Why a Founder Sells

October 8, 2013 § 1 Comment

I had a “conversation” with Keith Rabois yesterday on Twitter about why a Founder sells his company.  Our conversation was in a response to a blog post by Bijan Sabet in which Bijan makes the case that selling a startup allows a founder the opportunity to create something new. Keith responded that founders only sell a company “out of fear”:

With all due respect, I think that Keith misinterpreted those situations. Here’s why:

Founders Live in A Constant State of Fear
Founders are always scared. It never ends no matter how much you grow. We live in constant fear of growth stopping, employees leaving, running out of cash, of messing it up somehow or a dozen other things. It is the reason we don’t sleep, but it is not the primary reason we sell.

One Crazy Fucking Journey
It is impossible to explain the emotional roller coaster a founder goes through to a non-founder. It takes an insane amount of courage to risk everything and do it in the open. A founder puts her personal reputation on the line, not to mention the money of her friends and family. Those early days are so hard. Sean Parker likened it to “eating glass.” That’s about right.

The Breakthrough Moment
And then it happens. Product/Market fit. The moment you realize, “I have proof that I am not an incompetent idiot.” Oh damn, it feels so good. Your family is going to make money by believing in you and you don’t look like a fool. You sleep well that night.

The Right Hook
Oh crap, I didn’t see that coming. That hurts a lot. I thought it was going to be smooth sailing, but now it feels like this boat is taking on a lot of water. What happened? Well, I am not going to feel bad for myself, time to put the war paint on again. And shame on me for ever taking it off.

Rinse and Repeat
This battle goes on and on. Starting a company and building it is really hard. And it is really EXHAUSTING. The constant fire fighting, the constant highs and lows. It takes a toll.

And Then One Day..
You look backward. You look at the journey you have been on. The victories and the defeats. Maybe your are now married or you now have kids. Or you feel that running your company isn’t as much fun as it used to be. Founders are adrenaline junkies, and releasing version 7.12 just isn’t the same as 1.0.

How It Ends
The Founder intuitively knows when it’s over. They intuitively know what their company is capable of. What battles it can win and which ones it can’t. More frankly, a founder knows what battles she is capable of winning, or frankly wants to wage.

We Don’t Sell Based on Fear
I have just listed several legitimate reasons why a founder concludes it is time to move on to another battle. There are many others. But one you won’t read is fear. The reason is that we have faced fear for so long by that point that we are numb to it. We take risk in stride by now. Actually, it kinda turns us on in a sick way.

What Keith Heard
There is zero doubt in my mind that Keith heard fear in every single conversation he referenced. Founders love to talk about their fears to advisors. It is a great way to vent. But fear of a new event is just a trigger that forces us to ask ourselves whether we want to fight this fight. The reality is sometimes you just want to take your chips off the table and play a new game. And as Bijan wrote, sometimes that is a great thing for everyone.

What @Dens can teach John Boehner

October 1, 2013 § Leave a comment

The shut down of the US government is a great case study for Product Managers and Entrepreneurs. It is a case study on signal vs noise.

Power Users
There is no doubt that all Congressmen have a very loud and ardent set of “customers.” Pick the issue, and you have passionate believers on both sides. These people are absolutely sure that they are correct and anything short of complete capitulation is a sign of incompetence.  Product Managers/Founders often face the exact same phenomenon, although we don’t hold Town Halls that get televised.

The Hard Part
The challenge for any leader when dealing with a group like this is that a Power User’s views are very rarely representative of mass market. [If you need to understand why, read “Crossing the Chasm.” Great book that explains the psychology of a customer base.] Any leader with passionate users faces a constant struggle to objectively analyze data in the face of overwhelmingly loud voices from a niche user base.

FourSquare Example
FourSquare has this problem in spades. For those that don’t know, FourSquare is a mobile app that let’s users “checkin” to locations, thus notifying friends (and keeping a record of) where they visit. It has a gaming mechanism that has inspired a cultish following among a niche group of heavy social media users. As FourSquare has tried to evolve to a mass market product with a business model, every effort to move away from the “checkin” has been met with strong push back from the power users.  The product team wants to be seen as a location search product like Yelp and TripAdvisor. Yet the power users have very strong opinions and are constantly fighting FourSquare’s move away from gamification and checkins.

