Don't Trap Your Customers!

For some reason, for years traditional marketers were convinced that consumers need to be herded/forced into making the marketer's desired choice, rather than letting the consumer make an informed decision. As an obvious example, think of claustrophobic setting in pre-Bellagio Casino's, where you could look for miles and not see an exit door! For some reason, it was believed that the less the gamblers saw the possibility of an exit, the longer they would sit at the cramped gambling tables. Not sure how they may have A/B tested that hypothesis, but perhaps they were using sheep rather than people in their experiments?

And alas, this kind of thinking found its followers in the online marketing world as well. I am sure you have all had the unpleasant experience of visiting a website where the options you were looking for were more or less hidden and you felt tricked into blasting an invite to all your friends or doing something else that would evoke an "Oh-My-God-What-Did-I-Just-Do" reaction. But the days of such online shananigans disguised as intelligent marketing may soon be over.

Experiments are starting to reveal that creating a comfortable and pleasant environment for customers leads to higher expenditure by them! Jonah Lehrer recently covered one study in his aptly titled post, Why Being Relaxed Makes Us Spend More Money. I highly recommend that UI/UX designers read that post and the studies referenced therein before becoming too aggressive in creating restrictive funnels that force users to take certain online actions.

Like it or not, "culture" determines your priorities!

I wrote previously on the virtues of culture as a startup accelerant (by reducing organizational inefficiencies, culture paves the path for exponential growth). However, I left out a crucial effect that culture has on shaping the startup's actual output: namely, that the startup culture manifests itself in the products & services the startup creates.

Here is how:

The entrepreneurial process is the result of making prioritized decisions based on a seemingly infinite set of tasks. Anyone who has spent time at a startup is familiar with the overwhelming (and ever increasing) amount of tasks that can only be tackled in a prioritized fashion in order to make any real progress. The Product Managers are especially familiar with this, as they typically own this process as far as the startup's actual product features and specifications are concerned. They are the stewards of an iterative process that starts with the collection and collation of inputs from various stakeholders inside and outside the organization (including employees and end users), and ending with assignment of the most important tasks to developers and engineers for the upcoming sprint/release cycle.

The most important part of this iterative process, however, is everything that happens in between: Namely, the assignment of prirorities to the requests. And that is exactly where culture comes in since much of the priorities are driven based on the cultural underpinnings (i.e., the "gut instincts" and "feelings") of the organization. Tasks that "feel" important and critical find their way to the top of the list, and those that don't pass the gut check, keep getting relegated to the bottom of the backlog.

To the analytically inclined amongst us, however, the above may sound too fuzzy and perhaps even irrational, as they may object that a responsible Product Manager should primarily focus on the impact of various tasks on the key performance indicators or core metrics of the Product, and leave all emotions and feelings aside. However, even though I firmly believe in the importance of metrics, I have come to view that kind of rigorous analytics in product development as more or less an illusion.

There are many reasons that metrics alone cannot lead to real product decisions: First, the immediate impact of most development tasks is best an estimation and not known prior to release; second, there is usually more than one metric that is impacted by any given product change, and most organizations don't have a strict formula for how to trade off various metrics against each other; third, long-term impact of most product changes are inherently unknown; forth, most startups do not have a formula on how to weigh long term effects against short term effects; and so on and so forth. Product decision makers are dealing with very complex, multivariate issues, things far beyond the capability of the human brain. There is mounting evidence from experimental psychology that it is exactly situations like this where our emotional brain kicks into gear, and helps us make decisions based on our values (for a highly engaging and informative survey of the latest research in this area, I encourage you to read How We Decide by Jonah Lehrer).

And that's exactly where the startup culture makes its imprint on what it produces.

For instance, if "user experience" is important to the culture, then things that help the user's experience will become prioritized, at times even at the cost of some core metrics such as revenue or profits. On the other hand, if "fast growth" is in the startup DNA, then you will see tradeoffs that put at risk user experience and even long term financial viability of the organization.

This is why the role of founders as the guardians of culture is so critical to the success of startups!

Are you "Michael Jordan playing Baseball"?

