Venture Beyond with Trevor Loy

Venturing beyond the conventional wisdom about venture capital investing, entrepreneurship, flyfishing, and life.
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Posts tagged "Startups"

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.

Slow Down road signThanks to a friend of mine, I recently discovered the growing concept of “The Slow Web.”  If you are familiar with the slow food movement, you’ll grok the concept.  From this excellent overview of the Slow Web:

"Timeliness. Rhythm. Moderation. These things dovetail into what I consider the biggest difference between Slow Web and Fast Web. Fast Web is about information. Slow Web is about knowledge. Information passes through you; knowledge dissolves into you. And timeliness, rhythm, and moderation are all essential for memory and learning."

The original “Slow Web” concept appears to have been coined by Walter Chen, CEO of iDoneThis.  From a must-read overview blog post on his site, here is one of the key concepts:

Measured, not frantic.  ”High time pressure over extended periods of time leads to both poor inner work life and poor performance.”  History will probably laugh at our time’s attempt to impose a mentality of industrial production upon creative work.

White Sands - Mindful Startups

All of this dovetails nicely with the concept of Mindful Startups that I have been working on recently; the stated mission of Mindful Startups is “exploring the relevance of mindfulness, neuroscience, and the contemplative traditions to the entrepreneurial life.”  This work starts from the belief that not only is mindful awareness critical to effective work, but that it actually improves creativity, thought, and long-term brain functionality. You can check out the MindfulStartups blog here or follow the twitter feed here.


(Hat Tip to Hue Rhodes for the pointer to the Slow Web movement!)

The U.S. government recently changed the rules for SBIR eligibility for companies with venture capital backing.  Read the changes here (the link is to a PDF).

Recently I have been thinking a lot about commitment and sacrifice in the entrepreneurial process. I’ve come to believe it counts for a lot more in successful ventures than most investors or entrepreneurs realize, even when they (we) may pay lip service to it. As I have said many times over the years, I don’t want to invest in people who want to “be” entrepreneurs; I want to invest in people who want to “do” entrepreneurial things. Jeff Bussgang at Flybridge Capital in Boston recently posted an excellent analysis of what this really means n practical terms, using another favorite metaphor of mine in the role of a pig vs a chicken in making ham and eggs for breakfast:

There is an old parable about the concept of commitment when it comes to breakfast. The story goes that when looking at a plate of the traditional fare of ham and eggs, it’s obvious that the chicken is an interested party, but the pig is truly committed.

Lately I’ve been thinking about the parable of the pig and the chicken in the context of the characteristics that make a great entrepreneur - and the kind of entrepreneur that we VCs in general, and my firm Flybridge Capital in particular, like to back. In short, we like to back pigs - entrepreneurs who are truly and completely committed to the outcome of their venture, have a lot of stake, and no fallback.

How do we discern the difference between the two entrepreneurial archetypes? It’s usually relatively easy, but sometimes subtle. Here are a few of the top characteristics we see in entrepreneurs who appear to be exhibiting behavior that suggests they’re more like “chickens” when it comes to their start-up:

Read Jeff’s full post, including specific examples of “chicken” vs. “pig” entrepreneurs, at bostonvcblog.typepad.com

(via jianxioy-deactivated20140228)

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.  

Culture View more presentations from Reed Hastings

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.

Thoughts?

  • This week's sign of tech bubble: multiple seed-stage startups demanding investors buy common stock instead of preferred. Thoughts? I have strong professional opinions on this and will draft a full blog post on the topic, but thought I'd crowdsource some input first...