Facebook is NOT overvalued..here’s why:

“But the multiple is higher than Google’s or Apple’s!”

Two short paragraphs of finance nerd talk..then some interesting stuff:

Nerd Paragraph 1: How to value a company

Valuation is a science not an art.  Valuation is literally a math equation.  To value a company, you discount future cash flow expectations (i.e. dividends).  Multiples are just a short hand way of doing that math.  But the math of a multiple has to yield the same value as the discounted cash flow (or “DCF”).

Nerd Paragraph 2: Variations in value

Wide variations in valuation expectations are caused by differing assumptions on a company’s future cash flow.  Not the discount rate (or multiple) .  With early stage companies, financial models are worthless.  The delta on future cash flow assumptions is too great for early companies.  However, you can absolutely apply DCF modeling to value companies that have established business models.

Facebook is not the next Google, and that’s bad for Google

The Bear case for Facebook is that its ads do not perform as well as Google’s search and thus Facebook will never be as big.  Look no further than General Motors pulling its $10 mil biz and Facebook’s own decreased revenue projections (which the bankers creepily seemed to hide from most investors during the IPO road show).  In my opinion, anyone who makes this argument for a reason to sell Facebook’s stock doesn’t actually understand Facebook’s business or is a conflicted day trader.

Facebook ads will never perform as well as search.  Nothing matches specific search intent.  Certainly not demographic or interest targeting.  Being interested in cars or reading a book on cars does not match the lead generation quality of an actual search for local car dealers. No one would dispute that.

It’s All About Payment Processing Baby!

I will grant the Bears one thing, if you only look at Facebook’s advertising business, it is very difficult to justify its multiple.  Clearly the growth rate of the ad business has decreased.  Mobile is a threat.  The low hanging fruit of buying “fans” has been picked.  From a high level perspective, Facebook’s current ad products look a lot like cash cows – nice, modest growth, and high margins.

Explosive Cash Flow growth will come from one of two places.  1. Innovation on the ad business (i.e. new products to existing customers); or 2. Payment Processing.  I am not sure that even amazing innovation on their ad business can justify the growth required to match the valuation expectations.  So to me, it all comes down to payment processing.  Huh?  Facebook does payment processing?

Facebook’s Most Valuable Asset

In my opinion, Facebook Connect will become a more valuable asset than Facebook.com.  Facebook Connect is that Facebook button you see all over the web that allows you to log-in to a site using Facebook, or Send content to your friends or add a comment to an article.  It provides publishers amazing data, and so it has wide-spread adoption.  This product is amazingly powerful for Facebook because a user is always connected to it while surfing the web.

There are a lot of ways to monetize this uber-connection, but I think Facebook picked the best way when it launched Facebook Credits.  Very few people talk about Facebook Credits because the product can only be used on Facebook.com right now, and it is mostly contained to gaming.  But since gaming is a huge on Facebook.com, the product has a large established base of users that use Credits and help Facebook refine the product.  Oh, and it is producing a half of a billion in revenue.

Einhorn, Finkle…Finkle, Einhorn

To all of those non-Ace Ventura fans out there, Facebook Connect will become the key driver of Facebook Credits outside of facebook.com.  They will become one and the same.  And it will happen very soon.  Facebook has all of the pieces in place to make Credits a humongous payments business.  And when I say humongous, I mean very, very friggin big.  I mean a huge threat to PayPal, Visa, MasterCard. AMEX, etc.  And the margins are really good in that business model.

I am a long-term investor

Let me clarify one thing.  I have zero opinion what Facebook’s stock price will be next week, next month, next year.  That is not how I think.  I think long-term.  I am a buy and hold investor on public equities.  And I am adding Facebook’s stock to my portfolio.

Yahoo: A Company without a Core

Say this phrase out loud, “it is ok to lie if you are talented.”  Seriously, repeat it out loud.  Right now. Try it.  Sounds ridiculous, right?  Now try repeating it at your next company meeting…“Hey everyone, I think it is ok to lie if you are talented.” [kidding, don’t do that]

Good Companies Have a Core

Organizations are nothing without a strong and consistent culture.  Culture is a company’s core.  It defines whom a company hires, how it manages people, how it builds products and which products it builds.  In short, it is everything.  Without a core, talent in the company weakens and products suffer.  And the financial results always suffer.

