Category Archives: entrepreneurship

I’m published by Harvard Business! “Are you the bottleneck in your organization?”

Hi all!  It took a while but (a small sliver) of my Fulbright research on entrepreneurial decision will see the light of day courtesy of Harvard Business Online.  Here’s a snipCelebration baby!pet:

“You may be the reason your company isn’t growing. You are micromanaging — and it’s stifling the organization you are trying to build.  Our research tells us that the very management style that enables a founder to get a company off the ground — a zealous focus on tactical execution — often derails growth down the line. Lost in the heat of battle, many entrepreneurs fail to adapt their management style to the evolving needs of their growing organizations…”

Check out the article over at HBR to see what the 100+ seasoned venture capitalists and serial entrepreneurs we interviewed said about how to balance growth and control.  Or check it out because you want to know what the heck I was doing in Italy for nearly a year!  Either way, let me know what you think and thanks for clicking!

Be well!


PS.  If anyone is interested in seeing the rest of my research, I would be happy to send it to them!

The CEO Question: Interview with Aris Constantinides of NBGI Ventures

Yesterday, I sat down with Aris Constantinides , founder and Investment Director of NBGI Ventures- a leading U.K. venture firm focused on investing in medical technologies. I wanted to get his thoughts on whether or not founders become bottlenecks in their own organizations. His response:

“Do founders often become bottlenecks? Actually, it’s the norm. The question is why.

Find below Aris’s thoughts on why so many founders get in the way of their own success, including seven questions VCs and entrepreneurs can ask themselves to avoid sinking their own ship. Thanks Aris!

The primary reason founders become bottlenecks is personality. Many founders just can’t let go.

In the beginning, founders run all aspects of the company. What makes the good ones good is their ability to let their organization grow on its own. The founder himself is no longer the center of everything, but plays the functional role to which he or she is most suited. For example, a scientific founder may turn into a chief scientific officer or chief evangelist. More often than not, this is what occurs. It’s not that founders outlive their usefulness; it’s just that the role for which they are best suited often changes. Our founders are incredibly passionate about the technology and are usually the best people to have in the market. We absolutely don’t want to lose them.

We call this issue the “CEO question.” Can the founder of a startup become the CEO of a rapidly growing company? Do they have the skills? Are they capable of becoming an expert manager? Asking these questions is the duty of Board of Directors. The board has the necessary bird’s eye view. They should see where the bottlenecks are and take action. Here are seven questions we ask when evaluating a founder’s ability to grow with his company:

1. Are common tasks unduly delayed? It’s always troublesome to see a founder get derailed by minor details. As the company grows, it’s easy for a founder to get pulled in 1000 directions if he or she lacks focus or the ability to execute.

2. Does the founder have a clear vision for long term growth and a tactical plan to get there? Founders need to see past the initial product. The ability to leverage early wins into future victories is what makes a long term CEO.

3. Is the founder hiring to complement his or her weaknesses? We expect our technical founders to make strong technical decisions but we are have real confidence when they make strong hires in commercial, sales, and marketing.

4. How many direct reports does the founder have? Anything above five or six reports is suspect. What do you need more than commercial, finance, manufacturing, R&D, clinical, regulatory, HR?

5. Where is the founder spending his or her time: managing/delegating or inventing/marketing? Investors sleep better at night if we know that our founders are also worrying about hiring and building out the organization. Many founders are already off thinking about their next business before the first one has been executed!

6. Is the founder consistently hitting internal targets and milestones? If a founder can’t stick to his schedule in the early days, delays are only going to get worse as complexity increases. Has the company planned accurately and executed without significant delay?

7. What operations are outsourced? Outsourcing is a great way to grow the organization. Entrepreneurs need to do a serious self-assessment and ask themselves, ‘What do I do well?’ Everything else should be outsourced or hired into the company. If you want to meet targets, you need to focus your efforts on what you do best.

Entrepreneurship: The easy part…

New Yorker Cartoon

Courtesy of Robert Weber and the New Yorker

Simplicity: The Value of a Clear and Concise Value Proposition

Crossing the Chasm
Image by cambodia4kidsorg via Flickr

Fred Wilson has a great blog post entitled “What drives consumer adoption of new technologies?”  The post is interesting- Fred’s one line articulation of  the special sauce of ten of the most popular consumer products in recent years- but as Fred says himself, the comments are golden.  One great comment by Alexander van Eslas on “first use” sparked by attention in particular. My response is below.

