It's the Semantics, Stupid!

A Matter of Semantics

 I have to take a deep breath whenever someone brushes aside an argument as one over mere "semantics", as if there is a "reality" out there unperturbed by our linguistic filters. After all, "Why argue over words?" goes the common adage! And although that kind of attitude may temporarily get us out of a heated argument and allow the parties to save face, cool off, and part amicably, it is completely counter-productive when it comes to making one of the most important decisions about your startup, which is formulating its strategic positioning.

Why Strategic Positioning Matters
Coming up with the right positioning for your startup is at least half the battle (if not most of it)! For one, I have been involved with several startups where a change in that elusive positioning statement was the single most important contributor to its ultimate success or demise.

If you think I am exaggerating, monitor your own gut reaction to the following positioning statements: "to help people find the most relevant websites for their search queries" versus "to organize the world's information and make it universally accessible and useful". Do you think Google would have been as successful in building a world-class team with the former statement, even though semantically they are basically referring to the same underlying algorithm (aka, PageRank)? Or would you feel the same about a company that aspires to be "the best website creation tool" versus one that aspires to be "the world's leading tool for small businesses to get online and grow their business", despite having the same technology? In fact, at Webs, where we made that exact change in our mission statement 18 months ago, we set in motion a positively reinforcing set of events that led to the successful exit of the company last month.

The Critical Role of Words
As the examples above illustrate, when it comes the positioning statement every word counts, as does the emotions they evoke individually and in combination with the other words in that statement. Choose those words carefully as each evokes a different mental state (e.g., "male sibling" evokes  very different feelings from "brother", despite referring to the same person).

Marketers are fully aware of this and spend endless hours on crafting the right slogan(s) and testing them against the audience. You can run your own experiments online by spending a few dollars on some Google ads and comparing variants of saying the same thing; can be quite fun!

When taken seriously, coming up with the right positioning statement by choosing the right set of words is not a trivial task; but once you get that single statement right you will see how much easier it is to recruit, raise money, motivate your team, and even set product development priorities.

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 über-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!

Steve Jobs: The Founder Archetype

I started this post with a list of my top 10 favorite things about Steve Jobs, but soon realized that any such attempt is futile at best. As the Da Vinci of our time, Steve Jobs' accomplishments were not limited to a set of inventions, principles, or theories. They spanned multiple disciplines (comp sci and art, for example), multiple decades (starting with the 80's, remember the original Mac?), and will have far reaching implications into the future (wearable computing, for instance).

But the one thing that will make him forever immortal, IMHO, is the fact that he has established himself as the "Founder Archetype" for as long as entrepreneurship will exist. His passion, ambition, perseverance, dedication and determination will be that which all founders will be judged by and compared against. He has truly upped the game for all of us; and that maybe his greatest legacy!

P.S. For some inspiration on how others are preparing themselves for this challenge, you may want to read and follow #LiveLikeSteve

Chamath's Golden Rule!

Starting with my first topical post on this blog, I have been praising the advantages of a high integrity culture as the foundation of a sustainable business. Yesterday's leaked email from investor Chamath Palihapitiya to Airbnb CEO, wherein he provides an eloquent reason for not wanting to participate in a financing round that does not pass his integrity test, is a great reminder to all founders and executives of the importance to stay vigilant about preserving a culture of integrity in their startups. I confess that I don't know much about Airbnb's culture, but based on some of their past notoriety in the press (see one thread on TechCrunch here), I can see how small, incremental compromises in integrity may have led to this point, and hopefully Chamath's email and the attention it has raised to this matter can be a turning point for the company.

Here is my favorite paragraph from Chamath's email, which provides solid practical advice on how to preserve integrity within your organization:

Treat your employees the same as you’d treat yourself. Do things that you will be proud of and can defend to anyone including your Board, employees, prospective hires etc. In such a competitive hiring market, you are competing with not just your obvious competitors, but also any successful tech company who is also looking for great talent. A principle that treats your employees as well as you’d treat yourself is a huge strategy for differentiation, retention and long term happiness of the exact types of people you will need to be successful. In contrast, if you are viewed as self-dealing and shady, it will only hurt your long term prospects…

The highlighted first sentence above is what I would like to call "Chamath's Golden Rule for Management", which is a great modern application of the ancient Golden Rule.

I recall that as I a lawyer I used to advise my clients against doing something they would hate to see on the cover of WSJ. Airbnb founders may find themselves in that uncomfortable position on Monday!

P.S. As full disclosure, Chamath is a good friend, personal hero, and former investor in my last startup Jaxtr, via the Mayfield Fund.

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.