No Exceptions

We have seen this story before.  “Ok, we admit this guy messed up, but he is a big producer, let’s give him a slap on the wrist.”  Sorry, that doesn’t work.  It rots an organization.  Employees find out.  It permeates the management team and it doesn’t stop with one exception.  Pretty soon, you have an organization with a lot of exceptions.  And your core belief system is just words on the wall.  Each time a manager mentions them employees roll there eyes and think, “what about Fred?”

It really is an easy decision

A well-run organization is consistent.  Consistency is so important.  It let’s employees know the rules.  It shows up in the products and the customers see it.  Bottom line, you can NOT make exceptions no matter how painful it is to lose an individual talent.  The decision is Fred vs. your company’s core…and that is an easy decision.

So what is taking Yahoo so long?

Yahoo is a mess right now.  Its products are stale.  I can’t think of one new innovation coming from the company.  They have had a turnstile in the CEO office.  Employee morale is terrible.  And its financial results show it.

And now the Board is struggling with what to do about its current CEO, who lied on his resume.  This struggle is a symptom.  Just as stale products, a lack of innovation and poor financial results are symptoms.  They are symptoms of a company without a mission.  Without a core.  Without buy-in from employees.  It is past time for the Board to do its job and end this circus.  To stand up and say, “Nothing is more important than our core!  Hey Scott…you’re fired.”

Google+: Solving a problem for the wrong customer

As Fred Wilson explains (and I agree) there is a 1/10/89 rule on any social media platform – “1% will create the content, 10% will curate the content, and the other [89%] will simply consume it.”

The 1%

The 1% are a unique breed.  They are extreme extroverts (at least online, if not offline).  They love being the first person to tell you about a new product they found.  And they love the fact that they create most of the content on a social platform.  Finding and sharing the most interesting story, picture, life moment, etc. has a gaming element to it that the 1% love!

The 10%

The word to describe the 10% is “connectors.”  They love getting unique data and bringing it to the masses.  The 10% also are extroverts (online, if not offline as well).

The 89%

The 89% love to consume information, but never create it and rarely pass it on.  A common phrase you might hear from an 89%’er is “why would I share that about myself online?”  So whatever they do pass on to friends has to go through that lens.  Daily deals pass that lens, but where I am currently eating or pictures of my party do not.  However, the lens with which an 89%’er filters creating content does not hold for viewing content.  The 89% enjoy looking at other people’s lives online.  At least a big chunk of them do, whether they will admit it or not.

Google+ is based on a flawed premise

Let me start by saying that I love Google.  I really respect them.  I have a lot of friends that work/have worked there.  I use a lot of their products.  Google consistently puts out great products because they have insanely talented people and they have a great product development process.  All of these reasons leave me dumbfounded at how poorly they have executed Google+.

I know it might seem like I am picking on Google+.  I recently wrote about how Google is growing the product in the wrong manner.  I don’t mean to bash Google or Google+.  But I just can’t understand how such a great company can get this big initiative so wrong.

When Google launched their social network, the fundamental premise was people want to communicate to smaller groups online, because that is what they do offline.  So Google created a circle mechanism, which allows users to create groups of relationships and then publish specific content to specific groups.  Makes sense because this is what most people do offline.

So what’s the problem?

The problem is that is not how people share online.  The circle model is exactly the opposite of what the 1% want.  It couldn’t be a more wrong approach for the 1% if it tried.  The 1% want megaphones, which is why they love Twitter.  The 1%’er often has a large Twitter follower base.  The facebook profile of a 1%’er has thousands of “friends”, which really takes a liberal view of the word.

And if you don’t have the 1%, then you have a hard time getting the 10% (eg the connectors).  Because if there is no content, then there is nothing to connect.  And without connectors, the 89%’ers have nothing to consume.

Google+ is a product built for the 89%.  For the people who want smaller networks of people to share their life with.  But these people don’t go first, and rarely create/share personal content online.

If someone from Google reads this, I would love them to tell me where I am wrong.  I really like and respect Google.  And would love to understand Google+ better.