Many of the comments on Fred’s post talk about “simplicity” as a necesssary characteristic for consumer adoption.  I agree, but it is important for entrepreneurs to remember that products must not only be “simple to use,” but also to “simple to understand the value of.”

The point here is the need for a clear value proposition. People are willing to invest a lot of effort into adopting a product something if the perceived value of using that product is high. Chemotherapy is a horrendous experience and doesn’t always work, but given the alternative (death) it’s a no brainer. Alternatively, if the product’s perceived value is low, the users will be considerably less forgiving. I refuse to register, verify an email, and create a profile when all i want to do is play a game of solitaire on the train for five minutes. **The relationship between perceived value and users’ willingness t overlook product shortcomings reminds me of the relationship between price elasticity and wealth.

Clearly and concisely articulating the value proposition is a real problem for many great technology platform companies*, twitter included. It’s not as if people haven’t heard of these platforms! Everyone COULD benefit from joining Facebook or using Twitter but not everyone realizes it.  The most common thing I hear from non-twitter users “why the hell would i do that?” Conversely, the main reason that people try out services such as twitter despite having no idea what they do, is that “everyone else is using it (therefore it must have value).”  The challenge for the entrepreneur is to evince their service’s value before people give up (Retention- See Dave Maclure’s Startup Metrics for Pirates).

This is where Alexander’s concept of “first use” comes up. Alex asks

“Is a user willing to put in the effort to learn about this new technology and incorporate it in his current habits?”

I bet Marketers try a lot harder to “get” Twitter than Accountants because even if they don’t initially understand it, they know it is supposedly of value to people of their ilk.  They are supposed to be using it.  Twitter is getting better at delivering value upfront by suggesting friends and auto-populating new accounts with popular tweeters but it still needs work.

Ultimately, the correlation between the value perceived and one’s willingness to overcome friction to adopt is more about people than products. This is classic Geoff Moore/technology adoption curve. Technologists find the perceive value in technology for technology’s sake. They could care less if a product  is “simple” or “easy to use” or about sharing or whatever as long as the technology it is built on is new or interesting. Early adopters find technology interesting, but only because of technology’s ability to create disruptive change. Early adopters are willing to put up with a lot of frictionand overlook a lot of foibles if they perceive that adoption will deliver huge benefits. The majority just want to keep pace. Skeptics actually perceive negative value to adoption and thus will hold out until non-adoption becomes so painful that it is easier just to capitulate! Different people see different value in different things.

In conclusion, I’ll reiterate: Products must not only be “simple to use,” but also to “simple to understand the value of.”  A clear and concise value proposition should make the list of drivers of consumer adoption.

*People are insensitive to large relative prices increases for goods that are cheap relative to their wealth, but they are very sensitive to small relative price increases on goods that are large purchases relative to their wealth. In English, I am virtually indifferent between a $1 pack of gum and a $1.10 pack of gum (10% price increase), but raising the price of a house from $100K to $110K (also 10% increase) is game changing. To complete the analogy, the amount of friction users are willing to overlook is proportional to the value they perceive. Thus I believe that a user’s initial perceptions are all the more important if the value proposition is marginal or unclear.

** is another example of a “great” technology product (simple, sexy, social, useful etc) that risks missing consumer adoption because people don’t fully appreciate all of the things it is capable of. Getdropbox is a less versatile product that may ultimately gain more traction because it is more intuitive.

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Free Business Ideas: Time-based Barter Economy Targeted at Entrepreneurs (Timebanking Revamp)

Clock in Kings Cross railway station
Image via Wikipedia

The other day I stumbled across a social experiment called “time banking,” at Basically, Time Banking is a community improvement movement that revolves around the principle that every person’s time is worth the same (Yes,  quasi-socialist).  Each community creates a “Time Bank” where community members can make “deposits” by lending their time to others and “withdraws”  by calling upon other community members for help.  It facilitates a barter economy with currency denominated in hourly increments of service to your fellow man.

