Cogblog

Great, great, great post from Ben Horowitz who does an outstanding job of summarizing how structural changes in start-ups have changed the nature of start-up investing.  This is probably an argument for guest posts on blogs.  He waits until he really has something to say, then says it, rather than feeling the need, like myself, to just vomit on the page to keep you all reading.

A few key points stood out to me:

1. Maybe this hints at why so few angel networks seem to work.  Angel networks potentially re-create much of the meeting/diligence overhead of dealing with VCs.  If angels, at the end of a night, stood up and wrote checks and used a standard term sheet like the new Seed Series, people would be so aggressive about pitching angel networks, it would be crazy.  That would change the dynamic for angels.  Now one meeting for the entrepreneur turns into 40 meetings with angels.  Huge value add.  If you have the same circus you had anyway of a bunch of meetings after that, that is less compelling.  Maybe the angel network could announce that they have developed a “True Ventures” formula where they have 3 pre-money valuations they invest at with certain criteria for each tier.  That would be really out of the box thinking.
2. Part of what Ben talks about demonstrates the burden on entrepreneurs.  To close a round with an angel in one or two meetings, you need a pre-existing relationship, a warm introduction, or a god-like aura surrounding you.  Sounds like you really have to work your network for those warm introductions!  (At least I do)

http://www.flickr.com/photos/hi-phi/55911511/

Customer Development, Shmustomer Shememelopment.

Let’s talk about books.  SPIN Selling is the single best book to learn about selling that I have ever read.

Why, you ask?

Here is what I like when I read a self-help business book: Data.  Tell me what you think, but don’t just back it with funny anecdotes, although I love a good anecdote.  Back it with research.  SPIN Selling is the most data driven book on sales techniques I have ever seen.  As the subtitle says, “The best validated sales method available today.  Developed from research studies of 35,000 sales calls.”

I was re-reading it the other day – “Sharpening the Saw” in self-help speak, when I read a chapter and thought, “Oh, this is the data that shows that customer development is the most effective technique for new product development”.   “Oh, this is the part where they tell you that you have to use customer development techniques to sell things to people”.  FYI, SPIN Selling was written in 1988.

Want data?  Hell yeah, you know that Cogblog is committed to data driven posts.

First, let me tell you a little about SPIN Selling, in case you are not familiar with it.  If you are unfamiliar with it, here is what you should do: GO READ THE BOOK.  If you are the kind of person that likes my blog, then you should read the book.  End of story.

Anyway, here is a key summary:

SPIN = Situation, Problem, Implication, Need-Payoff

There are two kinds of sales: simple and complex.  If a sale is a simple sale, then you should master closing techniques and close the hell out of people.  It works.  If a sale is complex and you try a closing technique on people, it actually makes a sale less likely (42% of sales situations by people without training in closing resulted in a sale (2.7 close attempts per sales situation) vs. 33% for people with closing training (4.5 close attempts per sales situation)).

In a simple sale, successful sales have more implied needs expressed than unsuccessful sales.  An implied need is something like, “the system we use today sucks”.  Salespeople eat that up!  But here is a fact: In a larger sale, implied needs do not predict success.  So if you are selling something complex, and you hear about a guys problem, it doesn’t improve your odds of victory.  Explicit needs are the difference.  ”Analysis of 1406 larger sales shows more explicit needs in successful calls”  An explicit need is when a customer goes from saying, “My current thing is bad” to “I need a new thing”.  ”I don’t like how our web app loads pages so slow” needs to become “We need our web pages to load faster”.  There is a huge difference between those two statements when closing a complex sale and helping a customer navigate from an implicit need to an explicit need is what SPIN is about.

Asking a customer about their problems makes no difference in a large sale.  (Huge difference in a small sale.) You can ask a lot of “problem” questions or a little.  Doesn’t matter.  Developing the implications of those problems and the value proposition of that information is what separates the winners from the losers.