Just Do One Thing Really, Really Well

One of the best things about being an entrepreneur is talking with other entrepreneurs.  I love the bond that fellow entrepreneurs have with each other.  That bond exists even the first time you meet a fellow entrepreneur.  The commonality of knowing how hard the job is, how much risk and personal sacrifice it takes, how much stress you have to endure…all of that creates this bond.

Another thing that is great about talking with entrepreneurs is they have a similar mindset, but also a fresh set of eyes on your product.  They don’t have the tunnel vision a founder gets because (s)he thinks about their product 24/7.  And probably the most common advice that I have for other entrepreneurs is that I feel

..they are trying to do too many things with their product.  

They should just do one thing and do it really, really well. 

Better than any other product in the world.  But only pick one thing.


There are several reasons for this advice.

  1. Consumers are overwhelmed with products right now.  They want simplification.  A consumer should be able to figure out your product’s core within 5 seconds.
  2. Start-ups can’t optimize more than one product at a time
  3. Finally, and probably most importantly, because all you need to do to have a huge breakout is one thing really well

For proof of point #3, look at the breakout products recently: Instagram, Pinterest, Foursquare, Twitter, Viddy.  All of them do just one thing and do it really well and all of them are runaway successes.

Defining One Product:

When I offer this suggestion to entrepreneurs, they often respond with, “but it is one product.  You can do this..or this.”  Hmmm, kill the “or this” part and you got it.

I think this is best explained with an example.  Pinterest has one product – find great stuff on the web and create a pin board of it.  When people explain Pinterest, they say “an online pin board.”  Simple.  Clean.  And Powerful.  Now imagine Pinterest if they also had a shopping experience.  With a shopping cart and a way to browse product by categories.  Now try explaining their product.  The answer is much more confusing.  So when you explain the new Pinterest to someone, a large chunk of people will hear the shopping part.  And now Pinterest is competing with Amazon.  Not the place to be.

Easy, right?

Seems simple…so why is this so hard to do?  Because entrepreneurs are dreamers.  We dream of a better world and we want that world yesterday.  Our favorite phrase is, “imagine a world in which…”  There is not doubt that that world would be better.  However, another old saying is also true, “you can’t run before you walk.”  It is the same things with products.  I know that a lesser product feels incomplete to the entrepreneur.  But that is what you have to do.  The good news about doing less is that consumers will thank you and investors will reward you.  Seems crazy, but it’s true.

Google+ vs. Path…Manufactured vs. Organic Growth

Two of the hot social media platforms are Google+ and Path.  Both have uber talented people working on the products.  Both are basically trying to solve the same “problem” with facebook (too many non-friends in my feed) and are using similar approaches (create a smaller network).  But while each company started with the same ambition to disrupt facebook, each is taking a very different approach to growth.

Manufactured growth

So I have a G+ account.  I don’t remember signing up for it.  But I use gmail, so boom, I have a G+ account.  Woopie.  Winner, winner, chicken dinner!  Apparently over 170 million people also have a G+ account.  But amazingly, when I log in, I see nothing from anyone that I know in my stream.  Literally, the last post in my stream from someone whom I know was on November 24th, 2011.  It is possible that my account is a statistical outlier.  That G+ is really a thriving community and I just don’t see it.  But the odds are hugely against that possibility.  Note, as another data point, check the G+ counter next to your favorite web article.  I would be willing to bet the number of posts to G+ is paltry (or even zero) compared to the number who Tweet or Like an article.  Still not convinced, read this measurement report.

Organic growth

Path is using the different approach to growth.  The classic “Crossing the Chasm” approach…start with a specific community.  Attack that “beachhead” and establish yourself within that community and then grow horizontally to a new beachhead.  And since I have some friends in Path’s initial beachhead, I see activity every time I log into Path.  Path only has a few million users, so it hasn’t crossed the chasm to general user adoption.  But Path’s users actually use the product.  And so it provides me with a satisfactory experience, while also reminding me that “my Path would be better if I invited others to join it.”  Good point Mr. Path.  I agree.

So What’s the Big Deal?

Who cares Steven?  Ultimately people will start posting pictures, comments, etc into G+ and then it will be awesome!  Maybe, but probably not.  In my opinion, products that are community based develop a culture.  Its users build that culture for the product, not the other way around.  And the aura that the users build in a product means something to those users.  The aura means so much that it is tough to change once it is established.  And by telling 170 million people they are users of a product experience that is empty, G+ is pushing a product on people before it is ready for them.  Google is literally hurting the reputation of G+ with each new user.  What is the word for the opposite of network effects?

