Cogblog

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I met recently with an entrepreneur who used to work in venture capital.  One question I asked him was, “Why quit venture capital and go back to the grind.  I always felt like venture capital gave you the high level fun of dabbling in companies and working on their worst problems, similar upside, and lower beta!”

His answer was, “I found that venture capital was largely a financial exercise and I just wasn’t a finance guy.  I kept spending all my time working with portfolio companies on their problems and getting in really deep and finally I realized I just needed my own company.”  He went on to tell me (and I hope I am not perverting his explanation to much) that he found VC to not be innovation, it was mostly meet with tons of companies and write a few checks and he was interested in something else.

I thought this was interesting and immediately thought about First Round Capital and Andreesen Horowitz.  Why?  Here is why:

They are innovating.  They are changing the way capital gets attracted.  They have taken the “Keiretsu” idea that KPCB pushed so hard in the 90′s to the next level with a variety of tremendous innovations in the way that an investor supports their entrepreneurs.  As Josh, founder of First Round, pointed out in a recent post:

• Portfolio subject-specific conferences (I remember they did a tele-conference on javascript architectures)
• Road shows (I remember they did a bus tour dragging their portfolio around to big ad agencies)
• The Exchange Fund (A competing VC recently said, “This won’t actually move anyones needle”, but the perception of helping entrepreneurs lower their beta is huge)

These guys are finding ways to innovate in venture capital.  Maybe it was that they all started their own fund without working for a VC.  They had a framework to innovate from: experiences as entrepreneurs but not as VCs allowed them to “not play by the rules”.  This guy I was talking to went to a traditional VC and because he was the new guy, maybe he didn’t have the empowerment to innovate.

Clearly, great entrepreneurs find places to innovate in even the most staid and traditional markets.  While I am no historian, VC had probably not really changed significantly in decades prior to the 21st century.  Now we are seeing an incredible market change.  Fun to sit in the bleachers and cheer!

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I wanted to spend a minute on my blog telling a great, telling, instructive story about delivering great customer value.

For the purposes of this discussion, I want to keep all the names confidential, but here we go:

I was at SXSW a year ago and was talking to an incredibly well known creative director/site designer who works for an incredibly well known web design consultancy.  Let me put it this way: He is one of those guys that everyone knows and thinks is awesome and he works for one of those agencies everyone wishes they could hire.

The consultancy had recently completed a project for a web application that I used from time to time, so I am talking to this creative director at SXSW and I mention a few things about the interface that had left me ambivalent or confused.  His response: “Yeah, I totally agree.  Unfortunately, we had a really small budget and just didn’t have the time to do a better job.”

Unfortunately, I thought that was totally the wrong approach.  This project was kind of unique in that it is one of the more popular and better known web applications in the world.  While the company has a ridiculously popular product, it was still quite start-up-ish and not rolling in cash, so you could tell that the consultancy probably did the project because they wanted to be able to say, “We were the guys that they wanted to do this project!”  The company blogged about the awesome work that the consultancy did for them during and after completion, the consultancy blogged about how they did the work, etc.  The marketing was clearly a big part of the sale in convincing the consultancy to do the work despite the constrained budget and there was good marketing.  The marketing was so good that even I was aware of it.

Unfortunately, the project work was just OK.  My impression is the the company was all too aware of their budget limitations (maybe good project management by the consulting firm there!), so they were quite happy with what they got for what they spent, but for outside parties, it was quite evident that the work done was inadequate in a number of ways.

If Apple asked your company to redesign the iPod and then they would take out full page ads in every newspaper in the world giving you credit for the work you did, could you afford to do anything less than awesome?

Having the opportunity to redesign an interface that millions of people interact with is a unique opportunity for a design firm.  In many ways, the work you do there will become a proxy for your portfolio.  Being able to say, “I designed the iPod” instantly translates into an understanding of the kind of quality of work you do.