They specifically relate this back to new product launches by talking about how most new product launches fail because people are stoked to talk about their great product and its awesome features.  Unless you lead with developing a customers explicit needs (i.e. CUSTOMER DISCOVERY), you are never going to close any business.  I think a big part of the customer development process and how it works effectively is getting out there when you have nothing for sale forces you to spend your time developing implicit needs into explicit needs.  In fact, Blank tells you that the most important part of the initial exercise is getting to Need-Payoff – How much does the implication of this problem impact you monetarily?  How much is it worth to solve it?

Features and benefits and how and when to discuss them is something Customer Development talks about a fair bit.  SPIN Selling gives you the data.  In fact, they break it down even more granularly.  A feature is something the product does.  An “Advantage” is a manner in which the feature helps the customer solve a problem.  A “Benefit” is how a feature of the product solves a problem that the customer has said that they have (An advantage they have actually said they need!).  And what does the data show?  If the customer hasn’t told you that they have the problem, then telling them a “classical benefit” (An advantage in SPIN terms), doesn’t do anything to increase the likelihood of a sale.  You have to have developed the customer and a deep understanding of their problems, the implication of the problems and the value that a solution can have in impacting those problems to close business.  If you give them a true benefit: They say they have a problem, they need a solution, and then you say, “My product does that”, the deal is as good as closed.  Now, that sounds, “Duh”, and I know this, but the point is that if they don’t say, “I need a solution”, you are nowhere.  You have to get them to say that.  Customer Development tells you that, SPIN Selling gives you the data demonstrating that this is the case.

Incidentally, and I love that they studied this, the data shows that asking a personal question (small talk – “How are the kids/weather/knicks/red sox/vacation?”) has no impact on the likelihood of closing the sale.  You can just jump right in to talking about the sales call.  A more comfortable situation due to personal relationship, commonalities, whatever doesn’t bear on the outcome.  If you are awkward and do a nice job developing explicit needs, you get the business.  Good news for an awkward guy like me.

Go forth and help your customer understand how their problems require solutions!

I hate to go after Jeffrey Pfeffer.  He has been a professor at Stanford for more than 30 years.  He has written dozens of books.  He is smarter than me.  But he wrote a book called, “Hard Facts, Dangerous Half-Truths and Total Nonsense” and the article he wrote as the cover story of the most recent Newsweek, “Lay Off the Layoffs”, strikes me as a an article filled with half-truths or merely poorly foot-noted commentary and I have to call some of this out.

First, let me caveat this with a few things people should know.  I am on the record as saying, “Laying off a few people sounds pretty good.“  I have the bias of coming from the knowledge worker industry and was only part of a really, really big company (Booz Allen Hamilton, 50,000 employees) one time.  And that company was a professional services company, where layoffs, in their most traditional context, don’t really count because staffing up and down to be in-line with supply and demand makes a lot more sense and is easier to do in the context of a professional services company than in a more traditional industry.

First paragraph: He implies that Southwest is now the most successful airline in the U.S. because they decided not to lay people off after 9/11.  Doubt that was actually the case.  I think the strategy Southwest pursued has allowed them to be successful, frequently at the expense of other players in the market.  The result was their layoffs were in many respects as much an effect of their poor strategy as it was 9/11.

Wisely, Mr. Pfeffer points out on the next page that studies are hard to do because the companies that lay people off in an industry are rarely identical to the companies that don’t, but that doesn’t stop him from citing tons of studies that strike me as having a lot of causation-related problems.  Just two paragraphs later, he cites research that says that companies that lay people off have lower stock prices than companies that don’t.  Absent details about the research, this sounds like the Southwest example to me.  Companies laying people off are companies headed in the wrong direction.  He follows that up with a host of what sounds like, frankly, half-truths like companies that lay people off are less profitable.

He cites a situation where a friend of his who was good got laid off.  Bummer.  I mean that in all honesty.  Yet, I find layoffs a great situation to get rid of the bottom few percent of the company.  Sometimes you lose good people – look at AOL – but a small layoff can be great for losing the people that take the fun out of the workplace.  Every layoff I have been a part of, the discussion was always, “Are we cutting fat, or are we cutting muscle?”

Circuit City is another example he uses: They “laid off their 3400 highest paid sales associates.”

“Fewer people with fewer skills in the Circuit City stores permitted competitors such as Best Buy to gain ground, and once the death spiral started, it was hard to stop.”