What would I do?

It looks like Google brought in Kevin Rose to fix this mess.  Good decision.  He is much more knowledgeable about social communities than I am.  So I am sure he will figure out a solution.  But since I don’t like complaints without suggestions, here is my suggestion.  Stop it.  Stop faking growth numbers.  There are no short cuts to a building a great web community.  Respect your users.  They are not idiots.  After you stop the silliness, pick a beachhead.  Focus on that user base.  Build a product that they LOVE.  Work on it.  Iterate the product features until they just can’t stop playing with it.  Until they agree that their experience would be better with their friends.  Let them want to help you grow, rather than forcing a product on people before it is ready for them.  In short, follow the process.

Challenging The Math of a Work Week

I like to color outside of the lines.  In business, I feel most comfortable when I am least comfortable.  My favorite quote is Roosevelt’s “Man in the Arena.” I have patterned my career by this advice.  So I love people who break convention too.  I am fascinated by them.  I celebrate them and defend them from critics…unless what they say is wrong.

Challenging the Math of a Work Week

In this blog post yesterday, Ryan Carson, the CEO of Treehouse, made a compelling argument for a 4-day work week.  You should read it.  It has some great points.  And it would be so awesome if it shifted the dynamics of our society.  I mean, who wouldn’t want to spend more QT with the kidos?  Unfortunately, while there is no doubting his initial success, any company with a culture of a 4-day work week will not stand the test of time against competition.  It simply can’t.  The math is too overwhelming against it.

The Math

Since most development teams are using sprints these days, I will put the math in those terms.  We do two-week sprints.  For comparison sake, let’s take two companies.  Company A (ie Treehouse) works the 9-6, 4-day work week (or 36 hour work week, assuming no lunch).  Company B works 9-7 for 5-days and puts in 4 hours on Saturday (or 54 hours).  The difference in output (assuming same productivity) is that team B could produce 50% more code.  Think about how much your development team accomplishes in a sprint.  Now think of the difference in the product between 26 sprints/year and 39 sprints/year.  There really is very little in the technology world that can’t be copied.  Giving up an extra 13 sprints/year to a competitor is simply unsustainable.

“But Productivity Shouldn’t Be Held Constant!”

One of the key arguments that Ryan makes is that the team is fresh every Monday and thus uber productive.  It just feels so good to type that.  A self-fulfilling prophesy that feels so good.  But the reality is talented people are able to sustain a high level of productivity at long hours.  Some of the best engineers in the world work insane hours at Google, Apple and facebook and put out great products.

And The Best Companies are Filled With These Type of People

Sometimes, we get stuck in our own local bubble and we think that we are simply more talented than other people.  Our product ideas are so great that we will stay ahead of the competition just by out-thinking them.  Early success validates this theory.  So you write a blog post proclaiming that you are so much more intelligent than others that you can work 50% less and still kick their ass.  You pound your chest, look in the mirror, give yourself a wink and then hit the submit button on your blog.  Ahh…it feels so good to be king.  And then one day, a competitor comes out of nowhere, and has your same features, for less cost and a few new features that are awesome.  And now you are playing catch up.  But you will never catch up.

Here is what I believe

One of the biggest benefits of going to a place like Harvard Business School is that you are surrounded by people who are insanely talented.  And you realize that while your Mom believes you are the smartest person in the world, you really aren’t.  There are so many other people who are wicked smart.  And they all work so damn hard.  They don’t work 54-hour weeks.  They work 70-80 hour weeks.  And they sustain that level indefinitely.  Holy crap…that is humbling.  And as you start thinking about competing with them, you realize that the profits in almost all markets accrue to the top company.  As Viper in Top Gun says eloquently, “there are no points for second place.”

So here is what I believe, sustained success is not an accident.  You have to be very talented and work very hard.