I think what the consultancy missed in this story is that when you accept that opportunity, you have to commit to being awesome.  You cannot afford to be anything less.  If you make a terrible iPhone interface and then Apple tells the world you made it, it doesn’t matter if they paid you $10 or $10 million.  You own it.  If they agreed to do the work even though the budget was limited, they have to do the best job they can.  They have to treat it like a million dollar project because external parties will only care about the outcome.  An application used by everyone is an amazing opportunity to make your mark in the world.

Are you identifying areas where you need to go above and beyond the call of duty to make your product (in this case, their portfolio of work) remarkable?

Several years ago, I read a great article about Outkast and one of the things that I read and have never forgotten was about how Andre 3000 dressed.  For many years, he dressed like a fairly normal rapper and then as time went on, his approach to fashion got further and further out towards what we will call “THE EDGE”.

When he was asked about it, he said, “I wanted to look more like the music”.  I loved that.  Here is a guy committed to his craft.  Complete immersion.

Andre 3000 is now thought of as one of the most fashion forward, progressive dressers in the universe.

This led me to wonder, “Should this be impacting my life?”  What is “Looking like the music in online advertising”?

There are several things that we are aware of that we will call “1.0″

• Classic nerd.  Think “Revenge of the Nerd”  Characterized by thick rimmed glasses, short sleeve button downs and pocket protectors.  Ironically, Urkel and Andre 3000 appear to share some fashion concepts.
• The Silicon Valley Uniform: blue shirt and khakis.  Or, as Kara Swisher described it, “khaki-oxford-jacket Internet uniform 101″
• Ironic t-shirts.  A nerd staple.  A good ironic t-shirt is sure to demonstrate something to someone.
• 

Let’s assume that what has come before will not be the future.  How do you dress like the future of online advertising?

Not my most coherent post, but getting a burning question off my chest.  Let’s figure this out.  Have you thought about how you can bring “dressing like the music” to your industry?  I think about it from time to time.  I suspect Raybans are involved.

Leave your comments.

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I bought an iPad recently.

I have an iPhone.  I have a Mac.

And when I want to do interesting things on them, I am frequently left sad.

One of the amazing things about the Web was the rise of the ad-supported business model.  Almost everything out there is available for free and things that aren’t free feel cheap.

But more importantly, with the abundance of APIs, I feel like the expectation is that people pay for application logic, not for user interfaces.

Let me give you an example of this, specifically, the example that made me sad enough to write this post:

I use Remember The Milk for my to-do lists.  Remember the Milk is a free web site (no ads) and then for $25/year you get access to blackberry, android, iphone and other platforms.

When I made the move to Mac, I asked everyone “how do people keep to-do lists on the Mac?”  Everyone told me “Things”!  So I went and checked it out.  Things’ pricing model is not nearly as friendly: $49.95 for the mac version.  $19.99 for an iPad version.  $9.99 for the iPhone version.  I felt like I was getting nickeled and dimed.  Every place I want to access my data requires I pay.

These companies are basically the same size.  When I look on their web site, the maker of Things, Cultured Code has 9 people.  Remember The Milk has 6 people but 5 job openings.  Functionality is not dramatically different, which is no surprise given the similar size and state of the two businesses.

Why do you have to pay so much more for Cultured Code’s product?  I think the obvious answer is that web-based products have better scale attributes.  Remember The Milk can simply sign up more customers faster – they recently blogged that they had signed up more than 2 million customers.

This is true in a variety of markets.  Balsamiq has a bigger market opportunity than Omnigraffle, so they are pricing their product in a way that not only maximizes their market opportunity, but is a fraction of the price of Omnigraffle.  While Omnigraffle is better today (IMHO), I wouldn’t count on that lead being sustainable (Once again, IMHO).

The contrast becomes even more stark when you look at ad supported vehicles.  There is a lot of free stuff on the web.  Inside of Apple’s world, where they are training people to pay for everything, everything costs a lot of money.  Apple is rolling out iAds to try to address some of that inequity.

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)

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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.

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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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