“For every hour you spend doing something for someone in your community, you earn one Time Dollar. Then you have a Time Dollar to spend on having someone do something for you.”

An example.  A lawyer helps a little old lady clean her yard  for an hour.  He ears a credit.  Then he can turn around and get an hour of guitar lessons from another guy around the corner.  The guitar player could then ask for cooking lessons, perhaps but not necessarily from the little old  lady.

During boom times, when everyone has more business than they can handle (ie. plenty of money but no time), this idea seems silly.  But in the midst of steep recession, when everyone has no money but plenty of free time, the concept might be once again applicable.  A year ago, it might have seemed crazy for a lawyer to swap services hour for hour with a plumber whose market rate is 1/5 his own.   But if the lawyer has nothing else to be doing and no way of generating business at his billable rate, is it so crazy for him to save the $50 needed to fix his sink by spending an hour helping his plumber resolve a legal dispute?

I think the concept of bartering services is particularly applicable to startups, a group that is always short on cash.  In fact, a good bootstrapping entrepreneur will  always barter services, whenever it is pragmatic, to preserve cash.   This happens all the time, albeit informally.

Time Banking started almost 30 years ago and has spread to “22 countries in six continents” according to the official website.  A  quick google search for “time bank your zip code” will almost certainly produce a small community website.  Unfortunately, the success of Time Banking appears to have been limited by the onerous setup costs.  If your community doesn’t  have an existing infrastructure, you are urged to set one up by buying a “Time Banking Start-up Kit for just $49! With the kit, you get a six month membership, access to the coordinator forum, and a 4.5 minute DVD from the founder of time banking!!!”


$49 to join a social network and get a DVD of some old dude talking about something he did three decades ago?

It sounds like a con scheme but no, this is actually a rather sizable nonprofit organization operating on a pre-internet infrastructure.

Check it out for yourselves.  Is there anyone out there that would be interested in writing a Facebook application to bring this concept into the 20th century*?  Seems like you could add a lot of value to startups that have complementary skills.

*Yes, they have a page, but I see no reason why the whole infrastructure shouldn’t  be put up on the web.

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Image by gregkeene via Flickr

Agility and the ability to quickly adapt to changing circumstances or failed plans is one the many common behavioral characteristics I identified over the past year and a half I spent interviewing entrepreneurs and venture capitalists.

For example, when financing for ad-supported social networks abruptly collapsed in 2008, so did David F.’s plan for growing his online youth sports community. Without external funding for extensive outreach, customer acquisition was prohibitively slow. Rather than diverting his limited resources in a (likely futile) attempt to boost marketing, David completely reconsidered his business model. While recruiting at a local event, David learned from a Little League official how outdated and difficult the company’s software was to use. After further inquiry, David recognized that recreational sporting institutions could use his current social networking system to manage their backend customer registration. With a minor product tweak and a major shift in strategy, David emerged from the brink of failure, more profitable than ever.

Balancing initiatives is particularly difficult for start-ups, for which every big decision is interrelated. If seemingly insurmountable challenges arise, entrepreneurs must be willing to make drastic changes to their original plan.

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4 Logical Reasons to be Persistent

Warhol's Light Bulbs
Image by zetson via Flickr

Persistence is a well known but (in my opinion) poorly understood quality of successful entrepreneurs.  At its best, persistence is having the will to persevere in spite of whatever obstacles, challenges, or set backs you may encounter.  At its worst, persistence is confused with not figuring out a better course of action.  Based on what I’ve seen, here are some logical reasons for pushing through the dip, backed by some good ‘old Edison quotes:

1) Most obviously, increased number of wrong attempts = increased learning = better future solutions.  Luck plays a large part in a start-up’s success, but entrepreneurship less like the lotto, and more like poker.  Studies claim to have proven, that VC-backed entrepreneurs that have failed before have a slightly better chance of succeeding than first timers (23% vs. 22%).  As you might expect, entrepreneurs that have succeeded previously are much more likely to succeed in their next venture (33% chance of “success”) not just because of the entrepreneur’s skills but because of reason #2 below.

“I am not discouraged, because every wrong attempt discarded is another step forward.”

