I have long viewed my role as an investor and board member with startups as that of a product manager, where the “product” is the company itself, not the product the company sells to its customers.
Using this metaphor, the product’s features become things like its business model, gross margins, cash collection cycle, etc. The product’s brand becomes its corporate identity, its customer list, etc. The most important product features are, of course, the entrepreneurial team members.
New research from Stanford now demonstrates an empirical basis for my metaphorical approach. In “How Do You Explain a New Product Category?”, Jesper Sørensen of Stanford’s Graduate School of Business explains that a startup’s potential customers usually care more about who they believe the company is, and how they feel about the company and its leadership, than they care about the product offered by that company. One excerpt:
Truly innovative products are often the ones that bring ideas across categorical boundaries. But doing so creates potential confusion, and people devalue what confuses them. The solution, difficult as it may seem, is to adopt a crisp identity instead. After all, staking a claim on your identity is a key element of the entrepreneurial “bet”: When introducing an entirely new product into the marketplace, make a choice about who you are.
Read the full article here.
(image by Norbert von der Groeben Photography)
Adding fuel to a long-running debate, a new Stanford research study shows that startup founders with technical backgrounds are more likely to be successful than those with business degrees:
A Stanford study highlights the critical importance of strong technical skills in launching tech ventures, casting doubt on the conventional wisdom that a founding team with diverse business skills is the best approach.
The study, led by assistant professor Chuck Eesley in Stanford University’s Department of Management Science and Engineering (disclaimer: I am also an adjunct faculty member in the same department), has been published online by the journal Strategic Management.
A key takeaway from the study is that technically-focused founders can more quickly reach market milestones, from design and prototype completion – all the way to product launch.
The full article by Michael Pena from Stanford News is here.
Last week’s Schumpeter column in the Economist had an interesting report on a recent management conference in Vienna. Rising interest in how to manage “big data” and complexity across global organizations reflects the speed and volume of information gathered in real-time:
Businesspeople are confronted by more of everything than ever before: this year’s Global Electronics Forum in Shanghai featured 22,000 new products. They have to make decisions at a faster pace: roughly 60% of Apple’s revenues are generated by products that are less than four years old. Therefore, they have a more uncertain future: Harvard Business School’s William Sahlman warns young entrepreneurs about “the big eraser in the sky” that can come down at any moment and “wipe out all their cleverness and effort”.
The article does a nice job of articulating two different views on how best to manage this complexity. The first approach is to leverage self-organization to manage via networks instead of hierarchies. Think Kickstarter, Kiva, AirBnB, or AngelList.
The second approach is to impose simplicity, articulating a few simple areas of clear focus for the entire business organization to rally around. Companies like Coca-Cola, McDonald’s and the German Mittelstand companies are examples of this approach.
I found the article interesting although I disagree with its contention that these two approaches are in competition with each other. I believe that the most successful and innovative growth companies today are those that use _both_ of these approaches. They pursue simplicity of focus, and articulate this simple vision to an organization that is network-based instead of hierarchical. In fact, in my view, it’s hard to imagine the success of AngelList, AirBNB, etc without having both ingredients.
In any case, the full one-page article is worth the read. You can access it here.
I just got a chance to view the incredible “Culture Deck” that Netflix uses to articulate its corporate culture to new employees. They’ve used a version of this since 2002 and it appears to have been leaked publicly about a year ago, but I just stumbled across it a couple weeks ago.
It is the single best articulation of culture in a high-performance startup or technology environment that I have ever seen. It’s that good.
That is not to say that I fully buy into, or endorse, every single aspect of this approach. I do believe that the vast majority of the content is spot on in its relevance for the startups I invest in. My favorite one is that successful high-performance organizations are a team, and NOT a family. I’ve seen a large number of startups fail because the founders and management team - working from a base of values that makes them individually great humans - articulates “family” instead of “team” as the metaphor for the culture. Doing so feels good for the first few months and years, but my experience is that it creates a barrier to effectively replacing employees (and management team members) with higher-performing people. At a minimum, it creates a much longer delay in making a needed change in the team, and produces a lot more resentment in the departing employee (“I thought we were a FAMILY!”). These kinds of delays, and cultural rifts, can and do skill startups all the time.
Putting aside the other great content of this presentation, its more important aspect is that it implements, in a better manner than any other articulation I’ve seen, the most important part of organizational culture, which is that it be specific, unique, clear, and differentiating. Reasonable people can, and do, disagree about whether it is the “right way” to build a high performance culture. That makes it effective in filtering the right people from the beginning, because potential employees who view this will self-select and “opt in” to the culture from the beginning. Many talented employees would not want to work in a company that says it does not value loyalty, satisfactory performance, or stability; as a result, people who place a high value on those cultural values don’t end up even applying for jobs at Netflix. But who would ever “opt out” of a company that says it values “integrity?”
Guy Kawasaki once said to me something profound, which I’ll paraphrase. He said that corporate values or culture statements are only valuable and effective if reasonable people can argue both for and against the value/statement. If it’s something that every reasonable human believes in (e.g., “honesty” or “integrity”), then it is of no use, because it doesn’t tell anybody what makes your culture _different_ than other cultures. It becomes a platitude that nobody really follows in any specific way, and it loses the ability to provide the context for how employees should make decisions and set priorities, which is where culture is most effective as a company grows.
(As an aside, one of the very first slides in the Netflix Culture Deck points out that the four corporate values of Enron posted in their lobby were Integrity, Communication, Respect, and Excellence).
Kawasaki’s point was that it is only in telling people what makes _your_ company’s culture different from the culture of _other_ reasonable and successful companies that turns culture into an effective motivational tool for alignment and cohesion. I’ve always respected that about the much-vaunted Zappos corporate culture, which despite the inclusion of many platitudes, clearly and always puts customer service as the #1 priority, ahead of all other aspects of the company. Reasonable people and companies can legitimately disagree about that - other retailers (e.g. WalMart) say that low price is the most important thing; many other ecommerce companies say that design or fulfillment triumph; and many tech companies put product ahead of service.
Coming back to the Netflix Culture Deck, what makes it so powerful in my view is that reasonable people and companies can disagree. Netflix does not believe in giving employees incentive stock options, and it believes that if an employee’s performance is merely satisfactory, they should be terminated (with generous severance). Netflix doesn’t believe the company should track vacation time, or have an expense-reimbursement policy, or set travel budgets. Most interestingly, and insightful, is the Netflix observation that the obsession around quality is of most relevance to manufacturing, medical and other “life and death” environments; at creative companies like Netflix, it’s actually better to encourage lots of mistakes, because it’s cheaper to fix the mistakes after they’ve been identified than it is to over-invest in quality (and the process and bureaucracy that comes with it) in order to prevent mistakes from happening in the first place.