These events actually occurred in 2007 and at the time, almost no one thought that this was likely to right the ship.  And why is that?  Because Circuit City had started its death spiral nearly four years earlier, in 2003.  This was simply the last gasp of the organization.

I love a good story as much as the next guy, but this charade of “the truth about layoffs” strikes me as wrong-headed.  Given the author’s qualifications, I bet they trimmed about 10,000 words from this article for brevity.

I have always said that Josh Kopelman is one of the top few marketing and business geniuses in the country.  I think we have seen further proof in the last few weeks.  Josh has had a simple objective over the last few years: Make First Round Capital the premier early stage fund in the country.

The key here is differentiation.  What makes taking money from First Round more appealing to an entrepreneur than taking money from someone else?

Just a few of the things I have seen FRC do:

• Web 2.0 Summit: At the annual Web 2.0 summit hosted by O’Reilly and John Battelle, they had rented out 8 of the 9 conference rooms on the mezzanine level to host breakout sessions.  FRC rented out the 9th and created a room for their investment companies to demo their products.  They served margarita’s one day and popcorn the next.  Every attendee of Web 2.0 passed through that room at some point.  It was in that room that the now semi-legendary MyBlogLog/Yahoo introduction was struck by Josh.
• The First Round CEO Summit: This annual event for companies that First Round invested in is an incredibly popular event that gets incredible press.  Part of what FRC does well is invite next stage investors to participate and build relationships with FRC and their investment companies.  The result is great networking, not just great presentations.
• Now they have rolled out the share exchange program.  Regardless of how you feel about this program, for your average entrepreneur, this is really appealing.  Every investment they have done prior to investing in your seed stage company has credibility that your company does not: They raised money!  The result is that an entrepreneur is essentially offered the chance to trade-up by swapping shares of their company for shares in a larger, more established portfolio of companies at a low price.

http://blog.groupstory.com/

If you needed to get a small car across a river, would you hire someone who has never built a bridge before?  If you get a really good engineer, with bridge building experience, who makes great trade-offs, you get there faster.  Sure, there is some risk that people who build huge bridges will want to build more bridge than you need.  You should manage that.  Also, if he was a great engineer, he would recognize the unique requirements of this situation and adapt.

Architecting products can deliver a variety of benefits, typically referred to as the “ilities”.  The ilities that I have traditionally valued most, along with the architects that I have typically enjoyed working with, given that the work we are typically focused on is pretty early stage technology, tend to be things like “flexibility”.

Sometimes I see a blog post like this one.  And my reaction is, “sounds like you are working with the wrong engineers”, not that working with senior architects is bad.

Let’s be real.  The most widely agreed upon truth in software development is that there is a 10x difference between awesome engineers and average engineers.  A critical goal, in building a company, is to get as many of those 10x engineers as you can.  He who gets the most typically wins.

I have found that a senior guy that is also a 10x guy, builds a product that is easier to adjust, designed for extensibility, and all that other good stuff.  And many of the design decisions are decisions he makes subconsciously.  He simply works in a way that generates better outcomes.  Some of the decisions that young engineers make is not a road to shipping the product faster, it is simply the path of least resistance that they understand best.

For me, the sign of a great engineer is not an instinct to over-architect.  It is the intuitive ability to sense how much architecture is appropriate and when that architecture should be introduced.  What abstractions are appropriate and will accelerate time to market and accelerate our ability to add new functionality to the system and which ones are inappropriate when you are still testing market feasibility.  I have seen multiple instances where it was implied to me that Minimum Viable Product mean “seat of the pants coding so we can get to learning faster”.  Anyone that has been around the block can tell you that this is probably not a path to take you where you want to go.

There are only a few Joe Stump’s or Dimitrij Denissenko’s out there.  You should hire one.  I see architects all the time that are hand-waving preachers of building big systems.  I hate that.  Let’s ship a product and then scale.  Good architects can do it.  Bad architects could be inexperienced or they can be people that over-architect.