Thomas Edison

2) Signaling dependability and durability reduces the perceived “cost” of your service to current and potential customers, employees, investors, or anyone else that has something to lose if you give up or go out of business.  For example, you switch to a new start-up SAAS company because they can do the job cheaper than your old provider, but then they go out of business.  Now you are stuck with a platform that is longer updated, is no longer serviced, or even worse, no longer works.Even if your service is free, prospective customers consider the switching costs that they would incur not only to join your service but to switch back to another provider should you fail.

The more persistent you appear, the less risky (and expensive) of an option you are in the eyes of prospective constituents.  This reduces the “cost” of trying your products and services, making you more competitive, and thus more likely to succeed.  Amar Bhinde covers this topic in his excellent study of the INC 500 companies.  Why VCs are especially interested in proven entrepreneurs that have just failed is covered here by Brad Feld.  Hunger baby.

“Show me a thoroughly satisfied man, and I will show you a failure.”

-Thomas Edison

3) Not all progress is visible. No one knows the “magic number” of impressions advertisers must achieve before inspiring custmers to purchase   Likewise, you don’t always know when you are about to pass the tipping point for traction, score the deal, or get the job.  As Paul Allen points out, this is a good reason to measure progress as often as possible.

“Many of life’s failures are men who did not realize how close they were to success when they gave up.”

-Thomas Edison

4) If you stick around long enough, factors beyond your control may change in your favor. It is easy to speculate but impossible to know what goes on behind a customer’s or investor’s walls.  You may get turned down by Stefanie the purchasing associate 20 times before one day you call to find Frank on the phone.  You and frank hit it off and the order is sealed.  Did you do anything differently?  No, but you stuck around long enough to reap the reward.  Mark Andreessen covers this nicely here.

“Nearly every man who develops an idea works at it up to the point where it looks impossible, and then gets discouraged. That’s not the place to become discouraged.”

-Thomas Edison

Oh, but just in case things don’t seem to be working out.  Don’t forget this guy:

“Insanity: doing the same thing over and over again and expecting different results.”

-Albert Einstein

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The Serial Entrepreneur/Venture Capitalist Paradox

Some VCs and serial entrepreneurs look at me like I’m crazy when I tell them that I am looking for patterns in the startup process.  This always strikes me as strange because the same people that tell you that every problem is esoteric, every situation unique, will, in the same breath, tell you that the reason they are good at their job is because they’ve seen or started 000s of businesses.

The obvious question is: if every startup is unique, why would the seeing first 1,000 businesses help you create the 1001st?  Clearly there are patterns of things that work and things that don’t.  Startups may require both art and science, but many of entrepreneurs and VCs would have one believe that they pull rabbits from hats for a living.

To paraphrase a professor I once talked to: “Perhaps some parties are loathe to reduce to science their self proclaimed ‘black art’ of getting early stage organizations off the ground because to do so would take the mystery out of it and, of course, the money too. As the saying goes, ‘Where there’s mystery, there’s margin.’ “

I spent the past two years interviewing CEOs and VCs with the goal of articulating the lens that experienced VCs and entrepreneurs use to evaluate early stage opportunities and the general principals they apply to the creation of early stage processes.  I’ve found a host of reassuring similarities that I look foward to sharing with everyone here.

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“What Should I Work On Today?” A very entrepreneurial problem…

This piece is an excerpt from my Fulbright research with Prof. Thanos Papadimitriou of SDA Bocconi.  You can find out more about our research on our blog “chefsnotbakers.”

What if your company lacked a consistent process to decide which opportunities to follow and which fires to fight? What if you had no tangible feedback on customer satisfaction, design productivity, or market share? Even worse, what if you had no customers, products, or market share? No, it’s not a nightmare; it’s a typical early stage company.

“What should I work on today?” is a question that entrepreneurs ask themselves every day.

Rightfully so. The success or failure of rapidly growing but resource constrained businesses depends directly upon their founders’ ability to juggle a variety of diverse tasks. Paradoxically, because startups generally operate on the thinnest of margins, success or failure hinges on entrepreneurs’ ability to focus all of their effort on exactly the right issue, at the exactly right time. Only by catching fires early and extinguishing them as quickly as possible, can entrepreneurs carve out time to create real value.

