• Chris Dixon offers tips on interacting with the press.

Branding/Naming a Startup

• Cezary Pietrzak offers tips on naming a startup; Andrus Purde of Achoo on the same topic.
• Robert Laing presents a case study of rebranding his startup, Gengo.
• Mike Troiano offers startup branding tips.

Product Management/Product Design

• Laura Klein on dealing with customers' aversion to feature/interface changes.
• Cindy Alvarez on what you will/won't learn from usability testing.
• Martina Lauchengco of Silicon Valley Product Group on the role of product marketing.
• Marty Cagan of SVPG on time-boxed product discovery and on continuous product discovery as a natural extension of continuous software deployment.
• Cagan on the difference between old and new school product management, and on the difference between live-data prototypes and production software.
• Adam Nash of Greylock on the responsibilities of great product leaders.
• Eric Ries on the product manager's lament with waterfall software development.
• Jacques Murphy on the challenges of introducing product management to a startup.
• Ben Yoskovitz on the product manager's role.
• Andrew Chen on Square's concept of product leaders as "product editors."
• Jayson DeMers of AudienceBloom on outsourcing pitfalls.

Business Development

• 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 case study.

Scaling

• Jeff Bussgang of Flybridge Capital (and my colleague at HBS) on scaling challenges; see also Jeff's case studies of scaling at TripAdvisor, Akamai, and athenahealth.
• Paul Graham of Y Combinator on why startup = growth, and a response from Mark Suster.
• Jeff Jordan of a16z on how eBay managed growth.

Funding Strategy

• Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on the motives/methods of venture capitalists.
• Jeff Bussgang of Flybridge Capital on passive vs. active VC seed investors.
• Rob Go of NextView Ventures on trends impacting seed funds and why VCs have a 20% equity ownership target. 
• Rob's partner David Beisel on how to select investors in a seed VC syndicate and on the motives of different types of angel investors.
• Mark Suster of GRP Partners offers a primer on fundraising, discusses when investors in the same round should get different share prices, and reviews the pros/cons of convertible debt
• Suster on super pro rata rights; Beisel on the same topic.
• Attorney Scott Edward Walker offers a primer on convertible note terms.
• Dave Balter of BzzAgent offers advice for angel investors.
• Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on how to pitch VCs.
• Anth Georgides offers tips for first-time entrepreneurs negotiating with VCs.

Founding Process

• My colleague Noam Wasserman published his book, The Founder's Dilemmas, that describes tradeoffs that founders confront when deciding when/with whom to found, how to split equity, how to divide roles, etc.
• Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on the importance on early founding decisions.
• Charlie O'Donnell of Brooklyn Bridge Ventures on questions that co-founders must address ASAP and the concept of the "minimum viable team," i.e., the smallest set of skills needed to get traction in an early-stage startup.

Company Culture, Organizational Structure, Recruiting and Other HR Issues

• Ben Horowitz of a16z on the concept of "management debt" (i.e., bad people decisions with long-term consequences -- the HR equivalent of technical debt) and on how accountability separates good companies from bad ones.
• Horowitz on how to integrate "old people" (i.e., senior executives from big companies) into a startup.
• Bijan Sabet of Spark Capital on the risk of promoting managers too quickly.
• Blake Masters' summary of Peter Thiel's Stanford CS183 lecture on company culture: where it comes from/why it is important.
• Horowitz on building company culture.
• David Beisel of NextView Ventures on the importance of office space configuration in building a startup.
• Tips on hiring developers from Dharmesh Shah of HubSpot; Avi Flombaum of the Flatiron School;  Iris Shoor of Takipi; and a great Quora thread.
• Recruiting best practices discussed by Fred Wilson of USV; Charlie O-Donnell of Brooklyn Bridge Ventures; Ben Yoskovitz of GoInstant; and David Beisel. 
• Chad Dickerson of Etsy on the link between recruiting and company culture.
• Thoughts on firing employees from Chris Dixon and Fred Wilson.

Board Management

• Fred Wilson of USV on managing startup boards.
• Mark Suster of GRP Partners on the board observer role.

Startup Failure

• Jessica Livingston of Y Combinator analyzes reasons why startups fail, as does Andrew Montalenti of Parse.ly. 
• Startup Genome infographic on causes of startup failure.
• Michael O. Church on the ethics of "failing fast."

Exiting By Selling Your Company

• Chris Dixon of a16z on the economic logic behind talent acquisitions: when/why "make vs. buy" decisions favor buying; he also offers these notes on the acquisition process.
• John O'Farrell of a16z on deciding when to sell.
• Tobias Peggs on what life is like inside a big company after an entrepreneur sells.