What to do?

Just like FourSquare, the GOP has a challenge on their hands.  They have a very, very passionate set of customers who are not representative of mainstream Americans but are fighting extremely hard to pull the GOP to its direction.  And like any product manager, the leaders of the GOP have a decision to make.  Do they follow the passionate niche or do they find a way to placate them while not turning off the masses. This is the essence of leadership. Dennis Crowley (the Founder of FourSquare) is doing an admirable job with this challenge. If only John Boehner would follow him on Twitter, he could learn a lot and maybe our government would be functioning as smoothly as the FourSquare team.

How To Avoid Being The Idiot

September 25, 2013 § 1 Comment

I wrote last week that there are three categories to any market: the Innovator, the Imitator and the Idiot. This pattern happens over and over again. Once a product shows success, rational people follow with a 99% similar product, aka a “me too.” And while it may be rational, it is a stupid decision. The market always punishes the copycat.

Think Differently
HOWEVER, this post is NOT to suggesting that you can’t enter a market once there is an established leader. Suggesting so would be heretical from a multiple time entrepreneur like myself. The key to second mover advantage is to think differently.

What “Think Differently” Means
This is best explained with a case study.

A group of products were launched in 2011 under the theme “Instagram for Video.” SocialCam was the Innovator, Viddy was the Imitator and there were a lot of idiots. These companies found a loophole in Facebook’s OpenGraph, pirated video from YouTube and growth spiked at an astronomical rate. If you opened their app to do anything beside watch a video of cats, you saw an abundance of features. There were so many buttons it was hard for me to figure out what to do…and I build technology, so I’m not exactly a Normal. Once Facebook shut down that OpenGraph gimmick, all of these companies shrank just as dramatically. And the complex user experience of both products couldn’t engage users. Recognizing this house of cards, the Innovator (SocialCam) sold for $1 per user to a complete sucker, whom I am sure deeply regrets catching a falling knife. That asset is probably worth zero right now, or worse. The Imitator hasn’t been so lucky. The Founder/CEO of Viddy got fired and they had to distribute a huge chunk of cash to existing investors, which is not a good sign for a startup. Because it is video, they are probably burning cash at a extremely high rate. At the end of the day, employees will likely get zero for their efforts. This is a case study in what happens when you do NOT think differently. The key point here is video is different then pictures. Trying to “copy Instagram” larded up the product with features and a confusing user experience.

The Winner
Vine is a mobile app that was founded in June 2012, acquired by Twitter in October 2012 and launched in January 2013. For this example, ignore the tragically bad corporate decision to sell the company prematurely. This case study is on product decisions, not M&A.

Once you opened Vine, you immediately noticed something different. Rather than add features, they removed features. The UI was so basic. All you could do is press a big red button to record. But the biggest change is that Vine only gave a user 6 seconds of recording time. Contrast that with Viddy and SocialCam where videos were often long.  Vine didn’t offer all of the editing features of Viddy and SocialCam (or Instagram for that matter).  It was just a basic app >> a simple screen to capture 6 seconds of video and a simple feed to play it back.

Growth spiked dramatically and hasn’t looked back.  All of this growth was based on users loving the product, rather than a Facebook API gimmick.  If Vine hadn’t sold out, it would be worth as much as Instagram was at the time of its purchase.  And the buyer wouldn’t have buyer’s remorse.

Instagram Copies Vine

In June 2013, Instagram launched a video feature.  Not surprisingly, Instagram’s video feature worked a lot more like Vine than like SocialCam/Viddy.  They set the max video to 15 seconds long and had the typical Instagram filters, but otherwise, it was very much like Vine.  And even with this stiff competition from the leader in pictures..Vine still flourishes.  It is still growing very fast.