In the blog post, Ryan argues that he gets to see his kids a lot due to the 4-day work week.  And that is awesome!  I love my two sons more than anything in the world.  I would jump in front of moving train to save my children.  There is nothing more valuable to me than my children.  And while I selfishly love spending time with them, I also believe that a big part of my responsibility as a father is to train them how to succeed in business.  That is the reason that I blog.  So that 25+ years from now they have a record of how I think as a business man and hopefully can learn from my lessons.  And so here is my best advice to my sons…Be the first guy in the gym and the last to leave!

Design is Not a Barrier to Entry

To break out today, your website has to Wow.  It has to have some magic to it.  Most of the differentiation for web products right now is design.  It is critical because the bar has been raised by consumers.  Pretty soon, it will be table stakes.  Here’s why.

Web 1.0

Back in the late 1990’s (remember back then?), the web was so new that doing every day functions on the web was revolutionary.  It seemed so magical to buy common goods without having to go to the store, that consumers rushed in droves to try it.  There was a gold rush, and then a settling into a few dominate winners, which now have become platforms.  This period is commonly referred to in web circles as Web 1.0.

Web 2.0

After the “bubble burst” a new bread of web companies emerged.  These products learned lessons from the 1.0 companies and are much more focused on a business model (crazy right?).  However, the key change for Web 2.0 companies has been the incorporation of social.  Adding social elements to your product abets growth.  But like all good things, social features got abused, and consumers have learned the game.  Consumers have become much less willing to spam their feeds with a website’s marketing message cloaked as a website feature/badge/fun fact/etc.

Nothing is new.

To break out now, you still need to Wow consumers.  The current innovation cycle is all about great UX and visual design.  As Drew Houston famously said, “if the software just worked like magic, customers would flock to it.”  This is what today’s web innovations have become.  Your site has to be beautiful visually, extremely simple and have a little magic in it.  The bar has been raised and that is today’s table stakes.  Otherwise, consumers will ignore it.  Thus all new product development has to have Magic as a priority.

But Design is not a Barrier to Entry.

Make no mistake, while a beautiful design is critical to a site’s success, it does not create a barrier to entry.  Even the most beautiful designs can be copied in relatively short order as Pinterist has learned.  Even in this design focused era (what I refer to as Web 2.9) the fundamentals of competitive strategy hold.  There are only a few real BTE and websites need to build around these fundamentals as well.  It is just that the bar has been raised.

What Founders Obsess Over (Part 1)

As a founder, I spend my time obsessing about three things: building a great team, a great product and managing our cash flow.  I am going to write a series of posts about what I have learned about these items.  The first post is going to be about building a great team….because that is where it has to start.

It is well understood that you must have a great team to build a great product/company.  But I don’t believe it is unanimously understood what “having a great team” really means.

My definition of a great team:

I believe that great teams have 4 key elements:

1.  Talented individual contributors top to bottom

2.  Talented management that listens, prioritizes and motivates

3.  An open, candid, collaborative culture that is accepted by everyone…and I mean EVERYONE

4.  No bad apples

The Four Key Elements in Detail

1.  Talent top to bottom.  It might seem obvious, but I think that it is often over looked…a team is only as strong as its weakest link.  Talented people know who is great and who is average.  And it can be really hard to fire average talents, especially if they are well liked.  You and the team can grow comfortable with them.  But you have to force yourself to do that.  You have to force yourself to constantly be upgrading.  Constantly try to build a team of A players.  Don’t settle for some A players and some B players.  And to re-enforce that, you need to reward your A players.  You need to constantly remind them how valuable they are to the company.

2.  Management that listens, prioritizes and motivates.  A few weeks ago we had a team call where the developers ripped into me.  They felt that we didn’t have a focused enough vision.  That certain features weren’t prioritized properly.  It was a tough call that I took very personally.  I am the CEO and thus responsible for setting the product vision.  But what I couldn’t understand was how something so clear in my mind was so unclear in theirs.  I knew exactly what we should build.  But alas, the team didn’t.  Regardless of what I thought, it had to be fixed.  So we started a 2-week exercise on focusing our vision.  We brought in a great UX person to lead us.  This was really important because we needed an outsiders view.  We engaged in a collaborative process that build a common, clear, more focused product vision.  The product vision’s precision helped prioritize features and motivated the team.

