Tag Archives: entrepreneurship

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
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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.

**Drop.io 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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Agility

20060421-30D-IMG_4511
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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Wall Street Meltdown: The best thing that could happen to bankers

Wall Street Crisis
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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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Are you a bottleneck?

The more decisions that must go through the entrepreneur, the more of a bottleneck he becomes.

Just because you are capable of wearing many hats, doesn’t mean you always should. While self-sufficiency enables is critical to getting started, entrepreneurs incapable of delegating tasks inevitably become bottlenecks in their firms’ growth. Routing all info and decisions through one person is expensive- decisions and the information necessary to make them should be pushed down the ranks whenever possible.

I know of two partners at a shipping company that could not figure out how to break through double digit millions in revenue. Despite working harder than ever, the needle refused to budge. A quick look at the firm’s organizational structure revealed the problem instantly. Even with 70 employees working on 8-10 separated projects, every single “scoping” decision ran through the two founders. Without the courage to delegate “core” functions, the founders had inadvertently become the bottlenecks in their own firm’s growth! For a firm to grow, entrepreneurs must hand off their existing responsibilities in order to focus on newer, more value add activities.

Questions:

How many tasks pending do you have?

What percentage of your to-do list gets completed every week?

What is your average time to respond to internal requests? External ones?

How many direct reports do you have?

What would happen if you fired yourself?