“The sad truth is: quants were the eunuchs at the orgy. We were the ever-present British guy in every Hollywood WWII film: there to add a touch of class and exotic sophistication, but not really matter much to the plot (and maybe even conveniently take some bad guy’s bullet).”Adgrok in a great piece on startups vs real jobs.
“My time is more valuable than a gold plated unicorn horn. Earn it.”Techies vs MBAs, a never-ending battle.
Getting started early
The other day I read some astounding statistics on Swedish university graduates. Apparently, something like 40% want to become “entrepreneurs”.
However, less than 1/10 of these students will ever start a company with one employee or more, but most troubling is that many will never even try. In fact, most people will never ever be involved in any kind of startup activity.
I usually evaluate new ventures in terms of risk and reward. And from what I can tell, people’s reluctance to start companies isn’t a matter of reward (40% apparently has it their life dream, all the richest people are entrepreneurs etc.), but of risk.
Simplified, the concept of “risk” involves the assets - time, money, social capital etc. - “wasted” if you fail. Which, in all honesty, you probably will.
My experience is that most people hate wasting time more than anything else. Fear of wasting money is what makes it hard for people to formalize their commitment. And fear of wasting social capital is what makes it hard for people to get going for real.
Getting around this is actually easier than it seems. It’s all about getting the sequence right. Here we go:
Waste a lot of time, which might mean you have to down prioritize pretty much everything else. You have the time. It’s all a matter of priority. If you cannot convince yourself to reschedule your life in order to get started with your great idea, I suggest you go find an idea that makes you drop everything else. Or go back to your life as it was.
After wasting time comes wasting money. You probably need to spend some cash initially to get rolling (usually not much, but ironically always more than you can spare at the time) and in some cases, you actually need to quit your day job. But if you’ve followed my instructions, this part is easy since the money you might loose will be offset by all the time invested and the alternative cost you’ve assumed by dropping everything else.
And since you’ve already risked so much time and money, all that social capital you’ve collected since grade school won’t seem so important anymore. So you go out, proudly proclaim that you believe you’re in perfect position to put a dent in the universe (well aware that you may not be), raise some money if needed and then there’s no turning back.
Easy as pie.
But we’ve left out one thing. Likelihood of success, or risk of failure, depending how you look at it. This is the other culprit except for time when it comes to why people procrastinate in the beginning, and end up doing nothing.
The idea here is to increase the likelihood of success by acquiring more knowledge, contacts etc. which often means getting a job, keeping your old one or going back to school. And this is probably true, working at great company to learn how you can better run your own probably does improve your odds.
But it’s a slippery slope.
Reducing risk by investing time in more experience needs to be balanced with that your downside is likely to increase. The older you get, the more is at stake. Mortgages, family and all that jazz. Also, the older you get the less time you you have that can be realistically rescheduled - missing a few nights out with your friends is all good, missing out on your kid’s school play is not.
Increased likelihood of success often comes with a decreased likelihood of doing it at all. There’s no way around it. And the reward pretty much stays the same.
My advice is to stop thinking about the likelihood of success altogether (exceptions apply) and just get on with it. If you have a great idea you feel passionately about just go for it. The odds of success are miniscule regardless of experience, and the best way to improve your own odds of succeeding ever is to do something, learn from your mistakes and then try again. By doing this you will increase your chances by at least 100%, which would probably be very hard to do by working for someone else.
The way to hack all this might be to go work at someone else’s startup, which is just plain awesome if you come to the right place. Having at times been both startup employer and employee I can say with 100% certainty that the “doing your own thing” and “ownership” dimension of running a startup is overrated, and a topic for another post.
However, working with people you admire and having a tangible influence on the process of building products that people use and love, is not overrated. I always felt just as motivated to succeed when working at other people’s startups as when I run my own.
There’s nothing quite like working on stuff you love with people you like. And there’s (most likely) no excuse for you not doing it right away.
By the way - if you want to work at a place where people aspire to do great things, email me - gustav at burtcorp.com. We’re currently hunting for a stellar web designer and rockstar developers.
Confusion of flavors
These days (and nights) I spend quite some time debriefing, business planning, strategizing, VC-wrestling, conference jockeying and web-evangelizing. Regardless of initial theme, these various activities often seem boil down to revolve around how to make money and who’s money we’re gonna take. Scarily enough, it’s very seldom (erh, make the never) about “why” we’re gonna make money in the first place; most people are too lazy or too arrogant to realize that “value” is key.
Forgetting about the importance of a rock-solid value proposition may be one thing, but what actually annoys me the most is the utter disregard for keeping key strategy/economics/marketing concepts straight; competitive advantages are confused with business ideas, are confused with business models, are confused with sales models, are confused revenue models ad infinitum.