3.  An open, candid, collaborative culture that is accepted by everyone…and I mean EVERYONE. Culture is probably the most important thing an entrepreneur will build.  Most of the time it is created by default rather than premeditated actions.  But make no mistake, as the founder, whatever you do, however you act, is creating a culture.  If you want a collaborative culture, you have to listen and be open to change (see #2 above).  And you have to enforce that behavior on everyone and in every encounter.  If you are inconsistent, it will break the culture and break the company.  This is hard to do.  Especially if you have key team members that don’t follow it.  But you have to fix or purge those team members who don’t follow your culture.

4.  No Bad Apples. Again, this is easier said than done.  Countless examples have been documented of dealing with talented employees who don’t fit.  But you have to force yourself to rip off the band-aid.  They have to go.  No matter how talented they are or how much they produce.

The hard part

Defining a great team is easy.  Countless articles and books have been written on this.  What’s hard is actually building a great team.  I have heard the simile that changing key parts of a team is like changing drivers on a moving bus.  I like that analogy because that is exactly how it can feel at the time.  It can feel like you are taking a huge risk of driving the bus into the ditch.  However, that type of thinking will always leave you in a state of never having the right team and always afraid to make a change.  There will be a lot of sleepless nights along the way.  Worrying about transitions and team reaction.  But I believe ultimately, if you are clear and consistent, it becomes obvious why moves are made.  Your team respects the consistency and discipline.  And only with a strong and consistent culture can your team build a great product and a great company.

The Trim Comes Last

The basement in our house was recently flooded by Hurricane Irene.  Our basement had 4 feet of water, so we had to completely redo it.  The first thing that the builders did was strip everything down to the studs.  Next they added the framing and sheet rock.  Once the walls were up with the proper electrical and plumbing, the painters came in.  Then the carpet.  And finally the trim.  What was amazing to me is how much the last step (i.e. the trim) changes perception of the room.  The visual of the room goes from disaster area to bare, to better but still ugly to wow…that is a nice basement.  That last step takes only a few hours, but the impact on perception is amazing.

Why am I writing about my basement on an entrepreneur blog?  Because I take a similar view of product development.  The early stages of development is sausage making, i.e. it is ugly while it is happening.  It is purely concept until the framing is set.  Then the walls have to go up, which I think of as the basic page functionality.  The electricity and plumbing are comparable to the back-end infrastructure.  At this point in the project, you have a bunch of ugly pages that functionally work.  The next step is you start adding the paint and carpet, analogous to the first part of the designs. And finally the trim.  What is hard to communicate to outsiders is how much more attractive the site will be once the trim is added.  They see the painted walls, i.e. the first round of designs implemented and assume that you are done, which of course, you are not.  From my perspective, there are two ways to deal with this communication gap.

  1. Keep your app behind a firewall until the trim is up.  This has the benefit of withholding first perception.  The downside of this approach is that you don’t get any user feedback.
  2. Put your app out there, bare for the world to see and see where the UX breaks are and where the design feedback is.  This has the benefit of getting raw functionality feedback.  The downside of this approach is that first impressions (i.e. seing the site while it is still sausage making) will need to be changed.
  3. Note there is a hybrid third option which puts the site out there, but behind a password.  This approach works for some products, but not others.  I.e. it works for products where the user interaction is individual.  Any heavily social product can’t use a password or it will annoy invited friends.

With my product, I chose option 2.  I know the downsides.  It was an informed decision.  I chose this approach for one key reason:

  • I believe that you gain really valuable feedback on user flows when the raw product is in user’s hands.

Let them tell you what path they want to go on, rather than you telling them.  Once you have this feedback, it is easy to add navigation paths to the product.  But I like getting raw feedback on usability before adding these paths.

One other important caveat.  Don’t market the site while you are in this phase.  Just show it to friendlies, i.e. people who will give you the most credit for the improvements.  Let them use it in its rawest form.  Let them complain about “this” being confusing or “that” being ugly.  Talk to them while they are using the product.  See where they click, where they get tripped up.  Then you know where to fix and where to emphasize in designs.  With a house it is easy.  You know where the couch goes.  Where the TV should be and where the bathroom needs to be.  They are known entities with few realistic options.  But with new web applications, it is hard to know.  So, I believe, that you start out with a hypothesis and you test it with real feedback and you iterate fast.