Minimum Viable Product is, to me, an approach to Product Management.  Gold-plating requirements makes development tough.  Over-architecting products makes development tough.  Engineers love the idea of Minimum Viable Products because it emphasizes frequent iteration and maps well to Agile, but it should not be used to justify taking inappropriate shortcuts in product development.  Hire the most senior, most awesome developers you can justify.  Been there, done that means a lot in engineering.

Thinking about the web site we are building for my new company.  One thing that seems like it is in some flux today is the dreaded “About Us” page.  To me, it used to be a one paragraph mission statement with a few links to a few static pages:

• The Team
• Investors/Board
• News/Press
• Jobs/Culture

Even Tumblr’s about us page is fairly typical and meets this standard.

But I get the distinct feeling that About Us pages are changing.  I have recently seen About Us links on web sites that were, rather than linking to an “About Us” page, links to:

• The Company Blog
• Wikipedia
• Crunchbase
• Facebook Fan Page
• Twitter

All of these are most notable for their ease of maintainability.  Clearly, small companies think having an About Us page is a pain in the butt.

Certainly, the biggest change, in general, for About Us pages is the growth of Twitter and Facebook Fan Pages.  It seems like every company has a Twitter account and/or a Facebook Fan Page and they try to get people to follow them/be their fans.  So now every company has a link to these things on their web site.  Also, they want to push information out to these followers.  The result is that this is a fairly good place to keep information like “news/press” and “jobs”.  Now if your about page has this data, it becomes redundant data maintenance.

It takes a big marketing department to want to do that.

I am interested in everyone’s thoughts here.  What would you like to see my company do?

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I have recently been wanting to do some interviews – bring new fresh voices to the CogBlog!

I figured I should start out easy and that meant reaching out to Dan Berman.  After working at ad agencies in San Francisco for more than a decade, Dan moved to Albany, New York to become a food blogger.  From his home base in the deep, deep snow, Dan has crafted a reputation for insanely deep knowledge of tons of food topics on blog: The Fussy Little Blog.

I figured people have the questions about food covered, so I wanted to talk with him about the approach he has taken to building a popular blog, aside from writing great blog posts.  Here is my interview:

1) How did you decide this topic?  Was there a process you went through?

I’ve always enjoyed talking about food and sharing good food with others. I used to be very popular at my old ad agency for both assembling cheese plates for department tastings and bringing in some of the best pastry in the area for birthdays.

But the blog was the direct result of my moving to Albany, NY and arriving in a place where the expectations and standards of restaurant food were so much lower than what I had grown accustomed to in and around Berkeley, CA.

All the same, I was convinced that there was good food in Albany, and the trick would just be to find it.  So I hit the ground running, and wrote Yelp reviews for every place that looked to have some promise.  There were some hits but a lot of misses.

I found menus posted online to be a very good tool for determining whether or not to try a mid to high tier restaurant.  It’s one thing to be fast and loose with cafés, pizzerias, and diners, but I am loath to spend a lot of money on a mediocre meal.  And I believe you can tell a lot about a restaurant from how they present themselves on their menu.

The problem is that many of the menus were just awful.

And then all of a sudden Yelp was no longer sufficient for communicating the food issues that were important to me.  I couldn’t review a restaurant without having eaten there. But on a blog, I can have an in depth analysis of a menu and explain why I don’t think a restaurant is worth the time, money and calories.

2) How did you pick the name?  What was the process like for that?

In my early twenties I lived in a house with a few of my closest friends. Occasionally I make reference them on the blog as ADS and Raf.  We are like family.  And you can say things to family that you can’t say to other people.

Of the three of us Raf is the fussiest.  And sometimes when it got out of control, we would call him a FLB.  You can say these things to family. But you cannot really put that into a public space.  So when I found that I could use the acronym and own the FUSSYlittleBLOG, I jumped on it.

Honestly, I couldn’t believe it was available.  It was perfect.

It was broad enough that I could include a lot of different subjects.  It also immediately establishes and justifies an editorial voice.

3) Did you have an explicit plan for building awareness of the “Fussy” brand?  What was it?  What worked best?  What didn’t work? What would you do different?  What has driven the most traffic for you?