The Startup Mindset and Coping with Startup Pressures

• Paul DeJoe of Ecquire on managing the pressure that comes with being a startup CEO.
• Steve Blank on why it matters how co-founders fight.
• Blake Masters' summaries of Peter Thiel's Stanford CS183 lectures on the role of luck in startup success and on "founder as victim, founder as god." Fascinating stuff! 
• Steve Blank on the challenge of distinguishing between vision and hallucination in charting a startup's course.
• Andrew Chen on dealing with the "trough of sorrow" following a big bump in traffic after a TechCrunch story.
• Paul Graham of Y Combinator on "black swan farming," 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/
• Graham on how to get startup ideas and on generating/coping with frighteningly ambitious startup ideas.
• 50 startup lessons learned by James Maskell, founder of Vinetrade; startup lessons learned by Vin Vacanti.
• Andreas Klinger of LOOKK on how/why founders lie to keep doing things in their comfort zones
• Serial entrepreneur/angel investor Jason Calacanis on the two biggest questions founders need to ask: Will customers recommend my product, and will they remember it?
• Investor James Altucher on how to survive your 1st year as founder/CEO.
• Chris Dixon: once you take outside money, the clock starts ticking.
• Jason Calacanis with advice for seed-stage entrepreneurs facing the "Series A Crunch" [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!]

Management Advice, Not Elsewhere Classified

• Mark Suster of GRP Partners on why you should never negotiate one deal point at a time.
• Entrepreneur Karl Treier on preparing a startup of technical due diligence (e.g., questions about scalability, disaster recovery, etc.)
• Ben Horowitz of a16z on how/why a CEO should deliver effective feedback.

Career Advice (Especially for MBAs)

• David Beisel of NextView Ventures offers advice for incoming MBAs who want to launch a startup upon graduation.
• Andy Rachleff of Wealthfront provides data on startup compensation levels and advice on negotiating pay packages.
• Entrepreneur Bryan Goldberg offers advice on building personal wealth in Silicon Valley startups.
• From Naysawn Naderi, the case against aspiring entrepreneurs pursuing an MBA, and a counter-argument from Mike Gozzo.
• Reflections from entrepreneur Ryan Allis on what he's learning at business school.
• A personal account from Michelle Wetzler on why she left consulting for a startup job.

Startup Hubs

• Brad Feld of Foundry Group and TechStars has published the book Startup Communities, a guide to building an entrepreneurial ecosystem.

Tools for Entrepreneurs

• Beyond Steve Blank's Startup Owner's Manual, a book he co-authored with Bob Dorf, here is a list of the fantastic resources Steve has made available to the startup community -- mostly for free.

Product Management 101

This fall at Harvard Business School, we launched Product Management 101, a course for academic credit that uses a "learning-by-doing" approach to 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.

First, a nod to the two MBA candidates who proposed, designed and oversaw PM 101: Prem Ramaswami and Rana Kashyap. The course has many moving parts, and Rana and Prem kept them in smooth motion.

Motivation. As I've written in a course note co-authored with Jeff Bussgang and Rob Go, product manager is a fantastic entry-level general management position for MBAs. 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 or -- via summer internships or working on their own startups -- during business school. 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.

Fall Semester. Our goal was to give students hands-on practice specifying and managing the development of a real application. We identified concepts for websites and 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.

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 Market Requirements Document 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.

Students spent the next several weeks specifying their application's functionality and preparing a Product Requirements Document. 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.

Winter Semester. 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. 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.

Workshops. 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 course site. Session topics included:

• 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?
• 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?
• What is a Product Requirements Document? Why do some tech companies use them while others do not?
• What approaches (e.g., project planning software, face-to-face meetings, etc.) do PMs use to track progress and coordinate their team's efforts?
• How should a PM approach wireframing? What do they need to know about UX design? 
• What does a PM need to know about cloud technology? Database architectures?

We'll continue these workshops next term, for example, devoting sessions to how PMs work with engineers and to post-launch analytics.

Lessons Learned. At the end of the semester, we asked the students to blog on lessons they learned about the PM role. One wrote 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 wrote 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 wrote about the challenges of becoming a PM as an MBA without strong coding skills.

Improvement Ideas. 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.

A shortcoming of the course, in the words of one of the few students who had prior PM experience, is that "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.

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.

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.