3 Levels of Good Listening

In my recent post “You’re not Michael Jordan…Nor Steve Jobs” I made my feelings clear about the value of listening.  I believe that listening is a critical skill for any successful entrepreneur or executive. Because it is so important, listing is a topic that I spend a lot of time thinking about.  What I have concluded is that being a great listener takes a lot of effort.

The Three Levels of Good Listening:

While I am certainly not formally trained nor have been educated about this skill, based on my observations and deep thought, I believe there are three Levels of a good listener.

Level 1: Tactically hearing what was said.

This level is easy to understand because it is what most people think of when defining listening.  This level is defined as one’s ability to process what a person said and recall it later.  Did my wife say to pick up, “eggs, milk, butter and bread”?  or was the last item “coffee”?  This level is well understood.  You either can comprehend and recall or you can’t.  For me to be successful with this skill, I need the right listening environment.  Meaning, I need to start the conversation focused on what the speaker has to say.  If my mind is distracted (either by football on TV or mentally iterating on a business problem), you have no chance in having a successful conversation with me.  I know this is a flaw of mine.  So does my lovely wife.  When she wants my attention, we overtly turn the TV or remove any distractions.  Kind of embarrassing that my mind is so simple, but I need the right listening environment to be successful at recall.

Level 2: Listening to what people mean, rather than what is said.

Communication is hard.  Emotions get in the way.  Confusion over diagnosing root cause also makes it hard to properly communicate.  Speakers often don’t have the full picture and rarely take the time to gather details.  The upshot is that most people are terrible communicators.  Often people can’t quite describe why they feel a certain way, but they certainly know if a solution is put in place or not.  I believe that the key to being a good communicator is not responding to what is directly said.  Rather, listening and thinking about what is being said.  Then ask yourself:

  • Why do they feel this way?
  • Is there something else that is driving this?
  • Does what they say jive with the elements that I understand?  Or am I missing something?

After thinking about what is said, I often try to ask the speaker clarifying questions.  Asking questions not only helps me understand, but also it tends to diffuse the emotions.  Two suggestions:

  1. Read body language.  If body language doesn’t match up to words, then you know there is a disconnect between what is being said and what is meant.
  2. Toyota’s Production System has a famous “5 Whys” principle.  TPS states that you can’t get to the true root cause of a problem without asking “why” 5 times.  Try it some time.  You’ll like it.  It works.

Level 3: Pro-actively seeking a listening opportunity

In my opinion, this is the hardest practice to achieve.  This requires setting up processes and an approach that engages those around you to gather input before someone feels overly compelled to speak up.  You have to be humble and confident to do this well.  You also have to really embrace feedback.  You have to understand that feedback only makes you better.

The best business leaders that I know are masters at this skill.  They treat feedback as valuable.  They recognize feedback as the way to achieve the best end result.  They not only actively seek feedback, but really think about it when it comes in.  People around them know that they can make change by making suggestions, because the leader will listen and adopt good ideas.  They set up organizational processes to solicit feedback.  They call on people in meetings who haven’t raised hands.  They walk over to someone’s desk and ask “how are things going?”  They grab a coffee with someone without a prompt.  They read body language.

This level is hard to do and takes a lot of work and patience.

My personal efforts to be a good listener

Listening is such a critical skill.  However, it is also a skill that is very hard to achieve greatness in.  I constantly think about my listening and often have epic fails.  Sometimes I fail as a listener to my wife, my closest friends and my teammates…i.e. the people whom I love the most.  My personal challenge is that I have to be ready to listen to be successful.  If a football game is on, you have no chance of having a good conversation.  At work, I need to close my lap top (or put my iPhone away) to focus on the speaker.  If my laptop is open, I get distracted by numerous sources and my mind wonders.

I also make an overt effort to bring feedback into our organization.  I have set up an amazing advisory board and constantly solicit feedback.  I try to ask my teammates for feedback.  Feedback on our product, on our process or on me personally.  Whenever I have a year-end performance review of a teammate, I always ask “what can I do to be a better boss?”  It is an odd question since the rest of the reviews are about the teammate’s performance.  However, I get really good feedback.  It also let’s the teammate know that I recognize that the issues are not all their fault.

Great listening is hard to achieve.  So I work on it.  I constantly work on it….please let me know how I am doing.