Much more often than I like to see, I come across entrepreneurs who remind me of Jordan retiring from basketball to try his hand at baseball in 1994 (speculations abound as to why, but nonetheless he had the good sense to pivot back to basketball just after one miserable baseball season).

These days, with the consumer Internet momentum in full swing, I see first-time and repeat entrepreneurs from many fields (including law, life sciences, and enterprise software) pitching their Powerpoints and raising money for their first consumer Internet startup. And although I am usually the optimist and last guy to discourage anyone from a path of entrepreneurship, I can't help but be quite disappointed by this crop of entrepreneurs.

My disappointment stems primarily from the fact that in this new gold rush, Silicon Valley's greatest asset (intellectual capital) is wasted on futile reinventions of the consumer Internet wheel. To the uninitiated, building this shiny "wheel" may seem as simple as outsourcing a website and hooking it up with a set of "spokes" consisting of a database, Google Analytics, and a Facebook Connect integration to boot. But those who have been through the ordeal before, know better.

For starters, you need an understanding and appreciation of what it means to deliver a virtual consumer user experience that delights and transforms casual visitors to engaged users who would return and promote your services via repeated interactions. You need an appreciation of the delicate interplay between your technology platform and analytics, traffic and rapid iteration (aka A/B testing). And you need to understand how critical time is to everything you do. Which means, you cannot afford to start from ground zero and therefore, need to be able to recruit expert UI & UX designers, analysts, and developers that can deliver and improve what your users need faster than competition.

Is that impossible? Of course not, but as a first-time consumer Internet entrepreneur, your chances are pretty slim unless you bring in a co-founder that has done this in the past. Plus, you will need to recruit mentors, advisors and Board members that can shed light for you on the areas that you are lacking.

In summary, my advice to first-time entrepreneurs in consumer Internet (as well as any other field) is from the onset to

(1) talk to industry experts to map out the areas of competence that you need in-house to be successful,
(2) take an honest look at the founding team to assess which areas of competence you are lacking, and
(3) recruit co-founders/advisors/mentors/board members to fill in those holes.

Although entrepreneurship is a noble endeavor, doing it without adequate preparation is socially wasteful and irresponsible.

Culture As Startup Accelerant

After all is said and done, culture is the glue that holds a society together, enabling it to overcome all sorts of difficulties. The importance of culture, however, becomes magnified in a startup setting, as succinctly put by Nilofer Merchant in a recent post on Harvard Business Review's blog:

Success is a function of Purpose, Talent, with a Culture accelerant. Or: S = (PT)^C

Culture drives that much-valued-yet-elusive exponential growth that every founder dreams for their startup. Without that certain culture, no matter how many smart and talented people you gather around the table, and regardless of how great the mission you embark upon, you are unlikely to succeed. Why? Because all those well-intentioned smart people start getting in each other's way, and sooner or later, end up sabotaging each others' efforts rather than leveraging one another, and thus slowing progress, innovation and growth.

I must admit, I have never seen a successful startup whose employees detected the existence of a "bad" or "disfunctional" culture, and plenty of unsuccessful ones where that was exactly something (perhaps the only thing!) employees could agree on.

Culture is exactly why the founders are critical to the success of their startups: They are the ones who set the culture (just by sheer chronology of events) and can either maintain or destroy it over time (just by sheer action or inaction over time). Founders who are unaware of the critical role they play in fostering a productive culture within their startups have some very hard lessons to learn. The following are some examples of "peopley stuff" (Nilofer's phrase) that founders have a direct impact on:

• Level of trust between employees
• Level of collaboration among employees
• Time spent on politics and CYA stuff by employees
• Attitude towards risk and innovation by employees
• General good-will of employees towards success of enterprise
• Hours that employees put in at work
• Hours that employees work during the week
• Hours that employees dream about work (in a good way)

And this is just scratching the tip of the iceberg!

Manufacturing Entrepreneurs

I think every politician/economist in the world has by now accepted the fact that entrepreneurship is vital to long-term economic growth and prosperity. Much less understood, however, is how one would best go about creating more entrepreneurs in the society.