I hope that readers who see solutions to the scaling question and other ways to improve the course will share their ideas here.

Managing Startups: Best Posts of 2011

Here's my compilation of 2011's best posts about managing startups. I assembled similar lists at the end of 2010 and 2009. Please use comments to suggest additional posts. Happy New Year!

Lean Startup

• Eric Ries's book, The Lean Startup, is a must-read for entrepreneurs.
• Elad Gil outlines the pros and cons of staying in stealth mode.
• Andrew Chen unpacks the concept of product-market fit.
• The Startup Genome Project 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.

Business Models

• Alex Osterwalder, coauthor of Business Model Generation, which introduces the business model canvas widely used by entrepreneurs, lists eight questions you should ask about your business model.
• David Skok analyzes key factors for success with the SaaS model.
• Mark Suster gives advice for startups with applications that face a substitution threat from in-house versions developed by big platforms.
• My 10-part series on business model analysis covers a range of topics.

Naming a Startup

• Fred Wilson and Dharmesh Shah each offer advice on how to name a startup.

Customer Discovery and Validation

• Laura Klein describes five fast/cheap/easy approaches to user research and usability testing.
• Josh Porter of HubSpot explains why A/B testing shouldn't be limited to small changes.
• Brant Cooper reviews biases that managers from different functions bring to the customer development process.
• Rob Walling on ways to use inexpensive advertising to improve a site and learn about visitors.
• This infographic from FormStack (via Boston Innovation) analyzes the anatomy of a perfect landing page.
• Ben Yoskovitz describes how and why to use the "day in a customer's life" technique.
• Elizabeth Yin offers advice on how to find and interview potential customers.
• Three posts by Cindy Alvarez: 1) on how to cope with the fact that research respondents' answer to "Do you want...?" is always "Yes!"; 2) how and why to use personas in product development; and 3) "10 Things I've Learned" about customer development.

Metrics

• Mark Suster reflects on how and why startups should use metrics.
• Fred Wilson describes conversion metric targets for social media companies.
• Presentation by Cindy Alvarez of KISSmetrics on conversion rate benchmarks for different types of web businesses (big download, but worth the wait!).
• Andrew Chen collects retention rate metrics from several sources.
• Avinash Kaushik on key metrics for small, medium-sized, and large ecommerce sites.

Demand Generation and Optimization

• Fred Wilson and Mark Suster each offer general advice on startup marketing.
• Cindy Alvarez on how to analyze reasons for low signup rates.
• Avinash Kaushik offers three techniques for analyzing website conversion rates and describes why and how marketers should use controlled experiments.
• Mixergy's Andrew Warner interviews Miguel Hernandez on how to produce videos that drive customer acquisition (scroll down for podcast transcript).
• Akshay Arabolu offers a great compilation of posts on startup marketing.

PR Strategy

• Mark Suster on how startups should use PR.
• Joel Spolsky and Charlie O'Donnell each discuss the pros and cons of launching at a conference like SXSW.
• Erica Swallow offers 10 tips for managing startup PR.

Viral Marketing

• Mark Suster interviews Buzzfeed's Jon Steinberg, discussing strategies for building website virality.
• A presentation by David Skok on the science behind viral marketing.
• Sharad Goel on why virality is more rare than one might expect.

Sales Management

• David Skok discusses how to build trusted sales relationships and interviews HubSpot VP-Sales Mark Roberge on SaaS sales best practices.
• Mark Suster reflects on excuses offered by startup salespeople and interviews Vince Thompson and Mo Ali, who discuss startup sales best practices.
• Steve Blank on the often contentious relationship between sales and marketing in startups.
• Michael Woloszynowicz on managing the risk of feature creep when sales offers input during the customer development process.

Business Development

• Chris Dixon on the Goldilocks Principle 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."
• Fred Wilson on how an orientation toward users versus brands should drive business development and other priorities at a startup.
• Curtis Smolar on the legality of content scraping.

Funding Strategy

• In Venture Deals, Brad Feld and Jason Mendelson offer a terrific, in-depth explanation of term sheets, funding strategy, VC motivations, etc.
• Fred Wilson discusses working capital financing and customer financing.
• Dan Weinreb discusses the pros and cons of working with angel groups in seed rounds.
• Ty Danco reviews reasons why an angel will walk away from a funding opportunity.
• Jason Calacanis and Fred Wilson each discuss how much money a startup should raise.
• David Hornik and Fred Wilson each discuss the pros and cons of convertible notes.
• Mark Suster and Fred Wilson each discuss strategy for pricing follow-on rounds.
• Chris Dixon on best practices for raising a seed round and  a VC round.
• David Beisel discusses the importance of having VC partner buy-in for a Series A round.