The Key Takeaway

Just to make it painfully obvious, the key point here is that Vine won by removing features and simplifying the product.  In short, they did the exact opposite of all of the apps that tried to be “Instagram for video.”  That’s how you win when you enter a market after there is an established leader…Do The Opposite!

The Innovator, The Imitator & The Idiot

September 25, 2013 § 1 Comment

There are three “I”‘s of every product category: the Innovator, the Imitator and the Idiot. You can clearly see this pattern in any product category.

Why it Happens
There are many reasons that products follow a herd mentality.
- Strategic reasons (ie to cover a flank).
- Desperation (ie we are failing and have no better idea).
- Bad Timing (ie we were planning a similar product unknowingly and they beat us to market)
- Ego (ie I am awesome and I can do the same thing better)

Once one company in a particular space shows success, the Imitator quickly follows and then the Idiots enter. This strategy rarely works for the 4th or 5th entry. No industry is big enough to support that many products. The common theme among most of these entrants is that their product is a “me too.”

What’s a “Me Too”?
If you try a product and can’t clearly and compellingly understand within the first 30 seconds how it is different then the market leader…that’s a Me Too product. It should be obvious within seconds why someone should switch from the leader to your product. Or at the least clear to a non-user of the market leader why they should choose your product over the leader.

What Scares A Founder The Most

September 17, 2013 § Leave a comment

Founders take a lot of risk. They constantly live on the edge of failure.  It gets a little better after achieving product-market fit.  But before then, you are doing a dance with failure.  And during this highest risk period there is nothing that scares founder more than…False Positives

What’s A False Positive?

False positives come in many forms. Here are a few examples:

  • “I would totally use that product.”
  • “Dude, that idea is sick, I would use it for sure.”
  • “Everyone I know would use that.”
  • “If you added this feature, I will use this product.”

The common theme among these quotes is that they all come from people not using your product.  The quotes feel great when you hear them. But you must resist every urge to believe them.

Who gives false positives?

  • Your friends
  • Your family
  • Many investors
  • Customers that aren’t asked to commit to anything
  • Random people you interview or poll that are not asked to make a hard commitment to guarantee fulfilling poll responses

Why is this the scariest thing?
Rejection isn’t scary.  Actually, rejection is great for a founder. Getting “no” is the point of an MVP in my opinion. Founders are resourceful people, and can fix most issues. But one thing we can not do is create time, and time is your most valuable asset. Founders don’t have many swings at the plate. So we must optimize the first attempt at starting a company.  Chasing false positives is deadly.

Why Do False Positives Happen?
This is actually easy to figure out. Founders fall in love with their idea. It is often something they have thought about for a while. And so they (unknowingly) have a confirmatory bias in doing research. They either dismiss negative responses or don’t set up real tests to invalidate assumptions. This last point is the key to avoiding false positives.

How to Avoid False Positives
While it might sound simple in a blog post, I guarantee you avoiding false positives is very hard to do. It is very hard to be a founder and also be willing to learn that your idea or product is not needed by the market. Often you have been successful at everything you have done, and so it seems odd that this would be different. That being said, these are good steps to take:

  1. Never put any weight in what your family and friends tell you. They love you too much. They are biased. Ignore everything they say because they are not representative of your customer. This seems obvious but I can’t tell you how many first time entrepreneurs tell me, “everyone I have told this idea to thinks it is amazing.”
  2. Always ask for skin in the game for a “yes” from a tester. This is the point of an MVP. To test assumptions based on willingness to make a firm commitment. A commitment from the customer can come in many forms:
  • An upfront financial commitment is the best signal. This is hard to get, but a site like Kickstarter is a great option if it is a consumer, non-service product. The story of Zappos’ MVP is a great example for an e-commerce site.  But there are other great examples here.
  • Time commitment is also a good signal. People’s willingness to continue to use your MVP is a demonstration of value creation.
  • Reputation commitment is a good signal, especially for B2B products. Finding a person willing to advocate for your product to their boss/peers means you have identified a pain point. People are often more concerned about their reputation than time and money.