My plan was to leverage my social networks and the relative local notoriety I had achieved by being the most prolific Yelper in Albany, NY.

And that worked pretty well.

I showed up to an AllOverAlbany.com event, and met their editors.  When I introduced myself they said, “Daniel B.? You are the king of Yelp.”  I assured them I was no king.  But they featured my blog in a big way on their site, and that really helped me establish a local foothold like nothing else.

That relationship grew and grew.  In the fall they selected me to be a judge for their 2009 Tournament of Pizza. And at the end of the year I was one of a few people profiled as “Interesting in 2009.”

At the same time I have been involved in the local food blogging community, reading and commenting on several prominent sites, and attending local food events.

But you never know what is going to yield a lot of traffic.  My best-read post is “The Secret to Oddly Tender Chinese Meat.”

4) How far ahead have you planned for your posts?  How far in advance are they generally written?  Walk us through a typical week.

Planned? I did do a lot of planning in the beginning.  I really wanted to make sure that all of my categories received equal amounts of love.  Now that the blog is more populated with posts – well over 200 at this point – I worry less about that.

I do keep an ongoing list of post ideas.  But more often than not, I’m not particularly in the mood to write about any of them, and go off and write something else instead.  On a good week, I’ll sit down on Saturday night and map out the posts for the next week.  Although to be honest, that hasn’t happened for a while.

Ideally I like to work with one post in the can.  So on Monday morning I’ll sit down with Mrs. Fussy to copy-edit Tuesday’s post.  Lately I’ve been writing them on a daily basis.  Which means on Monday night I’ll be writing Tuesday’s post.  It keeps the blog dynamic, but it’s exhausting.  Luckily I don’t need too much sleep.

5) Why no ads?  What is the revenue model?  How has the store worked out?

I used to work in advertising because I hate ads.  It’s a long story.  But at my current traffic level I really don’t think the juice is worth the squeeze.  I have no revenue model.  The store is there to help contextualize some of the items I mention in posts, but I never had any illusions that it would be a profit center.

The FUSSYlittleBLOG isn’t a business, it’s a tool.  I don’t quite yet know what the tool does, but I’m playing around with it, and hope to figure it out before too long.

6) How much of your traffic is local?  How much is San Francisco?  Do you regret not starting this in San Francisco?

My back of the napkin estimate tells me that 75% of my traffic is from within New York state.  I have a bunch of my old peeps following the blog in San Francisco, but I also have friends who check in from all over the country.  The blog is currently hosted on WordPress using a standard template, and as far as I can tell, I have no tools at my disposal to actually track users by geography.

It is a difficult balance between trying to affect change locally while still being appealing to a broader audience. This is one reason why I recently accepted a guest-posting slot on one of the blogs hosted by the major local newspaper.

http://blog.timesunion.com/guilderland/free-wine/615/

Technically speaking, all of this did start in San Francisco.  The region played a critical role in shaping my thoughts about food, wine and spirits.  All I am doing is what many have done before in the past.  Taking what they learned out west, and helping to spread it to the rest of the country.

In San Francisco I was much happier about food.  But happy-about-food-blogs are a dime a dozen.

Pretty good stuff.  I will admit, I didn’t exactly have hard-hitting questions.  We will have to work up to that, I suppose.

One interesting thing I took away from this is his use of Wordpress.com.  While it is an incredibly easy way to start blogging, Wordpress.com doesn’t support Google Analytics.  I don’t think anyone that was trying to make money blogging could actually be happy with their analytics on Wordpress.com.  The fact that Dan kind of glosses over this implies to me that even someone like Dan, with tons of advertising experience, fits into that bucket of bloggers so happy to be blogging they have not really (as he says), thought seriously about monetization.

I did a great interview with Pioneer Woman after her big “Blog of the year” award at SXSW (which I subsequently lost to a hard drive crash).  When I asked her what her CPMs were like, she said, “What are CPMs?”  She barely knew how much money she made from her blog.  This is the blog of the year, folks.

http://www.flickr.com/photos/99zeros/474752493/

So for those of you that have not been following too closely, I recently left my day job to focus full-time on an entrepreneurial venture.  And it isn’t Cogmap!  (more on that in a forthcoming post.)