Do you create more entrepreneurs by copying "Silicon Valley" (whatever that means)? Do you do so by pouring more money into science education and R&D? Or by giving more tax incentives for engaging in entrepreneurial activities? Or is a liberal-arts education the missing ingredient, as Vivek Wadhwa recently suggested in The New York Times and TechCrunch?

As an entrepeneur with a liberal arts background (Philosophy, Economics, and Law), I do firmly believe that having had some exposure to the liberal arts is of great value in leading a well-rounded and grounded life. However, when it comes to entrepreneurship, I am not sure how much credit I can justifiably give to my liberal arts training.  As a matter of fact, I think the role of financial incentives, sciences as well as the liberal arts in creating more entrepreneurs in a society is quite limited at best. In other words, they may be considered necessary conditions for more entrepreneurship, but by no means sufficient. This is supported by existence of plenty of countries/states/regions/universities in the world that produce excellent scientific and liberal arts scholars and provide lots of tax incentives for entrepreneurial activities (such as in Canada), but those efforts do not produce the desired entrepreneurial activity in the target population who opt for more traditional career paths.

Why? Because the emphasis on  individual incentives and particular college degrees misses the essence of entrepreneurship, which is fundamentally a social activity and therefore mostly influenced by the prevailing culture. Some cultures (be it within a society, a company or a single family) kill entrepreneurship desires while others nurture and grow it.  In my experience, entrepreneurship only thrives in a culture that is forgiving towards those who fail at taking entrepreneurial risk.

Wherever I have seen strong cultural punishments (e.g., guilt, shame, etc.) associated with failed entrepreneurial endeavors (as in Canada, Germany and so many other societies), entrepreneurship has been stifled. Conversely, the culture in Silicon Valley intrinsically celebrates and values taking entrepreneurial risks. Having had near-hits with one's past ventures, in the Valley, is something to be proud of (even brag about) rather than hide. Behind most successful Valley executives and entrepreneurs is usually a trail of failed prior attempts. Counter-intuitively to outsiders, past misses make an entrepreneur even more "fundable", as those experiences are deemed invaluable to VC's and Angels alike.

Regardless of whether the Valley mindset was created by amazing foresight or sheer historic accident, it is apparently exactly what our mammalian brains need to take on risk. According to a recent psychology experiment recounted by Jonah Lehrer on his blog, our brains' pleasure centers hardly distinguish between almost winning and actually winning, which explains why so many people flock to Vegas and actually enjoy throwing hard-earned cash at one-sided gambles. He goes on to provide an evolutionary explanation:

Why would the mammalian brain be designed this way? One answer is that we didn’t evolve for Vegas. Rather, near misses help us stay motivated when engaged in activities that require actual skill, and not dumb luck. Let’s say we’re learning to play basketball. At first, our shots are going to be all over the place, a seemingly random distribution of bricks and airballs. And yet, as we slowly get better, those shots will get closer to the rim. A few might even go in, which is pretty thrilling. The purpose of near misses, then, is to keep us motivated while we slowly improve our form. If we only got excited by makes, we’d quickly give up, which is why the brain also needs a mechanism to register progress.

Now imagine that you lived in a society where everytime someone missed the basket during training or in a game, they were boo'ed off the court or worse yet, threatened that they could never play basketball again. How many star basketball players would that society produce?

Just like in professional sports, entrepreneurship requires "actual skill, and not dumb luck." If the culture discourages risk taking entrepreneurial endeavors by punishing those who fail at it, then you start messing with those brain centers responsible for motivating people to become entrepreneurs in the first place. In which case, no amount of rewards, tax incentives, scientific or liberal arts education can motivate people to get in the game and start practicing.

What's So Wrong with Arrogance?

I have always had a negative gut reaction to arrogant/overconfident people. In popular culture, however, arrogance is played up as a cornerstone of success and downright entrepreneurial chutzpah, exemplified by icons such as Zuck in The Social Network, Gordon Gekko in Wall Street or Donald Trump in the avalanche of The Apprentice "reality" shows.