But You Gotta Ask!
It is amazing how many young founders that I meet are unwilling to ask for a commitment from their testers. Some don’t even disclose what the price will be. They are simply afraid of the answer and this makes their worst fear come true.

In summary

What people say and what they do are two totally different things.  Ignore everything people say.  Without a commitment, you have nothing.

An Open Letter to my Sons

September 6, 2013 § Leave a comment

Every blog should have a target audience. My audience for V1Again.com is my 2 sons. I write about entrepreneurship because I want them to learn about how their father analyzed situations when they are older and can understand. I do not target investors or other entrepreneurs with my blog, but hope they enjoy it too. With that said, below is an open letter to my sons.

Your Name is Everything

If there is one piece of business advice that I hope my son’s follow it is that your reputation is your most important asset in business. Nothing else matters nearly as much. Nothing!

You will be challenged

Throughout your business career, you will face many moments where your reputation will be challenged. You will have hard decisions to make. I have learned that there is a way to make these hard decisions feel easy. Just follow this simple rule, “know what is the most important criteria and manage the fallout from everything else.” And I am telling you very clearly that the most important criteria is what protects your reputation. Everything else can be managed. Actually, if your reputation is sterling, everything else is easy.

There is no Grey

There will be times when you will feel that “making this decision (that screws someone over) is not such a big deal.” He will get over it. But there is no Grey if the goal is a great reputation. Everything is black and white. Be honest and upstanding and handle yourself professionally at all times.

Don’t burn bridges

At the top levels, the business world is really small. Leaders of organizations and industries all know each other and generally trust each other’s character judgements. So when you make a change, always make it with the mind of doing the right thing for your current team/boss.

It Will Come Back in Unimaginable Ways

When you are a young worker, you have no idea how you will benefit from a great reputation and great relationships. It is easy to get caught up in the tactical aspects of a career. But don’t lose focus. Always build great relationships and maintain an impeccable reputation and it will pay itself back in ways you can’t possibly imagine.

No one is perfect

While the goal is perfection, it is not attainable. I have made many mistakes in my career. But I try very, very hard to maintain consistency in treating everyone I do business with fairly. If you make a mistake, own up to it. Apologize to that person. You will gain more than you lost. It is never to late to do the right thing.

If you are reading this my sons and questioning the level of importance that I am using…please, please, please trust me. On this, I am sure.

 

Being A Start-up is A Feature..Not a Bug

August 23, 2013 § Leave a comment

There is no doubt that starting a company is hard.  I get reminded how hard it is every time I meet a new prospective customer.  The question about our legitimacy has many forms:

“How long have you been in business?”

“How many employees do you have?”

“How much money did you raise?”

“How many customers do you have?”

It is all the same question…why should I take a risk on you?  It is a very fair and reasonable question for a prospective customer to ask.  They wouldn’t be doing their job if they didn’t ask these questions.  And this lack of innate credibility makes it very hard for a start-up to get early customers.

Turning a bug into a feature

I address this issue head on with prospects.  I even use the phrase, “I view our start-up status as a feature not a bug.”  This always gets a chuckle and breaks the ice.  But there is a lot of truth to this statement.  The most significant benefits of working with a start-up is:

  1. You have complete access to the CEO at any time.
  2. You have a strong ability to shape the product roadmap to the features you feel are important.  To solve your pains.

Great customer service goes a LONG way

Think about your own experiences.  Of course, we all want perfect products that solve all of our needs with easy to use interfaces.  But the reality is that very few products work like the iPhone.    And certainly a start-up’s early products do not work that smoothly.  So absent that, what we want most is a company that values me, listens to me, quickly fixes the things that I complain about and builds the stuff that I need built but are missing.  There is something really powerful about having a connection with an entrepreneur who listens to you.  Customers LOVE it when they ask for something and you add it to the product in a short time period.  This type of service makes the customer feel like they have extra resources dedicated to them.  As a customer, that feels good.  And it helps a start-up get through a lot of the early bumps that inevitably come up.

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