Tuesday, November 01, 2011

Products "R" Features

As a freshly minted Associate at a venture capital firm in early 2000's, I recall that one of my criteria for evaluating investment opportunities was figuring out (with analytic precision, of course) whether a particular startup was really a "product" or a "feature"... Turns out that was a totally futile (if not counterproductive) exercise!

So many of today's ├╝ber-successful startups in fact are nothing more than features. Google started out as a feature inside a portal (Yahoo) and who knows, may end up being a feature inside a social network or mobile device 5 or 10 years from now. And look at all these neat features on your smart phone called Apps! Wouldn't you have loved to invest in some of the popular ones, like Angry Birds?

I think the traditional problem with investing in "feature" companies is the concern that a "product" company in that industry, with its seemingly infinite resources, can one day easily roll out that feature and crush that "feature" company. Sort of like how Apple crushed (wink, wink, nudge, nudge) Siri to the tune of over $200 million and Google crushed YouTube for $1.7 billion...

Suffice it to say, lots of great VC investments can be made in things that may be considered mere features today, but will end up being far more revolutionary and game-changing than many products in the market.  In the long run, we will all be dead and all products become features anyway!

Beware of "Happy Talk"

Nothing scares me more than Happy Talk, even on Halloween. We've all had our encounters with it. You know Happy Talk as soon as you hear it. And it makes our skin crawl...

It usually starts with "Things are going great! Best times ever! Tons of traction! Gods are smiling upon us!" and ends on similar upbeat notes "Couldn't ask for more! Just tryin' to keep up!" You catch my drift... SPOOKY!

Now, I am all for enthusiasm, positivity, and faith even in the face of severest hardships. Every entrepreneur needs to have those elements as a part of their M.O. or sooner or later will give up entrepreneurship for at least a steady income (if not peace of mind). However, it is one thing to be positive, and completely another thing to lull yourself into thinking that things are positive by ignoring the negative.

The danger with Happy Talk is our mental predisposition towards what psychologists broadly label as cognitive dissonance, the tendency of our brains to interpret reality only in the way that fits our thoughts and attitudes about it. Confirmation bias is another name for it. There are literally thousands of experiments that support this point, and they are all actually quite fun to read. For example:
  • An Ohio State study in 2009 showed people spend 36% more time reading an essay if that essay aligns with their opinions.
  • Another study at Ohio State in 2009 showed subjects clips of “The Colbert Report,” and people who considered themselves politically conservative consistently reported “Colbert only pretends to be joking and genuinely meant what he said."
So, the same mental processes kick into gear once you engage in Happy Talk. You start drinking your own Cool Aid. You start ignoring all those little data points that don't fit the overall positive picture you are painting. And you know what happens after that...

So, next time you catch yourself engaging in such spooky activities, take a moment and reflect on whether your attitude really matches the data. That may save the day for you!

Happy Halloween!