But I felt vindicated when in the last issue of Harvard Business Review I encountered a very interesting research entitled "Experts Are More Persuasive When They Are Less Certain" by Associate Professor Zakary Tormala of Stanford GSB. According to this research which tallied ratings of a fictitious restaurant based on a variety of professional and amateur reviews, my gut reaction to arrogance has been spot on with majority of folks:

[We] asked subjects what they’d pay for a meal at our fictitious restaurant, Bianco’s. People who’d read the tentative professional review were willing to pay 56% more than people who’d read the highly certain professional review. But uncertainty had almost the exact opposite effect with amateur opinions. People who’d read a confident amateur review were willing to pay 54% more for a meal than those who’d read an uncertain amateur review.

Professor Tormala attributes this phenomenon to "expectancy violations":

People expect experts to be confident. Violations of that expectation surprise them. We see that in our data. Subjects reported being more surprised by the uncertain experts and the confident amateurs. A surprise draws you in and makes you pay more attention. It gives the review more impact.

I also think there is another phenomenon at play, which for a lack of a better word I call "Car Salesman Phobia". On a deep philosophic level, we all suspect that there is really no certainty in life. So whenever someone starts to come across too strong about anything, our intuitive alarm bells go off that this person may either have an ulterior motive (like a car salesman) or be so amazed by themselves that they are not checking their own blind spots. Those alarm bells are somewhat muffled when the expert starts admitting that there is room for doubt and further research.

So, you may ask, why is it that when amateurs show confidence we tend to trust them more? This, I believe, is due to the fact we start at such a low trust level with amateurs that their admission of certitude (or anything else other than total ignorance) is a relative improvement.

In conclusion, next time you are pitching your company to an investor or new hire, think about whether or not the person you are talking to would consider you an "amateur" or "expert" and then act with respective dose of humility, 

What do you think?

Innovation Déjà Vu (or The Idea Clone Wars)

I think we are all too familiar with how every now and then several Hollywood movies come out with the same basic plot in relatively short succession. Here are some of my favorites (not in Oscar-worthiness, but in how much of a clone the movies are of each other):

Matrix, Dark City, & Thirteenth Floor;
Deep Impact & Armageddon;
Antz & A Bug's Life;
Finding Nemo & Shark Tale;
The Truman Show & Ed TV;
Volcano & Dante's Peak;
War of The Worlds (with Tom Cruise) & War of The Worlds (without Tom Cruise);
United 93 & World Trade Center;
etc.

This, of course, is not a coincidence as pointed out in a study published in this 2006 Whittier Law Review article by IP attorney Igor Dubinsky:

Movies arise from scripts, scripts arise from ideas, and while ideas, as Justice Brandeis noted, are “free as the air,” they must be nurtured by authors to present any real value. Once an author gives birth to an idea for a story or movie, he develops it and then attempts to sell it to a movie studio. If the author can secure a meeting with a studio executive, he presents his idea at an “idea-man” presentation. Alternatively, the movie script can be submitted to a studio via mail or a third person.

On the average, movie executives receive over 20,000 movie and TV show ideas per year, but only review 6,000 of these, many of them over meals with executives from other networks. Movie ideas come from various sources including Sunset Boulevard, network executives, the studios themselves, stars and their agents, independent producers, writers, word of mouth, trade papers, and magazines... Only about 200 sample scripts are commissioned per year, and seldom are more than twenty of those
ordered.

Sometimes the person who conceived the idea for a movie script will win a meeting with studio executives, only to have the idea rejected and then rewritten and developed by the executives without paying any copyright royalties to the original author. What happens even more often is that a script author will shop the same idea at numerous movie studios, or movie studio executives at different companies will discuss with each other ideas for movies they are thinking of putting into production. These same ideas will then be developed into movies by two or more competing studios. At the box office these similar movies will come out like déjà vu, within a few weeks or months of each other.   

Are the same nefarious forces at play when we see a sudden rush of group texting startups (hat tip to George Zachary for the apt tweet on this), location-based services, social commerce websites (aka Groupon clones), VoIP startups (ok, I participated in that Clone War by starting jaxtr, a "j" letter mobile VoIP company in 2005), etc?