Unfortunately for entrepreneurs, it is human nature to focus on the facets of the business with which we are most comfortable, even to our detriment. History is littered with failed startups that couldn’t see the forest for the trees. Salesmen bleed their company of resources by chasing inappropriate customers. Financiers produce spreadsheets that bear no resemblance to reality. Technical founders write code while the bank runs dry. Products are created with no customers, business plans go unrealized, and popular but profitless online services linger as the remnants of past founders’ myopia. To paraphrase novelist Henry M. Tomlinson, founders see things not as they are, but as they are themselves.

Insidious internal biases afflict techies, MBAs, first timers, and veterans alike. Take the failed startup Monitor110. Lead by brilliant technicians and Wall Street veterans, the startup’s ambitious plan to index of entire the dynamic web’s financial information made it one of the most anticipated new firms of its time. In mid-2005, despite willing customers and a working beta product, the firm opted not to release V1.0, choosing instead to explore newer and more powerful search technologies. The decision to pass up early market feedback proved fatal. As time passed, both internal and external expectations for the product soared. In response, the firm retreated inside of itself. Although the team was working harder than ever, fear of disappointing an eager market began to push the firm farther away from its customers. Without regular feedback, the firm’s product-market fit began to erode. By the time Monitor110 finally released v1.0 almost two years and three rounds of funding later, the gap between product and market had grown insurmountable. They had built a product no one wanted and there was no money left to build something new. Despite having all of the prerequisites for success—a rock star team, an innovative product, a massive market, and plenty funding—Monitor110 failed. Success is not only sourcing and building the critical pieces, but aligning them together in a sustainable way.

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Wall Street Meltdown: The best thing that could happen to bankers

Wall Street Crisis
Image by MyEyeSees via Flickr

Roger Ehrenberg, ex-banker turned startup investor, wrote a good post a while back discussing the possibility that the collapse of wall street will fan the entrepreneurial flames of ex-wall streeters.  I’ve been talking about this since the beginning of the financial crisis and I have an answer: YES.  I believe that the financial crisis will lead to positive changes in the lives of many Americans.

As an ex-banker (well, sort of, equity research) turned sailor turned startup grunt turned rock band bassist turned student of startups, I believe that unleashing a herd of hardworking and (relatively) intelligent people will lead to more than a few entrepreneurial success stories.  If nothing else, a forced break from the fire-hose of “absolutely critical” business and career will help people to understand that there is more to life than climbing the corporate ladder.  Shouldn’t it worry you that spending a sunny weekday on sheep’s meadow nearly drives you crazy?  Thoughts on what I call “the river” and “PDA dependency” to come on later posts.

When The Street began to fall apart, I dreamed up a new project: collecting a set of stories about Ex-Wall Streeters who, freed from jobs that they hated, go on to pursue their passions and, most likely, much happier lives. What do you think? I’m not saying that every banker is self-loathing (most of the truly successful ones aren’t), but a lot are.   Sadly, people stay in jobs that they hate because their “opportunity cost” is too high to leave. They’d rather pay the price of lifelong self-resentment than pursue fulfillment in, gasp, a potentially less lucrative field.

Why do people who manage risk for their living make such “irrational” decisions you may ask? Their myopia is the result of spending 7 days a week, 51 weeks a year (save a week long “recharge” in an otherwise unused cottage in the Hamptons) in a culture that has but one yardstick, the dollar. The simplicity of a system where every decision can be measured with one simple metric- how much $$$ am I making? – is both distorting and intoxicating.

To bring it home, I  believe that Roger’s third factor, risk, will have the most affect on the ex-Wall Streeters. Wall Street was never risky to its participants. It’s probably one of the safest career choices (on an expected value basis) available. No longer be able to tell exhilarating stories about the exorbitant sums they made with Other People’s Money, these people will have to completely re-conceive their personal notion of risk and how it interfaces with their self-image. Drawing spreadsheets for a modest living is a bit harder to sell as exciting and risk taking, even to oneself. Accountants, where you at?

I think, and sincerely hope, that the implosion of “gravy train” will liberate talented ex-Wall Streeters from their myopic fear and enable them to follow their dreams. Value expansion, if only in the personal sense, seems inevitable.

If anyone wants to tell their story or has a  friend that wants rap about their new plans, I’d love to talk to you.   Thanks and good luck.

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