Enough whining; let’s save the business world and clean up the most disturbing misuse of these wonderful, and useful, concepts:
- USP (Unique Selling Proposition/Point). Very often confused with value proposition or competitive advantage. It was coined by Rosser Reeves and is a communications-concept referring to that your communication should stress one benefit (uniqueness 1) that no other company claims/can do (uniqueness 2) that is of significance to the consumer in it’s purchase. The “one benefit per ad” part is to make sure that people aren’t overwhelmed communicationwise, and the other part relate to value (there it is again) and “positioning mechanics”, a concept that was later defined and refined by Al Ries & Co.
- Revenue model vs. Business model. A Revenue Model is how we charge for the value we create. A business model relates to how we are structured to create value and make money: it includes our offering (value proposition), how we convince people we create value (sales model), how our organization is structured (organization), infrastructure (core competencies, partnerships etc.), what it costs to run our business (cost model) and some other stuff. A restaurant’s revenue model is (usually) to charge money (cash or card) in relation to what and how value much guests have consumed after each consumption.
However, the business model includes stuff like the fact that they provide food as value in exhange for the revenue stream, where they provide the food - restaurant or home delivery - how they provide that food; cook it in their own kitchen or offer take-out menus from alot of different places (there are actual restaurants that do this heh) etc. - Disruptive vs. sustaining innovation/technology. This is probably the most misused business word of our time. It’s just about he new “strategic planning”, “SCA” or “human capital” ;) I often wonder if anyone of the people have even bothered to read Clay Christensens fantastic books on the subject. Or listened to the podcast from 2005 OSCON. Or even read the Wikipedia entry, for that matter. It’s dynamite stuff, one of the most important books of our day I’s say. But a little dry and too some extent, boring. But worth a read, or two.
Most guys you’ll meet have their very own interpretation of what a “disruptive innovation” means. People equal it to a “game changer”, a “technological quantum leap” or something along those lines. But disruption is a process, not an event. And it isn’t really about the complexity of a new technology, but mostly relates to simplifying and making something more convenient, enabling a new form of use (so called “new market disruption”). It can also be about a more lean and efficient business model, that enable new users to buy a product, or picks up consumers in the low-end that other companies don’t want.
Another factor is that for a disruption to be really effective, it must be something that the incumbent business model doesn’t allow them to do; for example mini-computer manufacturers in the seventies (Digital, Wang, Nixdorf etc.) were structured in a way with their sales model that demanded them to have high-priced sales at high margins (typical computer sold for $200 000 at 60 percent markup) which made it very unattractive for them to pursue Personal Computers that promised price tags of $2000 at 30 percent markup. And it didn’t matter that it was obvious that the PC market was gonna be substantial and that their engineers could have designed the PC blindfolded. Their business model was structured as such that they couldn’t target this business without sacrificing some of the old one; the new game began befor the old one ended.
But… it’s one big but, when an innovation strikes against a piece of the market that is considered financially important by an incumbent company, the odds are that the entrant will loose. Key to understanding disruptive vs. sustaining innovation is that as long as it helps incumbent companies to make products that improve the performance trajectory in the way that their best customers “measure goodness”, these companies find a way to get it done. But improving this trajectory almost always drives the market to at one point overshoot what all but the most demanding consumer’s are willing to utilize. It’s at these stages that disruptive innovations really make a killing and get that oh-so-sweet hockey-stick-growth curve by either bringing a new dimension to the table, or being able to deliver what consumer’s are actually willing to pay for, but for a much lower price.
Problem with VC’s, and other investors too for that matter, is that they want something with big volume and super-high-margins (and they want it fast to boost the almighty IRR), which means targeting a piece of financial real-estate that is attractive to incumbent companies and thus stacks the odds against success. Also they want a “proven” market, meaning that there has to be data to support the investment, which there of course isn’t because at that point there is only theory. So they go for incremental innovation, thinking it’s disruptive since it’s too complex for them or anyone else to understand ;) And this might be a good way for a small company to make a quick sell to a big company, but it’s not a way to build new growth businesses. And it might account for the one-out-of-ten-home-run-kind-of-thinking that venture capital seem to be all about.
Phew. There it is, black on white. Hopefully I hae gotten it almost right, disruption is a bit tricky to explain since it’s three books and a gazillion papers to get the full perspective. E-mail me if you have any questions.
Read this
http://www.waxy.org/random/arsdigita/
Very interesting account on what happened at legendary ArsDigita back in the days. More relevant than ever, with web companies now actually turning profits with little or nor cash injected from VCs.