As the parallels between Hollywood and Silicon Valley in the above excerpt are too obvious to point out, I would like to share with you a more generalized response, which is the following:

Innovation in Silicon Valley is as much a social process as is ideation in Hollywood. We need to talk to others to be able to refine and solidify all the various thoughts that swim around in our heads. The good thing about this social process is that we come up with better results because of it (a recent study points out that the best academic articles are those that are produced by teamwork rather than "solo geniuses"). The bad thing, however, is that as soon as we talk to one other person, we will have to accept the fact that there will undoubtedly be a multitude of others that will have the same idea planted in their heads and will want to do something with it. If you want to innovate, the clone wars are inevitable!

Are Big Ideas Dead?

It seems that Big Ideas are no longer around, at least in the high tech community. No one seems to really care about them. No one seems to want to take on any risk to pursue them in any serious entrepreneurial way. And the current emphasis seems to have shifted towards Small Ideas that require little or no funding and leverage existing set of public API's and the Social Graph (hat tip to Angel Bubble).

I say this after days of walking the hallways and chatting up numerous entrepreneurs and VCs at this year's SXSWi Conference (the interactive portion of South By Southwest, aka The-Closest-Thing-The-Tech-Community-Has-To-Woodstock) in search of someone pursuing, or at least believing in, a Big Idea. Instead, what I found was that it has somehow become more fashionable/lucrative/fundable to create incremental changes (even to clone Groupon or Foursquare), than to try to completely break the mold and change the dominant paradigm in any field. I was hoping to see something different, something truly original and breathtaking, but all that I could see was shades of the same.

And based on other reviews of the event, I am not alone in this disenchantment with the current state of our entrepreneurial culture.  Todd Wasserman has an interesting Op-Ed piece on Mashable, in which he proclaims:

"But we’re not just having an off year. We’re at a new, more boring stage in the [social media innovation] development cycle."

One very smart entrepreneur told me over drinks at SXSW that this year's Big Ideas are "The Internet and Social Networking", mocking the very premise of my inquiry, and thereby proving what I suspected all along: That we have all grown cynical of Big Ideas.

And there is some merit to this cynicism. Big Idea inventions like the Laser, Electricity, Automobile, Ultrasound, Steam Engine, Printing Press, and the Internet happen so rarely and require such a confluence of serendipity, good fortune and resources that in an environment where you can relatively easily launch and grow a company by making an incremental improvement over something already in existence (if not outright copying), then why should you bother? In fact, isn't all innovation an improvement on prior innovations anyway, and that progress is a series of baby steps? For instance, wasn't the can opener invented 50 years after the birth of the metal can itself?

True, but still I hope I am wrong about the death of Big Ideas and that there is still someone, somewhere out there pursuing something that would have quantum leap implications for humanity, even if it is a metal can waiting for a can opener. If you know of some projects along those lines, please do comment below!

Revolutionary Solidarity

Solidarity is not discovered by reflection, but created. It is created by increasing our sensitivity to the particular details of the pain and humiliation of other, unfamiliar sorts of people. Such increased sensitivity makes it more difficult to marginalize people different from ourselves by thinking, 'They do not feel as WE would'. -Richard Rorty

Like many, I have been obsessively following the rapid spread of revolutionary uprisings throughout MENA on Twitter and Facebook. It is impossible to summarize one's emotions in these times, which somehow simultaneously combines awe (at the countless acts of selfless heroism), anger (at the cruelty and brutality of a few), and hope (for a better future for humanity).

As an entrepreneur, when I take a step back and look at the general trends manifested by these uprisings, I can't help but be overcome by a deep sense of solidarity and commonality of purpose with the masses on the streets of MENA. That is not just because all entrepreneurs aspire to bring about revolutionary new changes to their field, but because we all seem to be marching at the forefront of a larger, emerging global consciousness whose core values are:

1) Belief in the Possibility of Change

People join a political revolution when they reach a point where they can no longer tolerate things-as-they-are and start realizing that there is a possibility that the socio-political status quo can change. "Acceptance" and "Status Quo" are no longer deemed to have an intrinsic value (which have been the core value in traditional societies), and are in fact blamed for being the instruments of oppression and as such, responsible for much of the suffering. The Frankfurt School Critical Theorists and Poststructuralists of 20th Century (e.g., Foucault) popularized these notions in the academia, but their mass application has only recently seen the light of the day.