Pitching

• Mark Suster offers practical presentation tips, a primer on how to pitch to VCs, and thoughts on how/why to pitch without a deck.
• Matt Rosoff summarizes a panel with five VCs describing best practices for pitching.
• Brendan Baker on how to communicate traction to investors.
• Jason Baptiste on best practices for demo day pitches, and Jason Cooper on the downside of demo days.
• Robin Wauters/TechCrunch describes Adeo Ressi's one-sentence approach for pitching a startup; a list of pitching resources from Ressi's Founder Institute.

Are We in a Bubble?

• Commentary on startup valuations and whether we are in a bubble from Eric Ries, Steve Blank, Fred Wilson,  Mark Suster (via Alexia Tsotsis), Mike Arrington, Keven Lin (analysis of Crunchbase data), Dominic Rushe/paidcontent, Wade Roush/Xconomy, and KISSmetrics/FeeFighers (infographic via Jolie O'Dell/Mashable).
• Errant on the logic behind Color's high valuation.

Founder Issues

• Brad Feld on founders agreements and equity splits and on the cap table impact of hiring a CTO.
• Mark Suster on why a startup doesn't need a COO and why the advantages of having a cofounder are often overstated.
• Fred Wilson on the strengths and weakness of 1st-time vs. serial entrepreneurs.

Recruiting and HR Policy Issues

• Jeff Bussgang on why early-stage startups should avoid titles.
• Cindy Alvarez on how startups can hire the right "big company" employees.
• Brian Balfour on startup hiring best practices.
• Michael Woloszynowicz on how non-technical managers should give feedback to developers.

Board Management

• Steve Blank offers a radical proposal for reinventing the startup board meeting.
• Jeff Bussgang summarizes best practices for running a startup board meeting.

Management Advice, Not Elsewhere Classified

• David Beisel on how to do due diligence calls for recruiting, biz dev, fund raising, etc.
• Mark Suster on the value of cutting out middle-men in different types of startup negotiations.
• Ben Horowitz advises startup managers on how to avoid being misinterpreted by employees.
• James Altucher and Ben Horowitz each give advice to startup CEOs on the decision to sell their company.
• A 4-part series from John O'Farrell giving advice to startups on going global.
• Fred Wilson on target burn rates at different stages in a startup's life cycle.
• Jason Cohen on startup problems that cannot be solved with money.

Startup Failure

• Analysis by ChubbyBrain of the top 20 reasons for startup failure.
• Rid Empson/TechCrunch description of Startup Genome research on premature scaling as the leading cause of startup failure (scroll down for infographic).
• Quora thread on why startups fail.
• Thoughtful post-mortem from former head of biz dev for OneTrueFan.
• Vin Vacanti offers advice on when to shut down a startup.

The Startup Mindset and Coping with Emotional Pressures

• Ben Horowitz gives advice to startup CEOs on managing their own psychology and the fine line between fear and courage when making difficult decisions. 
• Steve Blank on why entrepreneurs are like artists and how aspiring entrepreneurs can fail from lack of nerve.
• Dharmesh Shah on 23 questions that keep entrepreneurs up at night.
• Jason Cohen on what to do when the emotional pressure of founding a firm makes you want to throw in the towel; Spencer Fry on coping with this pressure.
• James Altucher offers 100 rules for being an entrepreneur.

Career Planning Issues

• Charlie O'Donnell on how to switch careers and join a startup.
• Randall Bennett on what you can gain from working at a startup with low survival odds.
• Simeon Simeonov offers 10 reasons to join a startup and gives practical advice on how to find the right startup position.
• A 3-part series by David Beisel on how to find the perfect startup job.
• Jason Cohen on why it's important for entrepreneurs to blog, and how to get started.
• Brad Feld shares the TechStars Mentor Manifesto: great advice for anyone coaching startups.
• Rob Go on the downside of a career in venture capital.
• Alex Krupp: "How I got into Y Combinator as a Non-Technical, Single Founder."

Tools for Entrepreneurs

• Lists of tools for startups from Steve Blank, Startup Weekend, PBworks, NashCoding, Shyam Subramanyan/List.ly, and Jaret Manuel.
• List of online survey tools from Eric Leland/ideaware.
• List of resources for designers and developers from Brian Hernandez.
• A guide to getting started with iOS development from withoutfriction.