Anyway, during the last 5+ years I have spent working for the man, I have built a nice little LinkedIn network and my policy was straightforward:

This is my non-promiscuous network.  Every person that I am connected to, I am connected to so closely that if they know someone that you want to meet, I can get you that meeting.  Being in the inner circle is valuable because 3rd degree connections work really well via me.

Facebook was my “promiscuous network”.  Since I had my own Facebook app (Football Coach (http://apps.facebook.com/football_coach/ and http://apps.facebook.com/ncaa_football_coach/) I had tons of useless friends that I barely knew and that was fine.

Now I find myself in new, uncharted territory.  There are people on LinkedIn that I know, but not well enough to be able to make the same commitment that I have made previously. However, now that I am doing my own thing, it might be nice for me to be able to take advantage of these relatively weak connections to exploit my own 2nd degree relationships.

One of the things I don’t like about LinkedIn is that, ideally, I would like a way to be able to mark “BFFs” or something, so I can know how strong or weak a 2nd or 3rd degree connection is.  While I know that this probably causes other problems, when I see that someone knows Jason Calcanis and I want an intro to him (I have 14 people that I connect to that know him), I would love to be able to tell who “really knows him”.  I don’t hold my LinkedIn partners to the same high degree that I do.  Especially for someone so high profile and with many partners like that.

Cogmap is out and about.  If you want to meet Brent, I will around soon enough.

Here is where I will be.

NYC: January 19th and 27th, February 3rd

Annapolis: January 26th

Philadelphia: January 22nd

San Francisco: March 7 – 13th

My email: brent at this domain.

If you want to hang, but these days don’t work, let me know.  Going to be really hitting the road for the next month or two I suspect.

http://www.flickr.com/photos/comicbase/2971745348/

Tons of rumors that AOL is about to acquire Mashable.  In the context of those rumors, I heard comments about whether AOL is willing to write big checks – specifically implying that they were not, coming out of the layoffs, etc..  I have very little to add to the cacophony regarding that specific deal, but I do want to point out a few things that seem interesting to me:

• If I had a newly public company that I was running (like, say, Tim Armstrong), and I thought my company was a mess (like, say, Tim Armstrong probably does), I might be inclined to use my new public stock to go an acquisition spree.  We already heard he wanted to do Associated Content and Time Warner shut him down.  Time Warner probably still has that veto power in the context of board ownership, but if it was an all-stock deal, Time Warner would probably be indifferent to it now.
• If I had a public company and I thought their stock might be flat or go down (like, say, these analysts think), then it would be in my interest to spend my stock like it is going out of style right now.  If every dollar in stock that gets distributed now will be worth $0.90 in the future, that deflation incents you to spend today.  Saving is for people that aren’t earning a negative interest rate.
• If I had a cost management problem, I would either avoid acquisitions that were not going to break even quickly or I would only do the acquisition if I thought it was a key piece of the puzzle.  Of course, the point is that I could still take some risks and try to bring my costs back in line somewhere else.  I assume, on an absolute basis, that AOL thinks that the current cost cutting efforts will bring costs in-line with revenue.  Or close.  That means if they can tell a story that a deal could be accretive at some point, it is an easy story to do.
• My experience with Business Development people is that they don’t get to put on their resume: “Avoided doing a bad deal”.  Biz Dev people are great at painting a story of how something will, given a hockey stick, get to profitability quickly.  They get paid to do deals.  If Tim has given them a green light, they will have a story on how they should do some deals.  If the deal goes south or doesn’t hit a number, it was probably a problem in the integration or execution of the business.  Or changing market conditions.  Or something.

Hey, call me jaded, but I was there when Bebo happened.

So if I was Tim, hell yeah, I would do some deals.  Be shocked if they did not go on a wave of trigger pulling all-stock deals.  A lot of these deals will fall apart because companies will want to get paid recognizing the stock is likely to decline and having that built in.  That could make a deal prohibitively expensive.  But it is certainly in AOLs best interest to make the offer.

Here is an idea: Offer Time Warner $34B in AOL stock!  Blam!