Similarly, entrepreneurship is deeply rooted in one's conviction in the value of change. Sometimes the change may be about making a floppy disk smaller; or a new way of using a computer or a handheld device. But by definition, innovation and entrepreneurship is all about breaking with the past and bringing about a change, sometimes risking a lot in the process (though the entrepreneurial risks pale in comparison with the dangers faced by the revolutionaries on the streets).

2) Trust in Democratic Processes

Removal of an autocratic regime and replacing it with a democratic government is among the top demands of the masses in MENA. It stems from decades-long brewing of disdain for autocratic rule by an elite few who have used the citizenry as mere instruments towards furthering their own individual interests. Revolts, revolutions and uprisings are nothing new in the MENA as elsewhere in the world; what is remarkable during the recent string of uprisings, however, is the lack of a central opposition figure-head, a cult-of-personality that was central to prior upheavals (e.g., recall the central role of Khomeini in Iranian Revolution of 1979). Thus, there seems to be a common understanding and unspoken faith in people's capability to self-organize and govern themselves by putting their trust in a process that draws upon the collective wisdom rather than a person.

This "common understanding" seems to be the invisible hand that guides the entrepreneurial community as well. Startups are for the most part self-organizing, non-hierarchical entities, with a particular disdain for traditional corporate structures and detailed processes. Chaotic, agile, lean and spontaneous processes are respected as conducive to innovation and progress, whereas hierarchical, authority-based processes (characterized by lots of higher-level approval requirements) are frowned upon (if not, laughed at). Each startup is an exercise in democracy, and coincidentally enough, much of the products these startups create aim at further facilitating mass collaboration and contribution by drawing upon the potential of the crowds. Facebook, Twitter, YouTube and scores of other social networking tools demonstrate how each individual is not only a consumer of important content, but also a producer with the potential to move and mobilize masses. As a result, today less and less personalities dominate our consumption of news, entertainment, or educational material than any other time in history. Technology entrepreneurs have tapped into the intrinsic value of the contributory potential of an individual in a way few governments have ever ever been able to do.  

3) Disdain for Centralization

Autocratic regimes tend to be heavily centralized for obvious reasons: The dictatorial head of the state needs to maximize his control in order to minimize the risk of a coup or transparency into his personal gains. Thus, centralized government control over all societal institutions, including economy, media and communications are necessary to the survival of a dictatorship (e.g., there is no "freedom of speech" in any of the dictatorial regimes, and most uprisings are met with a shutdown of mass communications infrastructure as it was done in Algeria and Egypt recently). Because of this, centralized structures are all but synonymous with the threat of oppression and dictatorship. Not surprisingly, demands for a decentralized government has been high on the revolutionary agenda in the MENA.

Decentralization has also been a core value in the tech community. Entrepreneurial ventures are mostly decentralized organizations, where smaller teams work on projects with minimal central control as mentioned above. The Internet itself is based on a framework for decentralized distribution of packets of data (although the decentralization work is still far from over, as evidenced by the need for solutions such as the one advocated by OpenMesh Project), and many popular applications take advantage of the efficiency gains and network effects inherent in a distributed network (e.g., Skype, BitTorrent)). The general disdain for centralized approaches and normative preference for decentralized, distributed and unregulated processes is quite palpable across the entrepreneurial communities (see also, the debate over network neutrality).

Although thousands of miles apart, our entrepreneurial community shares its set of core values with the freedom fighters in MENA. This does not only explain why these events feel so instinctively important to us, but also serves as a reminder that we should do our share to further spread the word about their struggle as an act of solidarity.

Moral Evolution

Working on an article that better explains this evolution, and its connection with the uprisings in MENA. Please share your thoughts on the diagram!